MITT Q3 2026 Earnings Call: Buchwert fällt um 7,3 % bei Ausweitung des Immobilien-Eigenkapitals

Wichtigste Erkenntnisse

• Der Buchwert sank im 3. Quartal 2026 um 7,3 % von 10,00 US-Dollar auf 9,27 US-Dollar je Aktie, wobei der gesamte Rückgang im September vor dem Hintergrund höherer Leitzinsen und breiterer Kreditaufschläge erfolgte.
• Der für die Ausschüttung verfügbare Gewinn (EAD) lag bei 0,21 US-Dollar je Aktie und damit unter der jüngst beschlossenen Stammaktien-Dividende von 0,24 US-Dollar je Aktie. Der Nettofehlbetrag nach GAAP für die Stammaktionäre betrug 15,7 Millionen US-Dollar bzw. 0,49 US-Dollar je Aktie.
• MITT erwarb Eigentumsdarlehen (Home Equity Loans) im Wert von 317 Millionen US-Dollar und begab drei Eigenkapital-Verbriefungen mit einem Gesamtvolumen von rund 1,25 Milliarden US-Dollar. Home-Equity-Investments machten zum Quartalsende 37 % der Eigenkapitalallokation aus.
• Der wirtschaftliche Verschuldungsgrad (Economic Leverage) stieg leicht von 1,8x auf etwa 2,0x. Das Management erklärte, das Unternehmen verfüge dank verfügbarer Liquidität und ungenutzter Finanzierungslinien weiterhin über Kapazitäten für den Ausbau von Investitionen.
• Arc Home vergab Kredite im Volumen von rund 1 Milliarde US-Dollar, was einem Zuwachs von etwa 19 % gegenüber dem Vorjahr entspricht, trug jedoch nahezu ausgeglichen zum EAD bei, nachdem die Volatilität im September die Profitabilität aus den Monaten Juli und August zunichtemachte.
• Das Management rechnet damit, dass die Umschichtung von Kapital aus alten Gewerbeimmobilien-Vermögenswerten im Jahr 2027 je nach Zeitpunkt der Abwicklung zusätzlich etwa 0,15 bis 0,20 US-Dollar an jährlichem EAD einbringen wird.

Wichtige Finanzdaten

Geschäftliche und operative Entwicklung

MITT schichtete weiterhin Kapital in Eigenkapitalinvestitionen (Home Equity) um. Das Unternehmen erwarb Home-Equity-Darlehen im Wert von 317 Millionen US-Dollar und schloss im Laufe des Quartals drei Verbriefungen ab.

Eine konsolidierte Transaktion war durch 327 Millionen US-Dollar an HELOCs besichert. Bei zwei Transaktionen, die durch nachrangige Hypothekendarlehen (Closed-End Second Liens) im Wert von 895 Millionen US-Dollar besichert waren, behielt MITT Nicht-Agency-RMBS im Wert von 46 Millionen US-Dollar zurück, ohne das zugehörige Zwischenfinanzierungsrisiko (Warehouse Financing Risk) zu übernehmen.

Das Management gab an, dass MITT Nicht-Mark-to-Market-Zwischenfinanzierungslinien nutzt, bevor Kredite eine dauerhafte Verbriefungsfinanzierung erhalten. Zudem arbeitet das Unternehmen mit Kreditvergebern zusammen, die das Marktrisiko von verbrieften Verbindlichkeiten tragen, die letztlich an Anleger verkauft werden.

Das Anlageportfolio erwirtschaftete eine Eigenkapitalrendite (ROE) von rund 20 %, unterstützt durch Reinvestitionen in Home-Equity-Titel und eine Ausweitung der Nettozinsspanne. Das Management bevorzugt weiterhin Home-Equity- gegenüber Non-QM-Investments und verweist auf den Finanzierungsvorteil für Hausbesitzer, die auf ihr Eigenkapital zugreifen möchten, ohne ihre erstrangigen Hypotheken mit niedrigen Zinssätzen zu ersetzen.

Das Vergabe-Volumen von Arc Home in Höhe von rund 1 Milliarde US-Dollar entsprach einem Wachstum von 19 % gegenüber dem Vorjahr. Der EAD-Beitrag lag nahezu bei null, da die Volatilität im September die positive Entwicklung aus Juli und August zunichtemachte. Arc Home hat damit begonnen, die Vergabe von Home-Equity-Krediten zu steigern; das Management geht davon aus, dass dies im Laufe der Zeit dazu beitragen wird, die schwächere Geschäftsentwicklung bei erstrangigen Darlehen auszugleichen.

