Kelly Residential & Apartment Real Estate ETF
Q2 2014 Earnings Call Transcript

Published: 22 Jul 2014

[Operator:]

Welcome to Altisource Residential Corporation’s Second Quarter 2014 Earnings Conference Call. (Operator Instructions). I would now like to hand the conference over to Mr. Kenneth Najour, CFO. Sir, you may begin.

[Kenneth Najour:]

Thank you. Good morning everyone and thank you for joining us today. My name is Ken Najour, and I am the Chief Financial Officer of Altisource Residential Corporation, which we refer to as RESI. Before we begin, I want to remind you that a slide presentation is available to accompany our remarks. To access the slides, please log on to our website at www.altisourceresi.com. These slides provide additional information investors may find useful. As indicated on slide one, our presentation may contain certain forward-looking statements pursuant to the Safe Harbor Provision of the Federal Securities Laws. These forward-looking statements maybe identified by reference to a future period or by use of forward-looking terminology. They may involve risks and uncertainties that would cause company’s actual results to differ materially from the results discussed in the forward-looking statements. For an elaboration of these factors that may cause such a difference, please refer to the risk disclosure statement in today’s earnings release, as well as the company’s filings with the Securities and Exchange Commission including our year-end, December 2013 Form 10-K., our first quarter 2014 Form 10-Q and the second quarter 2014 Form 10-Q will file today. If you’d like to receive our news releases, SEC filings and other materials via e-mail, please register on the Shareholders page of each company’s website using the e-mail alerts button. As indicated on slide two, joining me for today’s presentation are Bill Erbey, Chairman of RESI and Ashish Pandey, Chief Executive Officer of RESI. I would now like to turn the call over to Bill Erbey. Bill?

[Bill Erbey:]

Thank you Ken. Good morning everyone and thank you for joining us today. As shown on slide 3, during the second quarter RESI paid a cash dividend of $0.45 per share or $25.7 million. This represents the third consecutive increase in quarterly dividend since RESI paid it's first dividend in the third quarter of 2013. The second quarter of 2014 dividend represents an annualized return on equity of 8% after accounting for the incentive fees paid to AAMC. We continue to successfully execute our business plan and grow RESI’s business as demonstrated by RESI’s second quarter results. When we started RESI a year-and-half ago we outlined three key factors necessary to successfully build one of the largest single family rental businesses. Simply put, we need to first acquire single family properties at attractive returns, second manage properties in our rental portfolio providing cost effective quality service and three raise our equity capital at accretive pricing. During the second quarter of 2014, we successfully delivered on the first two factors. Our second quarter investment activity did not require us to raise additional equity capital. As shown on slide 4, during the second quarter we agreed to acquire a very large portfolio of mortgage loans at attractive pricing. We agreed to acquire approximately 4400 non-performing and reperforming mortgage loans with 1.23 billion of underlying property value at a price equal to 59% of the underlying property value. As for our operating performance we saw a 41% increase in loan resolutions over first quarter of 2014. We also exceeded our previous guidance of 100 rental properties at the end of the second quarter. At the end of the quarter we had a 142 rental properties of which 102 were leased and 40 were listed for rent. It has taken an average of 27 days after listing for our homes to rent. We continue to work diligently on our second target of 1000 rental properties by the end of 2014 and Ashish will provide more detail on resolutions and leasing efforts during the quarter. We funded our second quarter acquisitions with additional borrowing under our repurchase facilities. As of the end of the first quarter we were significantly under levered at 37% and at a substantial amount of unencumbered collateral which we used to fund second quarter acquisition. I would now like to spend a few minutes recounting the growth of our repurchase facilities. As you can see on slide 5, in a brief span of 15 months we have increased the financing available on a repurchase facilities from $100 million to over $1.6 billion. We have executed at least one up [ph] size with each of our existing lenders. Lenders are becoming increasingly comfortable and finance the NPLs for RESI, securitization financing for NPLs targeted for the third quarter will mark another milestone for RESI and it's efforts to broaden it's excess to debt market. On a related note there is growing confident in the single family rentals as a stable asset class. In the second quarter alone nearly 2.5 billion of debt was raised in four single family rental securitization transactions by three different market participants. It's important to note that securitization offers higher effective leverage. The continued development and growth of the single family rental securitization market is very positive for the industry and for RESI. We believe that is important for our investors to understand the sensitivity of NPL pricing to certain key factors. On slide 6, we show the impact of three key variables on NPL pricing. The first variable is rental conversion rate, our estimated 50% conversion rate provides us with a four point advantage against a competitor that does not have a rental strategy and therefore incurs the brokerage and closing cost associated with REO liquidation. The second variable is the loan modification rate. Our service, Ocwen has been ranked best in class in modifying loans by many third party servicing performance reports. Modifications are our most desired outcome as they lead to a win-win situation for both our borrowers and our shareholders. At 10% increase in the modification rates would result in a 2.5 points increase in the price that we can pay for NPLs and meet our targeted returns. The third variable is the foreclosure timeline. A reduction for closure timelines by three months will result in a 2 point increase in the price that we can pay for NPLs and meet our targeted returns. Ocwen is recognized as an industry leader in managing foreclosure timelines. In summary on pools that meet our investment criteria, these factors provide us with a significant advantage over other market players. I will conclude by saying that we continue to see the NPL acquisition strategy as an effective sustainable source of rental properties for RESI. The market participants were attempting the sourcing strategy but none are doing so on an exclusive basis. Additionally unlike RESI other market participants do not have access to nationwide property management capability and scale benefits offered by our strategic relationship with Altisource portfolio solutions. This capability gives us a much larger pool of potential rental properties to choose from in order to achieve higher returns. In addition, our contracts with Altisource affords us the benefit of scale and give an MSA with the very first property we acquire in such MSA. We believe that our ability to leverage the significant scale advantage results in lower operating cost and drives higher yield on a rental properties before factored in any yield benefit from our lower acquisition basis. Ashish will now provide more detail on RESI’s operations and investment activities during the quarter and then Ken will provide details on RESI’s financial performance. I will now turn the call over Ashish. Ashish?

