Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Ellington Residential Mortgage REIT 2022 third quarter financial results conference call. Today's call is being recorded. At this time, all participants have been placed on a listen-only mode, and the floor will be open for your questions following the presentation. If you would like to ask a question at that time, please press star one on your telephone keypad. At any time, if your question has been answered, you may remove yourself from the queue by pressing star two. Lastly, if you should require operator assistance, please press star zero. It is now my pleasure to turn the floor over to Jason Frank, Deputy General Counsel and Secretary. Sir, you may begin. Thank you, and welcome to Ellington Residential's third quarter 2022 earnings conference call. Before we begin, I would like to remind everyone that certain statements made during this conference call may constitute forward-looking statements within the meaning of the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are not historical in nature. As described under Item 1A of our annual report on Form 10-K, forward-looking statements are subject to a variety of risks and uncertainties that could cause the company's actual results to differ from its beliefs, expectations, estimates, and projections. Consequently, you should not rely on these forward-looking statements as predictions of future events. Statements made during this conference call are made as of the date of this call, and the company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Joining me on the call today are Larry Penn, Chief Executive Officer of Ellington Residential, Mark Tecotzky, our Co-Chief Investment Officer, and Chris Smernoff, our Chief Financial Officer. As described in our earnings press release, our third quarter earnings conference call presentation is available on our website, earnreit.com. Our comments this morning will track the presentation. Please note that any references to figures in this presentation are qualified in their entirety by the endnotes at the back of the presentation. With that, I will now turn the call over to Larry. Thanks, Jay, and good morning, everyone. We appreciate your time and interest in Ellington Residential. After a challenging first half of the year, the third quarter started off on a constructive note, with interest rates declining and interest rate volatility subsiding in July. As has been the typical pattern this year, yield spreads followed the direction of interest rates, with both declining in July, and virtually all fixed income products benefited. Agency RMBS, investment-grade corporates, and high-yield corporates reversed most or all of their losses from the prior month and posted significant outperformance during July versus Treasuries and interest rate swaps. Ellington Residential itself generated a positive economic return of nearly 6% in July. The good news proved short-lived, however. Continued elevated inflation led the Fed not only to raise the Fed funds target range by 75 basis points in both July and September, but also to accelerate its balance sheet runoff. Central banks around the globe also continued tightening their monetary policies. Over the course of August and September, interest rates rose sharply, large segments of the yield curve inverted further, and volatility surged. The MOVE Index, which measures the yield volatility implied by short-term options on long-term Treasury notes and bonds, reached its highest level since the COVID-related market volatility of March 2020. Market sentiment steadily weakened, and we saw widespread selling across asset classes, including forced selling by some asset managers to meet margin calls and redemptions, particularly toward the end of the quarter. Liquidity deteriorated and yield spreads widened in virtually every fixed income sector, including agency RMBS, with many sectors hitting their widest levels of the year. Technical headwinds in the agency RMBS market included not only the Fed's acceleration of the reduction of its MBS portfolio, but also extremely weak bank demand. Turning to slide three. On the top half of the page, you can see just how large these yield curve moves were during the quarter. On the bottom half of the page, you can see the impact these huge moves had on agency RMBS yield spreads and prices. Both nominal yield spreads and option-adjusted yield spreads widened significantly across the coupon stack, and the combination of wider spreads and higher rates led to sharp price declines. You can see on this slide that Fannie 5.5s, which was still the current coupon at September thirtieth, dropped by more than 4 points quarter-over-quarter. As you can also see in this slide, that represented an absolutely massive 57 basis points of OAS widening on that coupon, according to JP Morgan's models. Meanwhile, for the longer duration Fannie 3.5s, which was and is fairly representative coupon within the 30-year portion of Ellington Residential's agency portfolio, well, that coupon dropped by more than 6 points in price, also representing substantial OAS widening. Since the primary mortgage market takes its lead from the secondary mortgage market, the mortgage rates that homeowners see surged in sympathy with agency RMBS yields. The Freddie Mac 30-year survey rate ended the quarter at 6.7%, which was its highest level in the past 15 years, and even touched 7.08% two weeks ago. That was its highest level in over 20 