Ellington Financial Inc. Common Stock

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Financial second quarter 2025 earnings conference call. Today's call is being recorded. At this time, all participants have been placed in a listen-only mode. The floor will be open for your questions following the presentation. If you would like to ask a question during that time, simply press star, then the number one on your telephone. If at any time your question has been answered, you may remove yourself from the queue by pressing star two. Lastly, if you should require operator assistance, please press star zero at any time. Now, at this time, it is my pleasure to turn the call over to Aladin Chalet, Associate General Counsel. Please go ahead, sir.

Thank you. Before we begin, I'd like to remind everyone that this conference call may include forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are not historical in nature and involve risks and uncertainties detailed in our annual and quarterly reports filed with the SEC. Actual results may differ materially from these statements, so they should not be considered to be predictions of future events. We undertake no obligation to update these forward-looking statements. Joining me today are Larry Penn, Chief Executive Officer of Allentine Financial, Mark Takosky, Co-Chief Investment Officer, and J.R. Herlihy. Chief Financial Officer. Our second quarter earnings conference call presentation is available on our website, ellingtonfinancial.com. Today's call will track that presentation, and all statements and references to figures are qualified by the important notice and end notes in the presentation. With that, I'll hand it over to Larry.

Thanks, Aladin. Good morning, everyone, and thank you for joining us today. We'll begin on slide three of the presentation. Ellington Financial delivered an excellent second quarter with broad-based contributions from both our diversified investment portfolio and our loan origination platforms. For the quarter, Ellington Financial generated gap net income of $0.45 per share, equating to an annualized economic return of nearly 14%, with book value per share increasing quarter over quarter to $13.49. Meanwhile, Our adjusted distributable earnings per share increased sequentially by 8 cents to 47 cents, significantly exceeding our 39 cents of dividends per share. In a volatile but opportunity-rich second quarter, Ellington Financial once again demonstrated the strength and adaptability of its platform. Early in the quarter, as credit spreads widened amid tariff-related uncertainty, we were very well-positioned as we had a large credit hedge portfolio coming into the quarter. In recent periods, we have tended to increase our corporate credit hedges somewhat in response to tighter corporate credit spreads, and then monetize some of those credit hedges if spreads widen. During market-wide negative credit shocks, such as we saw in early April, our corporate credit hedges not only help stabilize our book value, but they also bolster our liquidity as we have daily access in cash to the mark-to-market gains on these positions. During the April sell-off, with markets dislocated and our liquidity position strong, we were well positioned to capitalize on the environment by adding attractively priced securities. That early April market volatility also helped guide our securitization activity. Following a first quarter in which we executed five well-timed securitizations, We temporarily paused issuance during early April, and then we resumed activity only after spreads had stabilized. Our patient approach was rewarded as we ended up completing a full six securitizations over the course of the second quarter at attractive levels. As a result of all this activity, our overall portfolio size remained roughly unchanged quarter over quarter. Securitizations, tactical sales, and steady principal repayments from our short-term loans were largely offset by opportunistic purchases and growth in our mortgage loan portfolios, particularly in non-QM, proprietary reverse, and commercial mortgage bridge. Turning back to our adjusted distributable earnings, as I noted, we reported a terrific 8-cent increase this quarter to 47 cents per share. That very strong result reflected both steady credit performance from our loan portfolio, as well as standout contributions from our loan origination platforms, most notably 13 cents in ADE contributions from Longbridge. Longbridge's strong quarter was driven by solid performance across all components of its business. Origination profits, driven by volume growth and stable margins in both HECM and proprietary reverse, securitization gains, reflecting a successful proper verse securitization transaction in May, and servicing income, driven by recurring MSR revenue and strong tail securitizations. We also benefited from notably strong performance from our non-QM originator affiliates, Lendsure and American Heritage, underpinned in each case by high origination volumes and continued solid operating margins. Given our equity stakes in these originators, their profitability contributed nicely to EFC's bottom line for the quarter. But more importantly, we continue to earn robust net interest income from the non-QM loans and retained non-QM tranches we hold on balance sheet, many of which continue to be sourced from these two affiliates of ours. Meanwhile, we continue to expand our strategic originator partnerships. During the quarter, we closed on another equity investment in a non-QM and RTL originator. This strategic investment was accompanied by our typical forward flow agreement with that originator, consistent with our strategy of securing ongoing access to high-quality loans at attractive pricing and on a predictable timeline. With that, I'll turn the call over to JR to walk through our financial results in more detail.

