After acquiring a controlling interest in its reverse mortgage platform, selling some of its discount agency holdings, and waiting until just the right time to complete its fourth Non-QM securitization, Ellington Financial Inc. reported a solid fourth quarter of 2022.
The Old Greenwich, Conn.-based company, which acquires and manages mortgage-related financial assets, recently reported net income attributable to common shareholders of $22.7 million, or 37 cents per common share, a significant improvement from a net loss of $33.3 million, or 50 cents per share, in the third quarter.
While a $56 million turnaround in one quarter is a pretty dramatic improvement, the results still did not beat analysts’ expectations of 43 cents per share, according to Seeking Alpha.
As it announced in October 2022, Ellington Financial acquired a controlling interest in Longbridge Financial LLC. As a result of that transaction, Ellington now consolidates Longbridge’s results with its own. Ellington Financial reported net income of $14.5 million, or $0.24 per common share, from Longbridge during the quarter.
Ellington said it also sold certain discount agency RMBS, “and rotated the capital to further expand and diversify our credit portfolio, where we see strong earnings potential going forward.”
The company reported a total of $9568.26 million in total agency RMBS as of Dc. 31, down from $1.14 million as of Sept. 30, 2022.
Also, in December Ellington completed its fourth Non-QM securitization of the year, after delaying it for several months. As the report states, the company’s strong balance sheet “enabled us to postpone launching this securitization when yield spreads were significantly wider, and that patience was rewarded, as we were able to take advantage of a more constructive market around year end to achieve stronger deal execution.”
Ellington added that the securitization market has continued to improve into the new year, “and we were able to close another Non-QM securitization earlier this month at even more attractive long-term financing costs.”
The latest securitization, EFMT 2023-1, included residential mortgage-backed certificates supported by Non-QM mortgages originated by LendSure Mortgage Corp. and American Heritage Lending (AHL).
EFMT 2023-1, Mortgage Pass-Through Certificates, Series 2023-1, was supported by 796 loans with a balance of $330.37 million as of the cutoff date, Fitch said. It is the eighth EFMT transaction rated by Fitch and EFMT’s first transaction in 2023.
Approximately 48.8% of the loans were originated by LendSure, a joint venture between LendSure Financial Services Inc. and Ellington Financial Inc. Approximately 23.8% of the loans were originated by AHL. The remaining 27.4% were originated by other third-party originators that contributed no more than 10% each to the pool, Fitch said.
Laurence Penn, president and CEO of Ellington Financial, was pleased with the results.
"Excellent performance from Longbridge Financial and from our agency RMBS strategy, in addition to another positive quarter from our loan portfolios, drove Ellington Financial's results in the fourth quarter," he said. "For Longbridge, our reverse mortgage platform that we now consolidate, tighter yield spreads benefited the value of our HECM (home equity conversion mortgage) loans and MSRs (mortgage servicing rights), and also expanded gain-on-sale margins on new HECM originations, which mostly offset the effect of lower origination volumes.”
That refers to Longbridge’s originations, which included $$290.38 million in wholesale and correspondent loan volume and $51.25 million in retail loan volume in the quarter.
Longbridge originates reverse mortgage loans, including HECMs, which are insured by the FHA and which are eligible for inclusion in GNMA-guaranteed HECM-backed mortgage-backed securities, or HMBS, Ellington said. Upon securitization, the HECMs remain on the company's balance sheet, and Longbridge retains the mortgage servicing rights associated with the HMBS, or HMBS MSR Equivalent, the company said.
Longbridge also originates proprietary reverse mortgage loans, which are not insured by the FHA, and has typically retained the associated MSRs.
Ellington Financial invests in a diverse array of financial assets, including residential and commercial mortgage loans, reverse mortgage loans, residential and commercial mortgage-backed securities, consumer loans and asset-backed securities backed by consumer loans, collateralized loan obligations, non-mortgage and mortgage-related derivatives, debt and equity investments in loan origination companies, and other strategic investments.
The company is externally managed and advised by Ellington Financial Management LLC, an affiliate of Ellington Management Group LLC.
