Prepared remarks
Greetings, and welcome to the Redwood Trust Second Quarter 2025 Financial Results Conference Call and Webcast. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Kaitlyn Moritz, Head of Investor Relations. Kaitlyn, please go ahead.
Thank you, operator. Hello, everyone, and thank you for joining us today for Redwood's second quarter 2025 earnings conference call. With me on today's call are Chris Abate, Chief Executive Officer; Dash Robinson, President; and Brooke Carillo, Chief Financial Officer. Before we begin today, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts and assumptions and include risks and uncertainties that could cause actual results to differ materially. We encourage you to read the company's annual report on Form 10-K, which provides a description of some of the factors that could have a material impact on the company's performance and cause actual results to differ from those that may be expressed in forward-looking statements.
On this call, we may also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures are provided in our second quarter Redwood review, which is available on our website, redwoodtrust.com. Also note that the content of today's conference call contains time-sensitive information that is only accurate as of today. We do not intend and undertake no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded and will be available on our website later today. With that, I'll turn the call over to Chris for opening remarks.
Thanks, Kate, and good morning, everyone. Our second quarter results reflected our decision to accelerate Redwood's strategic transition toward a more scalable and simplified operating model, an evolution we first articulated at our 2024 Investor Day. The avenues for growth we see today across our operating platforms are unequivocally transformative, particularly amid evolving market dynamics in single-family housing, shifts in bank lending practices and potential outcomes related to the GSEs. In light of this, we took decisive steps to begin reducing exposure to holdings that now reside outside of our core operating footprint. These include our legacy multifamily bridge loan portfolio, third-party securities portfolio and other noncore legacy assets, the vast majority of which we have held for years. While these investments were initially aligned with our strategy and return thresholds, some are now fully valued, while others have underperformed as interest rates rose and have become a significant drag on our forward earnings.
In assessing the shifts now occurring in housing finance and the growth potential of our mortgage banking platforms, where capital allocation has grown by over $200 million in the past year, and we have generated combined GAAP returns north of 20% in each of the past four quarters, the opportunity cost of simply allowing legacy investments to naturally run off has become too great, prompting us to more proactively reposition our capital. The decision to accelerate the wind down of our legacy portfolio resulted in approximately $0.79 per share of fair value and repositioning charges in the second quarter as we move forward with liquidations, term financings or other resolutions for these assets. This was the primary contributing factor to a reduction in our GAAP book value per share to $7.49 at June 30, 2025, as compared to $8.39 at March 31, 2025. However, our consistent use of fair value accounting standards as compared to cost accounting methods used by banks and other financial institutions positions us to reflect asset values at levels aligned with current market conditions, facilitating more expeditious outcomes.
We estimate the total capital ultimately harvested from these legacy investments will total up to $200 million to $250 million by year-end 2025 and our ability to quickly redeploy that capital into our operating platforms will result in higher quality, more predictable earnings and a simplified revenue mix. In support of this transition, which is well underway, we recently began repurchasing our common shares, buying back 2.4 million shares since June 2025. Following today's second quarter earnings release, we plan to become more aggressive buyers of our common shares, having recently received an increased stock repurchase authorization to $150 million from our Board of Directors. As we continue to free up capital through our strategic portfolio transition, we expect utilization under this authorization to increase until our share price begins to more fairly value the go-forward earnings power of our platform, driven by the potential for continued strong mortgage banking returns at increased scale, fueled in part by under-earning capital freed up from our legacy activities.
Over the past year, we've allocated an additional $200 million of capital to our operating platforms, a trend we anticipate continuing as these operating platforms swiftly increase in scale. The well-documented retrenchment by banks in mortgage lending has enabled Redwood to meaningfully expand loan acquisition volumes and market share even as overall housing activity remains subdued. Through our network, we have seen increased demand from our bank partners for capital-efficient solutions that address a broader segment of their loan production. To offer context, we have sourced and are currently reviewing over $55 billion of seasoned bulk jumbo pool opportunities from regional banks. While some sales may require a modest improvement in benchmark interest rates, many are actionable now, reflecting conviction among many bank executives in the value of our partnership. Additionally, the recent reemergence of bank M&A activity is expected to result in further portfolio dispositions as acquirers utilizing purchase accounting are motivated to sell these portfolios.
