New York Mortgage Trust Inc (NYMT) 2006 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the New York Mortgage Trust third quarter conference call.

[OPERATOR INSTRUCTIONS]

As a reminder, this conference is being recorded Wednesday, November 8 of 2006.

At this time I'd like to turn the presentation over to Scott Eckstein with the Financial Relations Board. Please go ahead, sir.

Thank you, Operator. Good morning everyone and welcome to New York Mortgage Trust third quarter conference call. A press release was distributed yesterday after the close of market. If you did not receive a copy, the release is available on the company's website at www.nymtrust.com in the investor relations section. Additionally, we are hosting a live webcast of today's call, which you can access in the same section or through www.earnings.com. Finally, to be added to the company's quarterly distribution list, please contact [Samantha Alfonzo] at 212-827-3746.

At this time, management would like me to inform you that certain statements made during the conference call, which are not historical, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although New York Mortgage Trust believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday's press release and from time to time in the company's filings with the SEC.

Now, at this time, for opening remarks I would like to introduce Steven Schnall, chairman of the Board and Co-Chief Executive Officer and President. Steven, please go ahead.

Thank you, Scott. Good morning, everyone. I'll begin the call today with a recap of our third quarter and then I will go over recent operating highlights. Steve Mumma, our Chief Investment Officer and our newly appointed Interim CFO, will then provide a detailed cap of our financial results. At the conclusion of our formal remarks we'll be available for your questions.

Now onto our 2006 third quarter results. As we've discussed over the past few quarters, our REIT portfolio and our mortgage banking business continued to be adversely impacted by a number of factors affecting the entire mortgage industry, such as decreased net interest spreads due to a continuing flat to inverted yield curve, declining housing prices and origination volumes nationwide, unusually low industry-wide gain on sale margins, extreme pressure due to unusually high industry-wide investor loan repurchase demand activity, extreme competition due to excess capacity and, in our case specifically, decreased net interest spreads due largely to hedge maturities.

These factors have pressured both our mortgage origination business and our mortgage portfolio management segment, which has over $1.2 billion invested in mortgage securities and loans held in securitization trusts.

On a consolidated basis we reported a net loss of $3.9 million, or $0.21 per share, for the third quarter of 2006 as compared with a net income of $0.01 per share for the second quarter of 2006 and net income of $0.16 per share for the third quarter of '05. Our mortgage portfolio management segment, which is our REIT operations exclusive of its taxable REIT subsidiaries, reported net income of $1.2 million, or $0.07 per share, compared with income of $0.13 per share for the second quarter and net income of $0.21 per share for the third quarter of last year.

The decline in earnings in our mortgage portfolio management segment was largely the result of persistence of a flat to inverted yield curve and decreasing net interest spreads due to hedge maturities and, to a lesser extent, high prepayment rates associated with the reprice of adjustable rate mortgage loans held in our portfolio. Specifically during the quarter, net interest margins in our REIT portfolio decreased significantly to 16 basis points as compared with the 78 basis points from the second quarter of '06.

The net duration gap between the average lives of our assets and our liabilities declined or improved slightly to approximately six months and the credit characteristics of our portfolio remain extremely strong, with total loan delinquencies representing only 1% of our portfolio and delinquencies greater than 90 days representing only 0.41% of our portfolio value. Furthermore, credit losses since inception of our portfolio have been only $52,000.

Our mortgage lending segment reported net revenues of $2.4 million, which is net of a largely nonrecurring loan loss charge of $4 million and a net after-tax loss of $5.1 million, or $0.28 per share. This compares with a net after-tax loss of $0.12 per share for the second quarter and a net loss of $0.05 per share for the third quarter of last year. This earnings pressure was primarily the result of a 19% drop-off in origination volume to approximately $603 million in the third quarter from $741 million during the second quarter of '06 and third quarter 2005 volume of approximately $1 billion.

As compared to industry-wide origination volumes, the Mortgage Bankers Association estimates that nationwide third quarter '06 volumes declined 14% from the previous 2006 quarter. Of note, though, is that based on our October activity, our loan application and funding volumes have taken a slight positive turn during the fourth quarter, somewhat bucking the national trend.

Our third quarter mortgage lending earnings were further affected by an atypical and largely nonrecurring $4 million loan loss we booked, which was primarily due to early payment defaults incurred on subprime loans made during the early part of 2006. It is important to note that we have largely discontinued making subprime loans other than in cases where the loans are either prior approved by loan purchasers or simply brokered to third parties, both of which serve to dramatically reduce our risk going forward.