[Ashish Pandey:]

Thank you Bill. I’m happy to say that we have continued our solid operating performance from prior quarters and our second quarter resolution performance exceeded the first quarter by 41%. As shown on slide 7, during the quarter we successfully resolved 1156 loans with 242 million in unpaid principle balance. Slide 8 provides details of loan resolution. We had a steady flow of REO conversions providing us with a sizeable REO pool to convert into rental properties. 977 loans were converted to REO either through foreclosure or deed in lieu. With this the total number of REO’s at the end of the second quarter more than doubled to 1958 properties compared to 896 properties at the end of the first quarter. 90 loans were resolved via short sales and third party sales at 98% of the updated BPO value at the time of resolution. Generating net proceeds of approximately 28.2 million. 90 loans were modified and rendered current, in addition 30 loans were reinstated i.e. the borrower made all delinquent payments. RESI’s average unlevered current yield on the modified and reinstated loans based on the purchase price is 9.7%. 20 loans were refinanced by the borrower at 108% of the most recent BPO value available at the time of resolution and 119% of the BPO value at the time of acquisition generating approximately 3.1 million in net proceeds and 19 loans were repaid in full by the respective borrower generating approximately 8.5 million in net proceeds. On the loans liquidated during the quarter RESI realized an aggregate gain of 37% over the purchase price paid for these loans. As Bill mentioned earlier we exceeded our initial target of having at least 100 rental properties by the end of the second quarter. As shown on slide 9, at the end of the second quarter 102 properties in our portfolio were leased. Average gross rent per property was 12% of the property value at the time of acquisition. On average these properties were leased within 27 days of being placed on the market. 48 additional properties were renovated and listed for rent. For the 142 properties where renovation was completed our average renovation expense per property was 16,400 and renovations were in progress on 140 additional properties. We’re pleased with the seamless way in which Altisource portfolio solutions has been able to support our leasing growth. While not a statistically significant number we had two leases up for renewal since inception and both tenants opted to extend their leases for an additional year. Furthermore approximately 30% of our leases have two year terms, we realize that we’re still in the initial stages of building our rental portfolio. Yet we find these early signs very encouraging. We’re excited about the prospect of lower than assumed turnover and the resultant impact on our net rental yields. Each additional year, the tenant stays beyond initial assumptions could impact net rental yields by as much as 130 basis point. As announced in the previous earning call, we will be providing Vintage portfolio performance for the loans we purchased in each semi-annual period. These performance reports will be presented one year after the end of each semi-annual period and every six months thereafter. Please turn to slide 10 where we show the resolution progress of the three pools that we purchased in the first half of 2013 consisting of 1410 loans. 12% of the portfolio or 166 loans were current at the end of the second quarter, 2014, RESI’s average unlevered current yield on these loans based on the purchase price is approximately 13%. 10% of the portfolio or 145 loans were liquidated via early resolution strategies such as short sale, third party sale or refinancing. 71 loans were resolved via short sales and third party sales at 99% of the BPO value at the time of acquisition generating approximately 19.6 million of net proceeds. 50 loans were refinanced at 110% of the BPO value at the time of acquisition generating approximately 8.9 million in net proceeds. 24 loans were repaid in full by the respective borrowers generating approximately 5 million in net proceeds. In addition 14% of the portfolio or 197 loans were converted to REO. These results demonstrate our ability to manage our NPL portfolio in-line with our initial expectations. 