More broadly, the prospect of transformative housing market reform or GSE privatization has the potential to create generational opportunities for us, particularly given that our core operating objectives closely resemble that of a private sector GSE. As some may recall, Fannie Mae and Freddie Mac's previous market share as privatized companies was substantially below where it sits today with the GSE still enjoying the benefit of full backing by the federal government under conservatorship. We expect and are prepared for the role of the private sector to expand dramatically under any form of GSE privatization or as a result of any federal housing policy shifts aimed at reducing taxpayer exposure to housing finance. Given rapidly advancing narratives on the future of the GSEs in Washington, we remain deeply engaged with prominent regulatory and market stakeholders who are shaping housing policy and expect Redwood to be positioned advantageously irrespective of policy outcomes. I'll now turn the call over to Dash, who will cover our operating results.
Thank you, Chris. Operating performance in the second quarter built on recent momentum as our mortgage banking platforms continue to deliver elevated returns driven by increased market share, operating efficiencies and accretive channels for distribution. To start, Sequoia locked $3.3 billion of jumbo loans in the second quarter, representing a 15% increase in on-the-run or current coupon flow volume versus Q1. Notably, this was Sequoia's highest quarterly flow volume since 2021 when total industry volumes were more than three times current levels, underscoring meaningful growth in market share and increased opportunities to capture portfolios sold by banks and other institutions. While seasoned bulk activity may remain episodic, as Chris mentioned, meaningful activity has commenced with approximately $15 billion of such pools trading in the first half of 2025. The resumption of bank M&A activity and more depositories seeking creative capital solutions for both legacy and newly originated books of business are expected to drive further activity for us going forward.
Flow volume remained balanced between both banks and nonbanks, driven by sustained momentum across our expanding loan seller network, which now includes active relationships with sellers accounting for 80% of the jumbo origination market. Notably, we continue to grow our sourcing network by partnering with new sellers, several of whom are looking to sell their production for the first time and are engaging Redwood as their sole takeout partner. Our ability to deliver flexible balance sheet solutions across a variety of loan types, including adjustable rate loans and certain specialized production segments continues to set us apart, and we remain in active collaboration with partners to develop tailored portfolio strategies. Importantly, Sequoia's distribution activity remained robust with gain on sale margins exceeding historical averages for the fourth consecutive quarter. In the second quarter, we distributed nearly $3 billion of loans, primarily through four securitizations for $2 billion, maintaining our monthly pace of issuance and bringing total Sequoia year-to-date issuance to $5 billion.
This represents our most active issuance period since 2021 and speaks to the continued investor demand for the platform's production. Our Aspire business built meaningful traction during the second quarter, reflecting the strength of our market positioning and depth of our originator relationships. As a reminder, Aspire's recently broadened mandate now includes acquisition of an expanded set of loan products from sellers as well as direct origination of home equity investments or HEI. Aspire's lock volume tripled sequentially to $330 million, driven by engagement from a growing network of originators. The platform remains in its early stages of scaling with expectations for meaningful growth across the next few quarters. Activity in July alone has already surpassed second quarter lock volume, signaling continued momentum as we move the business forward. The credit profile of Aspire's production remains strong and in line with expectations.
The current pipeline carries an average borrower credit score of 753 with an average LTV of just under 70%, balanced between loans to owner-occupants whose financial profile warrants an alternative underwrite and smaller balance loans underwritten to rental income made to housing investors. The non-QM origination market grew over 60% last year, and industry estimates suggest that significant growth will continue in 2025 given growing borrower need for expanded loan products. Moreover, an important competitive advantage for Aspire that we anticipated has begun to emerge, namely the increased share of the expanded credit market captured by our existing seller network. We are just scratching the surface with our current network of jumbo sellers who, by our estimates now account for 50% to 60% of Aspire's addressable market. This is a significant runway of growth for Aspire, with originators who know our platform and value consistency of client experience across a broad array of offerings.
