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Chimera Investment Corporation (NYSE:CIM)
Q1 2019 Earnings Call
May. 01, 2010, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, this is the operator. Today's conference is scheduled to begin momentarily. Until that time, your lines again be placed on music hold. Thank you for your patience.

Ladies and gentlemen, thank you for standing by. Welcome to the Chimera Investment Corporation First Quarter 2019 Earnings Conference Call and Webcast. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session. If you would like to ask a question at that time simply press * and the number 1 on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue, press the # key. We ask that while posing your question that you pick up your handset to allow for optimal sound quality.

It is now my pleasure to turn the floor over to Emily Mohr of investor relations. Please go ahead.

Emily Mohr -- Vice President of Investor Relations

Thank you, Laurie, and thank you, everyone, for participating in Chimera's First Quarter Earnings Conference Call. Before we begin, I'd like to review the safe harbor statement.

During this call, we will be making forward looking statements, which are predictions, projections, or other statements about future events. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which are outlined in the risk factor section in our most recent annual and quarterly SEC filings. Actual events and results may differ materially from these forward looking statements. We encourage you to read the forward looking statement disclaimer in our earnings release in addition to our quarterly and annual filings.

During the call today, we may also discuss non-GAAP financial measures. Please refer to our SEC filings and earnings supplement for reconciliation to the most comparable GAAP measures. Additionally, the content of this conference call may contain time-sensitive information that is accurate only as of the date of this earnings call. We do not undertake and specifically disclaim any obligation to update or revise this information.

I will now turn the conference over to our President and Chief Executive Officer, Matthew Lambiase.

Matthew Lambiase -- President and Chief Executive Officer

Good morning, and welcome to the First Quarter 2019 Chimera Investment Corporation's Earnings Call. Joining me on the call this morning are Mohit Marria, our Chief Investment Officer; Rob Colligan, our Chief Financial Officer; Choudhary Yarlagadda, our Chief Operating Officer; and Victor Falvo, Chimera's Head of Capital Markets. I'll make some brief comments. Then Mohit and Rob will review the portfolio and financial results for the quarter. We will open up the call for questions afterward.

Chimera posted a solid 4.8% total economic return for the first quarter, comprised of a $0.50 dividend and a $0.25 increase in book value in the period. In January we took the opportunity to add capital by issuing $200 million of preferred stock. This issue, series D, has an 8% fixed coupon for the first five years and then converts into a floating coupon, adjusting quarterly at three months LIBOR plus 533 basis points. The series D preferred is cull-able at the company's discretion any time after the five year fixed rate period. Over the past two and a half years, Chimera has issued $930 million per stock, which has helped us grow our investment portfolio and lower the company's overall cost of capital.

The first quarter of 2019 was another volatile period for the fixed income markets, largely due to the actions of the Federal Reserve. In late March the Fed stated that it was done raising rates for the rest of 2019. This statement came as a surprise to most market participants, who were still trying to understand the logic of the rate increase in December.

Chairman Powell noted in his comments, "It's a great time to be patient," and this sent an all-clear signal to the market to buy bonds. Other post-meeting comments from Fed officials sent the bond market higher in price, and the yield on the 10-year treasury fell to 2.37% after being at 2.76% at the beginning of March.

The positive sentiment for US Treasury bonds was further compounded when German manufacturing data showed that their economy, the bellwether of Europe, was starting to slow, which pushed German 10-year bond yields into negative territory. Negative yields in both Germany and Japan started to raise the specter of a global economic slowdown, and the fear that the Federal Reserve may have overtightened interest rates and may need to cut in the future.

Several economists and analysts have all begun to call for US recession later in 2019 or early 2020. It's a curious time when unemployment is at record lows and an economic growth seems to be modest but solidly positive. There appears to be a disconnect between equity investors who are driving the stock market to record levels and bond investors who are accepting low interest rates at a flat yield per.

The current interest rate environment is less than ideal for our strategy. The US Treasury yield curve is relatively flat, and the LIBOR curve is slightly inverted, with the three-month LIBOR rate at 2.58% and 10 year interest rate swaps at 2.53%. The shape of the yield curve is negatively impacting many financial companies by keeping short-term borrowing costs high and portfolio reinvestment rates low. The longer the yield curve maintains this shape, the harder it will become to maintain that interest spreads. While we're not immune from the effects of a flat yield curve, we do believe that it's most likely a short-term anomaly. Historically the yield curve is normally positively sloped and in the past has only inverted for a relatively short period of time during economic transition.

