Mortgage investment firm Ellington Financial LLC (NYSE: EFC) released its Q2 2020 earnings results last week, and has touted the success of top 10 reverse mortgage lender Longbridge Financial, describing the lender’s performance as a “driver” of positive performance in its mortgage investments portfolio.
“The Company’s investments in loan originators had strong performance during the quarter, driven by an excellent quarter from the reverse mortgage originator in which the Company holds a minority stake,” Ellington said in its Q2 2020 results press release. “The Company’s CLO strategy and Euro-denominated RMBS portfolio generated net losses for the quarter.”
Additionally, the company also cited positive performance in its Agency-based investments related to reverse mortgage pools, citing general appetite on the part of investors in the space.
“The Agency results also benefited from the appreciation of the Company’s reverse mortgage pools, driven by strong investor demand and a recovery in yield spreads after the distress in March,” the company said. “Finally, net interest income and net realized and unrealized gains on interest rate hedges and other activity contributed to results in the Agency portfolio.”
Ellington’s positive outlook on its Longbridge investment was also detailed in an earnings call discussing the Q2 results, as stated by Ellington Financial CEO and President Laurence Penn.
“Longbridge Financial, the reverse mortgage originator in which we hold a minority stake, had one of its strongest quarters yet, driven by strong borrower demand in the current environment and higher origination margins,” Penn explained. “The cost of reverse mortgage business provides liquidity to borrowers without the need for them to make monthly principal and interest payments, that business has a counter-cyclical component to it and not surprisingly, borrower demand for the product has soared in recent months amid the economic pain and uncertainty brought on by COVID.”
When asked about whether or not the company would be open to future investments similar to Longbridge, Penn explained that confidence in Longbridge remains high.
“I think Longbridge right now is not an investment yet where we are directly buying assets from them, but it’s a business that we believe in,” Penn said. “There are lots of potential areas of growth and it does give us exposure to a unique asset class, which is reverse mortgage MSRs.”
Longbridge Financial is the ninth-largest reverse mortgage lender in the country, recording 1,043 endorsements for the 12 months ending in July, 2020 according to the most recent data released by Reverse Market Insight (RMI). The company also stands as the fourth largest issuer of Home Equity Conversion Mortgage (HECM)-backed Securities (HMBS) in the industry.
Read Ellington’s Q2 2020 earnings report.