AG Mortgage finds Western Asset buy 'a resounding success'

The acquisition of Western Asset Mortgage Capital has been "a resounding success" for AG Mortgage Investment Trust, in terms of gaining scale for shareholders, its leadership said. 

Total AG Mortgage stockholder returns from the close of the deal in December 2023 from the transaction has been more than 50%, T.J. Durkin, CEO and president, said on the earnings call.

"This transaction showcases the power of our external manager, TPG, which we believe...the market doesn't fully appreciate," Durkin said. "Our manager gives us not just financial support as evidenced during the WMC transaction, but also scale."

TPG acquired Angelo Gordon, the parent of the REIT's external manager in 2023.

AG Mortgage's bid in July of 2023 upset a planned deal WMC had with Terra Property Trust.

In 2015, AG Mortgage started a lender, Arc Home, and it too benefits from the financial relationship with TPG Angelo Gordon, said Nicholas Smith, chief investment officer. AG Mortgage owns over 44% of Arc, according to its presentation.

"While it had its challenges, Arc Home has reached a pivotal point in transitioning to profitability," Smith said. "Over the last year, we continued to invest in talent, including a new CEO, COO and chief production officer."

These investments are why Arc Home had a profitable December and January, he continued.

The WMC acquisition helped the "fluid transition of equity deployment from [non-qualified mortgage] to agency-owned investable loans," Smith said.

Other highlights at AG Mortgage included the entry into home equity loans, which was instrumental in the company's "relative outperformance this quarter." Smith also noted the disposition of mortgage servicing rights at Arc Home, the rotation of legacy credit-sensitive loan investments and Arc Home's launch of new channels and products.

The home equity business is "in the early innings," Smith said later on the call, adding at this point, "oftentimes there's sort of a first-mover advantage.

"So we continue to think that's the case, albeit maybe not as much as…some time ago.

The non-QM market continues to grow and AG Mortgage still finds it has "relative value," but it is leaning more into home equity, he said.

For the quarter, AG Mortgage earned $8.8 million, but this was down from $11.9 million in the third quarter and $30.8 million in the fourth quarter of 2023.

Full year net income was $36.4 million, compared with $35.4 million in 2023.

Arc Home funded about $800 million of mortgages in the fourth quarter, with $700 million of that being non-QM; the remainder was conventional mortgages, including government-sponsored enterprise-eligible loans sold to non-agency investors. This compared with $700 million ($500 million non-QM) in the third quarter and $400 million ($200 million non-QM) one year ago.