MITT trieb zudem die potenzielle Fusion mit Cherry Hill voran. Die Unternehmen reichten im Oktober eine gemeinsame Stimmrechtserklärung (Proxy Statement) und einen Verkaufsprospekt ein, wobei die Hauptversammlungen für Dezember erwartet werden.

Prognose des Managements

Das Management rechnet damit, dass der Verkauf eines Hotelobjekts bis Ende des Jahres abgeschlossen wird, nachdem die Anzahlung des Käufers verfallen ist. Ein weiteres Hoteldarlehen könnte in den nächsten ein bis zwei Quartalen abgewickelt werden, während für die Einzelhandels-Positionen von MITT der ausgewählte Käufer die Transaktion voraussichtlich in den kommenden Monaten abschließen wird.

Das Unternehmen rechnet damit, dass die umfassendere Abwicklung von fünf alten Gewerbeimmobilien-Vermögenswerten in Etappen erfolgen und sich möglicherweise bis 2027 hinziehen wird. Nach Angabe des Managements stimmen die erwarteten Erlöse weiterhin mit den aktuellen Buchwerten überein.

Die Abwicklung unrentabler Gewerbekredite könnte Kapital im Umfang von rund 28 Millionen US-Dollar für höherverzinsliche Wohnimmobilieninvestitionen freisetzen. Je nach Zeitpunkt geht das Management davon aus, dass die resultierende Kapitalumschichtung im Jahr 2027 zusätzlich etwa 0,15 bis 0,20 US-Dollar an jährlichem EAD beitragen wird.

Das Management erwartet im Laufe der Zeit zudem höhere Eigenkapitalrenditen, einen höheren EAD und ein fortgesetztes Dividendenwachstum, betonte jedoch, dass der kurzfristige Beitrag von Arc Home weiterhin empfindlich auf die Bedingungen im Hypothekengeschäft und die Spreads-Volatilität reagiert.

Risiken und Beobachtungspunkte

• Höhere Leitzinsen und breitere Kreditaufschläge belasteten die Bewertungen von Hypothekenvermögenswerten und führten zum Buchwertrückgang im 3. Quartal.
• Nach Schätzung des Managements entfiel etwa die Hälfte des Buchwertrückgangs auf Zinsschwankungen und die andere Hälfte auf die Ausweitung der Spreads.
• Arc Home bleibt weiterhin der Zyklizität des Hypothekengeschäfts sowie Schwankungen der Zinsen und Spreads ausgesetzt.
• Der Zeitplan für den Verkauf von alten Gewerbeimmobilien-Vermögenswerten ist ungewiss, und das Management bezeichnete den Verkaufsprozess für Gewerbeimmobilien als anspruchsvoll.
• Der EAD von 0,21 US-Dollar je Aktie deckte die Quartalsdividende von 0,24 US-Dollar im 3. Quartal nicht ab.
• Die Transaktion mit Cherry Hill führte zu Aufwendungen von rund 2 Millionen US-Dollar, was den Buchwert im Laufe des Quartals um etwa 0,6 % schmälerte.

Highlights der Analysten-Fragerunde

Das Management erklärte, dass der Schwerpunkt weiterhin auf dem Abschluss der Fusion mit Cherry Hill liege, bevor entschieden werde, wie viel des Agency- und Mortgage-Servicing-Rights-Engagements von Cherry Hill beibehalten oder in Nicht-Agency-Kredite umgeschichtet wird.

Zur Dividendendeckung sagte das Management, dass sich das Kern-Anlageportfolio weiterhin wie vorgesehen entwickelte. Eine künftige Verbesserung des EAD hängt teilweise von der Reinvestition der Erlöse aus Gewerbeimmobilien in Home Equity sowie von einer Erholung von Arc Home nach der Volatilität im September und Oktober ab.

MITT geht davon aus, dass der Verschuldungsgrad weiterhin konservativ gesteuert wird. Bei etwa 2,0x stuft das Management den Verschuldungsgrad im Vergleich zur Peer-Group als niedrig ein und geht davon aus, dass die Nicht-Mark-to-Market-Finanzierungsstruktur in volatilen Phasen Flexibilität für Investitionen bietet.

In Bezug auf das Kreditrisiko bei Home-Equity-Darlehen verwies das Management auf Kreditnehmer mit hohen FICO-Scores, relativ niedrigem kumulierten Beleihungsauslauf (CLTV) und erheblichem Eigenkapital im Eigenheim. Die Zahlungsverzüge blieben auf moderatem Niveau, während jahrelange Performance-Daten das Vertrauen des Managements in diese Strategie gestärkt haben.

