Altisource Asset Management Corporation (AAMC) on Q3 2022 Results - Earnings Call Transcript
Operator: Good day, and welcome to the AAMC Investor Call. Today's call is being recorded. At this time, I would like to turn the conference over to Mr. Kevin Sullivan. Please go ahead.
Kevin Sullivan: Good morning, everyone, and welcome to our Third Quarter Investor Call. I'm Kevin Sullivan, General Counsel of Altisource Asset Management Corporation. Today, we will update you on developments in our business during the third quarter, and discuss the material referenced in our investor presentation, which was issued earlier this morning. It can be found on the stockholder's page of our website at www.altisourceamc.com. Note, information on forward-looking statements appears on the investor presentation, and we direct your attention to that information. This audio cast is copyrighted material of AAMC, and may not be duplicated, reproduced or rebroadcast without our consent. I'm joined today by our Chief Executive Officer, Jason Kopcak, and our Chief Financial Officer, Stephen Krallman. Jason will update you on the company's business, and then we'll be happy to answer any questions. Jason, over to you.
Jason Kopcak: Thank you, Kevin. I would also like to welcome everyone to our call. I'm excited to speak to you this morning, and to update you on our progress. We continue developing our private credit business in the third quarter. We have produced over $123 million in private credit commitments, through the end of the third quarter, an increase of 175% from the second quarter. More than 90% of those commitments have terms of one year or less. Despite the Federal Reserve raising rates by 225 basis points over the last five months, our current portfolio is still profitable. We have dynamically raised our rates and are currently originating loans with a total yield of 12.5% or greater, and have lowered our advance rates on our bridge originations by 10 points. We generated total revenue of over $1.9 million in the third quarter, more than triple the net revenue earned in the second quarter. Turning to other developments. During the quarter, we entered into a warehouse line with Flagstar Bank during the third quarter and have received approximately $53 million of funding from Flagstar by the end of the quarter. We also have opened a new sales headquarters in Tampa, and repurchased approximately 287,000 shares of our common stock from Putnam, at a discount to the trading price. Finally, in the arbitration filed against the company by its former CEO, Indroneel Chatterjee, the arbitrator recently dismissed all of his claims, sanctioned him for his miss conduct required him to pay back his signing bonus in accordance with his employment agreement, and permitted all of our remaining claims to proceed. We are pleased the arbitrator found Mr. Chatterjee's claims meritless. Now, I would like to turn your attention to an overview of current market conditions. Despite the material rise in interest rate environment over the past year, we are still seeing strong demand for housing that we believe is due to both the housing shortage, as well as the modernization of existing housing stock in the United States. We continue to see strong demand in the investment property space from borrowers and investors, and we are increasing our focus in this space accordingly. In the bridge and rehab market for single family and multifamily homes and ground of construction, we have dynamically adjusted our loan pricing to higher levels and implemented lower maximums of loan to cost and loan to value ratios, to accommodate the headwinds that the market is experiencing. We are aligning our business model to provide credit to build affordable housing and services to assist homeowners. As a reminder, we are currently originating and acquiring business purpose loans and are not yet actively providing mortgages in the consumer residential market. While the interest rate increases in the home price declines in many markets are affecting the entire real estate market, we continue to see opportunities in the residential transitional loan space. In addition, the market conditions in the largest MSAs across the US very widely. For example, while a number of West Coast markets have experienced significant declines, other markets in the Midwest, Northeast and Southeast have had different trajectories. Now let me spend some time discussing where we are headed. We are creating alternative credit through the two main areas: direct-to borrower, real estate developers and investors and wholesale originations. We are primarily focused on originating private credit products, but we can also augment production through the purchases of closed loans. Originations allow us to better control the creation of the assets as well as being more creative in terms of yields to the shareholders than purchasing loans. As I've said previously, we do not plan on being an aggregator. However, current volatility in the fixed income markets has delayed our forward flow initiatives for selling assets. We are making significant strides in bringing new capital to the bridge space, take out investors for alternative assets that we are creating. In addition, we believe utilizing technology, data and analytics will be critical to our success. We have developed and are continuing to optimize a data-driven proprietary system which will dramatically allow us to increase our reach to the specialized demand in the market. We are also creating an enterprise database management system to help us utilize information for purposes of understanding our markets clients' needs and the overall customer experience. In short, we believe there still are opportunities in the residential transition market, and we think our data-driven analytics provide us an advantage over our competitors. That concludes prepared material for today. I'm now happy to take questions
Operator: Thank you We will take our first question from Jeff Moore from Bore Capital . Please go..