JR? Thanks, Larry. Good morning, everyone. For the second quarter, we reported gap net income of $0.45 for common share on a fully mark-to-market basis, an ADE of $0.47 per share. On slide five of the deck, you can see the portfolio income breakdown by strategy, $0.61 per share from credit, negative $0.01 from agency, and $0.11 from Longbridge. And on slide six, you can see the ADE breakdown by segment, $0.56 per share from the investment portfolio segment, and 13 cents per share from the Longbridge segment. In the credit portfolio, net interest income grew sequentially, and we also had net realized and unrealized gains on non-QM loans and retained tranches, closed-end second lien loans and retained tranches, and other loans and ABS. Positive results from equity investments in loan originators further supported results. Partially offsetting higher net interest income were net unrealized losses on forward MSRs, and losses on residential and commercial REO. Our agency portfolio, meanwhile, had a modest loss as agency yield spreads were volatile and finished the quarter wider overall. The Longbridge segment had an excellent quarter, both in terms of gap net income and ADE, with strong contributions from both originations and servicing. In originations, higher origination volumes in both HECM and proprietary reverse loans Steady origination margins for both products and net gains related to a proprietary reverse mortgage loan securitization drove results. Meanwhile, MSR-related income, strong tail securitization executions, and a net gain on the HMBS MSR equivalent, primarily due to tighter HMBS yield spreads, drove the positive contribution from servicing. These gains were partially offset by net losses on interest rate hedges. Turning now to portfolio changes during the quarter. Slide seven shows a 1% increase of our adjusted long credit portfolio to $3.32 billion quarter over quarter. Our portfolios of commercial mortgage bridge loans, non-QM loans, and non-agency RMBS all expanded, driven by net purchases. These increases were largely offset by the impact of securitizations, tactical sales of HELOCs and non-QM loans, and a smaller residential transition loan portfolio with principal paydowns in that portfolio exceeding new purchases. In addition, we successfully resolved a larger non-performing commercial mortgage asset during the quarter and now have only one significant workout remaining. Meanwhile, for our RTL, commercial mortgage, and consumer loan portfolios, we received total principal paydowns of $248 million during the second quarter, which represented 15% of the combined fair value of those portfolios coming into the quarter, as those short-duration portfolios continue to return capital steadily and provide excellent visibility on evolving credit trends. On slide eight, you can see that our total long agency RMBS portfolio, while still small, increased by 5% to $269 million. Slide nine illustrates that our long bridge portfolio decreased by 1% sequentially to $546 million, as the impact of the securitization of proprietary reverse mortgage loans completed during the quarter slightly exceeded the impact of new originations in that sector. Please turn next to slide 10 for a summary of our borrowings. At June 30th, the total weighted average borrowing rate on recourse borrowings decreased by two basis points to 6.07% overall, with a notable 15 basis points decline on credit borrowings. Quarter over quarter, the net interest margin on our credit portfolio increased by 21 basis points, while the NIM on agency decreased by 17 basis points. With the size of our overall investment portfolio largely unchanged quarter over quarter, our leverage ratios were unchanged as well. At both March 31st and June 30th, our recourse debt to equity ratio was 1.7 to 1, and including consolidated securitizations, our overall debt to equity ratio was 8.7 to 1. At June 30th, combined cash and unencumbered assets increased to about $920 million, or more than 50% of our total equity. Our total economic return for the second quarter was 3.3% non-annualized, and our book value per share increased to $13.49. As has consistently been the case, we carry no goodwill on our balance sheet, despite having made select corporate acquisitions over the years, and we do not recognize any deferred tax assets. As a result, our reported book value is a fully tangible book value. With that, I'll pass it over to Mark.