Vollständiges Transkript der Ergebnis-Telefonkonferenz

Vollständiges Transkript der Telefonkonferenz

Ausführungen des Managements

Operator

Good day, and thank you for standing by. Welcome to the TPG Mortgage Investment Trust, Inc. Third Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to turn the call over to Jenny Neslin, General Counsel for the company.

Jenny Neslin

Thank you. Good morning, everyone, and welcome to the Third Quarter 2026 Earnings Call for TPG Mortgage Investment Trust. With me on the call today are T.J. Durkin, our CEO and President; Nick Smith, our Chief Investment Officer; and Anthony Rossiello, our Chief Financial Officer.

Before we begin, please note that the information discussed in today's call may contain forward-looking statements. Any forward-looking statements made during today's call are subject to certain risks and uncertainties, which are outlined in our SEC filings, including under the headings Cautionary Statement Regarding Forward-Looking Statements, Risk Factors and Management's Discussion and Analysis. The company's actual results may differ materially from these statements. We encourage you to read the disclosure regarding forward-looking statements contained in our SEC filings, including our most recently filed Form 10-K for the year ended December 31, 2025, our Form 10-Q for the quarter ended June 30, 2026, and our subsequent reports filed from time to time with the SEC. Except as required by law, we are not obligated and do not intend to update or to review or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

During the call today, we will refer to certain non-GAAP financial measures. Please refer to our SEC filings for reconciliations to the most comparable GAAP measures. We will also reference the earnings presentation that was posted to our website this morning. To view the slide presentation, turn to our website, www.mitt.tpg.com and click on the link for the Q3 2026 earnings presentation on the home page. Again, welcome to the call, and thank you for joining us today. With that, I'd like to turn the call over to T.J.

Thomas Durkin

Thank you, Jenny, and good morning, everyone. I'm pleased to report MITT's third quarter earnings. First, we are making a lot of progress on the potential merger with Cherry Hill, including filing our joint proxy statement and prospectus back in October, and we are marching towards stockholder meetings for both MITT and Cherry Hill in December.

Turning back to the third quarter, we experienced two different market environments. July and August continued the second quarter's trend of calm and functional markets. However, September inflationary fears took hold of the interest rate market, which put massive pressure on the agency basis and spilled over into non-agency spreads. Our portfolio was well positioned with low leverage, and we were able to navigate these markets without any uncomfortable decisions around delta hedging or delevering.

Book value decreased from $10 to $9.27 per share during the quarter, with the entire decline in book value occurring completely in September. Because we entered the period of volatility with a very defensive leverage position, we were able to remain invested and continued rotating capital into higher returning residential credit strategies. At the same time, Arc Home was not immune to September's volatility and reversed July and August profitability to breakeven and therefore, not contributing to EAD this quarter. In total, MITT generated EAD of $0.21 per share for the quarter, coming in just shy of our recently declared dividend of $0.24.

We continue to make tangible progress resolving our legacy commercial loans. Within the hospitality portfolio, a buyer's deposit has gone hard since quarter end and should close by year-end. We remain on track to resolve another one of the hospitality loans in the coming quarter or two. Separately, the sale process for our retail exposure is still progressing well. The buyer has been selected, and we are guiding the transaction to close in the coming months ahead. These resolutions are important catalysts for MITT. As capital from these legacy positions is redeployed into our core residential strategies, we expect it to contribute approximately $0.15 to $0.20 of incremental annual EAD for 2027, depending on the timing of these resolutions.

As we look toward closing out the year into 2027, we believe we have a clear line of sight to stronger ROEs, higher EAD and continued dividend growth. We have already raised the dividend in 4 of the last 8 quarters, and we believe this quarter's results are not reflective of our long-term trend. We have confidence in the trajectory of the business. We remain excited about the opportunities ahead and look forward to continuing to share our progress with you in the quarters ahead.

With that, I'll turn it over to Nick.

Nicholas Smith

Thanks, T.J., and thank you, everyone, for joining us today. The third quarter presented a challenging macro environment. Interest rate moves meaningfully higher, volatility was elevated and geopolitical uncertainty drove volatility in energy, equity, fixed income and credit markets. Despite this backdrop, the company had an extremely active quarter, issuing approximately $1.25 billion across three home equity securitizations, building on our strong partnerships with leading home equity originators. Importantly, this significant investment activity increased our economic leverage only modestly from 1.8x to approximately 2x, well within the range we have been operating.