Q â Unidentified Analyst: Hi, Jason, I was curious as to what the loan book looks like. What's the general update on the sales process for -- and what kind of institutions are you talking to for selling those loans? And do you have any idea what the time frame for closing should be?
A â Jason Kopcak: Hi, Jeff, it's good to connect again. I appreciate the question. Those are great questions. Let's talk initially about what institutions are buying DSCR loans, then we'll go into bridge loans. So at a high level, generally speaking, insurance companies, REITs, money managers and some banks buy DSCR/investment property loans. We are fairly far along several of the largest REITs and money managers, insurance companies to sell on a forward flow basis. We expect to have these takeouts firmed up in the next two to three weeks. We're in ongoing conversations with them to get this wrapped up. As I mentioned, the goal is not to aggregate these loans. The goal is to originate and sell on a weekly basis into these institutions. By selling on a forward flow basis, the goal here is to minimize interest rate risk, principal risk, and create a velocity business that capitalizes on the yield premium that you obtain when you sell loans. So, once we get the takeouts firmed up, the goal at that point will be to increase our marketing/lead generation, which will increase effective revenue that we're not currently getting through the sales of loans, which effectively will be incremental to our current revenue. So, that's where the DSCR/investment property. On the RTL side, the residential transitional loans/bridge space, we're in a similar situation where we're pretty far along with several counterparties to set up forward flow takeouts to step back a second. Traditionally speaking, in the bridge space, or RTL space, you have REITs, credit funds, money managers, hedge funds and a few insurance companies that buy this product. Again, we're pretty far along. We expect in the next two to three weeks to have these forward flows set up, and then the goal would be to sell on a weekly basis. As I mentioned, with DSCR loans, the same things with RTLs, we're not looking to aggregate. The goal is to originate to sell model. Again, that keeps the interest rate exposure down, keeps our principal risk exposure down. So that's where that's at. At the same time, once we get these forward flow relationships in place, then we'll start turning up our marketing, our lead generation to drive the creation of products into these clients. So again, I think just to summarize as you can imagine, as we sell on a programmatic basis, we'll start obtaining -- we'll start gaining revenue that we're not getting now through the sales of loans. People will receive premiums from selling loans that we're not currently getting. To touch on, I think some of you and I have talked about in the past, generally speaking, from an earnings or spread standpoint, we're targeting right now in the current environment, about 350 basis points per origination. So the goal would be as we originate loans to sell them, to effect we earn about 350 basis points per origination per product. And that's both for the DSCR investment property loans as well as a bridge product. That's in the current environment. Hope that answers your question Jeff?
Q â Unidentified Analyst: Yes, yes. So, are you all -- previously you said that you would be doing -- you thought you could be doing about $600 million of these originations and then sales to whatever institutions want to buy, right? Do you still think that's a good number, or did in the market right now, do you think that's going to be reduced since things seem to be a little bit slow?
Jason Kopcak: Yes. That's a good question. For 2023, we feel very confident we'll get -- be at $600 million if not greater, $600 million in total production. For us to get those numbers, we have to have these takeouts lined up. We're -- again, as I mentioned a minute ago, we're pretty far along to get in these takeouts lined up. Once we get these -- these takeouts lined up, the marketing that we talked about, the lead generation system that we created, we tested between September and October, we feel very good even in the current environment that we'll have in excess of $600 million in loan production. So, yes, we feel good about it. Even though there's volatility in the fixed income market, there's still demand. There's still demand for both the rental/DSCR product and for the bridge, it's just not as liquid as it once was 12 months ago. There's still plenty of demand there.
Q â Unidentified Analyst: Okay. So, doing some back of the envelope math, if you're getting 350 basis points per origination on $600 million, you will be getting a spread on that $600 million in next calendar year of about $21 million, right? And that's on a market cap of, call it, $29 million right now. What -- I mean, once you have this thing at scale, like what kind of margins are you expecting? And how much of that would be profit. Because I mean that's not even taking into account the $100 million of loans you have on your books that at some point next year, should be yielding double-digit interest as well.
