J. R. Herlihy
Thanks, Larry. Good morning, everyone. For the fourth quarter, we reported GAAP net income of $0.25 per share on a fully mark-to-market basis, an ADE of $0.45 per share. On slide 5, you can see the net income breakdown by strategy. $0.32 per share from credit, $0.30 from Longbridge and negative $0.04 from Agency.
And on slide 6, you can see the ADE breakdown by segment. $0.28 per share from the investment portfolio segment net of corporate expenses and $0.17 from the Longbridge segment. Positive performance in the credit portfolio was driven by sequentially higher net interest income, which reflected a wider net interest margin and larger portfolio quarter-over-quarter. Net gains from non-Agency RMBS, HELOCs, forward MSR investments and ABS and net gains on our loan originator equity investments.
Offsetting a portion of these gains were modest net losses on non-QM loans and retained tranches, commercial mortgage loans and consumer loans, and each case driven by a slight decline in credit performance. In addition, we had negative operating income on REO workouts.
Turning to Longbridge. The robust results from that segment were attributable to an excellent quarter for originations, driven by higher volumes, which increased 18% sequentially across all products, improved origination margins in Hakam and net gains related to the property versus securitization. Longbridge also had a net gain on its MSRs driven by tighter HMDS yield spreads as well as net gains on interest rate hedges with rates higher during the quarter.
Meanwhile, the Agency strategy generated a modest loss for the quarter as rising interest rates and intra-quarter volatility around the presidential election drove underperformance of Agency RMBS relative to hedging instruments market-wide. Our results for the quarter also reflected a net loss on our senior notes. We fair value those fixed rate liabilities in our balance sheet.
And despite higher interest rates, their fair value increased during the quarter due to tighter credit spreads and shortening durations as they pull the par with their maturities approaching. In particular, one of the tranches of unsecured notes that we brought over from Ellington matures next month, and we intend to pay those off at par, which is around where they were marked at year-end.
With interest rates higher in the quarter, we also had net losses on the rate hedges associated with the fixed payments on the senior notes as well as on our preferred stock, which we don't fair value under GAAP. Turning now to portfolio changes during the quarter. slide 7 shows a 5% increase of our adjusted loan credit portfolio to $3.42 billion, driven by net purchases of closed-end seconds, HELOCs commercial bridge loans and non-Agency RMBS.
A portion of the growth was offset by smaller RTL and non-QM loan portfolios, driven by paydowns as well as securitization activity. On Slide 8, you can see that our total long Agency RMBS portfolio declined by another 25% to $297 million by design as we continue to sell down that portfolio and rotate the capital into higher-yielding opportunities.
Slide 9 illustrates that our long bridge portfolio decreased by 15% sequentially to $420 million as the impact of the proprietary reverse mortgage securitization completed during the quarter exceeded the impact of new originations in that business. Please please next turn to slide 10 for a summary of our borrowings. At year-end, the total weighted average borrowing rate on recourse borrowings decreased by 56 basis points to 6.21% driven by lower short-term interest rates and tighter financing spreads, as Larry mentioned.
Driven by lower financing costs, the net interest margins on our credit and agency portfolios both increased sequentially. Our recourse debt-to-equity ratio was unchanged at [1.8:1] quarter-over-quarter and including consolidated securitizations, our overall debt-to-equity ratio increased to 8.8:1 from 8.3:1.
In December, we redeemed our Series Z preferreds, which we brought over with the Ellington acquisition, and which recently reset from a fixed rate to a floating rate. At year-end, combined cash and unencumbered assets increased to approximately $810 million or more than 50% of our total equity. Book value per common share stood at $152 and total economic return for the fourth quarter was 1.8% non-annualized.
With that, I'll pass it over to Mark.
Mark Tecotzky
Thanks, JR. I was really happy to see the strong portfolio growth this past quarter. Much of it was organic growth, resulting from our vertical integration, which allows us to effectively manufacture our own loan investments in partnership with our originator affiliates. Early in 2024, we were also able to take advantage of attractive opportunities in the secondary market, but those secondary opportunities are more cyclical in contrast to the loan origination market where we are more in control of our own destiny.
Generally speaking, the high -- the current high interest rate environment has led to relatively depressed levels of both home purchases and mortgage refinancings industry-wide. Despite that, if you look at the roster of mortgage originators that we partner with in the origination sectors that we focus on, those originators have actually been growing volume and by all indications, gaining market share with their strong origination teams, reliable financing sources and with EFC as a partner, these platforms have the potential to really grow volumes should interface decline and housing activity pick up later in 2025.