This group is now complemented by a cohort of sellers new to our platform who are primarily focused on Aspire's products and eager to diversify their distribution to include a platform like Redwood. For now, Aspire's distribution remains focused on whole loan sales to a growing bench of capital partners, reflecting robust investor demand, including from insurance companies and asset managers. This dynamic creates an ideal ecosystem for Redwood, seamlessly connecting loan originators seeking reliable distribution channels with institutional investors pursuing attractive assets. Given the platform's strong initial performance, expanding seller base and alignment with Redwood's core strengths, we remain optimistic about Aspire's long-term growth potential and its role in capturing a growing market share. Our business purpose lending platform, CoreVest, funded over $500 million in loans during the second quarter, a slight increase relative to the first quarter and its highest volume since mid-2022.
Performance was driven by over 20% quarterly growth in term loans, DSCR and smaller balance residential transition loans or RTL, partially offset by a decline in other bridge volume. Borrower loyalty remains strong, as evidenced by our high repeat customer rate during the quarter, an important indicator of stability amid signs of housing stress in select regions. Our approach to credit risk remains dynamic, including targeted overlays, tightened leverage in more vulnerable markets and enhanced structural protections. As many other lenders in the space remain aggressive, we believe this measured approach to underwriting, coupled with strategic hires within our small balance product segment that are already meaningfully contributing, positions the platform for continued prudent growth. As with our other platforms, demand for CoreVest production remains elevated, and the second quarter represented CoreVest's high watermark for distribution activity, nearly $600 million through a combination of whole loan sales, sales to joint ventures and securitizations, including our first rated securitization backed by RTL and other bridge loans, an important benchmark for the business.
Turning to overall bridge portfolio performance, 90-day plus delinquencies across the bridge portfolio were 11% at June 30, down from 12.1% at March 31. Of note, the Redwood review now presents this metric broken out between core and legacy bridge loan portfolios. As previously discussed, the performance of our legacy bridge portfolio has been a material drag on both earnings and overall investment performance. These loans primarily originated in 2021 and 2022 were underwritten during a period of significantly lower interest rates, more favorable financing conditions and different market fundamentals. As Chris noted, during the second quarter, we took additional steps to reduce exposure to this portfolio, including loan and REO sales and other structured exits. Since March 31, 2025, and inclusive of activity thus far in July, approximately $425 million of total bridge loans repaid over 2022 vintages. I'll now turn the call over to Brooke to discuss our financial results.
Thank you, Dash. We reported a GAAP net loss of $100.2 million or $0.76 per share for the second quarter. The net loss was primarily driven by our decision to accelerate the wind down of our legacy portfolio and the associated fair value changes that reflect realized and anticipated resolutions on legacy bridge loans and other noncore portfolios. GAAP book value per common share was $7.49 at June 30 relative to $8.39 per share at March 31. To enhance investor transparency, we've introduced a new reporting segment, Legacy Investments, which separately presents assets targeted for sale or other disposition. Core segment's earnings available for distribution or core segment's EAD is a newly introduced non-GAAP financial measure this quarter designed to provide investors with greater insight into the performance of our core business operations, which are Sequoia and CoreVest together with their related investments in an allocated portion of our Corporate segment by excluding the impact of our legacy Investment segment.