Jason Kopcak: At end of the day -- again, it's a good question. Look, we have our model figured out where we think we're going to be for return on equity. I don't want to -- we're still building out. So frankly, we're still building out. We have the synergies in India, which makes us very competitive in terms of processing and creating these loans. We feel that we've already proved out internally our marketing and lead generation is very cost effective I don't want to get into specifics because we're still building it out. I can say that we're not an aggregator. We're not trying to compete with REITs. We have a originate to distribute model that we feel our return on equity is well north of what you see in the aggregation side of the business. So with that being said, I don't want to state a return on equity just yet, but we feel pretty good that our model and where we think we're heading is going to prove out, and we'll know next year, but it's going to be north of what you see at REITs and aggregators. I know it's a general frame. I'm trying to give you a framework.
Q â Unidentified Analyst: Yeah. And it seems like you guys are I guess, strengthening your borrower requirements right now by lowering the -- you said in the presentation, you're lowering your LTV and your loan to cost. What -- like what general metrics are you using for borrowers? Like I mean your average borrower is like, I don't know, like a 700 credit score a 600 credit score or 800 credit score? And then like how does that process work?
Jason Kopcak: Again, it's a great question, Jeff. So a couple -- we have 200 products, we have the rental investment property product. Again, neither of these are consumer products. These are business purpose loans. So on the DSCR rental product, our criteria comes right from insurance companies, REITs, banks and money managers who are very active and aggregating, generally speaking, we take their criteria, and that's what we develop our marketing. So generally speaking, you are a 700-plus borrower, your LTV on the investment property side is going to be 80% or less. And they typically look for experience and debt service coverage, but that's a pretty binary product. What you're -- I think what you're looking for is more on the bridge side. So on the bridge side, we target borrowers with -- we have a history of buying fix and flips, ground-up constructions as well as rehabs, typically we have six to seven transactions in the last two years. So we are looking for an experienced borrower base. What we know is in this current environment with the rates going up and the cost of financing going up. The -- less experience borrowers less capital of getting weeded out and the very -- the experienced borrowers, the ones that have done five, six, seven projects in the last two years who have a recent history of being successful, they continue to operate business as usual. What we have noticed is the difference is instead of them making a return on equity, say 40, 45, they're making a return on equity in the high 20s, low 30s. But they're still -- they still have demand for financing needs. They're still looking for leverage and we continue to see strong demand from the experience market. Touch on a couple more points, Jeff. We do look for fraud. We look at for background issues. We look for experience. And the last thing is we're very focused on valuation of the collateral. So for us, in that bridge RTL space, it's important for us to be accurate on our value of the property. At the end of the day, if the opportunity does not go the way the borrower expects to go, we had to take that to collateral. We want to make sure the value is there. So that's -- those are big drivers to what we're doing there, Jeff. Did that answer your question?
Operator: We have another question from Matthew Howlett from B. Riley. Please go ahead.
Matthew Howlett: Hey, Jason. Thanks for taking my question.
Jason Kopcak: Hey, Matt. Nice to chat.
Matthew Howlett: Yes. I think I heard you say it, but when we look at AAMC's model, origination model, I just wanted to hear you talk about it again, what will the ROE profile versus what we traditionally see on aggravators, REIT type models. I mean, how do you -- it looks like you're going to generate a higher ROE, I appreciate you're not going to give guidance right now. But when we look at this model from a high level versus what we traditionally see in the space, originate the whole dividend, how are you going to be differentiated? How is it superior will the return be higher, but will they be more stable over time? Just go over a little bit about how you are going to differentiate versus what's out there?