While asset spreads are now tighter across the board compared to, say, a year ago, we've been able to consistently lower our average financing spreads, almost in lockstep with the assets. In March, I expect to add a new financing counterparty, providing us with the lowest financing rate we will have in both non-QM and second liens.
As Larry mentioned, we were very active securitizers in Q4 taking advantage of consistently strong execution on the new issue investment-grade bonds. Importantly, thanks to the excellent historical performance of our EMT shelf, the debt spreads that we were able to lock in were some of the best levels in the market. Our consistently strong deal execution is a real competitive advantage which not only helps drive our earnings, but also enables us to pass along better pricing to our origination partners.
And that, in turn, allows our origination partners to pass along more competitive mortgage rates to their customers, which helps them capture additional market share and produce a higher quality loan for us. We also had terrific performance in our Longbridge segment. Over the course of 2024, we completed our first three securitizations of proprietary private label reverse mortgages, which were all originated by our Longbridge subsidiary.
With each succeeding deal, we brought in a larger and larger roster of debt investors, and we've executed at tighter and tighter levels. Continuing on the theme I just mentioned that tighter deal execution translates directly into more competitive loan pricing for Longbridge, which is helping them build loan volumes and market share. Another growth area for us has been second liens and HELOCs. Much of the credit for that success goes to a phenomenal research team, which has built a robust framework for evaluating both credit and prepayment risk for these products.
In addition, our sourcing effort has been built upon a foundation of our close relationship with mortgage originators, which in some cases, span decades to secure what we believe are among the best quality loans in the sector. Again, EFC wins with organic portfolio growth in this sector, retaining the highest yielding portions of our securitization of loans from programs that we have selected with underwriting guidelines we endorsed and in some case, have helped construct.
Another often overlooked benefit of active securitization is that EFC is building up a war chest of deal call rights. Non-QM second-lien securitizations come with an option to call the deal in the future and potentially resecuritize the underlying loans at a lower cost of funds. Before rates spiked in 2022, EFC made a lot of money exercising its non-QM call options. And should interest rates decline again, they could be very profitable in the future. We did experience some headwinds in the fourth quarter.
On the commercial mortgage side, we are making steady progress resolving our three most significant loans in a workout. One of these three loans should resolve in the next 60 days with the sale of the underlying property and contract? In the case of the second loan, the underlying properties have already been sold and we're basically just waiting for the bankruptcy court to finalize the expenses and divvy up the proceeds.
These resolution processes are more protracted and more expensive than we initially anticipated. But I'm excited to know that we'll shortly be able to redeploy the resolution proceeds, which haven't been generating any AD for us during the workout period. Finally, the third loan is currently in a construction and lease-up phase that is progressing, but more work needs to be done, and that will take more time.
Keep in mind that we fair value all of our workout loans through our income statement and on our balance sheet. And we believe that our valuations are conservative and reflect realistic estimates of the ongoing expenses and CapEx and timing to stabilization and sale. We've also seen an uptick in residential loan delinquencies, most notably in our non-QM portfolio.
So far, these non-term delinquencies haven't translated into material losses nor do we expect them two, going forward, as we believe the vast majority of these loans are well secured by the underlying real estate. Weakening consumer credit is pretty pervasive. We attribute the higher delinquency rates in our portfolio to the combination of bigger loan sizes and higher mortgage rates, creating a much higher monthly payment obligation and therefore, a greater likelihood of delinquency.
On top of that, some parts of the country are experiencing a big jump in homeownership premium -- in the home insurance premiums. We have seen this cycle before. We have a big research effort to tear into the data, and we have a very experienced team of underwriters and asset managers to address the issues. Relative to the market, we have been tight on underwriting, selective on what programs you buy and choose you about whom we partner with.
That said, rising debt costs have taken their toll on some borrowers, we are very focused on this issue. So far in 2025, we've continued with our playbook, and we have already closed two non-QM securitizations and another second lien deal. This environment has really allowed us to leverage our vertical integration, which runs soup to nuts from equity stakes in the originators to underwriting guidelines and pricing informed by our models to a very efficient securitization process culminating in the creation of securities we want to retain at the prices we want.
Now back to Larry.
Laurence Penn
Thank you, Mark. With our accomplishments in the fourth quarter, I am pleased to have closed a successful year on a high note with great momentum heading into 2025. I'm proud of what we accomplished in 2024. Early in the year, we laid out the drivers to growing adjusted distributable earnings, which included growing the credit portfolio and returning to origination profitability at Longbridge Financial, and we delivered. .