years. As expected, following these recent mortgage rate increases, prepayments continued to grind to a halt, housing is much less affordable, home sale volumes are declining, and we're seeing the first clear evidence of declining home prices nationally. In summary, the market environment in August and September could hardly have been more difficult for agency RMBS. Ellington Residential experienced a significant net loss for the quarter as net losses on our specified pools exceeded net gains in our interest rate hedges and net interest income from the portfolio. As we incurred significant delta hedging costs as a result of all the volatility. Our net loss was significant on a mark-to-market basis, but our disciplined and dynamic hedging strategy, which included aggressive duration rebalancing throughout the quarter and positive contributions from our meaningful short TBA position, helped prevent even greater book value declines. Next, on slide 4, you'll see that we're reporting $0.23 per share of adjusted distributable earnings for the quarter. As we mentioned on last quarter's call, our ADE faces near-term headwinds as the sharp rise in short-term rates is repricing our repo liabilities higher, and they're repricing higher very quickly at that. While our asset yields are also increasing, that only gets captured in our NIM as we rotate our portfolio. We're being patient about turning over our deep discount pools given what we perceive as excellent relative value in that sector. As a result, our NIM is compressing in the short term, but we think it's important to prioritize maximizing total economic return over just trying to maximize short-term ADE. It bears repeating that this all underscores the limitations of focusing too much on ADE, which is a backward-looking measure, particularly in market environments with large swings in interest rates and spreads such as we're seeing today. The disciplined approach that we're taking with the portfolio turnover, combined with our sequentially lower book value, also meant that our leverage ticked up this quarter. As always, we remain focused on liquidity and risk management, and we continue to follow the same guidelines that have helped us manage past financial shocks effectively. Of note, we continue to hold a strong liquidity position at quarter end, with cash and unencumbered assets representing 27% of our total equity at September thirtieth. Finally, I'd like to point out that a significant portion of Ellington Residential's losses for the third quarter, and indeed for the year, resulted from yield spread widening. I believe that the prospects of recouping many of these losses are strong. I'll now pass it over to Chris to review our financial results for the third quarter in more detail. Chris? Thank you, Larry, and good morning, everyone. Please turn to slide 5, where you can see a summary of EARN's third quarter financial results. For the quarter ended September 30, we reported a net loss of $1.04 per share and adjusted distributable earnings of $0.23 per share. These results compared to a net loss of $0.82 per share and ADE of $0.20 per share in the second quarter. ADE excludes the catch-up premium amortization adjustment, which was positive $1.4 million in the third quarter as compared to a positive $1.6 million in the prior quarter. During the third quarter, as Larry noted, agency RMBS significantly underperformed U.S. Treasury securities and interest rate swaps, and that drove our net loss for the quarter. Our net interest margin decreased quarter-over-quarter to 1.28% from 1.66% as higher interest rates drove a significant increase in our cost of funds, which exceeded the increase in our asset yields. Our lower NIM, combined with lower average holdings quarter-over-quarter, caused the decline in ADE. Meanwhile, average payouts on our specified pools decreased modestly to 1.02% as of September thirtieth from 1.09% as of June thirtieth. Please turn now to our balance sheet on slide six. Book value was $7.78 per share at September thirtieth as compared to $9.07 per share at June thirtieth. Including the $0.24 of dividends in the quarter, our economic return was negative 11.6%. We ended the quarter with cash and cash equivalents of $25.4 million. Next, please turn to slide 7, which shows a summary of our portfolio holdings. In the third quarter, our agency RMBS interest-only securities and non-agency RMBS holdings all decreased modestly. Agency RMBS portfolio turnover in the third quarter was 19%. Additionally, our debt-to-equity ratio, adjusted for unsettled purchases and sales, increased to 9.1x as of September thirtieth as compared to 7.9x as of June thirtieth. The increase was primarily due to lower shareholders' equity quarter-over-quarter as the portfolio size was relatively constant. Similarly, our net mortgage assets to equity ratio increased to 7.5x from 6.8x over the same period. I'll note here, too, that repo financing has remained stable and available despite the market volatility. On slide eight, you can see the details of our interest rate hedging portfolio. During the quarter, we continued to hedge interest rate risk through the use of interest rate swaps and short positions in TBAs, U.S. Treasury securities, and futures. Finally, we were optimistic with our capital management strategy during the quarter as we issued approximately 148,300 shares through our ATM at an average price of $8.43 per share and repurchased approximately 9,500 shares at an average