Ellington Financial Inc
For the period ended Sep 30, 2024. Filed Nov 12, 2024.
View on SEC.govAbout this filing
A company's report for each of its first three quarters. The financial statements are not audited. It shows how the business has moved since the last annual report, and what management says changed.
Sep 30, 2024 · Filed Nov 12, 2024
EFC$11.26-2.0%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-Q
Period ended 2024-06-30; filed 2024-08-09.
0001411342-24-000078
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-Q
Period ended 2024-09-30; filed 2024-11-12.
0001411342-24-000113
Item 2. Management's Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 364 previous paragraphs and 366 current paragraphs.
202 unchanged; 144 reworded; 17 added; 14 removed; 4 previous and 3 current paragraphs rearranged.
Tables are not compared: 39 previous and 39 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (17)
Current report
We also acquire HELOCs and closed-end second lien loans, which are loans made to homeowners collateralized by the existing equity in their home. Closed-end second lien loans allow the borrower to take a one-time lump sum and are subordinate to the rights of the first lien mortgage holder as well as other potential senior liens. A HELOC is a line of credit that allows the borrower to draw down on their available line of credit as needed, and is subordinate to the rights of the first lien mortgage holder and to the rights of any other lien-holder on the home.
Current report
•After maintaining its target range for the federal funds rate in July, the U.S. Federal Reserve, or the "Federal Reserve," reduced the range by 50 basis points to 4.75%–5.00% in September. In cutting rates for the first time in four years, the Federal Reserve "judges that the risks to achieving its employment and inflation goals are roughly in balance." The Summary of Economic Projections released in September implied another 50 basis points of interest rate cuts in 2024.
Current report
In the third quarter, the Federal Reserve continued to reinvest only principal payments that exceeded $35 billion on Agency RMBS and $25 billion on U.S. Treasury securities, thus maintaining the reduced monthly reinvestment cap on U.S. Treasury securities announced at its May meeting.
Current report
•Similar to U.S leveraged loans, default rates on EU leveraged loans also declined. The twelve-month trailing default rate on the Morningstar LSTA EU Leveraged Loan Index decreased to 0.79% at quarter end, as compared to 1.29% at June 30th, and below the 10-year historical average of 1.44%, per PitchBook|LCD. However, the Morningstar LSTA EU Leveraged Loan Index declined modestly in the third quarter to $97.58 at September 30th, compared to $97.61 at June 30th.
Current report
(5)Includes equity investment in Ellington affiliate.
Current report
In the third quarter, interest rates fell, the yield curve steepened, and Agency RMBS yield spreads tightened as the market anticipated the beginning of the Federal Reserve's interest rate cutting cycle. In September the Federal Reserve reduced the target range for the federal funds rate by 50 basis points and also released updated economic projections that implied another 50 basis points of interest rate cuts later in 2024. Overall for the third quarter, the U.S. Agency MBS Index generated an excess return of 0.76%. Against this backdrop, our Agency strategy generated positive results for the quarter, as net gains on our Agency RMBS exceeded net losses on interest rate hedges, which were driven by declining interest rates.
Current report
Our Longbridge segment generated a net loss attributable to common stockholders for the third quarter, driven by net losses on interest rate hedges, partially offset by positive results in originations. We had a mark-to-market gain on our HMBS MSR Equivalent, but this gain was muted by wider HMBS yield spreads, which resulted in a net loss on this position after taking into account the net losses on the interest rate hedges that we hold against this position. Wider HMBS yield spreads adversely affect the value of our HMBS MSR Equivalent because they lower the component of projected servicing income that stems from the right to fund and securitize future borrower draws. In HECM originations, a decline in origination margins, also driven by wider HMBS yield spreads, was partially offset by higher volumes; whereas in proprietary reverse originations, net gains related to the securitization in July, along with improved origination margins and higher volumes, led to strong profits in that product line.
Current report
(5)Includes equity investment in Ellington affiliate.
Current report
For the three-month periods ended September 30, 2024 and 2023, Other investment related expenses in our investment portfolio segment were $4.1 million and $2.3 million, respectively. The increase in Other investment related expenses was primarily due to an increase in servicing expenses on our larger residential mortgage loan portfolio as well as an increase in various legal and due diligence expenses on newly originated loans we purchase.
Current report
For each of the three-month periods ended September 30, 2024 and 2023, other operating expenses not allocated to either the investment portfolio segment or the Longbridge segment were $5.5 million.
Current report
For the three-month period ended September 30, 2023, other income (loss) from the Longbridge segment was $31.8 million, consisting primarily of gains from Net change from reverse mortgage loans, at fair value of $99.9 million, realized and unrealized gains on financial derivatives of $23.9 million, and other income of $27.5 million primarily related to MSRs. Such gains were partially offset by Net change related to HMBS obligations, at fair value of $(115.7) million. Gains from Net change from reverse mortgage loans, at fair value of $99.9 million consisted primarily of coupon income on HECM loans of $130.5 million, offset by a mark-to-market losses of $(30.3) million due to our adoption of more conservative valuation assumptions in light of current market conditions. Losses from Net change related to HMBS obligations, at fair value of $(115.7) million consists primarily of interest expenses of the HMBS obligation. Other income of $27.5 million is primarily related to unrealized gains of $23.9 million on the MSRs acquired out of a bankruptcy proceeding in July 2023, and $2.2 million of servicing fees.