Core segment's EAD for the quarter was $25 million or $0.18 per share, equating to a 14.5% annualized ROE. This is as compared to $28 million or $0.20 per share in the first quarter. Our results highlight the resilience and earnings power of our core platform. Collectively, our mortgage banking platforms continue to profitably scale. These businesses delivered combined returns exceeding 20% and mortgage banking gain on sale margins above target levels for the fourth consecutive quarter despite market volatility and persistently high interest rates. Additionally, mortgage banking revenue increased 88% compared to the same period last year. Sequoia Mortgage Banking posted strong quarterly performance, generating segment net income of $22 million and a 19% annualized ROE. On-the-run or current production jumbo loan lock volume grew 15% sequentially to $3.3 billion, and Aspire loan volumes were $330 million, nearly triple the prior quarter's level as we continue to ramp that business.
CoreVest Mortgage Banking achieved $6 million in segment net income and an annualized EAD ROE of 34%. The quarter's results underscore the ongoing strength of distribution as well as higher volumes, particularly given a 20% increase in activity in our higher-margin term loan production. Redwood Investments, which now represents primarily residential housing investments sourced from our leading mortgage banking platforms, reported segment net income of $12 million compared to $25 million for the first quarter. This quarter saw more muted asset valuation gains relative to last quarter, but credit quality in the portfolio remained steady. During the quarter, we deployed $100 million into retained operating investments aligned with our mid-teens return targets. Legacy investments recorded a $104 million loss for the quarter, primarily driven by incremental negative fair value adjustments and accelerated asset sales and resolutions.
These factors, together with bridge loan paydowns, contributed to a 17% reduction in capital allocated to legacy investments since March 31, 2025. As we look ahead, we are focused on reducing our capital allocation for legacy investments to 20% by year-end from 33% at the end of the second quarter, positioning us to raise and reallocate approximately $200 million to $250 million of additional capital toward our higher earning core platforms. Our long-term target remains to reduce our capital allocated to legacy investments to between 0% to 5% by the end of 2026. We anticipate our consolidated EAD returns will increase to a range of 9% to 12% by year-end, positioning us with the ability to cover our dividend level as we enter 2026 and providing potential for further earnings growth throughout the year. From a leverage perspective, total recourse financing increased modestly to $3.3 billion from $2.9 billion at March 31, primarily due to growth in short-term secured borrowings supporting increased jumbo volumes.
These balances typically turn over within 30 days. This increase, coupled with the decline in tangible equity, led to a rise in our recourse leverage ratio to 3.2x from 2.5x at the end of Q1. We proactively reduced marginable securities repo by 60% given the sale of certain third-party securities. Our liquidity remains solid as we ended the quarter with approximately $302 million in unrestricted cash. Reflecting our conviction in Redwood's intrinsic value, we increased share repurchases, buying back 2.4 million shares since the start of the second quarter and expect to be active in the third quarter, given Chris' comments related to our expanded authorization announced today. I'll close by reiterating our open comments. Redwood is at a strategic turning point. We are evolving towards a simpler operating platform, and we are confident this will result in sustainably higher profitability and long-term shareholder value creation. And now I will turn it back to the operator for Q&A.
Questions and answers
Our first question is coming from Bose George from KBW.
When we think about that 9% to 12% EAD for 2026, should we calculate that based on the $7.49 of book value? Or should we strip out the 20% of the capital that's still going to be in the legacy piece at the end of the year?
So that's a blended number inclusive of the legacy portfolio. So you would calculate on our full book value.
Okay. Great. And then in terms of the home equity investments that was moved into the legacy piece, can you just talk about that portfolio, what changed? And yes, just the thought process there?
Yes, Bose. The only thing that changed is speeding up the evolution of our operating model. We've talked about capital light. We've talked about our franchise value sort of being towards sourcing assets and distributing assets through securitizations and into the hands of third parties, private credit and so forth. I think the HEI book on balance sheet had appreciated quite a bit over the years. And we've decided that recovering that capital and deploying it into the operating platforms is the prudent use at this point. Also, you started to see some trailing off of HPA in many sectors of the country. And I think there are a few good reasons to move on from that book. The good news, though, is that process is very much underway. We expect to have a lot more to talk about in Q3. But I think the overall message this quarter is our evolution to this capital-light structure where a lot of the sort of on-balance-sheet investing that we've done in the past for balance sheet is going to turn into capital that moves into our operating platforms and co-investments with third parties.