22% of loans in aggregate were resolved via early resolution strategies which is approximately 50% higher than the high-end of our guidance of 50%. Refinance proceeds at 110% of acquisition BPO are also significantly better than our initial guidance of 95% of BPO. Please turn to slide 11 for an update on our second quarter NPL acquisition activity. In June 2014 RESI agreed to acquire two pools from a third party in a privately negotiated transaction. One of them being a NPL pool and the other a reperforming loan or RPL pool. The NPL pool consists of 3200 mortgage loans with 760 million in UPB and 892 million in market value of underlying properties. The RPL pool consists of 1100 mortgage loans with 253 million in UPB and 328 million in market value of underlying properties and it came as a package deal with the larger NPL pool. The first portion of this transaction was completed in the last week of June. I’m very excited about this NPL acquisition which maybe one of our most attractive acquisitions to-date. For the non-performing loans purchased in the quarter we paid 63% of BPO value which we believe is a very attractive price in the context of pool characteristics. More than 60% of the loans had loan to value ratios or LTVs less than or equal to 100%. With 45% of loans having LTVs less than or equal to 80%. Modification of a loan is our most preferred outcome. Given this LTV profile we expect to have a higher modification percentage on this pool. A borrower with positive equity in a home is much more likely to explore a loan restructuring or a short sale. In addition this portfolio of loan has a favorable geographic distribution. The top states by UPB were California and Florida accounting for 36% of the overall portfolio. We paid 70% of UPB or 53% of BPO value for the RPLs purchased in the quarter. Weighted average LTV on the RPLs was 92% with approximately 60% of loans having LTVs less than or equal to 80%. Our expected return on the RPL pool is in the high single digits. We anticipate the RPL pool to improve in credit quality and loan to value overtime resulting better quality assets that are potentially eligible for refinancing. Refinancing driven by debt consolidation on the part of borrowers could generate upside returns for our shareholders. We may acquire a small amount of RPLs in the future but we will do so only to facilitate our non-performing loan purchases. We expect to complete the remaining portion of this acquisition consisting of approximately 2100 NPLs and 200 RPLs with 478 million in UPB and 573 million in market value of underlying properties by the end of July. In May 2014 we completed the first closing of the previously announced 915 asset transaction with the purchase of 474 NPLs and 190 REOs with 127 million in market value of properties. We anticipate closing remainder of the transaction in the third quarter. In aggregate we agreed to pay 65% of the total market value of underlying properties for all of the NPLs and REOs that we acquired in the second quarter. This compares very favorably to the purchase price paid by competitors in other publically announced NPL acquisitions during the second quarter especially in light of the favorable geographical distribution and LTV characteristics of the pools. We continue to see a large supply of NPL pools available in the market for sale which should allow us to grow RESI’s portfolio further. I would now like to turn the call over to Ken. Ken?

[Kenneth Najour:]

Thank you Ashish. Today I will provide more detail on our financial performance for the second quarter of 2014 and review our taxable income. As you can see on slide 12 we reported net income of $67.8 million or $1.18 per share for the quarter which compares favorably to the $41.9 million or $0.77 per share for the first quarter of 2014. Our book value per share at the end of the quarter was $22.93. Total revenue and investment gains for the quarter were $116 million. During the quarter we recorded $50.4 million of expenses which includes the following four items. First $23.2 million of G&A including investment fees, incentive fees of $13.7 million, 1.8 million of reimbursable expenses to AAMC, $2.4 million of due diligence task and $2.9 million for provision of selling cost on REO assets that were moved to our taxable REIT subsidiary. Second, we had $16.9 million of servicing cost which included approximately $2.3 million of contractual servicing fees paid to Ocwen and $14.6 million of insurance, tax and foreclosure expenses. Third, we had $6.9 million of interest expense and fourth, we had $3.3 million of property operating expenses. As shown on slide 13, RESI’s estimated taxable income for the quarter was $26.5 million versus taxable income of $3.3 million in the second quarter of 2013 and $25.8 million in the first quarter of 2014. Strong taxable earnings for the quarter reflect our sustainable progress in resolving NPLs. During the quarter we disposed of 135 loans and 22 REOs. On these 157 resolutions our aggregate proceeds were approximately $44.5 million with an average gain of $63,000 per loan in REO. During the quarter we converted 907 loans to REO with an average gain of $41,000 and completed 90 loan modifications with an average gain of $106,000. On a cumulative basis since inception our GAAP pretax income has exceeded estimated taxable income by approximately $80 million. We anticipate this excess amount to further contribute to our taxable income in future periods driving dividends to our shareholders. At this time we would like to open the call up for questions. Operator?