Current report
Income tax expense (benefit) was $12 thousand for the three-month period ended September 30, 2024, as compared to $0.2 million for the three-month period ended September 30, 2023.
Current report
The table below summarizes the components of interest expense in our Investment Portfolio for the nine-month periods ended September 30, 2024 and 2023.
Current report
For the nine-month period ended September 30, 2023, other income (loss) from the Longbridge segment was $95.8 million, consisting primarily of gains from Net change from reverse mortgage loans, at fair value of $295.2 million, net realized and unrealized gains of $33.3 million on financial derivatives, and $33.3 million of other income. These gains were partially offset by Net change related to HMBS obligations, at fair value of $(271.8) million. Gains from Net change from reverse mortgage loans at fair value of $295.2 million primarily consisted of coupon income of HECM loans of $363.1 million offset by a mark-to-market loss of $(32.1) million due to our adoption of more conservative valuation assumptions in light of current market conditions. Net change related to HMBS obligations, at fair value of $(271.8) million relate to interest expense on the HMBS obligation. Other income of $33.3 million is primarily related to unrealized gains of $23.9 million on the MSRs acquired out of a bankruptcy proceeding in July 2023, $6.1 million of origination fees and $3.7 million of servicing fees.
Current report
For the nine-month period ended September 30, 2024, other income (loss) was $(7.5) million, consisting primarily of net losses on the fixed receiver interest rate swaps that we use to hedge the fixed payments on both our unsecured long-term debt and our preferred equity and on our Unsecured borrowings, at fair value. For the nine-month period ended September 30, 2023, other income (loss) was $4.5 million, consisting primarily of net realized and unrealized gains on the fixed payer interest rate swaps associated with the then-pending merger with Great Ajax Corp. and unrealized gains on our unsecured borrowings, at fair value, partially offset by net realized and unrealized losses on the fixed receiver interest rate swaps that we use to hedge the fixed payments on both our unsecured borrowings, at fair value and our preferred equity.
Current report
(4)Represents the effect of replacing mortgage loan interest income (net of securitization debt expense) with interest income of the retained tranches.
Current report
(4)Represents the effect of replacing mortgage loan interest income (net of securitization debt expense) with interest income of the retained tranches.
Removed paragraphs (14)
Previous report
•The U.S. Federal Reserve, or the "Federal Reserve," maintained its target range for the federal funds rate of 5.25%–5.50% at both its April/May and June 2024 meetings. In its June press release, the Federal Reserve observed that "there has been some further progress toward the Committee's 2 percent inflation objective," but also noted that it "does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent." The Summary of Economic Projections released by the Federal Reserve in June implied just one interest rate cut by the end of 2024, as compared to three cuts in the previously released projections in March.
Previous report
In addition, as announced in May and implemented in June, the Federal Reserve slowed the pace of decline of its securities holdings by reducing the monthly reinvestment cap on U.S. Treasury securities from $60 billion to $25 billion (meaning the Federal Reserve will reinvest principal payments that exceed $25 billion per month, rather than $60 billion per month), while maintaining the monthly cap of $35 billion on Agency RMBS.
Previous report
Realtors Housing Affordability Index declined by an additional 8.9% year-to-date through May 2024, as high mortgage rates and elevated home prices continued to stress housing affordability.
Previous report
In April, interest rates and volatility increased over renewed concerns about inflation and a more hawkish Federal Reserve, which pushed Agency RMBS yield spreads wider. In May and June, however, interest rates and volatility generally declined, and Agency RMBS yield spreads reversed most of their April widening. Overall for the second quarter, the U.S. Agency MBS Index generated a negative excess return of (0.09)%. Nevertheless, our Agency RMBS strategy generated positive results for the quarter, as net gains on interest rate hedges and net interest income exceeded net losses on Agency RMBS.
Previous report
Our Longbridge segment generated positive income for the second quarter, driven by net interest income and net gains on proprietary reverse mortgage loans, along with positive results from servicing. In HECM originations, higher volumes were mostly offset by a decline in gain-on-sale margins, driven by wider yield spreads on newly originated HMBS. In servicing, tighter yield spreads on more seasoned HMBS led to improved execution on tail securitizations, which contributed to the positive results from servicing.
Previous report
In addition to the base management fee, our Manager is also entitled to a quarterly incentive fee if our performance (as measured by adjusted net income, as defined in the management agreement) over the relevant rolling four quarter calculation period (including any opening loss carryforward) exceeds a defined return hurdle for the period. No incentive fee was incurred for either of the three-month periods ended June 30, 2024 and 2023, since for each quarter during these periods, our income did not exceed the prescribed hurdle amount on a rolling four quarter basis. Because our operating results can vary materially from one period to another, incentive fee expense can be highly variable.
Previous report
For the three-month period ended June 30, 2023, other income (loss) from the Longbridge segment was $30.6 million, consisting primarily of gains from Net change from HECM reverse mortgage loans, at fair value of $32.1 million and realized and unrealized gains on financial derivatives and loans of $14.0 million and $4.1 million, respectively. Such gains were partially offset by Net change related to HMBS obligations, at fair value of $(24.6) million.
Previous report
Income tax expense (benefit) was $0.1 million for each of the three-month periods ended June 30, 2024 and 2023, respectively.
Previous report
The table below summarizes the components of interest expense in our Investment Portfolio for the six-month periods ended June 30, 2024 and 2023.