Our Board of Directors declared a cash dividend of $0.14 per share of common stock for the quarter ended September 30th, 2006.

In an attempt to improve our results, we continue to streamline our non-sales related expenses to levels proportionate with today's level of performance. And through the elimination of excess capacity and layoffs, which Steve Mumma will go into further, we continue to reduce the expenses in our mortgage banking business.

As a result, through the first nine months of 2006 we realized $8.8 million in reductions in general administrative expenses, including non-sales payroll. Additionally, we continue to sell nearly 100% of our loan production so that for the foreseeable future we will continue to see some relief from the earnings pressure caused by [foregone] premiums and retained loans that we experienced in 2005. Unfortunately, these two categories of savings, which have been significant, have been offset by a commensurate reduction in revenues due to declining origination volume.

Now, regarding our wholesale origination business, we funded approximated $106 million during the third quarter, which was a 15% improvement over the second quarter. Looking ahead, while the growth of this new business has been constrained due to intense competition, we expect the profitability of the wholesale unit to continue to increase gradually and to continue to contribute more positively to our overall financial results in the coming quarters.

Before turning the call over to Steve Mumma I would like to also reiterate one important announcement that we made last week. In response to recent unusual market activity and inquiries we receive from outside the company, we announced last week that we had engaged Milestone Advisors as our financial advisor to assist us in review and exploration of our strategic alternatives. Specifically as a part of that process, we are currently engaged in discussions regarding a possible sale or merger of the company. But to reiterate, we have not yet reached a definitive agreement with respect to a transaction and there is no assurance that any definitive agreement will be reached.

Also, we cannot predict the timing or outcome of this process and in the event that a definitive agreement is reached, we warn that there is no assurance that the consideration payable to the company's stockholders will be equal to or greater than the then current market price of the company's stock. We will not likely provide further updates until a definitive agreement is reached or discussions are terminated. In the meantime, I want to continue to assure our shareholders that our management team remains highly focused on operating the business, streamlining expenses, maximizing revenue opportunities and maximizing shareholder value.

I'd now like to turn the call over to Steve Mumma to review our financial results in some more detail.

Thank you, Steve. Good morning. I would first like to break down our third quarter performance into distinct segments and provide select detail regarding our operating strategy and financial results.

I will start with the REIT operations, which is our mortgage portfolio management segment. As discussed in prior calls, the performance of the REIT, exclusive of our taxable REIT subsidiary, is the foundation of our dividend policy, as we must distribute at least 90% of the earnings in order to maintain REIT status. The dominant driver of the REIT net income is net interest income we earn on our portfolio of residential mortgage loans and securities.

Like many of our peers during the third quarter, we continued to be impacted by the flattening to inverted yield curve. For the quarter ended September 30th, 2006 the REIT on a standalone basis had net interest income of $1.5 million and net income of $1.2 million, or $0.07 a share for the REIT segment. This compares with the second quarter of 2006 net income of 2.4 million and 3.8 million of net income earned by the REIT in the third quarter of 2005.

The main difference in the quarterly REIT performance over the prior year is a result of a 62 basis point reduction in net interest spread. The net interest spread was impacted by the maturity of several hedges as well as higher prepayment rates on certain securities in the investments portfolio. More specifically, the first securitization that we have in our portfolio had an average CPR rate of 52% during the third quarter as compared to 39% in the previous quarter. This securitization represents 17% of the earning assets in the portfolio.

However, as Steve mentioned, the credit performance of over 1,800 loans on our investment portfolio continues to be strong. Only seven such loans are delinquent and they represent 1% of the total par balance outstanding. And loan delinquencies greater than 90 days represents only 0.41% of the portfolio value and credit losses since its inception have only been $52,000.

For the quarter ended September 30, 2006, our mortgage lending segment, also known as the taxable REIT subsidiary, or TRS, recognized $2.4 million in net revenues and $7.5 million in expenses for a net loss of $5 million, or $0.28 per share. The current quarter's net loss in mortgage lending segment compares with a net loss of $2.9 million in the second quarter of 2006 and an approximately $936,000 loss for the third quarter of 2005.

