After causing a slight loss Longbridge Financial Compared with parent company’s first quarter profit Ellington FinancialThe reverse mortgage lender turned things around in the second quarter, earning praise from Ellington’s management team in its second-quarter 2024 earnings report released this week.
Ellington reported net income attributable to common stockholders of $52.3 million and net income from its investment portfolio of $69.1 million. Longbridge contributed $4.2 million.
Ellington Chief Executive Laurence Penn praised Longbridge both during the earnings release and during an investor call that delved into details of the second-quarter report.
long bridge performance
Ellington reported that Longbridge’s positive contribution in the second quarter was primarily driven by net interest income and net gains from the company’s proprietary reverse mortgage product, branded “Platinum.”
Longbridge is also among the top ten lenders federal housing administration (FHA) insured Home Equity Conversion Mortgage (HECM). While the company did see an increase in HECM loan volume in the second quarter of 2024, this was “primarily offset by lower sales margins driven by wider yield spreads on newly issued bonds.” [HECM-backed Securities (HMBS)]” the company said.
“On the servicing side, tighter yield spreads on experienced HMBS led to improved execution of tail securitizations, thereby contributing to the positive servicing results.”
Overall, excluding “the unreserved portion of the consolidated securitization trust,” the Longbridge portfolio grew 18% to $520.8 million, the company added. A lot of this has to do with originating loans, typically for high-value homes with loan limits up to $4 million. In some states, borrowers as young as 55 can qualify for a Longbridge self-directed loan.
In the second quarter of 2024, Longbridge originated 1,706 loans totaling $304.5 million through its retail, wholesale and agency channels, including its proprietary loans. Of the total sales, 20% comes from its retail channels.
Leadership response
Payne praised Longbridge’s performance.
“Ellington Financial’s second quarter non-annualized economic return was 4.5%, with adjusted distributable earnings and book value driven by broad contributions from our diversified credit and agency portfolios and our reverse mortgage platform Longbridge.” The growth.
Payne added that Ellington is seeing positive performance in its non-qualified mortgage (non-QM) business, and he went on to describe Longbridge Capital’s contribution to the company as “strong” as proprietary loans perform well.
“At the end of the second quarter, we successfully completed the second proprietary reverse mortgage securitization initiated by Longbridge with stronger execution than our first transaction in the first quarter,” Payne added. “Our second quarter results Results also benefited significantly from the performance of our residential transformation and commercial mortgage strategies and non-agency RMBS.”
Penn mentioned during the first-quarter earnings call that the company expected Longbridge’s performance to improve in the second quarter, an expectation that has been met.
“In last quarter’s earnings call, we predicted that Longbridge would turn a profit in the second quarter. Longbridge did an excellent job and performed well on a GAAP basis and [adjusted distributable earnings (ADE)] Basics,” he said. “The long bridge is an important part of the project [our] ADE Momentum.
Ellington Chief Financial Officer JR Herlihy noted, “Longbridge […] “Contributed $0.06 per share to our ADE, compared with $0.01 per share in the previous quarter,” and attributed the overall growth of the company’s ADE to Longbridge’s contribution.
Looking to the future
Payne said work at Longbridge is moving in a positive direction based on loan volume and mortgage rate forecasts.
“At Longbridge we still have more work to do to further increase raw numbers, but the positive development of props[rietary] The strength of the reverse securitization market and issuance volume in July should bode well for Longbridge going forward.
“Lower long-term interest rates could also provide a big boost to Longbridge’s origination business, as the size of loans available to borrowers typically increases as long-term rates fall.”
Loan size is a more critical driver of reverse mortgage originations than interest rates, Payne said.