Thanks, JR. I'm very happy with our performance this quarter. It feels to me like EFC has shifted into a new gear. We had broad-based contributions across the investment portfolio, including from our investments and originators, and a significant contribution from the Longbridge segment. Despite paying a generous dividend, book value per share increased. Over the past decade, we have methodically and thoughtfully assembled the building blocks of vertical integration, and that architecture is now coming through in full force in our gap earnings, ADE, and securitization volumes. Along the way, we have taken equity stakes in several mortgage originators and have nurtured their growth. Our portfolio of originator affiliates is growing market share, generating significant loan volumes for EFC, and operating highly profitably. We have deliberately constructed Ellington Financial's loan business so that our investments and mortgage originators can secure us a steady pipeline of high-quality loans which, through the securitization process, we can turn into high-yielding investments for our portfolio. And now, thanks to a robust origination portal developed by our technology team, EFC is purchasing non-Chem loans from a wider range of lenders who access our competitive pricing, and seamless workflow through a web-based platform. Our loan volume growth is enabling more frequent securitizations, which both reduces market risk and creates those high yielding retained investments for our portfolio. Each incremental securitization also expands the universe of loans on which we benefit from valuable call options and strengthens our brand as a best in class securitization platform. A well-branded platform is a huge competitive advantage, It enables us to lower our liability costs relative to our competitors, sharpen our pricing, and acquire the loans we find most attractive. One highlight this quarter is that we were able to increase both ADE and net interest margin while keeping our overall portfolio size largely unchanged. One important driver of this improvement in efficiency comes from our expanding portfolio of high-yielding securitization retained tranches, which contribute outsized ADE. We completed six securitizations this quarter, a record for EFC. These transactions replaced repo financing with non-mark-to-market long-term financing, enhancing the stability of our balance sheet and guarding against potential funding shocks. What's more, as our warehouse lenders see the consistency of our deal executions, they are able to provide EFC with more favorable financing terms on our warehouse lines. In commercial real estate lending, our bridge loan business is back in growth mode with more high-quality properties to lend against and more sponsors we want to work with. Our partnership with Sheridan Capital has been instrumental in driving this expansion. As with NonQM, we have also successfully lowered our financing costs for this product as our lenders recognize both our expanding footprint and the quality of our collateral and sponsors. As with NonQM, lower financing spreads for our commercial bridge business have been a great tailwind for our net interest margin. So, we are expanding NIM from both sides of the equation by adding high-yielding assets, including more retained tranches and more commercial bridge loans, and by lowering our funding costs in multiple parts of the portfolio. As a result, we were able to expand the NIM on our credit portfolio by 21 beeps in the quarter, despite the general tightening of asset spreads in the market. This quarter also featured strong earnings contributions from our portfolio of originator affiliates. EFC provides our affiliates with consistent and competitive loan pricing. Our originator affiliates have then used that pricing power to grow both market share and profitability. While our investments in these mortgage originators have been highly profitable even in the current industry environment, that could be even more profitable should interest rates decline meaningfully from here, when I expect both volumes and operating margins to expand significantly. There was a lot of action in the past few months at FHFA, including major turnover at the Fannie Mae and Freddie boards. If as expected, the footprint of the GSEs shrink, that door will open further for Ellington Financial to expand into a whole host of new loan sectors that Fannie and Freddie pull back from. These market changes could have the potential to broaden our securitization platform and allow us to deploy capital in some very deep but also very profitable new areas. But there are always things to be careful about. First on our mind is home price appreciation. Weakness in home prices, once more localized, is now more widespread. We are monitoring this closely and believe we are appropriately pricing for the risk. With last week's job report prompting revisions to many economic forecasts, the odds have increased for lower interest rates offering some HPA support. Meanwhile, our research team continues to study monthly remittance reports in detail. Lastly, as we grow our loan volumes, we need to stay laser-focused on execution. We know we have to provide consistent pricing and best-in-class service to our origination partners and ensure that our securitization process remains a well-oiled machine. We also need to closely and vigilantly analyze incoming data so we can adjust our lending guidelines in real time in response to signs of weakness in housing or consumer health. Now back to Larry.

Thank you, Mark. EFC's gap earnings and ADE have exceeded our dividends so far in 2025, and I am confident that trend will carry through the back half of the year. Building on that momentum, our third quarter is off to a great start. four securitizations priced so far, bringing our year-to-date total to 15. We continue to see strong performance across both our investment portfolio and our origination platforms. Longbridge's momentum has also carried right into the third quarter, with July setting a new high for originations in 2025. We are particularly excited about the recent launch of Longbridge's HELOC for Seniors program, which we believe has the potential to become a meaningful contributor to EFC's earnings. While we haven't talked much about it before today, Mark mentioned the clear benefits we're seeing from the recent rollout of Ellington's non-QM loan origination portal, which enables our approved non-QM sellers to lock in loan sales to EFC through a fully automated web-based platform. This proprietary technology not only enables us to significantly scale our non-QM loan purchase volumes, but at the same time, it delivers real-time market feedback to our loan origination partners and ultimately streamlines the entire underwriting process. Our non-QM portal has enabled us to expand and further diversify our origination footprint by deepening relationships with both affiliate and non-affiliate originators alike, with new origination partners signing onto the platform virtually every week. Looking ahead to the remainder of the year, EFC is truly firing on all cylinders now, and so I'm really optimistic that we will continue to both comfortably cover our dividend and grow book value per share. As you can see on the bottom of slide three, we're doing this even while keeping our liquidity position strong and our recourse leverage low, thus providing us with ample capacity to jump on any extraordinary opportunities as they emerge, like we saw in April. Finally, we are also committed to further strengthening our liability structure, not only through additional securitizations, but also by strategically increasing our unsecured borrowings over time. With that, let's open the floor to Q&A. Operator, please go ahead.