Jason Kopcak: Yes, Matt, those are again, great questions. I think at the end of the day, we got to take a step back here. When you look at the amount of capital raised in the alternative asset space, it's trillions upon trillion. So there's a massive amount of capital that's been raised. In years past, a lot of this capital from the large money managers and insurance companies have gone to The Street to buy a product, they can't anymore. They're going direct. The way we look at this business is, once we get our forward commitments lined up with these large REITs, with these large insurance companies, with these large money managers, they have incredible -- I mean they have, amongst them, trillions of dollars in alternative capital -- rate for alternative assets raised. We're doing forward commits. So our goal is to originate on a forward flow basis and have volume set up by a forward fold. So with that being said, we're not looking to do open-market bidding and putting random pools out there. We're looking to have a scheduled -- okay, $250 million is going here, $500 million is going there. So that way we can ramp our volume up and have a much more fluid process for a takeout, because what we want is not lumpy revenues, but we want consistent volume targets. So that way, we can ascertain how much demand -- how much product we can create and target where it's going. So with that being said, I expect, once we have our forward flows set up, our revenues will increase. We'll continue to look for additional capital partners that have -- again, there's large insurance companies out there that have hundreds of billions of dollars. We'll be looking for continued improvement in our partners for size, for strength. And that will allow our ROE to be much more stable and more forward-looking. Okay? A lot of people originate and they go by trade by trade. Our view is, we know who has capital, we're in talks with those partners. These are the largest money managers, the largest insurance companies out there. And our goal is originally into their portfolio, and that should smooth out our earnings and effectively make it less cyclical. Does that help, Matt?
Matthew Howlett: Well, that helps. Right. Look, its good. It helps a lot. You're going to be obviously -- sound like a very robust, growing origination platform. As the capital get turnover quickly, its reoccurring fee income, high cash flows. And you expect to retain investments for just the compounding impact of continuing to grow the origination platform. Is that sort of how I think about the model?
Jason Kopcak: Exactly. Exactly. Yes. So when you look at an insurance company, and maybe they have $30 billion in the mortgage space. Our goal is to line up and be able to sell $0.5 billion, $1 billion to that particular company. That allows us to have the origination fees in the front. We get a certain amount of spread or premium obtained from the sale. We potentially even have clients who want to use us for asset management because of our history and our strength in India. So the goal is to create this product based on the demand from the fixed income markets that's massive. Our job is actually to go out and create -- to reach in that demand, create the product and distribute into these large fixed income accounts, so
Matthew Howlett: Look, something like the compelling opportunity and we'll look for more color. I mean, obviously, without -- one way from more details, but just can you just give me a general review. Is everything in terms of cost originate and centralization of the origination platform, the credit platform, how is that -- is that all going to be centralized? Just give me a sense on the underwriting, the credit and the overall cost?
Jason Kopcak: So, that's a great question. So, our underwriting, our processing, underwriting, the fulfillment, distribution, everything will be done out of India. We have a deep history there. Our team has underwritten purchase and has managed over 30,000 non-performing mortgages, single-family homes and REOs. So, it's all done out there. If we have an incredibly talented and experienced team, very highly educated, at the same time, the cost effect of this there relative to the US is -- it's very material. And I've been in -- my experience being on the street for the last 10 years. I've been in a lot of shops. Our advantage and the cost side, is tremendous on that front. Then we you start looking at -- we're very data-driven. So we've tested our marketing and lead generation in the last 60 days. We found it even in an adverse market with rates going up in housing -- concerns around housing market going down. We find our production has been very good. So, our lead generation has been fantastic. Our demand for product is fantastic. So the cost-wise, we think our numbers are very good and the demand is there. So we feel good with our lead generation costs or our cost structure there. So as a whole, we feel that we're in talks with some of the top capital providers out there to buy product. And so when you sell into the biggest capital aggregates out of these insurance companies, you have a very effective end user cost of capital. Our India operation is very talented, very experienced as well as very cost-effective. Our tax structure here in the USVI allows us effectively a competitive advantage because we have a corporate -- what's called the EDC tax structure that allows us to be more competitive in pricing and just execution. So overall, we feel between our advantage in experience and expense structure in India. Our tax structure in BI as well as our partners on the end take out and are very -- I think, very best-in-class use of data and lead generation. We feel we're going to be very competitive in this space, very, very competitive cost, different products that we originate.
Matthew Howlett: Well, I'll hop back in queue. We look forward to hearing more disclosures. I'll tell you, there's not a lot of comps out there in the public market and the alternative lending space is growing bigger and bigger. So, we certainly look forward to hearing more about the model on the differentiation relative to the REIT group.
