David Finkelstein: Yes. That’s a great question, Crispin. So as I mentioned in the prepared remarks, we are reliant on the money manager community to be the support for Agency MBS. Obviously, the Fed is running off their portfolio and banks are on the sidelines. So a lot will depend on flows in the money managers. And one of the considerations that I think will be required for consistent durable flows is a decrease in volatility and hopefully an end to the Fed hiking cycle. But with levels of current volatility in the market, we do think there should be some tightening just given we’re at historically wide levels, and we think a fair value would be roughly 20 basis points tighter than the current level. And should volatility decline, then you would expect to see even more incremental tightening from there.
But look, it’s an uncertain time. There is still a lot of volatility and the technicals are somewhat daunting insofar as banks and the Fed, obviously, net sellers. So we’re being patient. We’re managing leverage judiciously, and we’re optimistic on mortgages, but we got to be disciplined here.
Operator: The next question will come from Trevor Cranston with JMP Securities.
Trevor Cranston: A follow-up to the comment you made about the book value movement so far in October. Can you comment on any changes you made alongside that to the portfolio in terms of asset composition or the size of the agency book? And also maybe comment on where your leverage stands today.
David Finkelstein: Sure. So look, we are very disciplined when it comes to managing liquidity and leverage. And so as a consequence, we have reduced the portfolio to maintain leverage consistent and actually even maybe a tiny bit lower than we ended the fourth quarter. Does that help?
Trevor Cranston: Yes.
David Finkelstein: Sorry, third quarter. So we manage leverage. We sold assets, but we feel good about where the portfolio sits, particularly from a liquidity standpoint now.
Trevor Cranston: Okay, great. And then obviously, you guys have been pretty successful growing the non-Agency conduit. Can you talk generally about how you think the movement higher in rates will impact that business sort of over the coming couple of quarters?
David Finkelstein: Yes. So I’ll start and then Mike can hand it off. We’ve been very pleasantly surprised with the growth in the correspondent channel, particularly as mortgage rates have increased and originations have slowed quite a bit. But the fact of the matter is we have taken a lot of market share. We’ve expanded our partnerships across the originator community, and it’s been a welcome development for the resi business. And Mike, do you want to add to that?
Michael Fania: Sure. Thanks for the question, Trevor. I think in terms of kind of where we’re at with the correspondent build, we’re probably 65% to 70% there. We have 180 approved correspondents. We have 30 to 40 correspondents that are in our pipeline that want to be Onslow Bay approved sellers. So I think the stability of our capital, the stability of our operations with our counterparts I think over the last number of years have led our reputation that to be involved in this market, being involved with Onslow Bay is something that makes sense. In terms of momentum, we had over $900 million of locks in August. We had over $800 million of locks in September. And I think in October, we’ll probably have close to $750 million to $800 million of locks.
A lot of that volume ultimately is coming from gaining market share, but a lot of it also, too, is we have a number of exclusive relationships with very large non-bank originators that don’t partner with that broad of a universe. So I think synergies with the MSR portfolio, our MSR business, buying MSR from a number of these counterparties also helps on the relationship on the correspondent side. And lastly, I’ll say that the borrower is a little bit different borrower than the conforming market. I think on the conforming side, about 90% of the volume right now is purchased. What we are seeing through our correspondent channel, about 20% is cash out and 10% is still rate and term refi. So it is less dependent on the purchase market, which is at close to 30-year lows.