Thank you very much, Mr. Penn. Ladies and gentlemen, at this time, if you do have any questions, please press star 1. If you find your question has already been addressed, you may remove yourself from the queue by pressing star 2. We go first this morning to Bose George of KBW.

Hey, guys. Good morning. Can you talk about the outlook for Longbridge if rates decline, just how it helps the business, and then To the extent that volumes are increasing across the board for a lot of other asset mortgage types as well, how does that impact it? Is there kind of a shift of attention for some of the producers to other loan types? You can just walk through that.

Thanks, Bose. I'll handle the part about Longbridge, and then I'll pass it over to Mark for the second half of your question. So, declining rates would absolutely help Longbridge in a couple of different ways. So, First of all, what in the reverse business is known as the principal factors, I believe, basically the percentage of the home value that a borrower is able to take out. Of course, that's going to depend on the borrower's age, right? The older the borrower, the higher percentage of that, effectively the higher LTV, starting LTV, they'll be able to have on that mortgage. So as rates decline, those principal factors increase because it's all done via a present value calculation, mostly based upon where the 10-year treasury is. And as you can imagine, a reverse mortgage has become more attractive the more that borrowers are able to take out. And this is true for the Heckman product, where basically HUD dictates what those principal factors are, principal balance factors. And it's also true for a proprietary product because, again, we're going to base things on where long-term rates are as well. So we'll absolutely see more activity, and we've seen a very strong correlation in the past. As rates drop, especially the 10-year Treasury in particular, the amount that borrowers effectively there starting LTV increases, and that definitely entices borrowers to take out more reverse mortgages. And of course, increases the loan balance in each one that they take out. Of course, when you've got fixed rate loans as well, and we have both types in our portfolio, as rates drop, you're also going to have a lot of refinance activity. And I would note that Longbridge's market share has increased over the past several years. So you're talking about capturing a larger percentage of the entire universe, including loans that originated probably from some lenders that are now out of business. I would note that we actually, having seen the, if you will, the directionality of Longbridge's business, and they're killing it right now, even with rates where they are today, we actually have a specific hedge in the Longbridge segment, basically recognizing this phenomenon. So as rates have gone up, we make money on the hedge. And as rates go down, we lose money on the hedge, but that's offset by greater origination refi activity. And then I'll pass it to Mark for the second half of your question.

Hey, Bose, could you repeat the second half again?

Yeah, the second half was just if volumes pick up in a lot of the other mortgage asset classes, I was just curious whether some of the originators shift to other things or are a lot of the folks you deal with dedicated to the product?

So, The originator stakes we have, they are focused almost exclusively on non-QM, and then to a lesser extent, residential transition lending. I think what you have seen, though, is some of the larger non-banks doing more non-QM origination at a time when agency volumes are very low. So what I would expect to happen if rates were to drop from here, you might see a shift from some of the non-banks to focus more on their core agency business and less on non-QM. But for the originators we're working with, they're really non-QM, you know, primarily focused all the time.

Okay, great. And then actually just a question on your outlook for home prices, you know, to the extent home prices, you know, continue to moderate, maybe negative. A, do you think that, you know, that's a possibility or just how do you think that, or the likelihood of that happening, and then just what your thoughts are on what that could do to credit spreads.