[Operator:]

(Operator Instructions). Our first question comes from Mike Grondahl from Piper Jaffray. Your line is open. Please go ahead.

[Mike Grondahl:]

The first one is could you just provide a little bit more color on the backlog and the pipeline as you enter the second half of the year and then maybe the liquidity that you’ve available after these July purchases?

[Ashish Pandey:]

Sales activity has picked up significantly in the recent months. We believe that the third quarter will continue to offer us meaningful and attractive acquisition opportunities. We do not wish to comment any further on the acquisition pipeline due to competitive reasons. On the second question, at this time we have sufficient capital to fund the remaining portion of pools that we have agreed to purchase till-date to the extent we see additional opportunities we will explore additional sources of financing.

[Mike Grondahl:]

And how should we think about the securitization financing you mentioned in the third quarter?

[Ashish Pandey:]

The securitization financing is one other means for us to optimize our data structure. We intend to securitize a pool of non-performing loans during the third quarter and these would be loans which are today on our repurchase lines and they would be moving from there to a securitization, freeing more capital to us.

[Mike Grondahl:]

And then on the last call you had mentioned two exclusive deals that had the potential to close in 3Q. Is there any update on those deals?

[Ashish Pandey:]

Mike I mentioned that one deal we were able to kind of accelerate and close during the quarter, it was a privately negotiated transaction that we closed. I will like to speak much about the second deal but at this point of time I don’t think it is in best interest of RESI shareholders for competitive reasons.

[Mike Grondahl:]

So the second one hasn’t transacted yet, is that fair?

[Ashish Pandey:]

That would be fair to say.

[Operator:]

Thank you. Our next question comes from Dan Oppenheimer from Credit Suisse. Your line is open. Please go ahead.

[Dan Oppenheimer:]

I was wondering if you can talk a little bit more about one of the transactions we talked about favorable geography with 36% to California and Florida. I’m wondering about the mix I guess (indiscernible) in Florida, it can take a little bit longer in terms of achieving resolution and to REO on some of the homes, how much is that balanced between California and Florida and more skew towards Florida?

[Ashish Pandey:]

The balance between California and Florida would be fully split. Florida timelines are not in fact are much shorter than the timelines which you have seen in New York and New Jersey. It's a judicial state but backlog has been clearing up fast. I think what is more important is to consider the New York, New Jersey concentration in the pool and that is less than 20% unlike some of other pools where you will see that number in 50s.

[Dan Oppenheimer:]

Okay and secondly wondering about the goal of getting to 1000 rentals by the end of the year. Looking at the homes that went to REO during the second quarter. Should we think that the homes in the renovation process will increase very significantly during the third quarter and any progress that you can talk about in terms of the renovations on those so far?

[Ashish Pandey:]

We had inventory of roughly 2000 REOs at the end of the second quarter and I think that provides us critical size to convert to 1000 rental properties by end of the year. You will see a significant ramp up in the properties that are under renovation during the third quarter and you should logically expect lot more rented properties and listings by the end of third quarter so that you see that momentum going into the fourth quarter.

[Operator:]

Thank you. Our next question comes from (indiscernible). Your line is open. Please go ahead.

[Unidentified Analyst:]

Two questions, I guess first following up on the last question. The marketing -- the presentation on the website looks at I guess 102 homes rented and 40 listed for rent, visiting Altisource rental homes website, it looks like we have got a 182 homes I believe are listed on the website. Can you reconcile those numbers? Is there a timing difference in what we see today on the website versus what’s in the presentation?

[Ashish Pandey:]

Yes there is a timing difference. What we’re referring to in the presentation are numbers as of June 30th (indiscernible) website are probably homes which are either listed or where renovation is in process and we expect them to come there on listing soon.