As I stated on previous earnings calls, the end of a Fed tightening cycle can be tumultuous as the market transitions to new economic expectations. This year many bond investors have been trying to get ahead of this transition and are currently betting that the economic data will start to show a slowdown and the Federal Reserve will start cutting rates later in 2019 or early 2020. While we would be happy with that outcome as it would lead to lower borrowing costs and much better operating environment, we continue to manage our portfolio for a long horizon, and we remain prudent with hedge positions should interest rates unexpectedly rise.

Our core portfolio residential mortgage credit continues to perform well. The US housing market fundamentals have moderated somewhat but remain positive for our legacy portfolio. The March S&P Case Shiller National Home Price Index showed a positive 4.23% increase year-over-year, which was down from 6.18% a year earlier. We believe that a 4.23% increase is healthy, and other data, such as housing starts, existing home sales, and new home sales, look healthy to us as well.

The stronger US employment statistics reinforce our belief that the housing market is on solid ground and that the current dip in interest rates will only increase demand and affordability. We've been successful in finding new investment opportunities and continue to believe that residential mortgage credit offers some of the best risk/reward profiles available in the entire fixed income market.

Last night our board of directors announced a $0.50 per share common dividend for the quarter and reinforced their earlier statement for their intention to pay $2.00 per common share for 2019. And with that I'll turn the call over to Mohit to discuss the portfolio activity in the quarter.

Mohit Marria -- Chief Investment Officer

Thank you, Matt. In the first quarter of 2019 we saw a reversal of what occurred in Q4. Equity markets rebounded, as did credit spreads. In addition, the Federal Reserve in March retreated from their tightening bias over the past two years as concerns over global growth and lack of inflation took center stage. With the Fed on pause, US Treasury rates continue their decline in Q1 and now have decreased over 80 basis points on 10-year treasuries over the past 5 months. Short end rates, however, decreased less, leading to an inversion of the yield curve between 3-month and 10-year treasuries.

Boto Recorder, our agency portfolio, was largely unchanged, decreasing by about $300 million to $8.7 billion. Although the portfolio is similar in size to the previous quarter, the faster prepayment expectations caused by the decrease in treasury rates has substantially reduced the duration of these holdings. As a result in the changes in prepayment expectations, we have made a substantial reduction in our interest rate swap hedge position to better match the shorter duration of our agency past portfolio.

As we mentioned last quarter, agency CNBS has widened substantially, and we are seeking to add to our position. With the government shutdown for the first six weeks of the year, it limited our ability to increase the portfolio meaningfully. We added roughly $187 million in agency CNBS construction loans to our portfolio in the quarter, bringing our total to $3.1 billion. It bears mentioning that unlike residential agency past years, our agency CNBS targets all protection, which is extremely beneficial from a hedging perspective, as rates have moved substantially over the past five months.

In our residential credit portfolio we were able to take advantage of wider spreads early in the quarter by adding some non-agency securities. In addition, we also acquired about $112 million of residential transition loans to the portfolio. These loans have a weighted average coupon of 7.23% and a weighted average LTB of 70%. Due to the short nature of these loans, we do not currently intend to securitize them.

Lastly, this quarter we priced our second securitization backed by investor loans. We priced $382 million of CIM 2019-INB1. These loans on this deal have a weighted average coupon of 5.35%, have a 69% weighted average LTB, and a weighted average loan size of approximately $294,000.00. Chimera retained a $41 million investment in this deal.

To summarize our activity, it was a relatively light quarter for changes to the portfolio. Given the current market volatility, shape of the yield curve, and the recent shift in Federal Reserve policy, we believe it is prudent to exercise patience with the investment and portfolio growth. We continue to have ample liquidity in our agency portfolio and continue to seek out loan opportunities and credit investments.

I will now turn the call over to Rob to review the financial results.

Rob Colligan -- Chief Financial Officer

Thanks, Mohit. I'll review the financial highlights for the first quarter of 2019.