price of $6.53 per share. I will now turn the presentation over to Mark. Thank you, Chris. Q3 was a unique quarter whose defining characteristic was an enormous level of sustained volatility in almost every important fixed income metric. Beginning with interest rates. The five-year Treasury traded in a range of 2.64%-4.19% during the quarter. That is a 155 basis point swing within just one quarter. The change in the shape of the yield curve was also dramatic. The two-year to thirty-year Treasury yield spread had a range of 87 basis points just for the quarter, which is a bigger range than you'd expect to see for an entire year. Meanwhile, the Market CDX IG Index, which reflects the market's perception of credit risk for investment-grade corporates, had a range of 37 basis points for the quarter, whereas for all of 2021, it only had a range of 13 basis points. This benchmark index moved about three times as much just this past one quarter as it did all of last year. Most important for EARN, mortgage prices and mortgage yields were not spared at all from this volatility. During the quarter, Fannie 4s traded in a 9-point price range, and Fannie 5s traded in an incredible 59 basis point yield spread range. This is not a normal market by any means. The Fed has now implemented four 75 basis point hikes in succession. They've now hiked more in the last four meetings than they had hiked cumulatively in the preceding 10 years. EARN had an economic loss of 11.6% for the quarter, and the rest of our peer group fared even worse. An agency mortgage rate is simply not designed to deliver good returns in the face of that magnitude of interest rate increases and mortgage spread widening. I do believe that much of our loss is reversible if spreads normalize. October was another month of a lot of volatility, but through today it looks like our book value is around breakeven for the fourth quarter so far. Given the October volatility, I think that's a good outcome, but a negative economic return of more than 11% for the third quarter certainly is not. On the other hand, the spread widening has ushered in an opportunity set for agency REITs that the best we have seen in years. By virtually any metric, mortgage spreads are extremely wide now. Today, we have a 20+ point price range in the coupons that trade, and while some of the coupons with worse convexity characteristics are wider than the others, they are all wide. Unlike what we got used to trading in for the past decade, most agency MBS don't currently have a lot of negative convexity, so they don't require a lot of delta hedging. At today's prices, discount coupons are providing high-quality NIMs. You can put appropriate hedges in place and not give away much of your NIM by having to rejigger those hedges when the market moves. MBS are also wide based on close to worst case assumptions on prepayment speeds. From a research perspective, given that most everything recently has been trading at a discount rather than a premium, our prepayment models and our research team have been doing the opposite of what they were doing last year. Think about how the pricing distribution has changed. Last summer, TBA Fannie 2s were $102 price, TBA Fannie 4s were $107, and the cost of loan balance protection on 4s was multiple points in pay-up. Last year, it was all about finding the slowest prepayments for the pay-up. Now it's the exact opposite. For anything below $95 price, which is most of the MBS universe, excluding current coupon production, we are looking for the lowest pay-up to get the fastest prepayments. In fact, another source of additional value in the mortgage market today is that most models are currently under-predicting prepayment speeds versus what we are actually observing. Don't get me wrong, we think prepayments are going to be very slow. I'm just saying that there's upside from some of the worst-case assumptions. Furthermore, if you know where to look, you can find pools that have even more upside because they will pay much faster than model projections. On the technical side, supply is significantly lower in the agency market now. Cash out refis are way down as very few borrowers want to refi a low rate mortgage and go into one that is at over 6% just to take out a little bit of money. On top of that, Fannie Mae and Freddie are raising their fees on cash outs. Existing home sales are way down too. That also lowers net supply because given the significant HPA we've seen over the past few years, most existing home sales have involved the buyer taking out a bigger mortgage than the one the seller is paying off. Of course, with housing affordability down so much recently, this dynamic is also changing. Another huge difference between the agency MBS market this year and previous years is how much less banks are buying today. A lot has been written about the huge losses in available-for-sale bank portfolios and weak deposit growth, and the consequences for the agency MBS market have been dramatic. Banks have been big buyers of MBS in past years, but have basically been absent this year. Going forward, it would frankly be hard for them to buy any less than they currently are. As rates stabilize and they begin to replenish their capital, some banks may return to the market. If we enter into a recession when banks start worrying about loan losses, that is typically a time of increased bank buying. Incremental bank buying could be a big tailwind for the sector. Further, at the September