Yeah, you know, if I think back, and we have this, we have an internal portal we use, which gets data from a variety of sources, and then it aggregates it, and we can use that to really zoom in on local markets. And if I think about what we're seeing now versus six months ago, and I mentioned this in the prepared remarks, is six months ago we saw some weakness in home prices. It was fairly localized, you know, Gulf Coast of Florida, Gulf Coast of Texas, maybe San Francisco. And if I look at that now, I would say the areas where we're seeing weakness are more broad-based. We attribute it to a combination of factors. One, I think the most obvious one is that home prices have gone up a lot. So there's affordability challenges just in the price of the home. But then on top of that, you've seen rising taxes and insurance costs in some areas which are exacerbating the affordability issue. So we are pricing for it. We monitor it very closely. In terms of a forecast for HPA nationally, I think HPA for the next year on a national basis is going to be fairly muted, a couple percent. I think what's notable is that you've seen a lot of forecasters dialing down their HPA assumptions. So I would say that six months to a year ago, We were probably a little bit more bearish than most forecasters. I'd say right now we're probably sort of middle of the pack because we've kind of kept our – we sort of expected this weakness to come to fruition. You know, if you look at non-QM delinquencies now versus where they were, say, in 2020, delinquencies are definitely higher. I think for the first – you know, five or six years of the life of non-QM, and it's a relatively new product, right? So really started 2016. So 2016 to 2021, I think the performance was shockingly good. And as a result, you've seen a lot of upgrades of tranches. I would say now it's sort of more performing in line with expectations. So delinquencies have gone up from – If you think about how much credit enhancement you have in securitizations, you still have huge amounts of credit enhance relative to expected losses. So you've seen securitization spreads hold in well, but performance is more normalized than what it was three or four years ago.

Okay, great. Thanks. Thanks.

Thank you. We go next now to Christian Love. Christian, your line is open. Please go ahead.

On loan originator platforms, definitely been some more activity and deals in the mortgage originator space broadly. So I'm curious if you're seeing more opportunities brought to you directly. Sounds like you added one in the quarter, maybe interested in adding more. So what areas could those be to build on the current platform of 921 and RTL today?

You know, the playbook we've used is we've generally made equity investments in platforms that we've worked with for a while, platforms we know, platforms where there's been ongoing dialogue about how they think about credit, how they think about underwriting. Some of the more high-profile transactions you've seen this year, those have been bigger, more established platforms that require, you know... you know, a more significant check. We have liked, on the non-QM side and the RTL side, smaller checks, securing some volume, and then growing that originator by virtue of sort of the economic, you know, sort of the economic heft EFC can bring to the table in terms of carrying warehouse lines and things like that. And also sharing with these platforms what we're seeing in terms of credit performance as a function of guidelines, maybe doing forward trades with them. So I think for us, we'll continue to see opportunities. I think it's less likely you'd see us make a significant acquisition in non-QM that would require a large check only because we've been able to secure volume with a different model of a small check and then putting in some sweat equity. And that's worked out well for us.

Yeah, just to add on that, Mark, I agree with you 100%. If you look at the ratio of the volume that we secure from one of these investments to the investment itself, it's been very large. And we like that as compared to some of these other higher profile transactions you've seen where it wouldn't be nearly as as, you know, as efficient, if you will. So we're not, you know, we're not trying to build, I mean, our portfolio of investments in these types of companies is on the order of magnitude of 60 million, JR, something like that. Not counting Longbridge. Yeah, 60, 70 odd million. Longbridge is an exception, right? Because that is a unique company. And again, the investment there The majority of that investment in the platform is in MSRs, which are a yield-bearing asset for us. So in any case, yeah, we like the playbook that we've acted on so far, and I don't see us writing any huge checks to buy originators, which would create some cyclicality as well.

Great. Thank you. I appreciate all that. And then can you just share your latest on credit quality? I know you had some bridge multifamily workouts. I think there's just one left today. So just share some progress there, current view on the credit portfolio, and then also just what's the drag on net interest income today from the workouts?

You want to take that? Sure. Okay.

Hopefully we don't have that feedback. Right, so I made the point that we just have one significant workout remaining after working one out in Q2. We do have some other delinquent loans that are working through the process resolution, but none of which we see as significant drags on earnings besides that one that I identified. The one I identified is more than $30 million for a value, and we talked about it in the last few calls that it's going to take a little while, and we're working through it, but It's a longer-term horizon for the resolution, most likely. But otherwise, resolutions are moving through the pipeline quickly. In our queue, we'll show delinquency percentages for resi and commercial, as we always do in MD&A and in notes. And you'll be able to see trends that are continuing. We are seeing some percentages that don't necessarily reflect the speed at which we resolve, and importantly, the high kind of recovery percentage, if you will, given the delinquency. So we think the best measure is looking at both together. So temporary delinquencies in the context of ultimate resolution proceeds, and so our realized losses, which is kind of the product of those two, continue to be extremely low across all of these resi and commercial loan strategies.

Yeah, and on that $30 million workout, it's now gotten to the point where, you know, we're getting very close to break even on that. So, you know, let's call it less than a penny a year of drag. But then once we've, you know, replaced that with one of our, you know, and redeployed that capital into one of our typical strategies, then, you know, you're looking at probably another four cents a year on the positive side. So, you know, that'll be a nickel per year, not per quarter, but per year. swing that we, you know, sort of look forward to as a 20, you know, by 2026, right? This is not a 2025 event to resolve that loan, but, you know, I'm optimistic that it's a 2026 event. Great. I appreciate it.