GAAP book value at the end of the first quarter was $16.15 per share, and our economic return on GAAP book value was 4.8% based on the quarterly change in book value and the first quarter dividends per common share. GAAP net income for the first quarter was $101 million. On a core basis, net income for the first quarter was $106 million, or $0.57 per share, down slightly from last quarter. Economic debt interest income for the first quarter was $151 million, compared to $154 million last quarter. For the first quarter, the yield on average interest earning assets was 5.5%. Our average cost of funds was 3.4%, and our net interest spread was 2.1%.

Total leverage for the first quarter was 6:1, while recourse leverage ended the quarter at 3.9:1. For the quarter, our economic net interest return on equity was 16%, and our GAAP return on average equity was 12%.

Expenses for the first quarter, excluding servicing fees and deal expenses, were $20 million, up from the fourth quarter, primarily related to compensation expenses. We accelerated the cost of equity-based compensation in the first quarter as some employees have become retirement-eligible. In future years, grants awarded to these employees in the first quarter will be immediately expensed, and compensation expense may be lower in the second, third, and fourth quarter.

For 2019, compensation may be $12-13 million per quarter for the remainder of this year, although our compensation is now based on Chimera's financial performance relative to our peers, and will be adjusted each quarter based on relative return on equity and total economic return.

That concludes our remarks, and we'll now open the call for questions.

Questions and Answers:

Operator

Thank you. At this time, I would like to remind everyone if you'd like to ask a question please press * then the number 1 on your telephone keypad. If your question has been answered and you wish to remove yourself from the queue, press the # key.

Our first question comes from the line of Eric Hagen of KBW.

Eric Hagen -- KBW -- Analyst

Hey, thanks. Thanks, good morning. I'm glad you guys addressed the prepay element of the portfolio. I assume that pertained mostly to the agency portfolio, though. I mean, how should we think about prepays for the second quarter, in particular for the securitized loan portfolio?

Mohit Marria -- Chief Investment Officer

Sure. Good morning, Eric. This is Mohit. Yes, most of the prepayment expectation changes are based on the changes in the agency portfolio. The non-agency and the loan portfolio continue to prepay where they have historically prepaid in the high single digits, and we don't expect that to change even with the move in rates. Those borrowers have had a refinement for a long time but with limited option to refi, which is what makes the loan portfolio very attractive.

Eric Hagen -- KBW -- Analyst

Yep. Yep. So I think the yield in securitized loan portfolio narrowed by -- I think I have it in front of me -- 20 basis points. I guess that wasn't driven by prepays. What was the driver of that?

Mohit Marria -- Chief Investment Officer

I think again the yields on the loan portfolio, as we want them on a quarterly basis, the cash flows, some of the assumptions have changed. I think, again, as these loans flush through the pipelines, we have about 8-9% delinquency. Some of the severities experienced were a little bit higher than we expected, and that change is reflected in the new cash flow assumptions, causing to a slight downtick in the yields.

Eric Hagen -- KBW -- Analyst

Got it. Okay. And would you --

Rob Colligan -- Chief Financial Officer

I would say the only other thing is obviously as we add to the portfolio, some of the newer assets may have a slightly lower yield than what we had in the past. You know, the older portfolios that we bought several years ago, given the rate curve at the time, had a little bit higher yield than what we're finding in the market right now.

Eric Hagen -- KBW -- Analyst

Got it. Yep, I imagine some of it was due to mix, the mix shift. So thanks for clarifying that. The second question, just how comfortable are you guys with the amount of preferred in the capital structure right now? I mean, I think leverage for the overall business is pretty contained, I mean, around 6x, but I guess that doesn't really address the leverage on common stockholders. So how do you kind of think about your capacity overall to run with perhaps more preferred or -- I guess are you comfortable with the overall level that you have right now? Thanks.

Rob Colligan -- Chief Financial Officer

Yeah, sure. I'll start on that one. Yeah, the preferred markets have been good for us. I think the markets have been open. It's lowered our overall cost of capital. It is, not to be cute, our preferred way of raising capital, and I think it's helped us broaden the investor base as well. I think we have a much broader retail and institutional investor base than we did before we started issuing preferreds, and I think that, in the short term at least, that would probably be our go-to if we needed additional capital.

Eric Hagen -- KBW -- Analyst

Got it. Got it. Thanks. So that's helpful.