Okay. Great. Regarding the losses this quarter and the associated charges, do you feel reasonably confident that this reflects the value of these legacy assets as they are gradually addressed?
Yes. We obviously really leaned in this quarter. I think that reflects our conviction to hit the fast forward button on the transition of the operating model. Each of these legacy assets, particularly the bridge loans, each one is its own special situation. They're not homogenous pools like even HEI, for instance. I think we really leaned in on the marks and we did our best to reflect actionable levels. There continue to be fundamental challenges with some of these assets, which has also informed our thinking. So the operating environment there is not necessarily improving. But I do think that where this business is headed and where we need our internal focus, the right answer was to lean in as we did. And again, recovering that capital of $250 and redeploying it is something we think we can do very quickly based on the opportunities we're seeing, which we talked about in the scripts. So that's really what's informed the number, and we're certainly hoping that reflects actionable levels.
Next question is coming from Crispin Love from Piper Sandler.
Just following up on that last question, the dispositions of the bridge loans and the legacy portfolio. So you're citing expected to generate up to $200 million to $250 million of incremental capital by year-end. What types of prices versus the prior marks do you expect to sell those loans at? And then who are you seeing broadly as potential buyers? And then how has that appetite been so far?
Crispin, it's Dash. So to clarify, the $200 million to $250 million includes the overall legacy investments portfolio. Some of that's bridge and some of that is some of the other asset classes we talked about. But as Chris articulated, we have positioned in mark commensurate with where we have been executing in the second quarter and through July through today, we've resolved about $200 million of that legacy portfolio. The marks also reflect actionable levels for another subset of that portfolio that we expect to monetize in the third quarter. In terms of the buyers and the overall market, I would say, as Chris said, each of these loans is its own story. We have had some success being more aggressive in just selling notes or REO. We have had a number of these loans refinanced out, which has been good. So I would say that liquidity is pretty varied. There are buyers out there that would look at portfolios, but we've had success as well just working through these line by line.
The message is we're trying to do that more expeditiously because the earn-back period on unlocking this capital is extremely short when you combine all the mortgage banking opportunities we've got, obviously, the share buyback announcement. The capital we can unlock here is extremely accretively deployed very, very quickly. It's not like it takes time to do that. It's pretty instant offense as we've seen. We're going to be intelligent at the prices at which we transact. As you're well aware, just the overall operating conditions within the multifamily market broadly remain mixed or challenged, potentially better said. Some of this portfolio is a small subset of sort of a broader macro environment that a lot of others are dealing with significantly more quantum than we are, and we have to be cognizant of that as we try and transact. So we're trying to be as intelligent as we can and obviously maximize the value at which we exit these. But a big piece of that is the deployable capital we're unlocking, and that's a very, very important part of the story.
Great. I appreciate all the color there. And then just the last question for me. Just on the Sequoia gain on sale margin, definitely outperformed as you have been. Can you discuss just some of the drivers there? And do you think you could remain above that 75 to 100 basis point longer-term target over the near term? I don't think I heard any update on that in the prepared remarks.
Yes, we are generally cautious about forecasting above the usual range due to market fluctuations and capacity adjustments. However, we have been achieving strong returns in Sequoia and have started Q3 on a positive note, maintaining good momentum in each of our platforms through July. This gives us optimism that margins could stay elevated. Currently, the pricing in our Sequoia segment is very competitive, the best we’ve experienced in some time, though we prefer not to disclose specific figures. Our successful execution, highlighted by completing eight deals through July and our disciplined approach to issuance, has contributed to the efficiencies boosting those margins. While we don't want to predict above our long-term average, we remain hopeful that we can continue delivering strong returns in this area.
Our next question is coming from Doug Harter from UBS.