Jason Kopcak: I think you're right, Matt. I think when you look at the lot of the early movers in the bridge and transitional space got bought up quickly by, again, the large money managers, Iâm not going to name names, but there is well known household accounts that went out bought a lot of our peers because the opportunity -- they see the opportunity, they have the demand and alternative assets, and they've acquired them. So there aren't really any -- I don't know of any originate to distribute alternative asset originator out there. So we're very excited. We feel like we're in a good space that a lot of companies have been bought in some very attractive earnings, net earnings, and we feel as a public company, we have a lot of runway. So
Matthew Howlett: Just circle back, whatâs the -- what do you put the overall market size? I know it's a broad question, but just curious what -- how you look at the market, I know clearly itâs a huge market.
Jason Kopcak: Size-wise for products?
Matthew Howlett: Yes.
Jason Kopcak: So look â looking at each product. When you look at single-family â single-family bridge fix and flip/ground construction, it's -- there's no one data source. I think generally speaking, in normalized years its between $60 million and $80 billion. It's generally speaking, that's the numbers that are thrown out -- that's just for the single-family, okay, $60 billion to $80 billion. When you start looking at multi-family bridge and value, thatâs another $80 billion to $100 billion. When you look at the DSCR investment property space, there's 19 million rental properties out there, 19 million. That's why the sensor track. So the DSCR space is massive, okay? And effectively, everybody knows this, but -- when you look at the GSEs and banks, their model is kind of dated when it comes to income documentation and how they evaluate credit and real estate. And that's another situation to create a great opportunity for us because the investment property/business purpose space doesn't really flow into the GSEs or banks. So the size of the market is pretty massive. And I think it's undervalued, how big. So hoping, does that help
Matthew Howlett: Yes, it helps and it's just here you pick up the newspaper every day and you read about institutions going to buy more single-family. It's just like the industry just seems like it's going to be absolutely normal. So like I said, nothing publicly traded in your model?
Jason Kopcak: Yes, they probably trading at the same time, everybody is well known that there's a housing shortage in the US, and this number is in ore from 4 million to 6 million houses the shortage. And that's just affordable housing. So affordable housing is definitely a key driver in what we're doing. We have a lot of â millennials are starting to buy housing have families. So we just -- there's tremendous growth opportunity we've seen over the last 10 years, the space grew from nothing from a cartage industry to be much more institutional. And frankly, there's demand â demand by borrowers, builders, builders, real estate investors as well as rental property owners. But there's also a tremendous amount of demand in fixed income markets. So on both sides, we're seeing demand. We think it's a great opportunity. It's a space that's not very institutional per se. So there's a lot of areas where there's friction and ability for us to come in and take our experience and apply it and create some that's very special.
Matthew Howlett: Okay. We look forward. I certainly look forward to hearing more about that.
Jason Kopcak: Thanks a lot, Matt.
Stephen Krallman: Thanks, Matt.
Operator: We will take a follow-up question from Jeff Moore from Boro Capital . Please go ahead.
Q â Unidentified Analyst: Hi, Jason, okay. So the numbers that you were saying to the last caller about the total -- the TAM, the total market size, it sounds like your all yearly originations is going to be less than 0.5% of that -- did I hear that right?
Jason Kopcak: Yes. I mean, look, the numbers we threw out $600 million is -- do I think we can originate more than that? Absolutely. The amount that we put on out of the $600 million is â you are right, it's less than 0.5%. So the ability to scale in the market is there, it's huge. So that's why we -- that's one of the reasons we're very excited.
Q â Unidentified Analyst: Okay. Yes, yes, yes. And I mean, you guys really already been like advertising for Lowe's and stuff yet. I mean, like on Instagram or whatever. I mean even Twitter, I'll have like CoreVest or LendingHome or people like advertisements since I do some real estate. And like I haven't seen anything from you also like. So you all think you can guide that without really, I guess, right?