Operator

Your next question comes from the line of Doug Harter of Credit Suisse.

Doug Harter -- Credit Suisse -- Analyst

Hey, guys. This is actually Josh on for Doug. First off, was there any material impact of the tightening of the spread that we saw between three-month LIBOR and one-month repo on earnings in the quarter? Thanks.

Mohit Marria -- Chief Investment Officer

Hey, Josh. This is Mohit again. No. In fact, for the majority of Q1, our repo rates were reflective of higher given the Fed went in late December. I think we're gonna see the benefit of the downtick in three-month LIBOR, more reflective in Q2 as opposed to Q1. I think our weighted average REPO cost for Q1 was north of 270, 271, roughly.

Doug Harter -- Credit Suisse -- Analyst

Got it. And then can you guys give any update on how you're thinking about how book values trended since March 31? Thanks.

Mohit Marria -- Chief Investment Officer

I think on the credit side, spreads are a little bit firmer, so supportive of book value. Loan pricing remains well-bid, so that's also supportive of book value. On the agency side, giving the rally, monies have lagged a little bit, so I would say book value is flat to maybe slightly up.

Doug Harter -- Credit Suisse -- Analyst

Great. Thanks, Mohit.

Operator

Your next question comes from the line of Trevor Cranston of JMP Securities.

Trevor Cranston -- JMP Securities -- Analyst

Hey, thanks. Good morning. I was wondering if you could talk a little bit more about new investment opportunities. You know, you commented that you had like agency CMBS last quarter but were only able to add a little bit. I was curious if you guys still find any value there. Also if you could maybe talk about opportunities on the credit side in terms of securities versus loans and what you're seeing there. Thank you.

Mohit Marria -- Chief Investment Officer

Sure. I'll start with the agency CMBS side. Yes, we still find those -- that class attractive. I think it's just the size of that market is ultimately small. Annual originations tend to be anywhere between $12-18 billion, so aggregating that takes a little bit longer. Over the four years we've been in this space, we've built a portfolio from $0.00 to $3.1 billion in the aggregate, and Q2 from what we've noticed historically has been a slower origination period. So we think there could be challenge at add assets here, but to the extent that come to market we will do so.

As I mentioned in the opening remarks, the benefit of adding that asset is the call protection that they offer. Unlike the shortening we experienced in our agency portfolio, the CMBS portfolio had a less material impact on the duration given the prepaid penalty associated with those assets. On the non-agency side, we still think there's attractive opportunities there. It's just the level of competition that exists -- loans...there are over $10 billion of loan sales in Q1. We went after some, but we're not as aggressive as some others. We still feel that both the GSEs have plenty to go there, and to the extent they meet our return hurdles we will go after those assets.

On the legacy queue slip side, that's a bit of a challenge. The shrinking space, as I mentioned in our Q1 call, given where spreads ended on the new issue side at the end of Q4, we were able to take advantage of some of that spread widening early on, but as the market stabilized those spreads came in quite materially and race-rallied so the all-in yield available on those assets didn't look as attractive as it did in early gen. But we're hoping -- Again, we'll pick our spots to add assets judiciously that meet our return hurdles.

Trevor Cranston -- JMP Securities -- Analyst

Great. That's helpful. Thank you. And then just one follow up comment on -- You know, you were talking, when you were talking about live war in the repo market and where the repo rate was at the end of the quarter, I think you share around $2.73, have you guys seen any change in where repo's pricing since March 31?

Mohit Marria -- Chief Investment Officer

Yeah, I mean, I think one month, two months, three months are relatively flat, and they've come in from the $2.73 to the $2.65, $2.64 area. And that sort of will be reflective in Q2. I don't have any way to like see the full impact given some stuff was on longer term and we've put it on in Q1, but you will see the $2.73 tick down in Q2. And we think, given the chain in the Fed rhetoric, that number should gravitate lower toward your one-month LIBOR rate.

Trevor Cranston -- JMP Securities -- Analyst

Okay. Great. Appreciate the color. Thank you.

Operator

Your next question comes from the line of Matthew Hallett of Nomura.