[Unidentified Analyst:]

Great. So that puts this to almost 300 units. Okay, and then I guess second following, looking at potential supply can you talk about where we’re seeing NPL acquisition opportunities. Have you seen any increased selling by banks from what I understand from some of their results, we have seen a little bit of tightening in the second quarter. Has that made banks more likely to sell NPL pools due to previous aggressive marks, they can now sell those and put [ph] gains on those loan sales or can you really talk about supply of NPLs and where you think that will come from here on the second half of the year?

[Ashish Pandey:]

We’re seeing good supply from banks. I think third quarter will remain an active quarter from a bank supply perspective because as I understand end of September is the deadline for FICA Research [ph] that go into valuation so I think banks would be a meaningful seller during the third quarter. Just to put the context around the size of the market, the non-performing loan market even today is in 100s of billions. It's not something -- its not a market which is 10s of billion. So there is ample amount of opportunities there for us to acquire non-performing loans pools. We don’t only feel comfortable about 2014 but we feel pretty comfortable that you know in next two years 2015 and 2016 we should be acquiring meaningful amount of NPL volume.

[Unidentified Analyst:]

Great. And then one last question just to get an update. I haven't seen anything new come out but can you guys comment on the situation the first of the year with loss [ph] you’re looking into Ocwen or related businesses and have you guys seen anything there or does it seem like that’s really moved into the rear view mirror at this point.

[Kenneth Najour:]

We’re not going to comment on New York State and particularly with respect to another company on this call.

[Operator:]

Thank you. Our next question comes from Fred Small from Compass Point. Your line is open. Please go ahead, sir.

[Fred Small:]

What’s the best way for investors to evaluate RESI’s dividend capacity? I think Ken said the difference between GAAP net income and taxable was cumulatively 80 million something like that as of the end of Q2 is that correct?

[Kenneth Najour:]

That’s correct. Fred, one way to look at it I think is the numbers we give you that showed the embedded value of the assets that we have purchased in terms of the step up in book value. Those are essentially, you’re going to see a good portion of that come in to we believe a good portion of that will come in to earnings over the next 24 months.

[Fred Small:]

And I was just thinking about that 80 million difference, what sort of timeline would you expect that to flow in over?

[Ashish Pandey:]

Fred, if you take a loan and just take it to the ultimate resolution or whatever it maybe whether it would be REO conversion or it be modification or sale of the loan. Within that resolution cycle GAAP income has to equal to tax income broadly. So these loans have been on our books for some time, so the conversion timeline would not be two years it would be definitely less than two years probably and we’re talking about 12 months or so. On top of that that’s not the only contributor on top of that as you convert more loans you will have additional tax income.

[Kenneth Najour:]

The 80 million is simply a slice of that full amount, it's moving those -- that the bulk of assets three months closer hopefully to the resolution but the overall opportunity set if you will is that -- the number that we add to book value.

[Fred Small:]

Got that. I was just doing the math on the, if I look at that 80 million and I take the current share count that’s around about a $1.40 that’s not the entire dividend capacity. You’re adding to that as you do new acquisitions but at least that $1.40 probably converts over a shorter time period than the 24 months over 12 months something like that.

[Kenneth Najour:]

That’s right. It's closer, it's a snapshot -- Ashish what’s the larger number so I get a precise in terms of what we would add to book value?

[Ashish Pandey:]

As we expect to complete both of these transactions that we announced, the number will be $9.80 per share.

[Kenneth Najour:]

And you would think about that as a process. You don’t have all the data to know how far are each of these properties through their foreclosure process. What will happen? Which ones go to market? Which ones don’t? And again 24 months is not the end of -- it’s not the end of the right-hand tail [ph] if you will, it's somewhat the average with regard to that. So you would expect a good portion of that to come in to earnings to that $9.80 over the next 24 months.

[Fred Small:]

You had a lot of data on the Q1 presentation about current acquisition capacity. Can you talk at all about what sort of the current acquisition and capacity is right now given the ability to maybe move leverage and where you’re comfortable - what’s sort of you’re comfortable of thinking about in terms of acquisitions without raising additional equity?

[Ashish Pandey:]

This time we have sufficient capital to fund the remaining portion of pools that we have agreed to purchase till date. On top of that we can probably purchase 300 million to 400 million of UPB based on the securitization volume that we expect to do during the third quarter. As we continue to securitize more NPLs we will create additional capacity.