As stated in previous quarters, we have ample dry powder to continue to grow our asset base by using a combination of liquidity on hand and untapped financing. It's worth repeating a point we made regularly on prior calls. This growth came without taking outside gestation risk on mark-to-market warehouse lines.

Today, we use only non-mark-to-market warehouse facilities until loans are permanently financed through securitization. Similarly, the company is also mitigating warehouse risk by partnering with originators that bear the market risk for securitized debt that is ultimately syndicated. These strategies are allowing the company to prudently grow our investments in higher-returning residential credit strategies as the portfolio delevers organically over time, which will be an important driver for further expansion of the company's net interest income.

While the third quarter's move higher in rates possesses certain challenges, it makes the case for home equity stronger. About half of all outstanding mortgages are below 4% and nearly 8 in 10 are below 6%. While homeowners hold historically high levels of tappable equity, extracting home equity through a new first-lien cash out refinance means trading a 2%, 3% or 4% mortgage for one above 7%. Instead, homeowners are going to continue to turn to the home equity market, allowing them to keep their low 30-year fixed rate mortgages with a combined rate much lower than alternatives. Every move higher in rates widens this financing advantage, and it would take a material decline in mortgage rates to slow growth in the second lien origination market.

Moving on to Arc Home. Arc Home originated approximately $1 billion this quarter, an approximately 19% increase versus last year. However, as T.J. mentioned, its contribution to MITT's EAD was roughly breakeven after the volatility in September reversed the previous two months' profitability. On a more positive note, we are starting to ramp home equity originations at Arc Home, which we expect to offset some of the pullback in first-lien originations in our base case and in a more bullish scenario could be an impetus to getting back to more recent quarters' contribution to EAD or higher over time.

Before handing the call over to Anthony, I'll summarize. Despite the challenging macro environment, we remain extremely active deploying excess liquidity, growing the investment portfolio and consequently net interest income while only modestly increasing leverage. Anthony, over to you.

Anthony Rossiello

Thank you, Nick, and good morning, everyone. During the third quarter, we remained focused on rotating capital into our home equity strategy while maintaining a prudent financing profile. We acquired $317 million of home equity loans and sponsored three home equity securitizations. We also continue to make progress resolving certain legacy WMC commercial loans. Importantly, our investment portfolio continued to generate strong earnings available for distribution.

Moving to our financial results. The sharp increase in benchmark rates and widening of credit spreads in September pressured valuations across the mortgage REIT sector. Our book value declined by 7.3% during the third quarter to $9.27 per share. Including our $0.24 common dividend, we generated a negative 4.9% economic return. We reported a GAAP net loss available to common shareholders of approximately $15.7 million or $0.49 per share, driven by unrealized mark-to-market losses across our investment portfolio, resulting from the move in rates and spreads. We also incurred approximately $2 million of transaction-related expenses associated with the acquisition of Cherry Hill, which reduced book value by approximately 0.6%.

Despite the pressure on book value, the underlying earnings performance of our investment portfolio improved during the quarter. We recognized EAD of $0.21 per share. Net interest income, inclusive of interest earned on our hedge portfolio was $0.66 per share, exceeding operating expenses and preferred dividends of $0.45 per share.

Arc Home was breakeven for EAD as positive operating performance in July and August was offset by the September volatility. Our investment portfolio continued to generate ROEs of approximately 20%, supported by reinvestment into home equity and net interest margin expansion. In addition, we continue to see meaningful upside from the resolution of our nonaccrual commercial loans. This would allow us to redeploy approximately $28 million of capital into higher-yielding residential investments, further enhancing our earnings power and shareholder returns.

Turning to the investment portfolio. We ended the quarter with approximately $7.6 billion of investments allocated across high-quality loans and securities supported by low LTV and delinquency profiles. We continue to reinvest into home equity, which represented 37% of our equity allocation at quarter end. Of the three securitizations sponsored during the quarter, we consolidated one transaction backed by $327 million of HELOCs and for two transactions backed by $895 million of closed-end seconds, we retained $46 million of non-Agency RMBS without assuming the associated warehouse financing risk.

At approximately two turns, our low economic leverage reflects the benefits of our securitization strategy. Lastly, we ended the quarter with total liquidity of approximately $85 million, consisting of $57 million in cash and $28 million of committed financing available on residential mortgage loans. This concludes our prepared remarks, and we'd now like to open the call for questions.

Operator

[Operator Instructions] Our first question will come from the line of [ Marissa Lobo ] with UBS.