And thanks for the call. Thanks for listening. Thank you. And just a quick reminder, ladies and gentlemen, star one, please, for any further questions today, we go next now to Trevor Cranston of Citizens JMP.

Thanks. Question on Longbridge. Larry, you briefly mentioned the new HELOC for seniors product that they're offering. I was wondering if you could provide some color on what that product is and how it differs from sort of a traditional HELOC. And then second part of the question, with the momentum you're seeing at Longbridge in general, has there been a change in how you guys are thinking about sort of the long-term run rate earnings contribution from them. And if you could maybe comment on how that potentially flows through to your thinking about the dividend level. Thanks.

Sure. Yeah. I mean, I think a few quarters ago, we were optimistic that Longbridge would be contributing $0.09 of ADE a quarter. Obviously, that's been, you know, we've beaten that. And I am cautiously optimistic that we're going to continue to beat that. This HELOC for seniors program, you know, may not kick in right away, obviously, but I think it could be a big seller. It's basically similar, you know, to other reverse products, right, in that there's, you know, no maturity that's a date-specific, right, but it doesn't have negative amortization the way that... you know, the way that other reverse products do. So, yeah, so, you know, it's just the pressure of a fixed maturity date, right, isn't there. And, yeah, so I think that handles both parts of your question.

Okay, got it. Thank you, guys. Thank you. We go next now. to Doug Harder of UBS.

Doug, please go ahead.

Thanks, and good morning. You talked about kind of keeping your leverage low in the current environment, waiting for opportunities. How are you thinking about the ability, if loan volume picks up, to kind of handle regular way? you know, regular way increase, you know, do you need to kind of raise more capital to do that? And what is your appetite to do that?

Yeah, well, I think the very last part of, um, my closing remarks alluded to, uh, you know, I, I think looking at our capital structure, I think we could use more unsecured debt. So I think that's the logical, that would be the logical next step for us. Um, and, you know, uh, just now really forward looking, but over time it would be great if more and more of the debt side of our balance sheet was longer term unsecured debt. The debt markets, both high yield and investment grade are much tighter spreads, especially for newer issuers than they were not that long ago. I think it could be great for a company like us to replace a lot of our shorter-term funding with longer-term unsecured debt. And we could keep our leverage low, but we could also deploy that capital and assets that are yielding more, certainly more than the debt is, if you look at where spreads are. That's what we would look forward to doing. And, you know, in a lot of the markets, if it becomes sort of a virtuous cycle as we get better execution on our unsecured notes, then those unsecured notes start yielding, you know, as far as cost of funds go, become competitive with our repo and warehouse financing. So and obviously, you know, much, much better. in terms of a capital structure than having the short-term debt on the balance sheet. So that's kind of looking very long-term, I think, aspirationally where we want to go.

And there are other companies, obviously, in the mortgage-free space that have successfully done that.

Great. I mean, I guess, how scalable... do you think that is in the, in the near term and, you know, how, how deep, you know, do you think the, you know, kind of that market would be for you to kind of, uh, look to increase the size of that?

Oh, the market's very deep and that's not the issue. And, you know, so I think it's just a question of, um, yeah, I just, I think the market's there for us. So it's just a question of, uh, of getting it done. Um, And, yeah, so I'll just leave it at that.

Great. Appreciate it.

Thank you. We go next now to Randy Binner of B. Reilly.

Hey, thanks. I just have one, mostly covered at this point, but just on your comments on FHFA and, you know, the potential for the footprint of the GSEs to be smaller, you know, as it relates to non-QMs. it's something we've talked about and it's intuitive. My question is, would you be open to discussing a little bit like what that would look like more specifically, meaning, you know, is it just more opportunities or is there the potential for new product types, new distribution instead of leveraging your existing? As we kind of march towards it seems inevitable that something's going to happen with Fannie and Freddie, and there's headlines out literally while we've been on this call. I'm just being interested to hear the specifics of what it might look like as a market opportunity specifically for Ellington.