Previous report
In addition to the base management fee, our Manager is also entitled to a quarterly incentive fee if our performance (as measured by adjusted net income, as defined in the management agreement) over the relevant rolling four quarter calculation period (including any opening loss carryforward) exceeds a defined return hurdle for the period. No incentive fee was incurred for either of the six-month periods ended June 30, 2024 and 2023, since for each quarter during these periods, our income did not exceed the prescribed hurdle amount on a rolling four quarter basis. Because our operating results can vary materially from one period to another, incentive fee expense can be highly variable.
Previous report
For the six-month periods ended June 30, 2024 and 2023, Other investment related expenses in our investment portfolio segment were $6.3 million and $4.4 million, respectively. The increase in other investment related expenses was primarily due to an increase in servicing expense on our residential mortgage loan portfolio, and various loan origination expenses related to our residential mortgage loan portfolio.
Previous report
For the six-month period ended June 30, 2024, other income (loss) from the Longbridge segment was $68.0 million, consisting primarily of gains from Net change from HECM reverse mortgage loans, at fair value of $352.2 million, net gains of
Previous report
For the six-month period ended June 30, 2023, other income (loss) from the Longbridge segment was $64.0 million, consisting primarily of gains from Net change from HECM reverse mortgage loans, at fair value of $195.2 million and net realized and unrealized gains of $9.7 million on loans and $9.4 million on financial derivatives. These gains were partially offset by Net change related to HMBS obligations, at fair value of $(156.1) million.
Previous report
For the six-month period ended June 30, 2024, other income (loss) was $(3.6) million, consisting primarily of a net loss on the fixed receiver interest rate swaps that we use to hedge the fixed payments on both our unsecured long-term debt and our preferred equity, driven by the increase in interest rates. This loss was partially offset by a net gain on our Unsecured borrowings, at fair value, also driven by the increase in interest rates. For the six-month period ended June 30, 2023, other income (loss) was $(2.0) million, consisting of net realized and unrealized losses of $(8.5) million on interest rate swaps related to our outstanding unsecured borrowings and preferred stock, partially offset by unrealized gains on our Unsecured borrowings, at fair value of $6.5 million.
Reworded paragraphs (144)
Previous wording
We conduct all of our operations and business activities through the Operating Partnership. As of June 30, 2024, we had an ownership interest of approximately 99.2% in the Operating Partnership. The remaining ownership interest of approximately 0.8% in the Operating Partnership represents the interests in the Operating Partnership that are owned by an affiliate of our Manager, our current and certain former directors, and certain current and former Ellington employees and their related parties, and is reflected in our financial statements as a non-controlling interest. We are externally managed and advised by our Manager, an affiliate of Ellington. Ellington is a registered investment adviser with a 29-year history of investing in the Agency and credit markets.
Current wording
We conduct all of our operations and business activities through the Operating Partnership. As of September 30, 2024, we had an ownership interest of approximately 99.3% in the Operating Partnership. The remaining ownership interest of approximately 0.7% in the Operating Partnership represents the interests in the Operating Partnership that are owned by an affiliate of our Manager, our current and certain former directors, and certain current and former Ellington employees and their related parties, and is reflected in our financial statements as a non-controlling interest. We are externally managed and advised by our Manager, an affiliate of Ellington. Ellington is a registered investment adviser with a 29-year history of investing in the Agency and credit markets.
Previous wording
The residential transition loans that we originate or purchase include: (i) "fix and flip" loans, which are made to real estate investors for the purpose of acquiring residential homes, making value-add improvements to such homes, and reselling the newly rehabilitated homes for a potential profit, and (ii) loans made to real estate investors for a "business purpose," such as purchasing a rental investment property, financing or refinancing a fully rehabilitated home awaiting sale, or securing short-term financing pending qualification for longer-term lower-rate financing. Our residential transition loans are secured by non-owner occupied properties, and are typically structured as fixed-rate, interest-only loans with terms to maturity between 6 and 24 months. Our underwriting guidelines focus on both the "as is" and "as repaired" property values, borrower experience as a real estate investor, and asset verification.
Current wording
The residential transition loans that we purchase are typically newly originated loans and include: (i) "fix and flip" loans, which are made to real estate investors for the purpose of acquiring residential homes, making value-add improvements to such homes, and reselling the newly rehabilitated homes for a potential profit, and (ii) loans made to real estate investors for a "business purpose," such as purchasing a rental investment property, financing or refinancing a fully rehabilitated home awaiting sale, or securing short-term financing pending qualification for longer-term lower-rate financing. Our residential transition loans are secured by non-owner occupied properties, and are typically structured as fixed-rate, interest-only loans with terms to maturity between 6 and 24 months. Our underwriting guidelines focus on both the "as is" and "as repaired" property values, borrower experience as a real estate investor, and asset verification.
Previous wording
•After rising in the prior quarter, interest rates continued to increase in April, with the yield on the 2-year U.S. Treasury increasing by 42 basis points and the 10-year U.S. Treasury up 48 basis points on the month. Interest rates then declined for much of May and June, but finished up slightly overall for the quarter—the yield on the 2-year U.S. Treasury increased by 13 basis points quarter over quarter to 4.75%, while the yield on the 10-year U.S. Treasury increased by 20 basis points to 4.40%. Meanwhile, interest rate volatility, as measured by the MOVE index, increased in mid-April before declining over the remainder of the second quarter.