Fed meeting, we got the clearest statement yet from Powell on the subject of potential Fed asset sales. The Fed's thinking can always change, but Powell basically said they plan to keep their current runoff in place, and they are not currently discussing MBS sales. This clarification by Powell is yet another supportive technical for the market. There was a lot of selling in Q3 that caused agency MBS to underperform as much as they did. So far in November, supply seems to be more balanced relative to demand, and we are seeing more healthy two-way flows. Now, what about EARN's ADE going forward? We continue the process of rotating our portfolio into today's higher coupons. We are doing this methodically, and as we do it, our NIM and adjusted distributable earnings should get a boost because our book asset yields usually reflect our original purchase yields as opposed to current market yields. With reinvestment yields so much higher, portfolio rotation should be a tailwind for our ADE and enable our book asset yields to keep up with the rapidly increasing yields on our liabilities. What did we do with the portfolio in Q3? Given the extreme volatility, we were more concerned with preserving book value than maintaining or increasing ADE. It's not as though we're taking a victory lap with down 11%+ economic return, but relative to other agency peers, it's a better outcome. Raising ADE can come later and maybe starts now, but in a volatile market, we believe that preserving book value is more important. We did go up in coupon a bit during the quarter, and given our drop in equity, we also shrunk the portfolio a little bit. Spreads are really wide now. They can always get wider, but we think it's the right move to have relatively high mortgage exposure now. What is your outlook going forward? While things have improved over the past couple weeks, it's still too early to let our guard down. I think we will need to see a slowdown in the magnitude of Fed hikes and some progress on inflation to get some reasonable stability back in the market. That said, there are signs that demand for spread product is finally coming back into the market, which should be very supportive of our book value. Now back to Larry. Thanks, Mark. 2022 has proven to be a challenging year so far. While the market conditions have obviously hit our book value significantly, they have also recharged the opportunity set. The so-called mortgage basis, the spread between yields on agency RMBS and Treasuries or swaps, looks extremely wide on a historical basis today. With net mortgage supply likely to be much lower going forward, as well as so much bad news already priced into the market, we think that agency RMBS offer excellent investment value today. In addition, recession could actually be a boost for the sector because agency RMBS have no credit risk, and because in a recession, the Fed might pause or even reverse the steps it has taken to tighten its monetary policy, which would be a supportive technical. That said, we're near the upper end of the range where we've typically set our leverage. Referring back to slide 9, we're also near the upper end of the range where we've typically set our net mortgage assets to equity ratio. The upshot is that I wouldn't expect us to be significantly adding to our net RMBS exposure from here. Finally, Ellington Residential has a broad mandate, and we think that there are currently many opportunities in the non-agency mortgage markets that offer even more compelling value than agencies. Therefore, we are planning to significantly increase our capital allocation to the non-agency market, perhaps to 25% or more. The last time we did that was right after the COVID market shocks in early 2020, and we ended up benefiting handsomely from that reallocation, which helped drive EARN's outperformance in 2020. As we pointed out before, EARN's smaller size should enable us to be nimble as market conditions evolve. With that, we'll now open the call up to questions. Operator, please go ahead. Thank you. At this time, if you would like to ask a question, please press the star and one on your touch tone phone. You may remove yourself from the queue at any time by pressing star two. Once again, that is star and one to ask a question. We will pause for a moment to allow questions to queue. We'll take our first question from Crispin Love of Piper Sandler. Please go ahead. Good morning, everyone. First, Larry, on the comments that you just made on increasing non-agency exposure maybe up to 25% or so, can you talk about just give a little bit more detail on that and what kind of timeframe you could do that? Is that something that would happen relatively quickly or thinking more over the next couple of quarters just because you're I think you're in the very low single digits right now, so I was just a little bit surprised by that. Yeah. No, I think it could happen relatively quickly. I mean, we're a small company, you know, we're nimble. We're talking about, you know, mostly about securities that are fairly easy to access. Yeah, I would say maybe even by year-end. Great. Year-end is often a good, you know, year-end's often a good time to be buying, as you know. Right. Absolutely. No, that makes sense. Then just looking at the relative yield spreads that you have on slide 10, no surprise, but pretty eye-popping there just with everything near or a lot of the agency market near 24-month wides. Do you have any outlook on widening versus tightening kind of over near- to intermediate-term? 