Sure. This is Mark. If you look back historically at what percentage of loans that qualify for a Fannie-Freddie guarantee fee actually go to Fannie-Freddie, The number now is still actually relatively large, right? Like pre-financial crisis, there were lots and lots of loans that were being securitized through the private label market, and the cost of credit enhancing the private label market was lower than the GSEs. And then you went through the financial crisis, private label market froze up, spreads were very wide. The GSEs became kind of the only game in town, I'd say, from... 2010 to maybe 2015. Then you saw the rise in non-QM. Non-QM is interesting because it's really serving borrowers that do not qualify for a Fannie Freddie loan. It's Fannie Freddie right now. They're all full-doc, you know, W-2, you know, W-2-10-40 type underwrite. Non-QM does a lot of payment loans. Non-QM does a lot of debt service coverage ratio loans. You're lending to an LLC. So those are things that GSEs don't do. What we see as the most immediate opportunity, and we have added a little bit to the portfolio, is the GSEs have a cross subsidy mentality where they do not price the cost of their insurance strictly as a function of risk. It's not really risk-based pricing. Some of their pricing decisions are guided by sort of their mission. So if you look at the pricing of the G-fee and the loan level price adjustments on second homes and on investor properties, the cost of insurance there is far, far, far exceeds historical losses and far, far exceeds projections of future losses, right? And it's been those areas where you've seen loans that are eligible for Fannie Freddie. They have a Fannie Freddie cert. They have MI if they're over 80. Those loans are now being bought by investors that choose to self-insure and take the extra spread, or they're going into private label securitizations, right? So that's where I see is the most immediate opportunity set. As you mentioned, there's been continuing headlines and continuing ideas put out there about the future of Fannie and Freddie. So I think we'll have to wait and see what happens there. But the most immediate tangible thing now that we're acting on are these second homes and investor loans that qualify for Fannie and Freddie guarantee fees. But what Fannie and Freddie charge is far, far in excess of reasonable expectations of credit losses because they're They want to – they don't perceive those as core to their mission, and they want to use profits on those loans to subsidize other loans that are more core to their mission.

Got it. I mean, is that why – I mean, like RTL is something you all have done for a while, but it's just more kind of in vogue, I guess it seems like. Is that just pricing increasingly for those is getting kind of inside that GVP? Right, so it's just going more to the private market? Is that what's happening in the market?

Were you saying on RTLs, the residential transition loans? Yeah, that market is really a market Fannie and Freddie haven't been involved in. Those are typically six months.

Oh, I'm sorry, you were talking about investment properties.

I'm sorry. Yeah, I was talking about, you know, there's a house, it's fully renovated, someone wants to buy it and rent it out. And Fannie and Freddie... historically have guaranteed a lot of those. The credit performance has been excellent on them, but the loan level price adjustments have been far, far in excess of reasonable loss expectations. And you've seen the private label market step in and say, hey, wait, we'll take on that credit risk essentially at a lower cost.

Okay. That's helpful, Collar. Appreciate it.

Sure. Thank you. Thank you. We go next now to Eric Hagan of BTIG.

Hey, thanks. Good morning. Following up on this discussion here, I mean, would you say you're more constructive on the RTL space or the non-QM right now? I mean, it seems like the returns in RTL could be higher, but there's probably more stable funding and access to leverage for non-QM. So how should investors adjust for those? Where would you say the better risk-adjusted return is in the market right now?

You know, we like them both, and they've both had a big place in our balance sheet. I think Larry mentioned in his prepared remarks that we are exploring potentially doing an RTL securitization. Historically, that's been a balance sheet product for us, so essentially funded with repo financing. Now we're exploring terming out that financing. I think there's more things you can do with non-QM. You can hold loans on balance sheet with repo financing. You can do a securitization. You can take a vertical slice. You can take a horizontal slice. Then you have these call options. Maybe rates will drop or something will happen. You exercise the call option when you can. So the non-QM market gives you sort of a more fulsome opportunity sets of things you can do as an owner of loans and as a sponsor of deals, but in terms of expected return, I don't, you know, I don't see a material difference in them. I think they both, they serve different markets and they have a different role in the portfolio. And, you know, but the consistency for us is we have liked having deep relationship to either an equity stake or ongoing dialogue with most of the originators for each of those products. That, we find, is really useful. You have a team that's out on the road that's having literally daily discussions with originators about what's going on with lending, what's going on with guidelines, what's going on with HPA, and that back-and-forth dialogue think has been, that's what's been consistent in my mind of both those sectors and, you know, why we have the comfort level with each of them having, you know, a significant allocation of capital.