The mortgage lending segment and 2006 third quarter net loss includes a $0.13 per share reserve -- loan loss reserve associated primarily with early payment defaults incurred in the company's subprime lending business, which has been substantially discontinued. Net of this loan loss, our mortgage lending segment results have remained relatively flat from the second to third quarter of 2006. For the quarter ended September 30, 2006, the combination of our two business segments produced consolidated GAAP net loss of approximately $3.9 million, or $0.21 per share.

I'd like now to discuss the operating benchmarks and characteristics. As of September 30th, 2006, total employees decreased to 685 individuals from 857 individuals a year ago. Included in the total number of employees are 378 loan officers dedicated to originating loans at the end of the third quarter, a 4% increase from the 365 loan officers we had in the third quarter of 2005.

The 20% reduction in overall headcount is primarily due to 37.6% decrease in administrative, back office and non-sales related personnel. Reduction in non-sales personnel is partially as a result of the efficiencies gained from branch consolidations in shared markets during the past year. These branch consolidations lowered our number of locations to 50 as of September 30th as compared to 66 locations a year ago.

During the third quarter of 2006 approximately [17%] of our loan originations were bank loans which were sold to third parties and approximately 28% were brokered loans to other lenders. This, too, represents a positive trend as compared to the previous quarter.

For loans we originated and sold to third parties for gain on sale, our gross gain on sale inclusive of premiums was approximately 244 basis points and our net gain on sale was approximately 108 basis points during the quarter. Non-payroll related G&A expense for the mortgage lending segment as a percentage of originations was approximately 86 basis points for the quarter.

Let me now turn to some key points regarding New York Mortgage Trust balance sheet. As of September 30th, 2006, we had total assets of $1.5 billion, which includes $524 million of available for sale residential mortgage-backed securities, $629 million of mortgage loans held in securitization trust, $133 million due from loan purchasers and $109 million of residential mortgage loans held for sale.

Our aggregate warehouse lines outstanding were approximately $208 million and our repurchase borrowings outstanding were approximately $887 million as of September 30th, 2006. We also had $204 million of outstanding collateralized debt obligations as a result of our most recent CDO securitization. This CDO securitization was structured for sale treatment rather than a financing for GAAP purposes, which creates long term financing at a locked-in rate in order to stabilize earnings and expected cash flows.

Additionally, helping us to maintain liquidity and financing capacity, we have over 23 commercial investment banks providing us with financing arrangements with a capacity of over $5 billion.

A notional amount of the company's interest rate swaps outstanding as of September 30th, 2006 was $285 million and the notional amount of our caps was $1.6 [billion]. Our net duration gap, or difference between the estimated maturity lives of our earning assets and the related financing facilities, is approximately six months, which represents a slight favorable decline from the prior quarter.

For the third quarter of 2006 our average earning assets in our investment portfolio was approximately $1.3 billion with a weighted average coupon of 5.5% and the yield on [earning of] assets of 5.28%. We financed this portfolio through repurchase agreements, warehouse lines and underlying interest rate hedges as a weighted average interest rate of 5.12% for the third quarter. The combination of the yield on the earning assets less the cost of the financing results in a net interest margin of 16 basis points for the third quarter as compared to 78 basis points from the second quarter.

For additional information you may access our 10-Q, which will be filed tomorrow with the SEC, or visit our website, www.nymtrust.com, or at the SEC website, www.sec.gov. On that note, I'd like to turn the call back to Steve.

Thanks, Steve. This concludes or formal comments. Once again, we'd like to thank you for your continued interest and support and we're now ready to open the call for questions.

Thank you, management.

[OPERATOR INSTRUCTIONS]

Our first question will come from Paul Miller with Friedman, Billings, Ramsey. Please go ahead.

Yes. Hey, Steve, can you discuss a little bit about the spreads on the REIT. I know you guys had a big restructuring charge about two quarters ago and I thought that was going to give you more stable margins out a couple more quarters than it has. Can -- I guess a lot -- can you just explain that these hedges rolled off and you had to put more on, so with the hedge -- so were there margin recovery here a little bit going forward?

Actually, what's happened, Paul, is as these hedges roll -- these hedges were aligned with some of the securities that are going to be repricing over the next six to 12 months. About 33% of our portfolio is scheduled to reprice by March 31st of '06. So these hedges were intended to roll up as these securities started to hit the reset periods. And what we've been experience for the loans that are REITs, the repricing period, instead of re-setting up an interest coupon, they're prepaying in total. So and when we went through out initial projections, we did not assume that 100% of these loans would be paying off as opposed to 30 or 40% of those securities.