Matthew Hallett -- Nomura -- Analyst

Hey, guys. Thanks for taking my question. Just getting back to the credit versus agency mix shift. It sounds like you're still sort of predominantly positioned with more agency MBS. I mean, certainly those GNE main side. So sort of can we look at overall leverage moving higher as you add those assets going forward? And will that continue until you see just sort of better opportunities to add credit?

Mohit Marria -- Chief Investment Officer

Yeah. Hey, Matt. Again, I think with what's happened in the rates market and sort of the negative convexity at the level of innovation we're at now, leverage agencies look marginal. I think, you know, that if you can find credit opportunities we would definitely be going after those. We feel, like I mentioned earlier, the GSEs have some loans to sell. You know, they're gonna be out with another $10 billion in Q2, and we're hoping that, again, given what's happened to the securitization market on the new issue side, coupled with the rate rally, that the all-in cost of issuing debt will be beneficial and give us a leg up in sort of going after the loans a little more aggressively than we did in Q4 and Q1.

Matthew Hallett -- Nomura -- Analyst

So in other words, these are largely what? Re-performing or non-performing loans? And what you're saying is sort of -- Reperforming loans. And if I hear what you're saying, it's that the ability to securitize at these market rates is if we improve that levered return inside of securitization, and that offsets some of the higher loan prices that may come out on these packages?

Mohit Marria -- Chief Investment Officer

That's correct. I think if you look back for where spreads have been on the new issue side, in Q1 of 2018 spreads were on rated stuff maybe plus of 55 to 60, and on the nonrated stuff maybe 20 basis points to 25 basis points wider than that. We ended the year at, on the rated stuff, at swath plus 125 and on the nonrated stuff at swath plus 160. And if you look at where you can do those transactions now, they've come in from 125 on the rated side to 105-ish roughly. So maybe they're in about 20 bps, and on the nonrated side, like I said again, pick 20. So maybe around swath plus 125 to 130. That 25 to 30 basis points of spread tightening equates to about a point and change on the execution of the overall loan package, and that sort of gives you some wiggle room to sort of get higher levered returns on the equity piece that you would retain.

Matthew Hallett -- Nomura -- Analyst

That's great. Thanks. That's helpful. Then just any way to quantify the total size of these packages? I mean, for the remainder of the year, is it $20 billion that could come out from Fannie/Freddie? Is it higher than that?

Mohit Marria -- Chief Investment Officer

No, I think, again, some of that supply/demand, the agencies or the GSEs will see based on sort of how much cash is on the sidelines, but I don't think they really intend to upsize unless demand seriously picks up. I think we're looking at about $4-5 billion between the two GSEs on a quarterly basis, so that's $20 billion over the course of the year in supply coming from them. In addition to them, there's gonna be some bank selling of loans as well. I think you could see anywhere between $25-30 billion of RPL loans come to market in 2019.

Matthew Hallett -- Nomura -- Analyst

Great. And just last question. I think I saw your -- looked like your non-agency repo cost ticked down. If I had that correctly, are the banks lowering the spread on that product given the sort of improvement in credit quality? Just whatever seeing on some of the recourse that your plying to some of your credit assets from the banks.

Mohit Marria -- Chief Investment Officer

No, that's the case. I think spreads on non-agency repos have come in considerably over the last two years and continue to inch down. There's plenty of cash on the sidelines that wants these assets. I mean agencies are funding at LIBOR plus 15, 20, while credit assets are funding at LIBOR plus call it anywhere between 125 to 150. In addition to that, we've been able to extend our repos without any give up in the rate as well. So we've extended from three months, six months, to in some cases we've done trades over two years. So that's also beneficial to the portfolio.

Matthew Hallett -- Nomura -- Analyst

Great. Thanks a lot.

Operator

Your next question comes from the line of Eric Hagen of KBW.

Eric Hagen -- KBW -- Analyst

Thanks for the follow up. As a follow up to that last question, I have -- have haircuts changed for non-agency product as well? I mean, I think you were clear that the rate has come down, but has the level of haircut also dropped?

Mohit Marria -- Chief Investment Officer

It has. I think as the performance of the assets have materialized, haircuts have come in from 35% down to 20% depending on the asset type. And in some cases on the prime jumbo side, even inside of that around 10%.