I want to dig a little bit more into the $0.79 loss. Can you just help us sort of compartmentalize that loss? How much of that is future cash flow or losses that you would have recognized, but just over a longer time? How much of that is just kind of an acceleration of disposing under-earning assets? And kind of what was that expected time frame just as we can think about that payback period?
I'm happy to take that, Doug. I mean, in terms of the composition, it is largely driven by our older vintage multifamily and to a certain extent just '21, early '22 vintage bridge, where we continue to see all of our delinquencies really focused. That is the vast majority of that breakdown. I would say the majority is where we see near-term resolutions or expected disposition. As Chris mentioned, fundamentals remain challenged. So a portion also was driven by fundamentals, and also some of our HEI and another third-party book that we mentioned was part of that as well.
Doug, I would also add, those marks do reflect, as Dash noted, any situation where we feel like we have an active resolution strategy that we can execute in the near term. As you know, most of these assets, certainly through many peers, are booked using CECL and other sort of cost-based reserving methodologies. I think the downside of fair value accounting is you have to be closer to the bid side, and it can be more volatile. But I think the optimism we have of kind of moving on from these legacy investments and again, steering all of our internal resources towards growing these platforms definitely informed the decision to move now. I feel it was absolutely the right decision for the company. We're going to resolve these as quickly as we can, but we did want to lean in again and do our best to get the marks where we're seeing visibility and where we could potentially transact.
Next question is coming from Crispin Love from Piper Sandler.
Got it. And you mentioned that you expect a relatively quick payback. Is there any way you can conceptualize that to help us see the logic of kind of taking this hit upfront and getting the higher earnings and just how to think about what that actual payback period is?
We can definitely collaborate on this topic. First, I want to emphasize that we intend to adopt the most aggressive buyback strategy we've implemented since I've been here. We take shareholder value very seriously. Considering the current stock performance, the prospect of allocating this capital to buy back shares is highly appealing and will immediately benefit us. Our businesses are scaling at a pace we haven't seen since the pandemic, and we've invested a significant amount of capital, around $200 million in the past year, into these operating platforms. We have the potential to do even more. Acquiring loans for securitization or other distribution methods requires considerable working capital. However, with sufficient capital to invest, we're able to lock in loans daily through our operating platforms. This process is much more stable compared to investing in third-party assets, making it a reliable business model. We are confident about the payback periods. The main issue is how quickly we can bring this capital back in-house. That's why we've targeted year-end to reclaim a large portion of the legacy capital. Each asset has its unique circumstances, and we are actively managing them. The good news is we initiated this process earlier in the second quarter, and we believe we're on track to improve our position and recover the capital effectively.
Just one thing, Doug, our EAD ROE on our legacy book was negative 22%. Even without accounting for the investment fair value losses related to some of the valuation changes this quarter, there was a significant drop in net interest income. The opportunity cost has never been higher, both from a net interest margin perspective and overall economic return. We can quickly redeploy that negative 22% into our businesses with over 20% operating margins or invest in our stock, which exceeds that. In fact, for some of the resolutions we've encountered, we've seen a payback period of less than one quarter.
Our next question is coming from Eric Hagen from BTIG.
Maybe a follow-up around the margins in the jumbo channel. I mean, under what scenarios at this point could you see the margins there really expand? I mean, do you think originators have the capacity to handle an increase in demand when rates fall and the margin would stay kind of the same?
Yes. I mean there's obviously a lot of capacity. The market has been slow. The spring selling season was slow. So from a housing activity perspective, I think everybody has been hoping for lower mortgage rates, and it just hasn't manifested. So from that standpoint, we don't necessarily expect TAM to grow, but our wallet share has been growing significantly. The way that we really expand those average margins is by bolting on bulk pools and opportunistic pools from banks, particularly to supplement our daily flow volume. So flow volumes are very strong. It's the highest it's been in two or three years. If we can supplement that with bulk, that really leverages the operation, if you will. It leverages the team, and you really start to see those efficiencies move towards net margins. So, I think for us, it's still a volume story. It's a wallet share story. And the goal is to have a growing flow business where we're facing originators each day locking loans. We cited some very large opportunities that we're currently reviewing and evaluating, most of which we think we're seeing exclusively. So, if some of those come to pass this quarter, I think that will be a very positive part of the story for margins.