I'm sorry, because I still don't quite understand it because I've never run a fixed income portfolio before. So you basically put on these spreads and then these loans are supposed to reprice in the second half of the year but instead of repricing they refied out?

They refied out, exactly. So then you're stuck with going back into the marketplace and putting securities on the books that are going to give you less of a spread than these securities would have given us if they would have priced up fully.

Then you had these hedges on your books that were basically -- didn't make any sense for you to add new loans because these loans refied out and so you just terminated the hedges?

Right, and as some of these hedges rolled off, you're left with a security with a 4% coupon that's going to reprice over, let's say, next three to six months. So that coupon is going to be lower than the current marketplace. So to the extent that you have a hedge that's gone away, you're still left with a 4% coupon, which is underwater now because we're financing it around 5%. So you have a coupon of 4% and the hedge that rolled off has probably got a coupon with a three [handle].

So...

So you have a period of time where there is going to be an expectation of some pressure on your margins. We just haven't been able to keep the portfolio growing to help offset some of that margin erosion.

So, I mean, is the 16 basis point margin, is it more like of a -- the situation that happened in the third quarter, should it recover?

Depending on the prepayment speeds of the ARMs that begin to adjust in the coming quarter or two, our coupon should increase significantly, again depending on the speeds of the prepayments of those loans.

[Ian], we have 33% of the portfolio that's going to reprice in the next six months and another 9% in the next 12 to 18 months. So 42% of the portfolio is going to be repricing within a year, year and a half.

And what's happening right now is they're not repricing, they're just refiing?

They're just refiing , exactly.

Instead of repricing.

Exactly.

I know you guys have mentioned the fact of -- that you are in talks, but nothing might come out -- nothing might not come out of these talks about on a sale purposes. If the company doesn't get sold, would you consider [derating] and to preserve the book value here?

Certainly one of the things that we've discussed with our advisors and with our Board. We haven't made a decision to do that. Obviously we're seeing some of our peers do the same. It is certainly an effective strategy to begin to preserve book value and something we'll consider. But again, we haven't reached any decision on that yet and of course (indiscernible) [made any announcement about it either].

And Steve, on the production side, I think one of the disappointments with the company, I'm not -- I'm not going to beat you up on it, it's just that disappointment is the level of production. When do you see -- when do you see this turning around? A lot of people saying not until '08. What is -- is the New York market having trouble in the purchase originations more than the national average? I mean can you just add some color there?

Well, as you can see, our volume was down 19% from the previous quarter. The national statistic applications or originations were down I think 14 or 15% from the previous quarter. So we did slightly worse than the market. I'd say that was largely attributable to some loan officer attrition that we had experienced. We've been -- there's been some very intense competition from some larger competitors who have been recruiting our sales force, although we've countered that quite effectively by, a. we've sort of stemmed that outward flow of loan officers, and b. we've stepped up our own recruitment efforts.

So in fact, you can see we've seen a 4% increase in loan officers from this time last year, which is also accompanied by about a 38% decrease in salaried staff. So we're doing all the right things, we're doing what we need to do, but there's going to be a lag in originations growth between the -- the loan officers that we've lost were producing very solid numbers and immediately the loan officer that we're bringing on, there's a lag in their ramp-up period. So we're seeing some relief now.

And as I had mentioned, our October numbers are showing that we're kind of bucking the national trend now, our volume, at least on a very short term look, has started to increase again and short of seasonality from the end of the year, we think that all the hiring that we've been doing will help us going into the coming quarters. So we, too, are disappointed with the drop-off in production. Of course all the cost cuts that we've achieved and the new recruitment that we've managed to do should certainly help us going forward.

But right now, despite the drop-off in production that we saw, our normal earnings or our normal losses in the mortgage company remain consistent with last year, despite the -- or, I'm sorry, with last quarter, despite the drop-off, other than this loan loss write-off that we had to -- that we incurred in the quarter. So the trend doesn't look as bad as the numbers appear at the moment. But we're going to have to ride out the quarter and the next few quarters and see what happens in the market.

And if you -- if for some reason you don't sell, I'm not going to try to look into the future because I think it's too difficult one way or the other, you do have enough capital and you do have enough manpower to make it through '07, am I -- I mean that's our view of you.

There's certainly no franchise risk here. We have a book value of...

$80 million net worth.

Yes, about $80 million on book value currently and our mortgage company is losing on a pretax basis, so cash basis, about $1 million a month. And so while that's a large number compared to our size, it's not an insurmountable loss to be able to reverse. And so that's what we're very acutely focused on.