Eric Hagen -- KBW -- Analyst

Wow. Great. Thanks for the numbers there. And then I seem to look back on my notes every -- from 90 days ago, and I feel like this is kind of my broken record question about how much debt, how much securitized debt is cull-able over the next call it 12 to 18 or 24 months? Can you guys give us that number?

Mohit Marria -- Chief Investment Officer

So for the remainder of this year we have on deal in Q4 that becomes cull-able, which is the CIM 2016-4. 2020, we'll have more optionality. We have our 2016-1/2/3 deals, which have four-years culls in them at the time they were issued. All of those become cull-able late Q1, early Q2, and I think the securitized debt on those is probably north of about $1.5 billion. That becomes cull-able I guess at the early part of 2020. And then we have some deals later that year that also become cull-able. So 2020 could potentially be a big refi year, depending on where rates are and where the market is at that point in time.

Matthew Lambiase -- President and Chief Executive Officer

And it's our option.

Mohit Marria -- Chief Investment Officer

Correct. Yeah. None of these are mandatory culls. They're optional culls at our discretion to the extent the markets cooperate.

Eric Hagen -- KBW -- Analyst

Right. And just to kind of put a value on those options or just think about it mentally, you're kind of pairing together your opening remarks about the Fed and...how expectations have changed there. I mean...the option to cull those bonds wouldn't -- there's not as much urgency to cull those bonds, given changes in Fed rate expectations over the next couple of years. Am I kind of thinking about that right? In other words --

[Crosstalk]

-- the cost of funds in the portfolio is sort of reflective of where it should be if Fed funds don't change. That's kind of what I'm trying to say.

Mohit Marria -- Chief Investment Officer

Yeah, but I think it's gonna be a combination of what the Fed is doing, what type of -- I mean, these deals have de-levered, so we own a larger portion of the equity. If you can optimize that leverage back structurally, that's gonna be beneficial to us, even if rates are unchanged or the cost of that debt is unchanged. So it's gonna be a balancing act between maintaining optimal leverage and maintaining the all-in sort of financing cost.

Eric Hagen -- KBW -- Analyst

Got it. Got it. Great, thanks for -- thanks again for taking the follow up.

Operator

Your next question comes from the line of Brock Vandervliet of UBS.

Brock Vandervliet -- UBS -- Analyst

Hey, good morning, guys.

Matthew Lambiase -- President and Chief Executive Officer

Hey. Good morning, Brock.

Brock Vandervliet -- UBS -- Analyst

Good morning. I was just wondering more generally, given the change in the rate environment that you called out, whether any new, you know, asset classes that you haven't really participated in to date might be sort of coming on your radar given the change of the environment? Whether it's MSR or something else that might pencil here where it hasn't really in the past.

Matthew Lambiase -- President and Chief Executive Officer

You know, we, as Mohit said in his remarks, we have started looking into and purchased a small amount of the fix-and-flip or transition loans. We think they're kind of interesting in this marketplace, and I think the levered returns on them look pretty attractive. I would also say that we still like mortgage credit here. We actually think there's still upside in residential loans, especially these reperforming loans. I think the housing market is very good, and I think if you looked at it just from pure total return, I don't think there's at this moment any reason why you wouldn't continue to try to add to that portfolio. So we like it. It's just, right now for us, it's trying to find paper that meets our return hurdles. And we have been successful doing that, so I really don't see us having any drift away from the portfolio that we currently have. Mohit?

Mohit Marria -- Chief Investment Officer

That's right. And I think to reinforce, we look at all the different asset types available from an industrial landscape standpoint, as some of these products are relatively new post-crisis such as these transition fix-and-flip loans, as that market has grown, the origination volumes have grown, it's created the opportunity to add something more meaningfully that could impact the portfolio as opposed to taking smaller sizes of $5 and $10 million. I think as the opportunity set on the origination that has grown, we've added that to the portfolio to complement our current holdings.

Brock Vandervliet -- UBS -- Analyst

Got it. Okay. Thank you.

Operator

Your next question comes from the line of Jim Young of West Family Investments.

Jim Young -- West Family Investments -- Analyst

Yeah, hi. Could you just clarify some of the details for your new compensation package? What are the drivers and framers that will determine the overall comp level? Thank you.