Jason Kopcak: Exactly, Jeff. So we've done an analysis. We had a third-party who we feel very -- is very incredible, very institutional doing analysis of the amount of marketing is being done in the business purpose space. We feel, one, between their market analysis; and two, the testing that we've done over the last 60 days. We feel that our ability to scale is -- it's very material, like we can scale in a massive way. What we -- before we do that, we're trying to get our takeout set up. By getting our takeout set up for different channels, then we can getting our back office up and running, which is up and running. Then we can go turn on the marketing. Go do what we need to do and create a product that we're going to distribute. So we don't want to -- we feel one that we have a good handle on how big the market is and how quickly and how much is on the cost per loan to create each loan in each space. So we've done that analysis. We feel good about it. Frankly, I wanted to -- if I could spend the money yesterday, I would have spent money yesterday, turn it up, but we need to get the takeout set up. And once we get a takeout set up, I think, our volume number is going to be more than proved out across the SCR, across bridge fix and flip as well as even multifamily. You know, there's a tremendous opportunity in that multifamily bridge and value-add space between $1 million and $7 million note size -- notional size.
Q â Unidentified Analyst: Yes. And just as a note, I was unaware that the way you were setting these things up were like basically for predetermined amounts for the buyers, right? So you're not -- like you said, you're not subject to an auction model, it should make your cash flows much more predictable, which is -- I mean, reassuring for me, I guess, as an investor, I mean, I was already pretty excited about what you guys are doing?
Jason Kopcak: We won't be systemic. The goal is make it systemic programmatic business not to â itâs not a trade. So this is a business we feel like opportunity is massive between again, you have to look at -- this paper is not one of the agencies. They're kind of archaic in a way they look at values and income documentation. So we feel there's a massive opportunity there. When you look at the housing shortage, when you look at the housing shortage, if that single-family homes as well as multifamily, we see that there. So we feel very good that we create the right partnerships with and takeout that we're going to be able to scale this very systemically. And this is a business model. This is not a trade. And we're very excited that our earnings will be a lot more smoother than going out and buying one-off trades. So anyways, yes, answer to your question is, yes.
Q â Unidentified Analyst: Okay. Well, I have one more, kind of, multipart question. It looks like going through your Q that you had about $13.2 million in principal repayment and you repaid like, call it like $2.2 million of borrowed funds. I'm assuming that's on your warehouse. And it looks like you marked down like $1.5 million in loans. Can you talk about that slight markdown you had in the value of the loans? And then also the principal repayment. I mean, if you got back $13.2 million in principal repayment last quarter, but you haven't had these things on your books very long. It seems like over -- well, well over 10% of your loans have already paid back that you've only had on your books for a couple of months. Is that accurate? And, kind of, what are your thoughts going forward on all
Jason Kopcak: Itâs pretty stood. I think at the end of the day, we bought -- so look, step back, a couple of different questions there. We bought some season paper in the very beginning. And we buy season paper and bridge. Keep in mind, the paper that we're buying and originating is generally speaking, 12 months or less in duration, okay? In a rising rate environment, in my view, that's very at very good paper because they're not in it long-term. With that being said, we also bought some season paper. And when I say see season have been four or five months seasoned. Yes, then that paper is paid off, and then we expected that. And the goal was to demonstrate that we're in the space, create some income, and we did that. So those loans -- some of those loans are already paying off, number one. Number two, this paper does pay off quick. Experienced borrowers do pay off quick. Generally speaking in the bridge space, you're looking at 11 months of the average life expectancy of the bridge loan. So one of the hard burn as you content that we replenish your inventory on the flip side, we want that enterprising rate environment. So that -- so that's played to exactly how we thought it'd play out, number one. Number two, Mark, we try to talk about marketing. As rates go up, your market portfolio relative to the rates -- to the discount rate in the market. So we've taken some book losses on that front, but the stuff's paid off. We're effectively where we financed at and where we bought that, we're still making money. As a whole, our book is very profitable. We have about -- at the end of the quarter approximately $50 million in cash that we have bought loans in or originated loans into cash. So not all of our portfolio is financed through the warehouse line. We have a fair amount of portfolio that was held in cash and a fair amount on the warehouse line. So that's why the pay downs per 930 weren't respectively because its not a 100% is financed. So again, some of it's paid on cash and some of itâs paid off on our warehouse line, so. Does that answer your question, Jeff?
Q â Unidentified Analyst: Yes. That's awesome. I'm super excited for you guys.