Current wording
•After rising during the first half of the year, interest rates fell significantly in the third quarter, particularly short-term interest rates, and the yield on the 10-year U.S. Treasury exceeded that of the 2-year U.S. Treasury for the first time since July 2022. Quarter over quarter, the 2-year U.S. Treasury yield decreased by 111 basis points to 3.64%, and the 10-year U.S. Treasury yield declined by 62 basis points to 3.78%. Meanwhile, interest rate volatility, as measured by the MOVE index, spiked in early August and again in early September, before declining into quarter end.
Previous wording
•Secured Overnight Financing Rates, or "SOFR" rates, rose modestly in the second quarter with one-month SOFR increasing by 1 basis point to 5.34% and three-month SOFR rising by 3 basis points to 5.32%. SOFR rates drive many of our financing costs.
Current wording
•In the third quarter, Secured Overnight Financing Rates, or "SOFR" rates, fell sharply following the decline in the federal funds rate, with one-month SOFR decreasing by 49 basis points to 4.85% and three-month SOFR decreasing by 73 basis points to 4.59%. SOFR rates drive many of our financing costs.
Previous wording
•Mortgage rates moved in sympathy with long-term interest rates during the second quarter. The Freddie Mac survey 30-year mortgage rate increased from 6.79% at the end of March to 7.22% on May 2 nd, before declining to 6.86% at June 27th. The Mortgage Bankers Association's Refinance Index increased by 20% over the course of the quarter, but remained at depressed levels on an historical basis, with current mortgage rates still much higher than the rates on the vast majority of outstanding Agency mortgages. Similarly, overall prepayment speeds remained low, with Fannie Mae 30-year RMBS registering CPRs of 6.0 in April, 6.6 in May, and 6.0 in June.
Current wording
•Mortgage rates moved in sympathy with long-term interest rates during the third quarter. The Freddie Mac survey 30-year mortgage rate decreased from 6.86% at the end of June to 6.08% on September 26th. While still low on an historical basis, the Mortgage Bankers Association's Refinance Index more than doubled during the third quarter, with mortgage rates lower. Overall prepayment speeds ticked up in July and August and then fell in September, with Fannie Mae 30-year RMBS registering CPRs of 6.6 in July, 6.7 in August, and 6.4 in September.
Previous wording
After rising 5.5% in 2023, the S&P CoreLogic Case-Shiller US National Home Price NSA Index increased by another 4.1% year-to-date through May 2024. Meanwhile, after decreasing by 6.5% in 2023, the National Association of
Current wording
Year-to-date through August, the S&P CoreLogic Case-Shiller US National Home Price NSA Index increased by 4.5% and the National Association of Realtors Housing Affordability Index declined by 1.9%.
Previous wording
•U.S. real GDP increased at an estimated annualized rate of 2.8% in the second quarter of 2024, as compared to 1.4% in the prior quarter. Meanwhile, the unemployment rate increased during the quarter, registering 3.9% in April, 4.0% in May, and 4.1% in June.
Current wording
•U.S. real GDP increased at an estimated annualized rate of 2.8% in the third quarter, as compared to 3.0% in the prior quarter. Meanwhile, the unemployment rate decreased moderately during the quarter, registering 4.3% in July, 4.2% in August, and 4.1% in September.
Previous wording
•After increasing in the first quarter, inflation reversed course and moderately declined in the second quarter. The 12-month percentage change in the Consumer Price Index for All Urban Consumers (“CPI-U"), not seasonally adjusted, registered 3.4% in April, 3.3% in May, and 3.0% in June 2024. This compared to 12-month percentage changes of 3.1% in January, 3.2% in February, and 3.5% in March 2024.
Current wording
•Inflation continued its modest decline in the third quarter, reaching a three-year low in September. The 12-month percentage change in the Consumer Price Index for All Urban Consumers (“CPI-U"), not seasonally adjusted, was 2.9% in July, 2.5% in August, and 2.4% in September 2024. This compares to 12-month percentage changes of 3.4% in April, 3.3% in May, and 3.0% in June 2024.
Previous wording
•For the second quarter, the Bloomberg U.S. MBS Index posted a positive return of 0.07% but a negative excess return (on a duration-adjusted basis) of (0.09%) relative to the Bloomberg U.S. Treasury Index, driven by underperformance of the mortgage basis in April. Meanwhile, the Bloomberg U.S. Corporate Bond Index generated a negative return of (0.09%) and a negative excess return of (0.04%), while the Bloomberg U.S. Corporate High Yield Bond Index generated a positive return of 1.11% and an excess return of 0.38%, for the quarter.
Current wording
•For the third quarter, the Bloomberg U.S. MBS Index posted a return of 5.48% and an excess return (on a duration-adjusted basis) of 0.76% relative to the Bloomberg U.S. Treasury Index. Meanwhile, the Bloomberg U.S. Corporate Bond Index generated a return of 5.81% and an excess return of 0.80%, and the Bloomberg U.S. Corporate High Yield Bond Index generated a return of 5.42% and an excess return of 1.83%, for the quarter.
Previous wording
•Corporate credit spreads widened during the second quarter, with spreads on the Markit CDX North America Investment Grade and High Yield Indices increasing by 2 and 14 basis points quarter over quarter, respectively. Additionally, according to PitchBook/LCD, default rates on U.S. leveraged loans declined further, with the twelve-month trailing default rate on the Morningstar LSTA Leveraged Loan Index decreasing to 0.92% at quarter end, as compared to 1.14% at March 31st, and well below the 10-year historical average of 1.76%. After rising for six consecutive quarters, Morningstar LSTA US Leveraged Loan Index prices fell slightly in the second quarter to $96.50 at June 30th, compared to $96.70 at the end of the first quarter.