Fragen und Antworten

Unknown Analyst

On the Cherry Hill portfolio, given the higher for longer rate environment and the spread environment, how are you thinking about the relative value of the agency and MSR assets relative to the opportunity you're seeing in non-agency credit? And does that influence how much you ultimately retain versus rotate post the close?

Thomas Durkin

Yes. I mean when we look at their quarter versus the industry, I mean, I think it was fairly in line. They were down about 13%, only 11% if you stripped out the deal expenses, the majority of it was unrealized. So I don't think there's anything out of line there. I would say we're probably pretty focused on trying to get the deal closed before we think about sort of rotation or relative value, but we're obviously doing this for a much longer time horizon than just a pretty volatile third quarter.

Unknown Analyst

And then maybe on the policy environment with the change in Congress following midterms, how does that change the opportunity set for housing finance for you guys? And anything specifically about the GSEs or mortgage credit that could be meaningful for MITT?

Nicholas Smith

Look, we don't think the changes overnight today and going forward change really the landscape for what we think is bipartisan initiative and agreement on finding ways to make housing more affordable and potential deregulation around housing finance. So we think that the environment will remain positive. And if anything, will continue to trend in the right direction.

Unknown Analyst

Great. And if I could just ask how -- if you could give us a sense of how book value has trended quarter-to-date?

Anthony Rossiello

It's Anthony. Just given where we are in the calendar, we don't have a book value update at this time.

Operator

Our next question will come from the line of Crispin Love with Piper Sandler.

Crispin Love

On Arc Home, can you discuss the third quarter in a little bit more detail, just from a EAD contribution perspective, if you could give a little bit detail of what Arc contributed in the first two months versus the drag in September. Looking at the presentation, locks seemed pretty solid being flat sequentially relative to outperformer versus most. So just curious on some of the drivers of the breakeven EAD. Was it kind of competition, margin related? And then also just if you have any early read for the fourth quarter big picture for Arc?

Nicholas Smith

Yes. So if you -- as both T.J. and I mentioned, the trajectory of the business in the first two months was on track, call that slightly below the $0.04 of contribution in previous quarters, so call it $0.02 to $0.03 from a pure equity standpoint, look, it's relatively early. I think we're all paying attention to the screens and have seen sort of the pretty meaningful reversal in rates. So my prepared remarks around the home equity is maybe not a next quarter thing, that's over a longer period of time, although we would like to think we'll start seeing contribution sooner than that. But given the broader volatility, it's probably too early to comment on exactly how that's going to shake out.

Crispin Love

All right. No, perfect. That's fair. And then just on where you're most interested in investing incremental capital today. I was looking at Slide 9, that pie chart there, home equity, non-QM, agency eligible, RPL and nonperforming. Just where are you most interested in adding today? It seems you're bullish on home equity, definitely longer term just on the rate backdrop. But just curious, your focus today and then if there's any pockets in there where you're more cautious or stepping back a little bit.

Nicholas Smith

Yes. Look, I think our prepared remarks sort of pound the table a lot on home equity. Hopefully, that comes through as I think it's been obvious over the past many quarters, years, we've not been investing as much in non-QM because we see the relative value in home equity. We would like to think that, that premise has been positive relative to other guys that have taken different strategies. And it's our view that this strategy still has legs.

Crispin Love

And then any other areas where you're more cautious or stepping back?

Nicholas Smith

Look, I mean, we've sort of been deploying capital in somewhat of a monoline fashion in home equity for a decent amount of time. So pulling back would be pulling back on that one strategy, and we're communicating that we expect to keep doing that. So I'm not going to -- I don't want to comment on things we're cautious on that we're not doing.

Operator

Our next question will come from the line of Bose George with KBW.

Francesco Labetti

This is Frank Labetti on for Bose. I just want to start with the -- you mentioned the $0.03 EAD benefit from repaying the commercial piece. What is the expected timing of that benefit? And you mentioned that redeploying the $28 million of equity there. What's the -- can you give us some color on the additional benefit you see there?

Thomas Durkin

Yes. We have -- so we have five specific assets that we've gone through, right? We have the one retail property. We have four hospitality. It looks like one of the hospitality assets, like I said, the deposit has gone hard. We expect that to close this year. We're pushing on the retail assets. So it's going to be staggered, not sort of one clip event. We're delevering that financing as we get proceeds. So I mean, the goal would be this is sort of wrapped up in totality at some point during '27 with some probably tail of the hospitality assets.

