It has very low prepayment sensitivity. It has very low convexity. Right? And so it’s just a risk profile that’s not been seen before. And as a result, we’re seeing lots of interest from market participants who are not the usual cast of characters that are buying MSRs. And there’s been lots of structures that have been created in the marketplace in order to help those nontraditional market participants invest in the MSR market. And I think there’s lots of reasons why we are the best subservicing partner for those new investors, chief among them being that we have $200 billion of our own servicing, that is at RoundPoint and we will be subject to the exact same results of the subservicing platform RoundPoint as any third party clients that we bring in too.
I like to say that we are managing subservicing for MSR investors by MSR investors, meaning that we know exactly what MSR investors like to see in trying to extract the value from the cash flows and so forth. There’s other reasons as well. We’re a well-capitalized institution, which provides the wherewithal to invest and infrastructure and deal with any market uncertainties that occur then too. So, I think for all those reasons, this is one area that we’re going to focus on as being able to grow our subservicing business from that perspective.
Trevor Cranston: Got it. Okay, that’s helpful. Thank you.
Operator: Thank you. Next question is coming from Eric Hagen from BTIG. Your line is now live.
Eric Hagen: Hey, thanks. Good morning, guys. Hey. So, how do you feel like you control for recapture in the MSR without an origination platform? And how secure do you feel like that is? And do you have an estimate for how much MSR you might need to buy if mortgage rates were like 50 basis points or 75 basis points lower than they are today?
William Greenberg: Not sure I understood the second question, but the first question is, but the answer to the first question is that we have, as we said in our prepared remarks, we have hired an experienced professional to begin the build out of a recapture or portfolio defense strategy in order to provide that not only to our own portfolio, but also to any third party clients that we have. That process is ongoing. We’re hiring people. We’re filling roles. And as we said in the prepared remarks, we expect to be able to be making loans in Q2. Again, looking at Page 10 and looking at how far out of the money our servicing portfolio is. We feel like we have time. There’s no particular urgency to this, although we are certainly acting with due haste in order to build it as quickly, but as prudently as we can.
And again, the main point here is, we’re not going to be a retail originator. We’re not going to be someone who’s going to compete with the largest guys out there in the world. The point of this thing is really to protect our servicing portfolio, to defend our portfolio, to perform recapture on our portfolio. And we’re really excited about the opportunity and the ability to be able to build this thing from scratch.
Nicholas Letica: Eric, if I could build on, this is Nick. I just want to build on what Bill said. And I think to your second question, which I also didn’t fully understand, but as that slide shows that Bill refers to on Page 10, our MSR is very far. The money and speeds, even with a reasonable rally, are going to stay slow. So, we’re not as though it would be very, very surprising if we were to see a rapid amortization on our MSR as it is. So we are, as we also said in our prepared comments, we really like the paired strategy. As you know, we like it right now, I think looks great on a return potential. So our intention is new capital as we have to keep adding to it, but we don’t really see the paydown being a big issue for the near future.
Eric Hagen: Okay. Yes, thanks for fleshing that out. You guys talked about a neutral leverage position, but if you do see growth opportunities in the MSR, I mean is there room for that to change and what are the parameters for it to change? And especially if the Fed cuts rates, I mean, do you feel like you would still run with this level of leverage, and how much flexibility do you feel like you have there if the Fed cuts?
William Greenberg: In terms of leverage, yes, definitely, we are running in what we think is a neutral territory. As we said again in our prepared remarks, spreads are the tighter vendor recent ranges, and we think they price in a lot of what the market expects the Fed to do, perhaps too much. But there’s still volatile events ahead of us and we think spreads are kind of two sided right now, we know. So look, lots of things can change this year. We have a year coming up with a big election coming up that can have a lot of ramifications and geopolitical tensions and other things. So, we’re going to just see where the market takes us and what makes the most sense, but for the near future, we kind of see ourselves as being in this kind of leverage posture.
Eric Hagen: Got it. All right, thank you, guys.
Operator: Thank you. Next question is coming from Kenneth Lee from RBC Capital Markets. Your line is now live.
Kenneth Lee: Hey, good morning. Thanks for taking my question. In terms of the IXM that you report in the quarter, wonder if you could just further expand upon the portfolio activity that you mentioned, the prepared remarks that potentially impacted IXM in the quarter? Thanks.
William Greenberg: Sure. So as discussed, we did go down in coupon, which was a factor that took our IXM down for the quarter or for the quarter, as well as, as we mentioned, we did sell some mortgages when things widened out in October, which we felt was prudent just given the environment at the time. And as you’ll know from our prior calls, we’ve been talking about the fact that going into last quarter, the market was different than it was the prior year. We did feel like there was money managers had already expressed a pretty big overweight in the market and there were still ball events ahead of us. So, we decided in that time slice to reduce our exposures to mortgages and that, as mentioned, comments that Mary made, we did have reduced balances in the portfolio for a period of time and a little lower leverage.
All of those things did impact our IXM for the quarter. But as discussed, we did buy back some mortgages, bring back our leverage up, and we have also gone back up in coupon since the end of the quarter. So, all of those things for this quarter, we think will have a positive effect in the direction.
Nicholas Letica: I might just add a couple more thoughts if I can, which is even without portfolio activity, there is natural variation in the backward looking IXM that occurs just from timing of cash flow. As you know, MSR is not a bond. It doesn’t pay a fixed coupon every month. Right. Some people pay their mortgage payment and therefore they’re servicing on the 31st of the month and therefore they don’t have to pay any for the next month. Or sometimes they pay it on the first and then the 30th. So there’s two in one month versus another. There’s all kinds of interesting timing of cash flows on the MSR asset that occur, right. And also, of course, we know that the IXM, the backward looking IXM also reflects actual prepayment speeds.