And of course we hired an advisor to help us explore our alternatives, which is for a lot of people just a fancy way of saying you've hired a [inaudible] advisor to help you sell the company and, as we said, we are in discussions with some parties who are interested and in negotiations and we're optimistic that there'll be a very favorable outcome. But again, no guarantees of that.

But the short answer to your question is if nothing happens, then we'll continue to -- there are further cost cuts that we can do that we've sort of waited on doing because we don't really want to cut too deeply into the value of the franchise while we're going through this process. So I think that next year, even if the market just remains somewhat stable, we could expect flat or improved earnings and originations growth. Of course, the market's the wild card. Housing is clearly softening now, whether it will stabilize or continue to soften, it's something that we can't predict.

Steve, one last question and more of a philosophy question. You've been in this business I guess about 18 years, I believe. I think you started in the mortgage banking business back in '89. Have you seen the purchase stuff drop off as fast as it has? And just can you just -- and what's your experience in the recovery rate in this type of environment?

Well, I started in the business in '90 and this is -- the purchase drop-off isn't really what's impacted us as severely as the refinance drop-off over the last several quarters. It's only in the last few months literally that the housing market and the purchase market has started to slow significantly. If it stabilized at this level, this level's not so bad. And I think that we can run this retail mortgage bank at this size profitably if we get some normalization here.

I really -- again, I don't have a prediction as to what the market's going to look like going forward. I read the same statistics as everybody else. We study it pretty intensely and we just try to make sure that we're as efficient as we can be in our operations so that irrespective of what happens with housing, we're running -- we're running a lean business.

And is there more costs -- is there more costs you can pull out of this company at this point?

There are probably some additional significant costs that we can pull out but, again, we're going to wait to see how this process that we're engaged in goes before we really starting cutting any deeper, which hopefully we won't have to do.

Okay. Thank you very much, Steve.

Sure. Thanks, Paul.

Our next question will come from Steve DeLaney with Flagstone Securities. Please go ahead.

Good morning, guys.

Morning.

Hey, Steve.

Several things but let me start with just a couple of numbers. Can I get the dollar amount of third party loan sales in the third quarter?

Sure, third party (inaudible) loans we had a total of...

It was 603 million...

It's 602.8 was the total and for the third party bank loans...

Which includes about a quarter of that was brokered loans.

Yes, what was the brokered volume?

Brokered volume -- total bank volume was 462 million.

462 million were the loans that were sold to others?

For the loans sold to others and...

So the brokered would be the fallout from the 603.

...140, [basically] 140.

Okay, 140. Okay. And, guys, one of the things that surprised me a little bit and just breaking down your book value, your AOCI account actually went -- I mean the negative, the mark to market went more negative by about $3 million, I think, to about $5.6 million negative. And we've seen positive pickups in the AOCI for most mortgage REITs that have available for sale RMBS. So I was a little surprised. I know you've got swaps working against you in the quarter, but with that 40 to 50 basis point drop in the two-year yield, why didn't you have more of a pickup in the mark on the 500-and-some million of RMBS?

Well, two reasons. One, clearly part of the reason is what you had mentioned, the swaps. Secondly, it goes to the duration of a lot of the portfolio that we have. One reason why we have six months net duration with a reduction of the outstanding swaps is a large part of our portfolio is going to be repricing in the next year, so it trades very close to par. So you're not going to get the pickup. We don't have as many long assets, so you're not going to get the benefit of some of the rally.

Got you.

And a lot of the rally was in the 10-year, too, don't forget.

Sure. And what was the swaps --what was the swap notional position at the end of September?

This year is the 285 million.

285, okay, so that was down -- it was like 670 something in June so you really did have a lot come off. Okay. And then the tax benefit rate, it looked like about $3.9 million was added to your deferred -- your net deferred tax asset and when I look at that as a percentage of the TRS loss, I mean it's like 77%, which doesn't make any sense. Is there something else going -- ?

No, the tax benefit on the TRS, you were right, it was 3.9. The total loss on the TRS before taxes was $9 million.

Oh, it was $9 million. Okay. All right, I got a bad number there, then, I guess. I was...

No, I think what you were doing, Steve, is the -- you were taking the 2.4 less the 7.5, giving you the net loss [approximately].

Yes, I was looking at the mortgage lending segment in the press release and it looked like it had a net loss of 5...

That's right.

...$5.1 million.