Jason Kopcak : And one more thing, Jeff, when we bought loans of cash, part of the reason is to keep in mind, is we're just getting the business going. The originations take time. So when you build an origination platform, you don't just put a switch and you start originating tomorrow. It takes time to getting your underwriting yourself, people hired your marketing one. So we had to go out and buy closed loans to slow down our cash burn to effective get processes in place. So the goal is -- we knew we're going to buy closed loans because we had different areas that we wanted to address. But long-term, that was never the goal was to aggregate. So that definitely it has helped us tremendously in creating revenues slow down our cash burn, get our process in place, allow us to get a warehouse line in place. It allowed us to look at other warehouse lines. So by buying close loans and by originating with our cash, it's help us in a ton, but at the same time, our business model is not the whole loan. So going forward, we will originate to sell, that's our plan always has been and it's going to be our plan. Okay, Jeff.
Q â Unidentified Analyst: Okay. Yes. I know I said I only have one more question, but I guess I lie, because that you did such a good job of talking that you maybe think of one other thing. The warehouse line you've got for $50 million or whatever and it seems very obvious that based on the partners you're getting to buy these loans and how they're saying, hey, we want $20 million lease, or $5 million these or however much they want on a weekly, monthly, yearly basis or whatever. And given that you're only going to be -- you're going to be taking less than 0.5% of the market, the numbers you're throwing out, when are you going to like outgrow that warehouse facility? Because it seems like you could do that very easily. And I mean anyone that looks at your resume like you can figure out, you know everybody in the space. So like at what point does $50 million -- plus the $50 million or so million or $60 million you guys have in cash and investments, like when does that become not enough for you all?
Jason Kopcak : First off, thanks for complement, number one. Number two is well aware of it. Like we are already going down a path on a second line, but the reality is that getting these takeout set up, if you do this properly, we should go in an ideal world, sweep loans every three days. So you could take $50 million and you really could do a lot with $50 million. However, with the volumes that we have expectations with our ability to market with our back office operations, our view is we're going to be a lot more warehouse line. We are working on that right now. But the fact of the matter is priority is selling loans to get our partnerships on the -- for the different product set up. So in parallel, yes, we're looking at other warehouse line. Our current partner Flagstar is a great partner, though I'm sure they'll increase our line, as we demonstrate velocity. On the flip side, we are very focused on selling loans. And I get role I want to sell loans every three days. So there's, as you can do the math, $50 million, returning loans every three to five days. There's a room to really turn those lines to really leverage those lines. So we don't need those today just yet, but we're addressing it. So -- and we see the need for warehouse lines to be -- it's a greater need. Does that answer your question Jeff I am sorry.
Unidentified Analyst: Yeah. Yeah. I'm really looking forward to more updates from you all. You all are doing everything amazingly well. And I'm super exciting also.
Jason Kopcak: I appreciate. Thanks, thanks.
Unidentified Analyst: Thanks for the time.
Jason Kopcak: Thanks, Scott.
Kevin Sullivan: As there are no other questions in the queue, we'll answer a couple of questions that came in prior to the call. So a lot of which have been addressed already, but there's a few that are still outstanding. So Jason, how do you monitor the health of your loan book?
Jason Kopcak: Well, look, we have some processes in place. So, we have -- again, we have an extremely experienced management team in India. We do weekly reviews of our portfolio. Any loan that's slow playing payments due on, say, for example, the 10th. If it's not been made, we have -- our asset management teams at the top of the servicers and they have the servicers reaching out of the borrowers. And these are, again, -- these are real estate investors, builders. We have them prodding them to make our payments. We even have an aggressive door knock. We send somebody out to tap the person and assure he make a payment. So we're all over. We are all of the servicing of these loans. And to-date, our book is very healthy. But at the same time, we're actively reviewing it on a weekly basis, and that's -- it's been very good. It's helped our portfolio stay very performing. So Furthermore, just kind of -- I think I mentioned this earlier, but with the headwinds in the realty market, and the concerns around real estate market. On the bridge space side, we lowered our LTCs and LTVs by 10 points. And the view was that the data market and housing should take a little longer. We had historically short levels on days on market a year ago from the historically low interest rates, with rising rates and the slowing down the housing, we figured by lowering our LTC and our LTVs, we would be cautious by entering into bridge loans that should make it more attractive for our end buyers to buy and it's worth out so far. Soâ¦
Unidentified Analyst: What does your average borrower look like?