Rob Colligan -- Chief Financial Officer

Sure, Jim. This is Rob. There's two main drivers. One is return on equity, and the other is total economic return. So there are consistent measures that will be calculated for our company compared to the peers and mortgage rate index. And wherever we perform based on relative performance to the peers is how we'll get paid. So if we're toward the top, we get paid more. If we are middle or bottom, we get paid less. You know, the old compensation contracts were based on static hurdles. So we think this makes sure that we're executing well and competitive versus the peers.

Jim Young -- West Family Investments -- Analyst

Okay, and who is your overall comp group?

Rob Colligan -- Chief Financial Officer

Sure. So we're using the mortgage rate index, the 30 companies or so that are in that index.

Jim Young -- West Family Investments -- Analyst

Okay. Thank you.

Operator

Your next question comes from the line of Jim Delisle of Private Investor.

Jim Delisle -- Private Investor -- Analyst

Good morning, folks. There's been a lot of wringing of hands and gnashing of teeth about the creeping rate of repo financing of agencies and treasures above the IOER. You say it kind of backed off a little bit after subsequent to March 31. But do you have any thoughts as to if there's any particular change in supply and demand and the overnight funding rate that has caused this to happen?

Matthew Lambiase -- President and Chief Executive Officer

It's kind of a mystery actually. You know, the interest on excess reserves should be closer to Fed funds, right? You would think. I don't have a good reason why it's where it is and where the money markets are trading. People have said that it might be something to do with the dollar shortage in the emerging markets, in China specifically, that they don't have enough dollars to...It's a very strange phenomena going on in the front end of the yield curve and the funding curves, and I just think it's gotta be temporary. There have been a couple of research analysts out saying that the Fed is going to take some action to get things back in line. I only believe that it's temporary.

I would say for our funding purposes, you know, we're not seeing any diminution of people willing to fund our positions. In fact, we're taking on new lenders on a regular basis. People are very eager to lend against non-agencies. They're very eager to lend against agency mortgage-backed securities, and the credit markets and specifically the funding markets for these assets are amazingly liquid at the moment. So it's a little bit of distortion in rates we are seeing in the front end, but you gotta think that it's gonna be temporary. At least I believe it's going to be temporary.

Jim Delisle -- Private Investor -- Analyst

And as a follow up, would you say that as you've seen the agency/guaranteed repo rate crawl higher against these other benchmarks, the non-guarantee, non-government-guaranteed rates have tightened up a little bit to guaranteed rates such that their overall climb is not as much?

Mohit Marria -- Chief Investment Officer

That's right, Jim. As mentioned earlier, the Feds, on the credit side of the book, have come in quite materially over the course of the last two years and continue to grind in as the housing market that's robust and the performance of the legacy securities as well as the new issue stuff performs better than expectations. So those spreads are reflective of that.

Jim Delisle -- Private Investor -- Analyst

And your genie project, your various project loans, how do you finance those? What kind of term do you generally put on those? And where do they trade in terms of financing in the financing market, you know, the relatively short term, as opposed to long term, securitized financing market, relative to agencies?

Rob Colligan -- Chief Financial Officer

That should finance right on top of agencies. They're genie-guaranteed as Fed. They have a similar haircut and similar financing rate. You could go out one, two, three months longer if you need be, but the rate is indifferent as is the haircut.

Jim Delisle -- Private Investor -- Analyst

Great. Thank you.

Operator

Thank you. I will now return the call to Matthew Lambiase for any additional or closing remarks.

Matthew Lambiase -- President and Chief Executive Officer

Well, thank you for joining us on the first quarter 2019 Chimera Investment Corporation's earnings call, and we look forward to speaking to you on the second quarter's call. Thank you.

Operator

Thank you for participating in today's conference call. You may now disconnect.

Duration: 42 minutes

Call participants:

Emily Mohr -- Vice President of Investor Relations

Matthew Lambiase -- President and Chief Executive Officer

Mohit Marria -- Chief Investment Officer

Rob Colligan -- Chief Financial Officer

Eric Hagen -- KBW -- Analyst

Doug Harter -- Credit Suisse -- Analyst

Trevor Cranston -- JMP Securities -- Analyst

Matthew Hallett -- Nomura -- Analyst

Brock Vandervliet -- UBS -- Analyst

Jim Young -- West Family Investments -- Analyst

Jim Delisle -- Private Investor -- Analyst

More CHI analysis

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