With 25% year-over-year growth of the credit portfolio and with the strong second half performance from Longbridge. Altogether, we increased our ADE from $0.28 per share in the first quarter of 2024 all the way up to $0.45 per share in the fourth quarter. We are excited about the momentum at Longbridge and in particular, the growing demand for our proprietary reverse mortgage products.
While I'm not counting on Longbridge's ADE contribution being quite so high each and every quarter, we do anticipate that EFC's overall ADE will continue to cover the dividend moving forward, which, of course, is always our goal. As we discussed earlier, our ADE will also be supported as we redeploy the capital from some remaining delinquencies in our commercial mortgage loan book.
Mark talked about the upticks in delinquencies that we're seeing market-wide. By being careful and diversifying across sectors, we have avoided the kinds of serious problems that you've seen at other companies. I can't stress enough how diversification has been key to our success. I believe that we're as diversified as any other mortgage REIT out there.
I'd like to close by highlighting the many ways that we benefit from this diversification. First of all, we benefit from asset diversification in multiple dimensions. We diversify by actively investing in both securities and loans, and we've built up a formidable loan generation machine, which has been crucial for us as spreads on securities investments have tightened. We diversified by investing in both residential and commercial mortgage loans. So the problems in the commercial mortgage sector have been relatively minor ones for us and we're back to playing offense in that sector. We diversify by investing in both forward and reverse mortgages.
And in fact, we own one of the largest reverse mortgage loan originators in the country. Meanwhile, in the forward mortgage space, we own stakes in mortgage originators originate everything from non-QM mortgages to residential transition loans to commercial mortgage bridge loans.
We also on mortgage servicing rights, both forward MSRs and reverse MSRs. We also diversified by duration. We own short duration mortgages like RTL, commercial bridge loans and second lien mortgage loans and we own longer duration loans like non-QM loans and proprietary reverse mortgage loans. Having so many short-duration mortgages, even though it creates more work for us to be constantly reinvesting the paydowns -- it can be extremely beneficial in times of stress.
For example, in 2020, during COVID, we used a sizable cash flow coming off of our short duration mortgages to purchase distressed non-Agency RMBS which had widened out dramatically during COVID due to forced portfolio liquidations. Okay. We further diversified by having both agency guaranteed, lower-yielding assets on which we employ higher leverage as well as non-guaranteed credit assets on which we employ lower leverage.
The fourth quarter was a tough one for agency mortgages with rate soaring but at under 5% of our overall capital allocation, it didn't spoil our quarter. Meanwhile, some other mortgage REITs saw large drops in book value per share due directly to interest rate volatility and their effect on agencies. When we see better relative value in the agency sector relative to the credit sectors, we can always refocus more on agencies.
Finally, please turn to slide 19. We add yet another dimension of diversification to our portfolio through our use of credit hedges, which I think really distinguishes EFC from the other mortgage REITs. Here, we try to be countercyclical. We want to have more credit hedges on when spreads are tighter and less when spreads are wider. Even though our portfolio is mortgage focused, we mostly use corporate instruments to hedge credit because of their liquidity and their robust protection in big market tail events like we saw during COVID.
On the rightmost column of this slide, you can see that to a lesser extent, we also use CMBX to hedge, which are credit default swaps on commercial mortgage-backed securities. As you can see on both slide 19 as well as on the prior slide 18, we had a large overall credit hedging portfolio on the books at year-end. In fact, the most we have add-on in a long while. That makes sense for us since credit spreads tighten throughout 2024 and reached their types in December.
In fact, by many metrics, corporate credit spreads in December were the tightest they had been since late 2021 right before they started to widen out massively when it first became clear that inflation was a real threat to the economy.
I'd like to point out that in these first two months of 2025, corporate credit spreads have widened out a bunch. And so we've taken off some of our credit hedges recently. I fervently believe that diversification and discipline have been key to our performance in difficult years and key to our steady returns over market cycles. 2024 was another solid year as we delivered a 9% economic return and maintained our dividends.
Our steadiness is illustrated both on slide 13 which shows a standard deviation of our returns in comparison to our peer group. And on slide 25, which shows our resilience over market cycles and in particular, through financial crises and market shocks. Moving forward, in 2025, we are committed to building on our 2024 achievements, including maintaining the securitization momentum we have built across multiple business lines.
As Mark mentioned, we've already closed three securitization deals so far in 2025 in just two months. We also have a few more originator investments in the pipeline. Should we expect will further expand our asset sourcing channels. With a strong capital base, ample liquidity, a diversified portfolio strategy, prudent leverage and dynamic hedging, I believe that we are very well positioned for the year ahead.
With that, let's open up the floor to Q&A. Operator, please go ahead.