Current wording
•Corporate credit spreads generally tightened during the third quarter, with spreads on the Markit CDX North America Investment Grade and High Yield Indices decreasing by 1 and 15 basis points quarter over quarter, respectively. Default rates on U.S. leveraged loans declined further, with the twelve-month trailing default rate on the Morningstar LSTA Leveraged Loan Index decreasing to 0.80% at quarter end, as compared to 0.92% at June 30th, and well below the 10-year historical average of 1.68%, per PitchBook|LCD. Additionally, the Morningstar LSTA US Leveraged Loan Index rose in the third quarter to $96.71 at September 30th, compared to $96.59 at June 30th.
Previous wording
•U.S. CLO issuance activity remained elevated during the second quarter. According to PitchBook/LCD, the U.S. CLO market saw $53 billion of new CLO issuance in the second quarter, which was the second highest quarter of CLO issuance dating back to 2011, and up from $49 billion in the first quarter.
Current wording
•U.S. CLO issuance activity, while still elevated on an historical basis, declined in the third quarter. According to PitchBook|LCD, the U.S. CLO market saw $41 billion of new CLO issuance in the third quarter, compared to $53 billion in the second quarter.
Previous wording
•In the second quarter, the NASDAQ rose by 8.3% and the S&P 500 increased by 3.9%, with both indices setting record highs during the quarter. The Dow Jones Industrial Average, on the other hand, fell by 1.7% quarter over quarter, despite also reaching a record high intra-quarter. The VIX volatility index spiked in mid-April before reversing course and ending the quarter modestly lower overall. Meanwhile, London's FTSE 100 index increased by 2.7% and the MSCI World global equity index rose by 2.2%, quarter over quarter.
Current wording
•U.S. equity markets performed well in the third quarter. The Dow Jones Industrial Average increased by 8.2% and the S&P 500 rose by 5.5%, with both indices ending the quarter at record highs. Meanwhile, the NASDAQ rose by 2.6% and reached a record high intra-quarter. Meanwhile, the VIX volatility index spiked in early August to its highest level since January 2021; the VIX subsequently moderated, but remained relatively elevated through quarter end. Finally, London's FTSE 100 index increased by 0.9%, and the MSCI World global equity index rose by 6.0% quarter over quarter.
Previous wording
(1)This information does not include U.S. Treasury securities, interest rate swaps, TBA positions, or other hedge positions.
Current wording
(1)This information does not include U.S. Treasury securities, securities sold short, or financial derivatives.
Previous wording
(3)REO is not considered a financial instrument and, as a result, is included at the lower of cost or fair value, as discussed in Note 2 of the notes to condensed consolidated financial statements.
Current wording
(2)Includes related REO. In accordance with U.S. GAAP, REO is not considered a financial instrument and, as a result, is included at the lower of cost or fair value, as discussed in Note 2 of the notes to condensed consolidated financial statements.
Previous wording
(2)Includes equity investments in securitization-related vehicles.
Current wording
(4)Includes equity investments in securitization-related vehicles.
Previous wording
(5)Includes equity investment in an unconsolidated entity which purchases certain other loans for eventual securitization.
Current wording
(6)Includes equity investment in an unconsolidated entity which purchases certain other loans for eventual securitization.
Previous wording
(6)Includes corporate loans to certain loan origination entities in which we hold an equity investment.
Current wording
(7)Includes corporate loans to certain loan origination entities in which we hold an equity investment.
Previous wording
(7)Retained non-QM RMBS represents RMBS issued by non-consolidated Ellington-sponsored non-QM loan securitization trusts, and interests in entities holding such RMBS.
Current wording
(8)Retained non-QM RMBS represents RMBS issued by non-consolidated Ellington-sponsored non-QM loan securitization trusts, and interests in entities holding such RMBS.
Previous wording
(8)Includes an investment in an unconsolidated entity holding European RMBS.
Current wording
(9)Includes an investment in an unconsolidated entity holding European RMBS.
Previous wording
Our total long credit portfolio, excluding non-retained tranches of consolidated securitization trusts, decreased to $2.73 billion as of June 30, 2024, from $2.80 billion as of March 31, 2024. The decline was driven by the cumulative impact of a non-QM loan securitization completed during the second quarter and net sales of non-Agency and retained non-QM RMBS, and non-QM loans, which more than offset net purchases of commercial mortgage bridge loans, HELOCs, closed-end second lien loans, NPL/RPL pools, CMBS, and CLOs.
Current wording
Our total long credit portfolio, excluding non-retained tranches of consolidated securitization trusts, increased by 19% to $3.25 billion as of September 30, 2024, from $2.73 billion as of June 30, 2024. The increase was primarily driven by net purchases of non-QM loans, closed-end second lien loans, HELOCs, commercial mortgage loans, and non-Agency RMBS. A portion of the increase was offset by smaller CLO and CMBS portfolios, driven by net sales.