'Cause you could have some pretty big tailwinds to book value if we do see some tightening there. Right. I'm gonna let Mark answer that question, but I would say that it's interesting. Everybody's got a different prepayment model, right? We've talked about how research and prepayments are so important. Slide 3, we show some OASs based upon JP Morgan's models. On this slide, I believe these are Morgan Stanley's OAS models. You can see that Morgan Stanley's model, I mean, on Fannie 3s, and I think on the other slide, there was 2.5s and 3.5s, but you get the idea, is obviously a much slower prepayment model than many of the others. You know, it really is very model dependent, the mortgage market. We do, you know, we do think that OASs are very wide. We think that, you know, perhaps Morgan Stanley model is a little bit too much on the pessimistic side. Just wanted to point that out before Mark addresses the question about where I guess you were asking really where we see spreads heading ultimately. Yeah. Yep. Yep. Hey, Crispin. You know, you can see that given our historical track record, our mortgage basis exposure is relatively high now, which that is an indication that we do think it's you know, more likely that spreads tighten from where they are than widen. It also is even if they stay where they are, they're very wide. You generate you know, very wide net interest margin. You know, in the prepared comments, I did mention some of the things that I thought could be supportive of the mortgage basis. Supply is way down. I think some of the de-leveraging selling that weighed on the market Q3, some of that feels as though it's behind us. You know, I mentioned that banks that are normally huge buyers throughout the course of the year have been noticeably absent from the securities market this year. You know, I think I said it's sort of hard for them to buy less. You've seen some overseas buying as well. You know, I think, you know, this number today has moved the market a lot, but it does feel to me that given the backdrop of greatly reduced supply, that any kind of incremental buying from new pools of capital, be it banks or money managers, if their redemptions stop, can really move the basis a lot because you're not dealing with a lot of supply coming into this market given how high mortgage rates are. You know, obviously, you know, geopolitical forces or other economic numbers can be exogenous shocks that can change that. I would say you know, we sort of think it's more likely than not that spreads will recover from where they were at the end of the quarter. You know, that was sort of the thought process behind our positioning. Great. Thank Thank you. Yeah. Just to add one thing to that, you know, often what you see, right, when you've got good news like we saw today. Look, I know one swallow does not a summer make, but this could be the sign that we're moving in the right direction. Often you see the liquid markets, like the agency markets, move first in terms of spread tightening, let's just say, and that could really, from a timing perspective, work out very well, right? We'll, you know, recapture some of those losses from the spread widening earlier on our agency portfolio and the portion, you know, and then we'll rotate out some of that. You know, granted there's still maybe more upside left in that. You know, if the non-agency and the less liquid markets lag in terms of spread tightening, it could work out really well to our, you know, to our advantage. Great. Thanks, Larry and Mark, for those comments. Just a final clarification question from me. Mark, you made some comments about book value so far in the quarter. I think you said break even. Is book value at around $7.78 or so, is that as of the end of October, or is it even more recent than that? Yeah. This is Larry. Yeah, we're talking really through today, I guess. Okay. You know, yeah, don't wanna sort of get into putting an estimate, you know, as of November tenth. That's not our style. Yeah, I think we meant book value, just to be clear, taking into account any interim dividends. We think book value is, you know, is around break even. Perfect. Thanks for taking my questions. Thanks, Crispin. Thank you. Thank you. Our next question comes from Douglas Harter of Credit Suisse. Thanks. Can you just talk about how you are, you know, continuing to think about leverage in light of, you know, volatility, you know, today being kind of volatility to the good, but, you know, kind of moves continuing to kind of be, you know, very large and kind of how you think about positioning into that type of market? Yeah. It's Larry. Hey, hey, Doug. So let's talk about the two types of leverage. One of them, you know, actual technical leverage in terms of our financial leverage, our repo borrowings, et cetera. There, you know, quarter end at above 9-to-1, I mean, that's really. I don't know if we've ever gotten above 10-to-1 at a quarter end. I don't think so. We've been here before, though. This is really the upper end of the leverage range. I wouldn't expect this, as I said, don't expect to see that go up much. In fact, you know, if we do start this rotation from some agencies to some non-agencies, then you'll see that come down, right? Because we obviously will leverage the non-agencies a lot less. I mean, then from a mortgage exposure, Mark, do you want to address that? You know, we ended the quarter at 7.5 to 1 also, sort of