Operator
(Operator Instructions)
Doug Harter. UBS.
Doug Harter
Thanks. Can you talk a little bit more about some of the originator investments that you're making? And kind of the appetite for non-QM given the commentary you made around delinquencies?
Laurence Penn
Mark, do you want to take that?
Mark Tecotzky
Yeah. Doug, so the playbook we've had for originator stakes goes back to 2014, where we tend to make relatively small investments in platforms where -- we know the principles, and we think there's a meeting of the minds on credit quality and underwriting.
And what we look for is situations that are synergistic. And by that, I mean, can we help them lower their warehousing costs with EFC's financial heft maybe putting a guarantee in place. Can we help them by being a more consistent pricing for their loans? Can we help them by informing some of their underwriting processes with the data we have.
And that has worked well. We've done a handful of them since 2014. Now what I said about delinquencies -- this has been sort of going on for the past couple of years. And the response from us, but also say, from the market generally has to move up in FICO, move down in LTV and you've basically seen that. Even with those adjustments, though, delinquencies are higher than what they were in the years right after COVID. I think for a long time. So we did our first non-QM loan, I think, 2015.
And so for many, many years, the credit losses on the loans were much, much smaller than our underwriting assumptions, right? And I just think you're going into a period of time where you might see credit losses more consistent with how we underwrite. It's nothing shocking. And it's nothing that you haven't seen incrementally in other market cycles. And it's also -- it's not anything that we don't think we have the requisite tools to control and to monitor and to minimize the damage on.
So it does inform though our loss expectations on non-QM, which then informs our pricing. But with where we are now and the assumptions we have, we still find a lot of value in that market.
Doug Harter
Great. Appreciate that. And then on Longbridge, can you just help kind of -- I understand that that's always going to be a slightly more volatile earnings stream. But can you help contextualize kind of the ranges of of earnings that you would expect where 4Q would sit where 3Q sits in that as we think about the go-forward earnings power of the business?
J. R. Herlihy
Hey Doug, it's J. Last quarter, we talked about $0.09 per share per quarter coming from Longbridge which we see as kind of a longer-term run rate target and what we think is achievable. So we almost doubled that in Q4. And Larry mentioned we shouldn't expect such a high level, but I think that $0.09 run rate, plus or minus, is a good number to think about.
If you multiply their capital allocation by our in run rate, it's actually above their kind of contribution, if you will, but we have been able to exceed the dividend here in the last couple of quarters. So I think the direct answer would be would be that kind of reiterating what we said on our earnings call.
Doug Harter
Great, appreciate that.
Operator
Eric Hagen, BTIG.
Eric Hagen
Hey, thanks. Good morning guys, good to hear from you. Going back to the Agency portfolio and the allocation there. Can you share why that maybe isn't more attractive to you at these valuations? And if you guys had maybe more incremental capital like what you would potentially do with that?
Mark Tecotzky
Sure. Yeah, for the last, I'd say, two or three years, one of the sort of high-level decisions we thought about at Ellington Financial is to really have it more credit focused really have it take advantage of vertical integration which we think gives us a big competitive advantage versus just going out there and buying QSIPs in these sectors.
And so to do that, it's fairly capital intensive between originator stakes and bulking up loans for securitization and having the risk retention obligation. So the opportunity in agencies has been pretty good and had a good '24. And at the start of this year, broadly speaking, for Agency portfolios has been good. So we don't -- it's not that we don't think it's an attractive sector.
It's just over cycles, the the advantage you have in a permanent capital vehicle to invest in credit, we think is substantial. And the agency strategy is a good strategy, but it doesn't need to be done in a permanent capital vehicle. And for the capital we have in EFC, we think it can be put to better use, taking advantage of being able to go down in liquidity and sort of going down in the mortgage food chain and getting closer to borrowers, controlling underwriting, and that's done on the residential side and the commercial side, we didn't really talk about it on this call, but we made the investment in a commercial mortgage originator that we've partnered with for years and they've been very helpful for us on oversea and property management and construction.
Those kind of investments need permanent capital -- and so while we have that permanent capital in Ellington Financial, it's just our conclusion that over cycles we're going to generate better returns and more stable returns doing this vertical integration on the lending side. And it's just -- we think it's sort of a superior return to again the Agency side, you can get massive dislocation in the agency market. You saw them in 2022.
And we have the ability to be opportunistic there, and we retain that ability and we'll do it, and it's certainly a core competency of the firm. But for right now, when you're seeing this growth in non-Agency securitization you were seeing Fannie and Freddie retrench a little bit and more parts of the mortgage market that they used to dominate are now going -- are getting a credit enhanced by private capital -- we just think right now that's the more exciting opportunity.