Previous wording
Strong net interest income and net gains from non-QM loans, retained non-QM RMBS, non-Agency RMBS, and commercial mortgage loans drove the positive results in the credit strategy in the second quarter. We also benefited from mark-to-market gains on our equity investments in the loan originators LendSure and American Heritage Lending, which reflected strong performance at those originators driven by increased origination volumes and strong gain-on-sale margins. With interest rates slightly higher quarter over quarter, we also had net gains on our interest rate hedges. Offsetting a portion of all these gains was a modest net loss in NPL/RPL pools.
Current wording
Including associated financing costs and hedging gains and losses, strong net interest income and net gains from our non-QM loans and retained tranches, non-Agency RMBS, closed-end second lien loans, and CMBS drove the positive performance of our credit strategy in the third quarter. We also benefited from mark-to-market gains on our equity investments in the loan originators LendSure and American Heritage Lending, which reflected strong performance at those originators driven by increased origination volumes and strong gain-on-sale margins. Offsetting a portion of these gains were net losses on our consumer loan portfolio and a related equity investment in a consumer loan originator, as well as negative operating income on certain non-performing commercial mortgage loans and REO. Finally, we had a net loss on the Great Ajax common shares we had purchased in connection with last year's terminated merger.
Previous wording
In our residential mortgage loan portfolio, after excluding the impacts of the purchase of one non-performing loan portfolio and the consolidation of another loan portfolio, our percentage of delinquent loans increased only slightly quarter over quarter. In our commercial mortgage loan portfolio (including loans accounted for as equity method investments) the delinquency percentage ticked down sequentially. Both of these mortgage loan portfolios continue to experience low levels of realized credit losses and strong overall credit performance, though we are monitoring developments closely and diligently working out a handful of non-performing commercial mortgage assets.
Current wording
The percentage of delinquent loans in our residential mortgage loan portfolio decreased quarter over quarter, while the percentage of delinquent loans in our commercial mortgage loan portfolio (including loans accounted for as equity method investments) increased. Both of these portfolios continue to experience low levels of realized credit losses and strong overall credit performance, though we continue to work out several non-performing commercial mortgage assets.
Previous wording
The net interest margin on our credit portfolio decreased quarter over quarter, to 2.76% from 2.86%. We continued to benefit from positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate.
Current wording
During the quarter the net interest margin on our credit portfolio, including the effect of actual and accrued periodic payments on interest rate swaps used to hedge the assets, decreased to 2.64% from 2.76%. We continued to benefit from positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate.
Previous wording
The following tables provide supplemental information to, and should be read in conjunction with, the notes to our financial statements. See Note 5—Investments in Loans, Note 7—Forward MSR-related Investments, and Note 8—Investments in Unconsolidated Entities, to the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
Current wording
The following tables provide supplemental information to, and should be read in conjunction with, the notes to our financial statements. See Note 5—Investments in Loans, Note 7—Forward MSR-related Investments, and Note 8—Investments in Unconsolidated Entities, of the Notes to Condensed Consolidated Financial Statements included in Item 1 of this Quarterly Report on Form 10-Q.
Previous wording
(1)Excludes commercial mortgage loans in non-accrual status, with a fair value of $53.6 million.
Current wording
(1)Excludes commercial mortgage loans in non-accrual status, with a fair value of $86.5 million.
Previous wording
Additionally, as of June 30, 2024, an unconsolidated variable interest entity, in which we co-invest with other Ellington affiliates, held a commercial multi-family REO property; our allocable portion of such REO was approximately $31.2 million.
Current wording
Additionally, as of September 30, 2024, an unconsolidated variable interest entity, in which we co-invest with other Ellington affiliates, held a commercial multi-family REO property; the fair value of our allocable portion of such REO was approximately $32.5 million.
Previous wording
As discussed in Note 16 of the notes to our condensed consolidated financial statements, we have investments in participation certificates related to consumer loans, collateralized by automobile loans, titled in the name of a related party of Ellington. Through these participation certificates, we have beneficial interests in the loan cash flows, which are net of servicing-related fees and expenses including a deferred performance-based fee to the loan originator, in which we have a non-controlling equity interest. The total fair value of these participation certificates, which is included in Securities, at fair value on the Condensed Consolidated Balance Sheet, was $68.9 million as of June 30, 2024. The table below provides additional information about the automobile loans underlying these participation certificates, which comprise our investments in ABS backed by consumer loans, as of June 30, 2024:
Current wording
As discussed in Note 16 of the notes to our condensed consolidated financial statements, we, through a wholly-owned trust subsidiary, purchase automobile loans under agreements with a consumer loan originator. We have beneficial interests in the loan cash flows, which are net of servicing-related fees and expenses including a deferred performance-based fee to the consumer loan originator, in which we have a non-controlling equity interest. The total fair value of these investments, which are included in Securities, at fair value on the Condensed Consolidated Balance Sheet, was $65.7 million as of September 30, 2024. The table below provides additional information about the automobile loans underlying these participation certificates, which comprise our investments in ABS backed by consumer loans, as of September 30, 2024:
Previous wording
(2)Excludes charged-off consumer loans with an aggregate unpaid principal balance and fair value of $71.8 million and $1.4 million, respectively, for which the Company has determined that it is probable the servicer will be able to collect principal and interest. See Note 5 of the Notes to Condensed Consolidated Financial Statements for additional details on charged-off consumer loans.
Current wording
(2)Excludes charged-off consumer loans with an aggregate unpaid principal balance and fair value of $76.9 million and $1.3 million, respectively, for which the Company has determined that it is probable the servicer will be able to collect principal and interest. See Note 5 of the Notes to Condensed Consolidated Financial Statements for additional details on charged-off consumer loans.