[Fred Small:]

And maybe last one just in terms -- I guess when you talk about the resolutions and sort of where you have resolved loans for or sold loans with respect to BPO. If you were to mark that to market sort for the appreciation of the underlying asset value since you purchased the loans, where do you think that will be?

[Kenneth Najour:]

I don’t think you should go that far in terms of projecting. I mean we have been in this business one form or another over several decades. The early resolutions tend to be better than the backend tail. So I think that people need to be very mindful of that when they look at performance I think that all we’re showing is we’re better than what we forecast but that doesn’t tell you that -- this tells you that what our guidance was reasonable right?

[Fred Small:]

Yes.

[Kenneth Najour:]

Not that you can continue to expect all assets to be resolving at those levels.

[Operator:]

Thank you. (Operator Instructions). And our next question comes from Jade Rahmani from KBW. Your line is open. Please go ahead.

[Jade Rahmani:]

On your NPL expectations does that include anything from Freddie Mac and do you expect sales to come out of the GSEs this year?

[Ashish Pandey:]

Jade, we are under confidentiality with GSEs. We cannot comment on what’s happening on the GSE front at this point of time.

[Jade Rahmani:]

Okay. On the reperforming loan acquisitions, can you just talk to what the disposition strategy is and how long you’re expecting to hold those and will those RPLs be contributed to a securitization?

[Ashish Pandey:]

Yes those RPLs will be contributed to a securitization. Our disposition strategy would be to take financing under a granted trusted [ph] structure which provides us more flexibility to buyout loans and as loans season we expect that borrowers will like to refinance those loans to extract equity from their house so that would be our most preferred resolution strategy.

[Jade Rahmani:]

Okay and you said that the total returns are in the single digits?

[Ashish Pandey:]

We’re in high single digits, if we do not assume any amount of refinancing.

[Kenneth Najour:]

What’s interesting about our this particular pool of RPLs is that the lowest return is for the loans to continue in their current status in our belief and that there is good downside protection because of the percentage of BPO we bought them at and there is obviously to the extent that they prepay there is a upside gain because you’re getting the discount that you bought them at in a much shorter time period than you forecast.

[Jade Rahmani:]

What do you think the holding period is likely to be?

[Ashish Pandey:]

On an average holding period should be less than three years.

[Jade Rahmani:]

So less than three is -- I mean are you talking like 2 to 3 years duration?

[Ashish Pandey:]

Yes.

[Jade Rahmani:]

Okay.

[Ashish Pandey:]

Keep in mind that on an equity portion your effective duration is pretty low because we will take term financing on this so we will have a very small amount of equity kind of you know against -- at this rate.

[Jade Rahmani:]

I think HLSS is also buying RPLs, is there any conflict of interest or you mentioned the RPLs were acquired as part of the package so I assume these investments exist as part of your overall NPL strategy, not a shift.

[Ashish Pandey:]

You’re correct on that.

[Jade Rahmani:]

Okay so you wouldn’t be competing with -- against HLSS.

[Kenneth Najour:]

It's not our business strategy to buy RPLs unless it's part of the normal package but that doesn’t -- there are independent companies that need to have their own strategy. But we can’t comment on that but with respect to our strategy is it's not a main part of our business, it's something that came in along with another pool that was very attractive and in aggregate we think it's a very attractive transaction.

[Jade Rahmani:]

The unrealized gains in the quarter, I think as a percentage of the beginning loan balance came in at 23.8% which increased from last quarter. Can you discuss what continues to drive that number in excess of I think your 15% underwriting assumption and do you think that current gain is safe to assume going forward?

[Ashish Pandey:]

A part of that is due to higher resolutions Jade and there is a small component of higher leverage which effectively reduced the effective discount rate. So that’s the combination. Ken may have better numbers or you know I’m sure that you know once you see the queue you will be able to understand it better.

[Jade Rahmani:]

Okay and just lastly in the retaxable income reconciliation the mortgage loan servicing cost add backs, are those pertaining to advances and I just wanted to confirm is that just the accrual amount on the income statement or is any of that a cash add back?

[Kenneth Najour:]

That’s primarily a cash add-back and the advances are capitalized for tax purposes, we have a time difference in terms of when that’s deductible.

[Operator:]

Thank you. I’m showing no further questions at this time. I would like to hand the conference back over to the company for closing remarks.

[Kenneth Najour:]

Thank you very much. Have a great day.

[Operator:]

Ladies and gentlemen thanks for participating in today’s conference. This concludes our program for today. You may all disconnect and have a wonderful day.