Eric Hagen
Yeah, definitely makes sense. I appreciate that. So following up on the non-QM delinquencies, is there a read-through in managing the securitization trust. Like is there an expectation from investors that you buy those loans out of the trust even if you don't expect an eventual credit loss? And do you need to maybe temporarily manage your liquidity any differently as a result of that?
Mark Tecotzky
No, I don't think there's that expectation. By and large, we've been risk retainers and we've kept a lot of the credit risk on our deals. And we can -- it's a little bit different than like what you see in the [crease CLO] market that I think you're talking about not chunky loans, right? So I think we have -- I think our expectation now is to work those out and resolve those while the loans are in the securitization.
Operator
Bose George, KBW.
Bose George
Hey guys, good morning. First, on the net interest income. So you guys noted, obviously, the work you've done on the liability side. Is the net interest income this quarter kind of a good run rate to think about going forward?
J. R. Herlihy
Sorry, I missed the middle of the question.
Laurence Penn
Just say net interest income. Are we getting -- as a run rate or...
Bose George
Yeah, so I was just checking if that was a good run rate since it was up around $0.05, I guess, on the improvement you've had on the liability side, so just...
Laurence Penn
Yeah. I mean remember, those improvements are ongoing and didn't take place at the beginning of the quarter. So yes, I think that we should be seeing something better?
J. R. Herlihy
Yeah, I think that's -- I would echo that. I mean, we mentioned that the NIM on the credit portfolio widened and the weighted average cost of funds declined -- which is -- okay, which is what you're pointing out, declined by 50 bps plus during the quarter. That's a combination of negotiating tighter spreads with several financing providers and the drop of short-term rates. .
So I do think that it's also a function of product mix, but I do think it's representative what we saw in Q4 in terms of the portfolio composition, adding more resi loans, adding more commercial bridge loans. So yes, I think it's a good run rate too.
Laurence Penn
Yeah, I mean, look, on the other hand, on some of the loans that we're buying now, for example, we've seen some spread compression in RTLs. And other products. So I think as the portfolio turns over, you may see some tightening on the asset side. So it's -- this kind of currency and counter current, I guess, you could say. But I think for -- certainly for the first quarter, I don't see any reason why that's not a good guidepost.
Bose George
Okay. Great. And then actually on the expense side as well, it went up last quarter. It's kind of a similar level. I think you guys had suggested it might tick back down, but is this kind of a decent run rate for us.
J. R. Herlihy
Yeah, I think it's a decent run rate. We did have some onetime option-related tick up last quarter that you identified. I think that you're referencing -- the quarter-over-quarter now is -- it's just a small percentage increase with no real movement in any of the individual line items. Yes, I think in short, I think it's a good run rate to use going forward, that kind of the Q4 results.
Laurence Penn
Yeah. And I just would I'd like to add a little bit of color to that option line. So we had owned basically half of Longbridge until a few years ago. And our partner owning the other half was as a private equity firm, and there was some thought back then of potentially having a sale of the company and a realization event.
I mean I'm going back several years. And ultimately, we actually -- so sorry, so the way that employees have been compensated back then, especially senior management, was partially through granting options in the company. Again, anticipating some sort of a realization event down the road. When we bought the other half and basically owned all the company at that point and had no intention or let's just say, no specific plans to ever sell the company, which we think works really well within Ellington Financial for all the reasons that we've said so far.
Those options didn't really make as much sense, right, to have an option in a subsidiary that those employees can never monetize, right? So we basically bought them out at a at a fair price given what had happened in the ensuing years between when the options were granted and when we repurchase them. So that's why it was a onetime thing. And now there are no more options outstanding. And sorry, go ahead JR.
J. R. Herlihy
No, I think that covers it. Okay.
Bose George
Great. And actually, just a follow-up on the agency MBS discussion. Actually, where do you see current leverage yields or sort of ROEs? And also just in terms of spreads, do you look at nominal spreads, spreads, OAS with kind of what's the spread you look at mainly on the math of that.
Mark Tecotzky
On the Agency space?
Bose George
Yeah, on the Agency space.
Mark Tecotzky
Yes. So I would say this, right? We've always run it a little bit differently than some of the peer group. So we've liked the use of TBA hedges. So when we have mortgages, hedged with swaps or treasuries, so not versus TBAs. There's a few things we look at. So on the specified pools, we look a lot at OAS.