Jason Kopcak: Our average borrower on the bridge side is effectively a builder or a realty investor that we target, as I mentioned earlier, six, we want borrowers who has done six to seven flips or renovations in the last 24 months. So, that's our target audience. We have people in there have done 30, 40, and we have people that have done four -- three or four. So -- but our target is around 7% for the flip grid business. And then when you look at the DSCR rental side, ideally, we'd like to see people have at least a minimum of two to three rental properties, but if there's a lower LTV involved, we'll do some first time rental. But for the most part, we want to see a borrower with two to three properties that they have experience running out.
Unidentified Analyst: And why would someone use AMC as opposed to another lender?
Jason Kopcak: Well, again, I think the one question I want to maybe go to the bank first before us, speed, experience, the access we can customize product and distribute it. Typically, when you're working with a bank, they just -- that's not their specialty, that's not really do this what we do for living. We have a lot of outlets. We understand what can get done and where can go, number one. Two is speed. We can close quick. If it's a good opportunity, and we like the opportunity, we can close quick, much quicker than a bank can. So that's just that's two main reasons. And the other part is bespoke. A lot of what we do is more customized. So what you'll find is, if you go to a bank, you either fit the credit box they provide or the real estate box they provide, otherwise you don't fit here. We look at it, we try to figure out how to get it done and execute on a bespoke manner.
Unidentified Analyst: And you talked about this a little bit earlier, but what are companies in the space trade for in the market?
Jason Kopcak: Again, as I mention earlier to Matt, A lot of these companies are private. So a lot of our peers were private and got bought by larger money managers. Generally speaking, the proven platforms have traded at a nine to 12 times net income multiple. That -- again, these are private transactions. So it's hard to go point to public, but I've been around the space for 10 years now. And there's been quite a few trades, where money management hedge funds coming and bought a platform at a nine to 12 times earnings, net income earnings.
Unidentified Analyst: Have you considered using baby bonds for raising capital?
Jason Kopcak: No. Look, for us, ultimately, if we use -- we have looked at different forms of debt because we're going to need to grow our warehouse book, and there's going to be some growth capital at some point to grow the origination. So we're definitely looking at it. We haven't done anything yet, but we are looking at that market and we are open to gathering information, what we are focused on is our takeouts right now.
Unidentified Analyst: Is the company looking to buy back any additional shares since the Putnam transaction?
Jason Kopcak: Look, I think at the end of the day, once we start selling on a forward basis on a programmatic regular basis, because you're selling our originations that's the most important focus as I keep saying throughout this call. Once we have that established the ability to go back and buyback stock, or do other accretive actions that benefit shareholder is always in front of us, and we'll definitely consider it.
Unidentified Analyst: Then just a couple of questions on the general market. How long do you think -- how long do you expect it to take for margins to rebound or to be normalized in the sector?
Jason Kopcak: Look, I don't have a crystal ball. I think, I don't think anybody has the crystal ball. The view is we're in for a longer process fixed economy. With that being said, clarity on where rates are headed, clarity on borrower behavior, clarity on unemployment and housing are all major factors right now. And so what we're seeing is the securitization market definitely froze up and has caused some limit liquidity, but insurance and banks have a ton of money and we see them actively participating. I think a more normalization or stable environment will probably happen over the next six to nine months. And that will just -- what that will do for us is it creates more liquidity, which should effectively expand our margins. I feel in the current environment, we still can earn a very good return on equity, very attractive to what we expect. But when the market stabilizes, our margins should widen out more.
End of Q&A:
Jason Kopcak: So, Kevin, that was -- I think that's the only question we have. I appreciate everybody's time today, we're very excited about the business. We're very happy what we've gotten accomplished in the five or so months since I've been here. We have a tremendous team. I want to thank my people in India. They're incredibly important to what we do, the team in Tampa have been nothing but a blessing and in St. Croix, St. Croix, these are good people. So I'm very thankful who we have and what we've accomplished in the last five plus months. So look forward to continue to growth and push the business forward. And Kevin, I think thatâs it. Thatâs all I have.
Kevin Sullivan: Yeah. If you have a question we weren't able to get to in the session, or didn't get to submit, please don't hesitate to reach out to our Investor Relations e-mail or phone number.
Jason Kopcak: Thanks. Thank you.
Operator: That will conclude today's conference call. Thank you for your participation. Ladies and gentlemen, you may now disconnect.