near the upper end of our range and spreads have, you know, tightened a little. What do you think, Mark? Yeah. I guess what I would say is that well, today is kind of an interesting day. It's something Larry and I were discussing really right before the call, that while you're having this enormous move in interest rates, like a 30 basis point move and a big move in credit spreads, you know, we talked about that, IG index. That thing's about six tighter today, but it's something we talked about in the prepared comments. While you're getting a 30 basis point move in interest rates, which is, I mean, you see moves that big maybe once a year or once every other year, normally. Implied volatility is actually down today. While this is an enormous move for today, at least what implied volatility is telling you that having seen a little bit of inflation seeming to respond to the aggressive hiking cycle of the Fed is sort of implied vol saying that that's going to usher in maybe less volatility going forward. If you start to see economic numbers that are reflective of what the Fed has done, and I think the big comment in Powell's last statement that the market picked up on was this notion of long and variable lag. There's a lag between when the Fed hikes rates and when it flows through the economy. There's sort of like different sectors occur at different times. The most responsive one to interest rates is generally housing. You've seen housing really make a 180-degree move, right? It had been, you know, up 20%+ in 2021, then up 10% the first six months of this year. Now you've seen the last few months, some of the biggest one-month declines you've seen in a very long time, right? Housing, where interest rates, you know, impact people's ability to qualify, how, you know, where they're at in terms of their debt-to-income ratios. Housing has really slowed down dramatically. You know, existing home sales back, you know, 20-year lows, new home sales slowing down, builders talking about order cancellation. Housing's been the first thing to respond, which isn't surprising because it's the most interest rate sensitive. Starting to see some movements in used car prices. While there was a lot of volatility today, I do think it has potential to, you know, get us into a range of interest rates that we've seen that, you know, may have some market participants more comfortable that, okay, now is the time to commit capital to some of these markets. You know, again, what Larry said, the mortgage exposure is towards the upper end of where we normally run it. You know, if you just look at repo borrowings, that's towards the upper end. But, you know, a lot of what we own or a lot of the pools we own are relatively low pay-ups. While they have financing against them, there's not a lot of risk to them. They're not, you know, 3-point, 4-point pay-ups that you saw a lot of other companies deal with during COVID. You know, there's a lot of pools that are positive carry versus rolls. Just even a low pay-up pool versus, you know, being long basis versus short TBA can generate economic return to the company, with very, very limited downside. There's some of that in the portfolio. I do expect, especially, if the timing's right and the valuations make sense for us to rotate into credit. I think you'll see some of that agency mortgage exposure come down. Then, you know, if that comes down, you'll also see the repo borrowings come down. That's, you know, those numbers are already, you know, almost six weeks in arrears. Got it. Thank you. Sure. You're welcome. Thank you. We'll take our next question from Eric Hagen of BTIG. Hey, everyone. You have Ethan Saghi on for Eric today. Thanks for taking my questions. First one, just how do you see dollar roll financing evolving, and what conditions will it be most sensitive to? This is Mark Tecotzky. Thanks for the question, Ethan Saghi. Dollar rolls right now. People think about the dollar roll market a few different ways. One way a lot of people think about it, and one way we think about it is we kind of know what the repo rates are. One-month repo rates right now are about 3.9%, right? You can look where a dollar roll is, and you can say, okay, what is the implied prepayment speed on that dollar roll for me to be indifferent between doing the dollar roll or having a pool on repo? When dollar rolls are cheap, you know, they're not special, there's not a lot of demand for them, you see the CPRs. Now we're talking about discounts at very, very low numbers, right? A bunch of rolls now with the implied CPRs are, you know, 1%-3%, and you can find pools that, you know, pay above that. That's sort of a little bit what I was alluding to when I was answering Doug's question. Dollar rolls for all the discount coupons are trading relatively poorly. It's the opposite of what you saw in 2021 when the Fed was buying so many Fannie 6s and so many Fannie 2s, so many Fannie 2.5s, so many dwarf 1.5s, so many dwarf 2s, that those rolls were consistently special. Those rolls were higher each month than what you would have earned from having a pool and taking it on balance sheet. This year, it's kind of been the opposite. The rolls have not been special in the discounts, and I don't think that's surprising given that you don't have, you know, the Fed involved buying these things, and you don't have, you know, other players like banks involved in buying some of these lower coupons. Now, when you get to some of the production