I do think that is the best measure to capture sort of value you're going to capture over market moves. So we look at OAS. We also look a lot and we think a lot about sort of optionality in pay-ups, right? Like there's sometimes you can buy pools with a very low pay up and in certain market environments, the pay up can go up substantially, right? So I'd say it's primarily OAS it's less zero vol spread.
Now when we have pools versus TBA then it's a lot of, well, okay, how does that pool carry versus what the role is on the TBA. That's a big part of it. And what the convexity of our pool going to be like with TBA? Are there market moves or we think pay up can go from a handful of ticks up maybe like 24, 25 ticks, and that could be 0.5 point of outperformance. So they were looking a lot of sort of -- we kind of call it pay-up convexity, so what kind of volatility and what kind of upside do you have in the pay up?
And the other thing is when we have TBA longs versus rate hedges, then we care a lot about what the roles are. And there are sometimes where roles can be so compelling over a long period of time. That's far superior than being long specified pools. And that's sort of like it definitely harkens back like 2021 when these discount roles like Fannie 2s and Fannie (technical difficulty) were consistently delivering substantial returns over what pools could have done then and just -- and the hedging cost.
So I think it depends a little bit on is it pools? How are they hedged but vol spread versus OAS. We're firmly in the camp that you need to really look at OAS. We're reluctant to buy things that have a very low 0 vol spread because I just think you have fewer other participants that want them. But gun to our head, we're going to pick a higher OAS and a lower zero vol spread than something that's the reverse.
Laurence Penn
Yeah, I actually wanted to follow up a little bit on your expense question because we were just looking at some of the numbers offline here. So there are a few things going on. So we -- look, we're always looking to make sure we're efficient on expenses. And we definitely made some improvements even so far this year. But when you think about the fact that we're more and more focusing on loans versus securities, obviously not credit versus agencies.
But even just loans versus securities, those are going to require more people. And so compensation costs, again, I think when you look to the extent that they're rising versus what our income has been in these sectors, it's not a question that this is what we need to be doing. Longbridge, by the way, also in particular, right, as we're growing that proprietary business as they've increased their servicing portfolio, I mean all these things that are making us a lot of money, they've been also growing in terms of headcount as well.
And again, we're always going to look at efficiencies there. And -- but I think that these investments in what are really been modest increases, I think, in compensation and personnel costs have been absolutely more than rewarded in terms of what you've seen in a long bridge and what you've seen in terms of what we're doing on the loan side of our portfolio.
Bose George
Okay. Great now makes a lot of sense thanks a lot.
Operator
Trevor Cranston, Citizens JMP.
Trevor Cranston
Hey, thanks. Question on related to Longbridge. I know a lot of the focus there is on the proprietary side of things. But I was wondering if you guys could comment on whether or not you guys have seen or are you foresee any impact on the HMBS market and the rollout of HMBS 2.0 related to staffing cuts at HUD and other places and what the overall impact of that could be on Longbridge.
Laurence Penn
Yeah, look, it's an important question. And I wish I had a better answer than to tell you, we'll have to see just like with a lot of things going on right now. On the other hand, we do have the crop business, which has really been driving the earnings. So I think we'll just have to wait and see on side. The Heckamside did have the agency side basically has been seeing improving results as well. but we're just going to have to wait and see.
I mean, look, there were a lot of questions in the first Trump administration, and there'll be questions in this administration exactly where they're going to -- and at HMBS 2.0, I can't remember whether you refer to that, but sort of we were anticipating a change in some of the regulations that would actually be further boost to heck in profitability, but we'll just have to wait and see. Maybe those won't materialize, that will just be the absence of a positive. But again, we're just going to have to wait and see.
J. R. Herlihy
And I would just add, I mean, it's hard to read the tea leaves on the regulatory change front and the like, but you could also see if there is an interruption on the product could drive demand to profit.
Laurence Penn
That's right. And we have -- we believe we have larger market share and profit than we do and even though we have a very large market share in So we'll just have to wait and see.
Trevor Cranston
Okay, yeah, that makes sense. Thank you guys.
Operator
[Randy Binner], B. Riley.
Randy Binner
Hey thanks actually, just on the HUD, that's a really interesting area. So understood that there's a lot to monitor with the new administration, but I believe they've already had some pretty significant staffing cuts at HUD. So -- is there -- just kind of real time, are you -- you all feeling anything just from a procedural perspective in dealing with the government?
Laurence Penn
I haven't heard anything. No.
Randy Binner
Okay. So yeah, I think my question -- this has all been very comprehensive. I appreciate it. But just on the REO workouts in the prepared script, you provided some details on a couple of loans. It sounds like they're in the kind of last stages of negotiation. Have you quantified how much capital gets freed up and what the timing of that would be as a result of these REO workouts .
