Christopher Marshall: I’d add that for the smaller pools, I mean, we bought a couple of – or at least one large pool, one mid-sized pool and then several small pools. For the smaller pools, there’s lots of competition. As the pools get larger, certainly as they get above $10 billion or $20 billion, there is a handful of potential buyers because the sellers and the buyers are usually very focused on a smooth customer transition. And when you’re dealing with pools of that size, there are very few buyers that have done that successfully in the past. So there are – there’s certainly competition for those large pools as well, but they’re the traditional large companies that you would expect and that’s about it.
Douglas Harter: Great. Thank you.
Operator: And our next question comes from Giuliano Bologna from Compass Point. Your line is now open.
Giuliano Bologna: Hello. Good morning, and congratulations on another great quarter of performance execution. One thing I’d be curious about that – that was mentioned in the prepared remarks was trying to cut roughly $50 million, I think rental costs out of the call center. I’d be curious what you think in terms of like the timing for that initiative might be, or is that kind of 2023 initiative, or is that kind of a multi-year goal?
Christopher Marshall: No, I’d say, it’s over the next 12 months we will be implementing, we refer to the AI project, which – it will be implemented over the back half of the year. So in terms of taking out the cost, it’ll phase in over the back half of the year. It’ll probably be more towards the end of the year because that’s when the project we fully completed. But there are several phases to that Giuliano. If you think about what we’re trying to do, it’s really to replicate the Amazon model, I’m sure everyone on this call uses Amazon, and yet I doubt anyone has ever spoken to anyone at Amazon. That’s because you don’t have to. And so our goal here is to be able to provide real-time information proactively to our customers, much more simply, to be able to have an IVR that’s very friendly.
We’ve made massive investment in a state-of-the-art IVR and we are fully leveraging its capability. So this is just the beginning of a multi-year project to move to that type of model. The first phase is $50 million, but we spend several hundred million dollars on our call center operations. And so we have a lot of work ahead of us. But we think it’s a big opportunity, big opportunity not just to eliminate expense, but to make the experience much, much better for our customers.
Giuliano Bologna: That’s great. And it’s great to see even more, yes, goals ahead of where you currently are because I think, you’re kind ahead of the curve in terms of where most of your peers are on terms of cost savings and efficiency there. On a slightly different topic, I see that you guys increased the target – net worth of tangible assets ratio to 17.5 from 15. I was curious if that’s a transient or temporary change because these kind of macro backdrop or is that more of a permanent change? I realize it doesn’t have a huge impact when you’re so close to double both levels or more. But curious how – your thought process there?
Jay Bray: Giuliano, more than – that’s a rating agency threshold, as you think about upgrade possibilities and based on our conversations with the rating agencies, that’s a level that they’re comfortable with in contemplating an upgrade. So it’s really no fundamental change. We just wanted to provide that insight into how the agencies are thinking about it.
Giuliano Bologna: That’s great. Thank you for taking my questions and I’ll jump back in the queue.
Christopher Marshall: Thanks, Giuliano.
Jay Bray: Thank you.
Operator: And our next question comes from Bose George with KBW. Your line is now open.
Bose George: Hey guys, good morning. Going back to the MSR investments, is there a way for us to think about how much sort of incremental capital you could deploy into MSRs this year?
Christopher Marshall: I’m not sure there’s an exact number we would give you as though we’ve set up a budget to invest this year. We’ve kind of gone through our liquidity and capital. I would just leave it as this is an opportunity rich environment we’ve been planning for two and a half years. And I don’t think we’d give you an exact number that we would be setting as a budget to invest. We’re going to buy as much product that comes to market that hits our return thresholds, Bose. And I would think of – if you wanted to try to construct something, I’d look at our capital and liquidity, which is quite robust, our trillion dollar goal, and say we expect to make a lot of progress towards that trillion dollar goal in 2023.
Jay Bray: Yes. I think Bose you probably heard and Chris – hey Bose. Let’s chat about our increase in liquidity quarter-over-quarter over $600 million. Obviously that was intentional. So we really don’t see any impediment to kind of the rest of the year as we think about acquisitions, what’s possible, who some of the larger sellers are. I think we’re aligned to be able to acquire as much as we choose to, and as much as it – as long as it hits our kind of consistent, discipline return targets. So yes, that’s all. We put a lot of work into building the balance sheet, building the capital requirements and building liquidity. So we’re very, very prepared for this cycle.
Bose George: Okay, great. That’s fair enough. That makes sense. And then actually just switching to Ginnie Mae MSRs, you noted the return on the agency side. Can you just talk about the returns on Ginnie Mae MSRs. And then just how your comfort level in terms of investing in those assets?
Kurt Johnson: Yes. Bose, it’s Kurt. So yes, I’d mentioned, kind of low double digits for the conventional. On the side we’re seeing in kind of the mid double digits, so call it 13% to 16% effective yields there.
Jay Bray: And it really depends on the pool, Bose. I mean, in some cases, some of the smaller pools you’re seeing high double deals, high teens, yes, almost 20%, so quite attractive. Again, pool specific, but…
Bose George: Okay. Great. And then just in terms of your comfort level there, I mean, there are Ginnie pools out there, you’re comfortable with the risk?
Jay Bray: Very comfortable with the risk. I mean, I’ll let Kurt comment on our current portfolio and some of the underlying characteristics of it. But look, we’ve just been through a lot of cycles. We have significant talent in the organization to – if you recall in the last cycle, we were one of the only few entities that really made a huge difference in keeping homeowners in their homes. So let’s just quote our DNA to be able to manage the Ginnie portfolio, a Ginnie Mae portfolio on the risk associated with it. On top of that, our portfolio, it looks quite good. So Kurt, you can comment on that.
Kurt Johnson: Yes. Bose, so Chris had mentioned that the composition of the govi portfolio is 9% FHA and 6% VA. A lot of the originations we did, obviously just like a lot of others were in 2020 through early 2022. But keep in mind that the original dates on a lot of those were significantly earlier. Because those were streamlined rate term refinance. So we have almost 60% of our FHA portfolio, now has a market LTV of less than 60%. And keep in mind, right when most people originate an initial FHA, it’s kind of at the 96.5% LTV. So we’ve got a lot of equity and we’re seeing pools trade with a lot of equity as well, and we’ll be pretty disciplined about that. And we think there’s an opportunity to layer in some current coupon into that as well without really expanding the risk of our overall portfolio.
Bose George: Okay. Great. That’s helpful. Thank you.
Operator: And our next question comes from Eric Hagen from BTIG. Your line is now open.
Eric Hagen: Hey, thanks. Good morning. Hope you guys are well. Following up on the MSR acquisitions, can you say how much capital and leverage you expect to use in financing that portfolio. And also how the cost of MSR financing compares on the new lines that you’re sourcing versus the lines that you have had in place?
Kurt Johnson: Yes. The lines are essentially the same. We’ve expanded existing lines for the most part rather than opening new lines. So the cost of financing is relatively similar. In terms of capital utilization, as we’re acquiring these MSRs we’re given by the banks about, call it 60% of the value of the underlying MSRs in terms of debt financing. And so you can kind of utilize that as a benchmark.
Eric Hagen: Sure. Actually, I’m glad that you brought up the advance rate. A question about that, is the advance rate dependent on whether you’re borrowing against an unrealized gain in the MSR versus financing new MSRs?