Previous wording
Our total long Agency RMBS portfolio decreased by 31% quarter over quarter to $457.7 million, driven primarily by net sales.
Current wording
Our total long Agency RMBS portfolio decreased by approximately 14% quarter over quarter to $394.6 million, driven by net sales and principal repayments, which were partially offset by net gains.
Previous wording
During the quarter, our Agency RMBS asset yields and our borrowing costs both declined, and we received a larger benefit from positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate. As a result, the net interest margin on our Agency RMBS, excluding the Catch-up Amortization Adjustment, increased to 1.99% from 1.50% quarter over quarter.
Current wording
During the quarter, the net interest margin on our Agency RMBS, excluding the Catch-up Amortization Adjustment, increased to 2.03% from 1.99%. As with our credit strategy, we continued to benefit from positive carry on our interest rate swap hedges, where we overall receive a higher floating rate and pay a lower fixed rate.
Previous wording
As of June 30, 2024 and March 31, 2024, the weighted average net pass-through rate on our fixed-rate specified pools was 4.1% and 3.9%, respectively. Portfolio turnover for our Agency strategy, as measured by sales and excluding paydowns, was 32.4% for the three-month period ended June 30, 2024.
Current wording
As of both September 30, 2024 and June 30, 2024, the weighted average net pass-through rate on our fixed-rate specified pools was 4.1%. Portfolio turnover for our Agency strategy, as measured by sales and excluding paydowns, was 17.1% for the three-month period ended September 30, 2024.
Previous wording
(2) have less prepayment sensitivity to government policy shocks, and/or (3) create opportunities for trading gains once the market recognizes their value, which for newer pools may come only after several months, when actual prepayment experience can be observed. We believe that our research team, proprietary prepayment models, and extensive databases remain essential tools in our implementation of this strategy.
Current wording
We expect to continue to target specified pools that, taking into account their particular composition and based on our prepayment projections, should: (1) generate attractive yields relative to other Agency RMBS and U.S. Treasury securities, (2) have less prepayment sensitivity to government policy shocks, and/or (3) create opportunities for trading gains once the market recognizes their value, which for newer pools may come only after several months, when actual prepayment experience can be observed. We believe that our research team, proprietary prepayment models, and extensive databases remain essential tools in our implementation of this strategy.
Previous wording
As discussed in Note 13 of the Notes to the Condensed Consolidated Financial Statements, when Longbridge pools HECM loans into HMBS, such transfers do not qualify as sales under U.S. GAAP, and as a result, such transactions are treated as secured borrowings on our Condensed Consolidated Balance Sheet. The pooled HECM loans are included in Loans, at fair value, and the related liabilities are reflected as HMBS-related obligations, at fair value. After pooling the HECM loans into HMBS, Longbridge retains the mortgage servicing rights associated with such HMBS, which we refer to as the "HMBS MSR Equivalent." Additionally, Longbridge typically retains the MSRs associated with the proprietary reverse mortgage loans that it originates and has acquired MSRs on reverse mortgage loans in the secondary market (collectively, "Reverse MSRs"). We refer to the HMBS MSR Equivalent and Reverse MSRs collectively as our "Reverse MSR-related Net Assets." We have also securitized some of the proprietary reverse mortgage loans originated by Longbridge, and we have retained certain securitization tranches in compliance with credit risk retention rules.
Current wording
HMBS, Longbridge retains the mortgage servicing rights associated with such HMBS, which we refer to as the "HMBS MSR Equivalent." Additionally, Longbridge typically retains the MSRs associated with the proprietary reverse mortgage loans that it originates and has acquired MSRs on reverse mortgage loans in the secondary market (collectively, "Reverse MSRs"). We refer to the HMBS MSR Equivalent and Reverse MSRs collectively as our "Reverse MSR-related Net Assets." We have also securitized some of the proprietary reverse mortgage loans originated by Longbridge, and we have retained certain securitization tranches in compliance with credit risk retention rules.
Previous wording
(3)As of June 30, 2024, includes $5.1 million of active HECM Buyout Loans, $9.9 million of inactive HECM Buyout Loans, and $4.3 million of other inactive HECM loans. As of March 31, 2024, includes $9.3 million of active HECM Buyout Loans, $9.4 million of inactive HECM Buyout Loans, and $4.5 million of other inactive HECM loans.
Current wording
(3)As of September 30, 2024, includes $8.2 million of active HECM Buyout Loans, $10.6 million of inactive HECM Buyout Loans, and $4.2 million of other inactive HECM loans. As of June 30, 2024, includes $5.1 million of active HECM Buyout Loans, $9.9 million of inactive HECM Buyout Loans, and $4.3 million of other inactive HECM loans.
Previous wording
(4)As of June 30, 2024, includes $181.1 million of securitized proprietary reverse mortgage loans and $4.5 million of cash held in a securitization reserve fund. As of March 31, 2024, includes $184.9 million of securitized proprietary reverse mortgage loans and $4.7 million of cash held in a securitization reserve fund.
Current wording
(4)As of September 30, 2024, includes $390.6 million of securitized proprietary reverse mortgage loans and $9.0 million of cash held in securitization reserve funds. As of June 30, 2024, includes $181.1 million of securitized proprietary reverse mortgage loans and $4.5 million of cash held in a securitization reserve fund.