Laurence Penn
Yeah. It's not -- I'm just going to say it's not -- it's probably not as much as you think, but go ahead, JR.
J. R. Herlihy
Yeah. So the short answer, Andy, is we've not quantified it. At year-end, we had less than $100 million invested in commercial in REOs and delinquent loans altogether. About more than half of that is -- of the three loans that we talked about, those 3 constitute more than half of that $95 million, call it. So we have -- beyond that, we haven't quantified.
Laurence Penn
I say so quite a few just assume for argument's sake that it was something in the high-40s, then I mean, again, this is not -- it's great. It's great. Don't get me wrong. We want to see these resolved quickly and move on. But you're not talking about anything game changing.
J. R. Herlihy
Some is financed, some is not. But also, we have -- it doesn't contribute to ADE, as we mentioned in the prepared remarks. And in some cases, it has negative ADE implications during the quarter. So it can have a -- despite the smaller size relative to the overall pool of capital can have a disproportionately negative impact on ADE, both through not generating ED but also being a drag in some cases.
Laurence Penn
So we're looking forward to getting past that.
Randy Binner
Okay. Understood. So I'm not going to add that to the model. And then I guess on reverse, it's -- you doubled your guide, and you have this demographic wave of the boomers. And I mean, seemingly, agent in place would be preferable for a number of different reasons.
And so I mean just taking a step back, are you -- this has been -- it's a tremendous business, I think, and it's generally underappreciated. Do you -- do you get the sense that you're going to get more mainstream competitors in that area? Or do you think this can kind of still stay kind of a niche market where you can have a lot of share -- reverse mortgage kind of that large.
Laurence Penn
Yeah, and by the way, the other thing I just want to mention is -- and I think it addresses your question to some extent is that Longbridge is actually -- we're actively working with some other partners to create some other products for seniors that may not technically be reverse mortgages, but have a lot of similar characteristics.
So I don't want to sort of give away too much. But there's just -- yes, there's a lot of ways with the relationships we have with the compliance program that is, I would say, unique to the reverse mortgage originators that have to do so much more when dealing with with seniors, for example. So yes, so we're excited and we're hopeful that we can even announce some interesting new products in the near future.
Randy Binner
Would that be like in partnership with life insurers.
Laurence Penn
No, no, with other types of loan originators.
Bose George
Yeah. All right, very good. Thank you.
Operator
Crispin Love, Piper Sandler.
Crispin Love
Thank you, I appreciate taking my question. Can you just dig a little bit deeper into closed-end seconds, HELOCs and the opportunity there? It looks like you've more than doubled the portfolio there in the fourth quarter. Is that rate driven along with affordability in HPA moves? And was that growth mostly through acquisitions? And just curious on how demand could be in that space if rates do come down, meaning is there still a bunch of runway if rates do come down just with where rates are today.
Thank you.
Laurence Penn
Go ahead, Mark.
Mark Tecotzky
Crispin, thanks for the question. So that opportunity set for what we've been buying, we've been buying just loans, second liens, where the first lien is from Fannie, Freddie, Jenny and the borrower has a low note rate first, 3.5 or 3.25 note rate first. And they've amortized down the first a little bit. They've had home price appreciation. So most of these things are now there FICOs in the 740, 750 type range, the combined loan-to-value ratio.
So the first lien plus the second lien, typically high 60s, so you got a lot of equity. And it's borrowers that have, in some cases, been the house 8, 10 years because a lot of the activity in 2021, as you remember, were refi activity, right? The guys persona's been in his house, Family's been in the house at 10 years. They got a really valuable first rate mortgage, right? If you're paying 3.5% or 3.75% on a first, that's an asset, right? So you don't want to part with that.
But yet, maybe you want to renovate your kitchen -- maybe you want to do some landscape and you want to borrow against your home, right? Because it's a heck of a lot cheaper than credit cards heck a lot cheaper than unsecured. So you take out a second lien, 9%-odd or whatever it is. And it's a smart way to tap some of the equity in your home. So that's a big opportunity set because even though it's been years since we've had those super low rates, most of the Fannie Credit Ginnie market is still that really low coupon stuff. So we see it as a big opportunity set.
I would suspect over time, you're going to see people doing more adventurous things in second liens. That's not what we've been participating in. So -- for us, it's been a chance to get a higher note rate loan from a borrower we think the borrower is an excellent borrower is evidenced by like long past strings and a borrower that even with the second lien, even after we take into account this additional loan obligations, additional debt obligation to run their home is still very low loan-to-value ratio.