coupons, like, you know, Fannie sixes, that there has been some roll volatility. I would say, you know, financing has been orderly this year, but obviously, the magnitude of the swings we've had has made people cautious about having excessively large balance sheets, and that's one of the reason why you're not seeing a lot of the primary dealers, the investment banks, taking delivery on, you know, big portions of rolls to sort of earn a spread over where they're financing. Even though it looks economic, it's tied up a lot of balance sheet and the cost of that balance sheet relative to what they're gonna make, that calculus is just. You've seen a little bit of it, but you haven't seen a lot of it. Rolls, I'd say for the lower coupons have been pretty uninteresting. If you look at our positioning, we have pools there, and we're short TBAs for that reason. Up in the higher coupons, there has been some roll volatility, and we expect that to continue because, you know, if you have a whole bunch of banks pile into this market and you haven't seen this yet, and I don't think you're gonna see it, like, immediately. If you saw a whole bunch of banks come in and wanna buy Fannie sixes, there's just not a lot of float in that coupon that is sort of considered TBA, and you could see some roll volatility. You've seen some of that earlier and, you know, you have seen it, you know, in the last three or four months. Got it. That all makes sense. Just another question, kind of piggybacking off the last question on leverage. Just how much net mortgage leverage do you feel comfortable with? Kind of if you can just talk about the relationship between the net mortgage leverage and debt to equity, that'd be helpful. Yeah. We're comfortable with where we're at now. I don't think we'd bring that up unless spreads were to take, you know, another leg wider. Basically, if you take our mortgage exposure, right? You can think about the company as having, okay, if we just owned a bunch of pools and we're paying fixed on a bunch of SOFR swaps, that's our mortgage exposure. Then on top of that, if we own some pools that are hedged with TBA, that won't change our mortgage exposure because the mortgage exposure from the pool we own is netted against the mortgage exposure we're short in shorting TBAs. Having pools versus TBA doesn't increase our net mortgage exposure, but it does increase our repo borrowings. You can look at what we report for the net mortgage exposure and what we report for the total repo borrowings, and you can kinda partition the portfolio as, you know, some large portion of the pools hedged with SOFR swaps, and another portion of the pools hedged with being short TBA. Yeah. If you refer to slide 9, right, you can see that, well, our leverage ticked up, and it's not on this slide, from the end of the second quarter to the end of the third quarter. Our, you know, our net mortgage assets to equity ratio also ticked up. That mid-sevens, as Mark says, is, you know, that's towards the high end of the range for us. I wouldn't expect that, you know, to tick up much from there. Got it. All right. Thanks for answering my questions. Thank you. Our next question comes from Mikhail Goberman of JMP Securities. Good morning, gentlemen. Hope everybody's doing well. Thanks. You too. Most of my questions have already been touched upon. I was just kinda wondering in a sort of hypothetical scenario, given the CPI print today and the market reaction, if we continue to get more favorable CPI prints in the months ahead and the Fed, say, decides to do 50 in December and then jumps down to 25 early next year and then stops at some point, maybe in the later spring. I guess the biggest wildcard is do we get a recession at around the same time? I guess my question is My question to you is, do you know something that we don't? Like I said, a hypothetical scenario. You know, I'm just kinda talking out loud. What would the ideal sort of portfolio construction be in an environment where the Fed has stopped hiking? Forget about the potential recession. Just the Fed is no longer hiking. They've achieved their neutral rate, or so they think. You guys have gone with your portfolio rotation from now till that point. What would an ideal portfolio look like? What would that process kind of look like? I guess I would say, you know, we don't. We have a great research effort here, but it's not about predicting what the Fed is gonna do. We really try to position these portfolios, you know, agnostic to the direction of interest rates and respectful of exogenous things or surprise numbers that can move the market a lot. Just, you know, with that said, I think that if you get more good news on inflation and it looks like the Fed is near the end of their hiking cycle, I think what you'll see is, like, you know, we have, you know, comments with a lot of our clients, you know, at Ellington, you know, not having to do with the public companies. Our perception is that there is a lot of capital that is getting interested in fixed income and getting into credit, and has been waiting because the market's been too volatile, and they wanna see, you know, how far the Fed goes, and they wanna see, you know. Because this year it's basically been a year of the market, inflation numbers running generally higher than predictions and the Fed responding, and the Fed dots going higher and higher. So there's been a lot of people that have been patient, and their patience has been rewarded. So I do think