And as we generate excess cash, we're from both paydowns and CRE assets, we're redeploying that into, like Nick mentioned, home equity at, call it, 20% ROEs. I mean I think as you know, right, the CRE market, selling these assets is an adventure, and we're trying to keep buyers focused, disciplined and getting to closings. But I don't think that's unique to these assets at all.

Francesco Labetti

Yes. And just a follow-up on that, the expected proceeds still consistent with the current carrying values given the changing macro environment?

Thomas Durkin

Correct.

Francesco Labetti

Awesome. And then just on -- you mentioned in the prepared remarks, the bridge from the current $0.21 of EAD to the $0.24 dividend. Can you just talk about kind of run rate in the current environment where you see that? Do you think to cover the dividend in 4Q or is maybe a little longer than that?

Thomas Durkin

Yes. I mean I think we'll -- the Arc Home kind of breakeven obviously contributed to the current quarter's miss. We'll see how the sort of mortgage banking environment emerges in Q4 coming out of a pretty volatile September, October, I would say. I think the portfolio continues -- the portfolio ex CRE, I think, continues to do its job. And as we can rotate more capital into there, that will just drive kind of more natural run rate EAD.

So that is kind of the moving scale of capital as we can get more capital into home equity, that obviously drives more consistent EAD and Arc Home, we are somewhat at the whims of sort of like the mortgage banking cyclicality or just the spread volatility that we've seen in September, October.

Francesco Labetti

Great. And then just last follow-up. Just on current leverage expectations going forward, been pretty consistent over the past few quarters. Just where do you see leverage going from here?

Thomas Durkin

Yes. I think, listen, we've run the business really conservatively both from a nominal economic leverage perspective. And then I think as Nick mentioned, like there's a lot of defensiveness to our facilities in terms of non-mark-to-market, et cetera. So I think the setup did its job in a quarter like the past one where we can kind of lean into that strength of financing, let economic leverage creep up minorly. But at two turns, I don't think -- I still think we're on the low end of our peers. And so we're pretty comfortable being able to be offensive, not defensive in a quarter like Q3.

Operator

Our next question will come from the line of Trevor Cranston with Citizens.

Trevor Cranston

On the move in book value in 3Q, are you guys able to kind of disaggregate how much of the change was due to rates or duration exposure versus how much was just pure spread widening? And then I guess the second part of the question, can you comment on kind of what kind of move you've seen in spreads in the non-Agency market so far in October?

Nicholas Smith

Yes. So taking those each one at a time, if you talk about attribution of book value, one, I think if you spend some time looking at deconstructing how much was actually driven by our core business the decline is much more modest than sort of the headline numbers. So I'd welcome you to take a look at that, deconstructing sort of the spread move versus interest rate move, I would say they're relatively, I would call it, 50-ish 50.

We tend to run a small duration gap, but oftentimes, that's offset by sort of spreads theoretically tightening into a sell-off and vice versa. Obviously, that didn't happen this quarter. We're hopeful that given the moves early on in the most recent quarter, claw some of that back.

Operator

And our next question will come from the line of Jason Weaver with JonesTrading.

Jason Weaver

I was wondering, according to your prepared remarks with the growth in the home equity side of the portfolio, how are you thinking about the changing -- how are you thinking about the new way to manage the credit exposure and duration exposure going forward, like it more challenging? And any specifics you can give around that, I'd appreciate.

Nicholas Smith

I mean taking each of those one at a time. On the credit exposure, we're lending money to folks that have been in their house on average well over a decade with high FICO scores and relatively low CLTVs on average, the portfolio has, call it, a range of 30% to 40% of equity in the house where that second lien detaches. The delinquencies have been modest. There's actually -- we have a couple of 3 years of good performance data to benchmark to. So now it's no longer hypothetical. So we feel good about the credit. We have a lot of -- we have a decent amount of experience relative to peers already.

So managing the credit, we're very comfortable with. If anything, when you talk about the convexity, the nice part about second liens is there's a lot of spec to use sort of an agency term. There shouldn't be a tremendous amount of convexity. So managing the interest rate risk is actually far more straightforward than sort of the broader mortgage universe, given the lower average balances and the high cost of producing a second should not have a ton of convexity.

Operator

And that will conclude our question-and-answer session today. I'll hand the call back to Jenny Neslin for any concluding remarks.

Jenny Neslin

Thank you to everyone for joining us and for your questions. We greatly appreciate it and look forward to speaking with you again next quarter. Have a great day.

Operator

This concludes today's call. Thank you all for joining. You may now disconnect.