So it's been that combination of things that has drawn us to the sector and with similar things about HELOC. And then -- in addition, with the second liens, there is an active securitization market. So our ability to term out -- Larry talked about the liability side of the balance sheet. And so when you do a securitization second lien, it's just like non-QM, you're replacing repo with fixed-rate debt that matches the cash flow on the assets. And as debt spreads have come in, we found issuing the securitizations is more profitable to us than just keeping loans on repo. And so I think it's a pretty big opportunity set.
I think it will be pretty long lived. I mean, I think what changes is rates going up, won't change it. I think rates going up, you'll still see good volumes. I think where it changes if rates were to drop precipitously, then some of these borrowers where it's smarter to take a second lien than refinancing the first lien. That's where you could see the market dynamics change.
Like right now, if you have a 3.5% first and you want to borrow $60,000, it just doesn't make sense to pay off your 3.5% first and take a bigger 7% first. But if rates were to come down a lot, then all of a sudden, maybe you get to 3.5% first, you can borrow it to [5], then the math then it's -- the scales are more in balance.
Crispin Love
Great. Mark, I appreciate that all really helpful. And then just last one for me. Just big picture question on the potential for GSEs coming out of conservatorship and the new administration. Just how do you view the probability of that happening and impacts the EFC as you'd see it? And is there any way for you to position and on that may be occurring over the next few years?
Mark Tecotzky
I think it's a great question. I think it depends on leadership at FHFA, but it's certainly a possibility. We're certainly on the radar for the first Trump administration and they've been talking about it now. So I definitely think it's possible. I definitely think you've had a lot of comments from the Treasury Secretary that it needs to be done in a way that does not raise the cost of home ownership.
I think they're very focused on that. So I think it could certainly happen, whether there is an ultimate backstop to the government or not, I don't know. And I think -- what I think it does create though, is the possibility of some short-term volatility. So in the end, whenever it happens, maybe it's done in a way where agency mortgages still have a backstop and they're extremely liquid and they really do compete with investment-grade corporate bonds and treasury bonds for the investment-grade dollars the way they are now. They're a big part of the ag.
But going from where we are now to what finally happens you can certainly get comments made and suggestions put out there that can cause some short-term volatility. So I think the opportunity set is short-term I think the bigger picture that we've been focused on for a couple of years and -- which I think is a very substantial opportunity set for Ellington Financial is the fact that -- and it sort of -- I think this this trend is accelerated with the current administration? Is that Fannie and Freddie Ginnie are gradually shrinking their footprint.
And it's clear with Fannie and Freddie. They have a mentality of cross subsidies where certain loans, they know they're charging way, way above expected losses for guarantee fees and loan level price adjustments because they want to be able to subsidize other loans that are more mission-driven, maybe higher LTV loans.
And so you've seen Fannie and Freddie now willing to let portions of the market that they used to guarantee fee and used to make a lot of money on get credit enhanced in the private label market. In the years past, when Fannie and Freddie would see that they're losing market share to the private market in certain areas, then they would oftentimes adjust their G fees adjust their loan level price adjustments. But it seems like where we are now, I think they're less likely to do that.
So I think private Capital's role in the housing market, I think that's going up as a result of all this. And how would GSE reform? I don't know, but you're certainly seeing loans that could go to Fannie and Freddie and right after the financial crisis, 100% that could go to Fannie and Freddie went to Fannie and Freddie.
And that was, by and large, the case for many, many years. And now you're starting to see loans that could go to Fannie ready, increasing numbers are finding better execution in the private label market.
Laurence Penn
Mark, I'm just going to I don't usually make predictions, but I think that the odds -- of course, anything is possible. I think the adds are lower than people think. But I think if there is going to be an eventual release, I think it's a lot more complicated than a lot of people think. So I think you're talking about something that could take a really long time.
Meanwhile, the agencies are actually through the cat and stacker programs, right, CRTs. They're actually reinsuring a lot of their risk I believe they model to global financial crisis type levels in terms of what could happen to housing.
They are generating massive profits that are going right to the treasury -- and those -- obviously, you've got a lot of things on the table now that are going to increase deficits potentially. I think even though there was a lot of talk is in the first administration again. And I think it's much more complicated than people think to sort of disentangle them as well from the market. So I think it's going to take a very long time. I think the people think.
Crispin Love
Great, well I appreciate you both taking my questions. The details, great. Thank you.
Operator
And that was our final question for the day. We thank you for participating in the Ellington Financial Fourth Quarter 2024 Earnings Conference Call. You may disconnect your line at this time, and have a wonderful day.