there is a lot of cash that is available for the agency MBS market and the credit market. I think if you get some stability on, you know, if you get some better news on inflation and people's perception of the Fed is that the larger hikes are behind us, then I do think that money will get deployed. I don't think it'll wait any longer. In that case, I think it's good for spread product, right? It's good for agency MBS, it's good for the non-agency MBS. You know, we spoke in the prepared comments is one thing that we think can make sense for EARN, is to rotate some of the capital into non-agency securities. Something that we did in 2020. Made a lot of sense. Part of that thinking is that different sectors recover on different time frames, right? You're already seeing it since, you know, our book value is roughly flat since the end of the quarter, the end of September. You know, that does say something about what mortgage spreads have done. If you look at some of the credit the non-agency parts of the securitized products, so credit risk transfer, legacy non-agency bonds, non-QM bonds, that even though you've seen a pretty good recovery in these liquid credit indices, we talked about the IG index, there's liquid high yield index. Those indices did well in October, and cash credit bonds generally didn't. Cash credit bonds were the prices were weighed down by a lot of selling. You know, it's mutual funds. It's, you know, all different corners. You know, it's some of it was, you know, lots been written and lots been said about these U.K. pension funds that were doing liability-driven LDI strategies, when they were getting margin called on their swaps, had to sell. You had a very big disconnect between structured product cash bonds away from the agency MBS and IG and high yield indices in October, right? You saw it in the CLO market, you saw it in the CRT market. That's kind of what caught our eye, that you have a pretty big basis between cash and synthetic indices. You know, I think everything does well in the scenario where you talk about the Fed kind of pauses. Now, in the scenario where you talk about mild recession, I do think that will be supportive of agency MBS because, you know, it's a spread product that doesn't have credit risk to it. If people really start worrying about, you know, higher unemployment numbers, and you've already seen some pretty weak performance in, you know, some consumer loan deals and some subprime auto deals. If you really get people worried about credit, I do think it's a favorable thing for agency MBS. The other thing is, if banks get worried about recession and they get worried about their obligations under CECL to reserve more capital, that can make securities more attractive than loans. You certainly saw that in post-COVID, right? When they, you know, a lot of banks were very concerned about, recession and very concerned about loans, but wanted to put money to work and they were, you know, overwhelmingly going into securities. You know, it's a lot of hypotheticals there, but those are sort of some of the things we've been thinking about. Thank you. Yep. Thanks, Mark. Yeah, just, I can't resist. I'm gonna take the bait on that question too. So, I think if you look at where a lot of the credit markets are priced right now, and you know, frankly, even some of the non-credit markets like the agencies, when you look at how wide spreads are and implied volatility and all that, I think the market is still pricing in a decent chance of rates going a lot higher from here, right? You could have wage, you know, wage price spiraling inflation, you know, all sorts of things that are not off the table yet. Today, obviously, is very helpful. In your scenario where, let's say, that's off the table, you know, we're not gonna get to a 6% 10-year, you know, something like that takes a lot of a lot of very specific risks off the table, right? I think one thing that the market is very concerned about is what's gonna happen to real estate prices, not just residential, but also commercial, you know, if rates were to go much higher. If you're a debt holder or lender like we are, you don't really worry about that so much about that first 5% or 10% drop in real estate prices, but you worry a lot about a drop, you know, if you got a 80 LTV or 75 LTV as sort of being a typical lending level. You worry a lot about a drop, you know, that's 15, 20, 25%, right? Because it's never gonna be uniform anyway. I think if you take that kind of risk off the table of really spiraling inflation, then I think you will see strong moves in the credit markets. You know, you'll see real estate prices kind of stabilize. You know, we think there's a big difference, right, between if I think in your scenario, if you've got mortgage rates settling in, you know, more in that 5.5% area, let's just say, as opposed to, you know, 6.5% maybe where they are now or possibly even lower now, it just makes a big difference. I think that just would take a lot of risks off the table and tighten spreads quite a bit in all sectors 'cause it would take, you know, even in the agencies, it would take a lot of extension risk off the table on current coupons. Thank you very much, gentlemen. That's great detail. Thank you. Thank you. That was our final question for today. We thank you for participating in the Ellington Residential Mortgage REIT third quarter 2022 earnings conference call. You may disconnect your line at this time, and have a wonderful day.