Yeah, and if I could just expand on that, Mark. So, first of all, as Mark said, you know, the securitization market is very developed now for non-QM and it's become quite elastic as well so that as spreads have tightened, you on the asset, spreads have also tightened really nicely on the liability. And that's something that we monitor very closely. We talked about this portal that we have, and we very much will adjust the rates that we offer the lenders that are providing us with product on that platform. very much will adjust those based upon where we see securitization spreads. And there are lots of non-QM securitizations. We're getting information all the time. So that product, I absolutely see us continuing to buy. We've also sold packages. We've sold, by the way, we're doing, for a long time now, we've been doing vertical risk retention as opposed to horizontal risk retention. And what that means is that the... you know, sort of the riskier tranches of the securities that we retain at issuance, we have the flexibility to sell those in the open market. And we've done that, by the way, on occasion. So we've, you know, we've sold the horizontal risk that were, you know, was freely tradable because we did vertical risk retention. So the 19-year market absolutely will, you know, I think will continue to be a part of our strategy. And, you know, RTL, As well, as Mark said, we are exploring securitizing that product. We haven't done that. It would be a kind of revolver-type structure. So I think both markets have their advantages. 9QM, obviously, a lot more liquid. RTL, shorter maturities, which we like as well. But as we mentioned on the prepared remarks, we are seeing after certainly the problems in the commercial bridge loan market overall that were there after the rise in rates in 2022, that now in a way has created lots of opportunities. We're seeing more non-performing loans in for the bid. We're seeing more bridge loan opportunities, good sponsors, good properties. So we've definitely been focusing a lot of our efforts there.

Thank you guys so much for the color today. Thanks, Eric. Thank you. We'll go next now to Matthew Erdner of Jones Trading.

Mr. Erdner, your line is open. You might be on mute.

Hey, guys. How's it going? Sorry about that. Um, in terms of extended opportunities, um, in the non-QM space, I know you mentioned, uh, or sorry, not the non-QM space, but kind of the senior HELOCs there. Um, you know, what's the opportunity set that you're seeing there and kind of, um, the plans for that product?

Well, we just rolled it out. I don't want to give any projections on where that could go, but it's a unique product, right? And we think, I think we're the only ones offering it. Um, And, you know, if you just think about the simplicity in a way of that product, it makes a lot of sense. And we'll see how successful it is. It'll just be, you know, it'll just be gravy, obviously, because like I said before, Longbridge is, you know, their results have been terrific and we continue to expect them to be so. But this could really add another dimension to that. So I'd rather not. make any projections at this point, but the product makes a ton of sense.

Got it. That's helpful. And then, JR, I was wondering if you could comment on how you're thinking about the dividend over-earning this quarter, and if you and the board have to see that in trajectory to allow it to grow, or just kind of your thoughts there on what you're thinking around the dividend.

Sure. I'll take that, actually. Thanks, Larry. We've been, you know, as I said, our ADE and our gap earnings well this year. It's covered the dividend. And we're, you know, I'm very optimistic and confident that it will continue to do so. As I said, we really are firing on all cylinders. So the next move, if there is a move, I think will be up. I would, you know, tell you that We've been fans of a very stable dividend. If you go back to 2018, I just looked, so this was really over seven years ago. Our dividend was pretty close to where it was now. It was a quarterly dividend, not a monthly dividend. So I think we've done the right thing and kept our dividend very stable over what's a very long period of time. But I do think if there is a next move, it'll be up, but I really don't want to sort of forecast when that will be. Obviously, that's a board decision to make, and it's not, you know, given the stability of our dividend, it would not be a decision that we would make lightly. I think, you know, increasing the amount of unsecured notes in our balance sheet could be a catalyst for that as well, right? Because, you know, then that enables us to safely increase our leverage and create more ADE and dividend power, if you will, that way. So I see a lot of catalysts potentially for increasing dividend, but it's not something that I want to try to put a specific timeframe on.

Got it. That's very helpful there. And then apologies if I missed it, but did you guys give a quarter-to-date book value update?

We have not yet. We'll do that later this month, the month of August, in an ordinary course. But we did talk about how Q3 is off to a good start with securitization volumes, with the platforms doing well, with Longbridge hitting its high month of the year. But we did not give a number yet, but we'll be doing so later this month.

Yeah, and the typical timing for that is, what, maybe fourth week of the month is typically when we would put that out? Yeah, something like that.

Got it. Great. Thank you, guys. That's all from me. I appreciate it.

Thank you. Thank you. And gentlemen, that was our final question for today. So that will bring us to the conclusion of today's call. We thank you all for participating in the Ellington Financial second quarter 2025 earnings call. You may disconnect your line at this time and have a wonderful day. Goodbye.