That's correct, but the expense number includes a tax benefit.

Oh, I didn't get that. Okay, so that's an after-tax number, not a pretax.

Right. So, really, if you -- in the Q that's going to be filed, we're going to show the loss before tax benefit of $9 million...

Okay.

...benefit of 3.9 and an after-tax of $5 million.

All right, Steve, that helps a lot. And I guess the final thing and I guess the thing I really want to ask about is I realize the tough market conditions and I think you guys deserve credit for the expense cuts. I mean you got ahead of that late last year, early this year and you really have done a good job.

I guess the thing in this quarter's release that definitely surprised me and disappoints me is this loan loss. And not that loan repurchases or buybacks for reps and warranties don't happen in the prime space, too, but frankly, I thought your -- the quality of your originations was such that anything that would be classified as subprime would be an occasional brokered loan. So can you talk a little bit more about the $4 million? I mean was $4 million entirely due to writing down loans that had to be repurchased and sold scratch and dent? I mean is that the -- is that what we're looking at in the $4 million?

Steve, what happened there is about a year ago, a little over a year ago we made a decision -- historically, as you pointed out, we had brokered or -- brokered most of our subprime production or sold it on a non-delegated basis, meaning the investors to whom we were going to sell the loan would pre-approve it before we funded it and buy it which reduces our exposure on --

Sure.

Just over a year ago we made a decision to, in an effort to increase our revenues, to start to basically underwrite subprime to our own guidelines, aggregate those loans and sell them in bulk. And we brought in a manager to help us run that business. The business -- essentially what happened was we made a number of loans that ended up going into early payment default or that ended up having defects in them for one reason or another, but primarily it just -- it was sort of a confluence of a subprime market getting a little tighter and subprime investors getting more cautious on what they'd buy. And also given the economic factors, people starting to default at a higher rate on subprime loans than --

Sure.

So anyway, when we saw all of this higher incidence of early payment default, and of course the associated loan buybacks or repurchase demands, we exited that strategy and effectively reverted back to brokering our subprime business or selling it on a non-delegated basis.

But what's happening now is all the loans we made in January, February, March, April, May in the beginning part of the year are just now being put back to us because they've gone into default and so we've had to either repurchase or essentially just flip them on scratch and dent sale to third party. So when we say that that loss is largely nonrecurring, about 65 to 70% of those EPDs that we've experienced were from this subprime business that we've discontinued. The other 25 or 30%, 30 or 35% is normal course of business. When you make Alt-A loans you expect some EPDs --

Sure.

Historically we would just book those losses as incurred because they were never material enough to reserve for. And so in this particular instance because there was such a high number of these loans put back, we took this one-time hit to essentially write down what we expect we'd lose on all of the subprime and Alt-A loans that we had made historically. So --

Okay, so that's an important point, Steve. So you classified it again as one-time, so should we understand -- ?

Let me be more careful of that. It's not 100% one-time. Some of that -- 30% of it or so is normally recurring EPD. If you're in the mortgage --

That's right, we understand.

(multiple speakers) EPDs.

We understand. But if you -- the $4 million is more than just what you've actually settled with buyers. Does that -- are you saying that you looked at every subprime loan that you originated and sold and you tried to put a reserve on that entire universe as opposed to what has already surfaced and been negotiated?

Well, sort of. What we've done is most of the -- the vast majority of the loans that are coming back to us were funded several months ago. So at this point we feel that we have the ability to identify specifically what the losses will be, either because they've already been incurred during the quarter or because we've been asked to repurchase them and we have them out for bid on scratch and dent. So we think we've identified the majority of the universe of losses that we'll incur on this business we've just substantively discontinued.

Okay, Steve. Thanks a lot.

You're welcome.

Thank you. (OPERATOR INSTRUCTIONS) Management, at this time we have no additional questions in the queue and we'll turn the conference back to you for any closing remarks.

Okay. Once again, thank you all for your interest in New York Mortgage and we look forward to speaking to you again next quarter. This concludes our call.

Thank you, management. Ladies and gentlemen, at this time we will conclude today's teleconference. If you would like to listen to a replay of the presentation, please dial 1-800-405-2236 or 303-590-3000 with the access code of 11072924. Once again, if you would like to listen to a replay of today's conference, please dial 1-800-405-2236 or 303-590-3000 with the access code of 11072924. We thank you for participating on today's program. At this time we will conclude. You may now disconnect and please have a pleasant day.