The other thing I'd add, Eric, is just the overall universe of investors for jumbo compared to even a more nascent asset class like non-QM probably has some room to grow. Our securitizations are very well subscribed, but there's still an opportunity to grow that buyer base, particularly as our issuance picks up robustly; we're over a deal a month at this point. To piggyback on Chris' point as well, the seasoned portfolios obviously, those come at a discount. That's a very different value proposition for a lot of pockets of capital who are hedging out premium and convexity risk elsewhere in their portfolios. Those discount pools create an interesting balance in terms of profile. And as Chris said, we're just uniquely accessing those pools. We've bought a couple of billion-dollar pools already this year of discounts. There's a lot more to come, we hope. That's another opportunity for margin expansion to be able to control that type of convexity profile as a complement to our on-the-run business.
Next question is coming from Don Fandetti from Wells Fargo.
Yes. Can you just remind us of your sensitivity if the Fed does cut in terms of NII, there's some modest pickup. Is that correct?
Yes, we have noticed the impact from the recent Fed cuts. There is sensitivity between our fixed rate Sequoia pipeline and the floating liabilities that finance it, where most of our recourse leverage resides. If mortgage rates stay high, we anticipate a small benefit from this, along with other aspects of our fixed rate portfolio. We've also been focusing more on Adjustable Rate Mortgages (ARMs) than in the past, which currently accounts for over 12% of our year-to-date production. This is a key area for us as we work on efficiently distributing our seasoned bulk portfolios. We expect production in this area to continue to increase as well.
Next question today is coming from Steve Delaney from JMP Securities.
So look, it's never easy as a public company to be bold, but I have to applaud you pushing a little harder on the strategy reset button in the second quarter. Best to kind of focus on the future, not the problems of the past. With that said, thinking big picture about the core housing market, the owner-occupied market. It seems to me we're in a situation right now where we're seeing record HPA in terms of home prices, but interest rates are kind of holding things back. I'm curious from sort of like a product offering standpoint, as the Fed begins easing probably not much until '26, and that has some impact on the longer end, and we see 30-year rates coming down. Do you have some thoughts of how to recapture sort of maybe a once in a five-year refi opportunity within the prime jumbo segment? Because we really just don't hear people talking about that because people have got a lot of HPA, but they don't like mortgage rates. And I'm just curious if there's a plan on how to maximize that opportunity when that activity picks up again.
Yes, it's been a challenging situation for homeowners. The lockout effect is significant, and many individuals find themselves at a disadvantage when comparing current mortgage rates to the ones they have locked in at home. This is a serious concern, and we are actively exploring options like closed-end seconds to better serve consumers. In terms of refinancing, a growing percentage of the market is starting to align more closely with current rates in the high 6s due to factors like job changes and family growth, potentially making those mortgages eligible for refinancing with some interest rate cuts. It’s a complex issue that we're all addressing. Our strategy has focused on increasing market share in the face of a slow refinance market, as traditionally, a large portion of our business comes from refis. The positive aspect is that if interest rates decrease, that could trigger further activity in our business. We've managed to maintain higher wallet share, which we expect to keep if rates drop. The mortgage sector has faced considerable challenges, especially in multifamily housing where many are seeing difficulties, including the government-sponsored enterprises. However, in single-family housing, the jumbo market has shown remarkable strength. We are always seeking ways to better engage with consumers and maintain our relationships.
We reached the end of our question-and-answer session. I'd like to turn the floor back over for any further or closing comments.
Thank you, operator, and thank you, everyone, for joining today. We appreciate the continued sponsorship and engagement, and we wish you a good rest of your day.
Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.