Previous wording
Our Longbridge portfolio, excluding non-retained tranches of a consolidated securitization trust, increased by 18% sequentially to $520.8 million as of June 30, 2024, driven primarily by proprietary reverse mortgage loan originations.
Current wording
Our Longbridge portfolio, excluding non-retained tranches of a consolidated securitization trusts, decreased by 5% sequentially to $494.2 million as of September 30, 2024, driven primarily by the completion of our securitization of proprietary reverse mortgage loans, partially offset by new proprietary reverse mortgage loan originations during the quarter.
Previous wording
In addition to expenses not allocated to either the investment portfolio or Longbridge segments, our results for the quarter also reflect a net gain, driven by the increase in interest rates, on our senior notes. This gain was partially offset by a net loss, also driven by the increase in interest rates, on the fixed receiver interest rate swaps that we use to hedge the fixed payments on both our unsecured long-term debt and our preferred equity.
Current wording
In addition to expenses not allocated to either the investment portfolio segment or Longbridge segment, our results for the quarter also reflect a net unrealized loss on our unsecured borrowings, driven by the decline in interest rates. This loss was partially offset by a net gain, also driven by the decrease in interest rates, on the fixed receiver interest rate swaps that we use to hedge the fixed payments on both our unsecured borrowings and our preferred equity.
Previous wording
As of June 30, 2024, outstanding borrowings under repos and Total other secured borrowings (which include Other secured borrowings and Other secured borrowings, at fair value, as presented on our Condensed Consolidated Balance Sheet) were $4.1 billion, of which approximately 9.3%, or $383.4 million, related to our Agency RMBS holdings. The remaining outstanding borrowings related to our credit portfolio and Longbridge. Additionally, we had $8.8 billion of HMBS-related obligations.
Current wording
As of September 30, 2024, outstanding borrowings under repos and Total other secured borrowings (which include Other secured borrowings and Other secured borrowings, at fair value, as presented on our Condensed Consolidated Balance Sheet) were $4.7 billion, of which approximately 7.3%, or $346.2 million, related to our Agency RMBS holdings. The remaining outstanding borrowings related to our credit portfolio and Longbridge. Additionally, we had $8.8 billion of HMBS-related obligations.
Previous wording
(1)As of June 30, 2024 and March 31, 2024, excludes borrowings at certain unconsolidated entities that are recourse to us. Including such borrowings, our debt-to-equity ratio based on total recourse borrowings was 1.9:1 and 2.0:1 as of June 30, 2024 and March 31, 2024, respectively.
Current wording
(1)As of September 30, 2024 and June 30, 2024, excludes borrowings at certain unconsolidated entities that are recourse to us. Including such borrowings, our debt-to-equity ratio based on total recourse borrowings was 2.1:1 and 1.9:1 as of September 30, 2024 and June 30, 2024, respectively.
Previous wording
(2)For unsettled purchases and sales, assumes associated borrowings are subject to haircuts of 5.4% and 5.2% as of June 30, 2024 and March 31, 2024, respectively.
Current wording
(2)For unsettled purchases and sales, assumes associated borrowings are subject to haircuts of 5.6% and 5.4% as of September 30, 2024 and June 30, 2024, respectively.
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Rearranged current paragraphs (3)
Current report — wording carried from elsewhere
(3)Includes equity investments in unconsolidated entities holding commercial mortgage loans and REO.
Current report — wording carried from elsewhere
As discussed in Note 13 of the Notes to the Condensed Consolidated Financial Statements, when Longbridge pools HECM loans into HMBS, such transfers do not qualify as sales under U.S. GAAP, and as a result, such transactions are treated as secured borrowings on our Condensed Consolidated Balance Sheet. The pooled HECM loans are included in Loans, at fair value, and the related liabilities are reflected as HMBS-related obligations, at fair value. After pooling the HECM loans into
Current report — wording carried from elsewhere
September 30, 2024. We received proceeds from HMBS-related obligations of $1.0 billion and used $814.0 million for principal payments on HMBS-related obligations. We received proceeds from the issuance of common stock, net of underwriters' discounts, commissions, and offering costs paid, of $99.5 million and contributions from non-controlling interests of $9.6 million. We used $121.2 million to pay dividends, $9.1 million for distributions to non-controlling interests (our joint venture partners), $0.7 million to repurchase common stock, and $0.7 million to purchase non-controlling interests. As a result there was an decrease in our cash holdings of $2.2 million, from $230.5 million as of December 31, 2023 to $228.3 million as of September 30, 2024.
Rearranged previous paragraphs (4)
Previous report — wording carried elsewhere
We expect to continue to target specified pools that, taking into account their particular composition and based on our prepayment projections, should: (1) generate attractive yields relative to other Agency RMBS and U.S. Treasury securities,
Previous report — wording carried elsewhere
Our secured financing costs include interest expense related to our repo borrowings and Total other secured borrowings (which include Other secured borrowings and Other secured borrowings, at fair value, as presented on our Condensed
Previous report — wording carried elsewhere
(4)Includes investments in unconsolidated entities holding commercial mortgage loans and REO.
Previous report — wording carried elsewhere
For the three-month periods ended June 30, 2024 and 2023, other operating expenses not allocated to either the investment portfolio segment or the Longbridge segment were $5.1 million and $8.0 million, respectively. The period-over-period decrease in other operating expenses was primarily due to a decrease in professional fees.