Good morning. I’m Kelsey Duffey, Vice President of Investor Relations at Walker & Dunlop, and I would like to welcome you to Walker & Dunlop’s Second Quarter 2020 Earnings Conference Call and Webcast. Hosting the call today is Willy Walker, Walker & Dunlop’s Chairman and CEO. He is joined by Steve Theobald, Chief Financial Officer. Today’s call is being recorded and a replay will be available via webcast on the Investor Relations section of our website. At this time, all participants have been placed in a listen-only mode and the floor will be open for analyst questions following the presentation. [Operator Instructions] This morning, we posted our earnings release and presentation to the Investor Relations section of our website, www.walkerdunlop.com. These slides serve as a reference point for some of what Willy and Steve will touch on during the call. Please also note that we will reference the non-GAAP financial metric adjusted EBITDA during the course of this call. Please refer to the earnings release posted on our website for a reconciliation of this non-GAAP financial metric. Investors are urged to carefully read the forward-looking statements language in our earnings release. Statements made on this call, which are not historical facts, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements describe our current expectations, and actual results may differ materially. Walker & Dunlop is under no obligation to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise. We expressly disclaim any obligation to do so. More detailed definition of our risk factors can be found in our annual and quarterly reports filed with the SEC. I will now turn the call over to Willy.

Thank you, Kelsey, and good morning, everyone. Since the pandemic began – when I begin a webcast on Wednesday, I usually say, it’s Wednesday, it’s the Walker webcast, but today, we aren’t doing Walker webcast that we can present to investors our absolutely fantastic second quarter results. But before I dive into comments about the second quarter of Walker & Dunlop, I want to reiterate our condolences to those who have lost loved ones due to the COVID-19 virus and express our concern and support for the millions of Americans, who have been adversely affected by the economic downturn. While Walker & Dunlop’s Q2 financial results are exceptional, many individuals and businesses have been hit extremely hard. And there is our great hope and wish that we can control the virus so that jobs and businesses can be restored. As we have seen since the advent of the pandemic, certain businesses have benefited from the forced changes to the way we live and work, and others have been badly damaged. For Walker & Dunlop, we have benefited and generated record revenues of $253 million during the quarter on the back of exceedingly strong loan origination and property sales volume of $7.1 billion. Our quarterly origination volume of $6.7 billion, coupled with our Q1 lending volume of $9.6 billion catapulted Walker & Dunlop’s market share with total commercial real estate lending in the United States for the first half of 2020 to 13.2%, nearly tripling our market share from last year. This dramatic growth in market share is due to the success we’ve had in attracting and retaining the very best bankers and brokers in the industry, investing in integrated technology solution and proprietary databases to better understand and meet our clients’ borrowing needs and the development of an entirely new…

Thank you, Willy and good morning everyone. Our second quarter results once again demonstrated the power of our business model as we delivered exceptional top and bottom line growth and continued to strengthen our balance sheet, while operating with the fully remote workforce. Q2 total transaction volume of $7.1 billion, included a significant year-over-year increase in our Fannie Mae loan originations, which drove the 26% year-over-year increase in total revenues to a quarterly record of $253 million. Second quarter net income of $62 million and diluted earnings per share of $1.95, were both up 47% from Q2 ‘19. Second quarter total debt financing volume of $6.7 billion was led by $2.8 billion of Fannie Mae originations. For the second consecutive quarter, Fannie Mae originations comprised over 40% of debt financing volume, which, along with our robust HUD originations, pushed gain on sale margin to 252 basis points, well above our forecast range of 170 to 200 basis points. The first half of the year has been characterized by our dominant market share with Fannie Mae. Looking at our current pipeline of GSE business, we expect to see an increase in our Freddie Mac originations in the second half, particularly in Q3. Our HUD business is poised for a breakout year in 2020, having originated $640 million in the quarter and with a strong pipeline for the rest of the year, while debt brokerage volumes will likely continue to be constrained by the current economic environment. Anticipating the shift to more Freddie Mac originations in Q3, we expect gain on sale margin to be in the range of 190 to 210 basis points for the quarter. Our scaled business model continues to produce healthy key financial metrics, with second quarter operating margin of 33% and return on equity of 23%, both…

Thank you, Steve. As my opening remarks and the financial details Steve just provided show, Walker & Dunlop’s year-to-date performance has been exceptional. Prior to the COVID pandemic, our strategic focus and new high barriers contributed to fantastic growth in the first quarter. And when the pandemic set in, thanks to the team, culture, systems and processes, we have implemented over many, many years, we transitioned to a distributed work model without skipping a beat. We have been using Zoom to conduct our weekly executive sales calls long before the COVID pandemic hit as well as Salesforce and Box to manage our client outreach and collaboration. And our team of 900 employees took upon themselves, to figure out how to inspect properties, receive appraisals, close loans and continue providing the exceptional service to our customers that is expected of Walker & Dunlop each and everyday. The seamless transition to remote working, low interest rates and tight investor spreads on agency-backed commercial mortgage debt has created a terrific environment for refinancing activity in the multifamily sector. And as I mentioned previously, W&D has been refinancing in new loans on our own portfolio, which has dramatically expanded our market share. And with multifamily comprising close to 80% of total commercial real estate financing volumes so far this year, we are extremely well positioned to be one of the largest providers of capital to the commercial real estate industry over the coming years. A strong macroeconomic environment coming out of the pandemic should drive continued financing volumes in our core multifamily business. And as the multifamily property sales business rebounds, so should our capital markets business as non-multi-family asset classes, such as office, retail and hospitality stabilize. As I ran through Vision 2020 on a trailing 12-month basis, I did not discuss our…

[Operator Instructions] Our first question is coming from Henry Coffey of Wedbush.

Yes. Good morning. I hope you can hear me.

Hi, Henry. Good morning.

So the obvious – the open question on multifamily credit quality is, what’s in the estimate? And right now, unemployment rates are high, but we have a lot of supplemental payments out there. Multifamily delinquencies are actually about where they usually are. What sort of numbers are you thinking about as you look forward in terms of likely multifamily delinquencies, unemployment levels and then one of the open topics, which, of course, is student housing?

Good morning, Henry. Thanks for joining us. Look, if you look at the data right now Henry, we got zero to worry about. I mean the data tells you right now, zero. But at the same time, you got to sit there and sort of say, okay, there are likely – as Steve said, there are likely defaults that will come into the portfolio. But as Steve also outlined, we are extremely well provisioned given the $22 million provision we took in Q1 and the $5 million provision we took in Q2, which was not a specific reserve for any one asset or any asset that we are concerned about, but do 100% to the growth in the loan portfolio due to the new CECL standard. So look, we went through the great financial crisis with de minimis losses in our portfolio. We had a much smaller portfolio back then. We feel extremely good. If you listen to Squat Box this morning, plenty of Republican senators are saying we are going to see some extension of the unemployment benefits. And you heard Speaker McConnell talk about yesterday, the White House said they want to go a stepped-up level of $400 or $600 that he likely will break from the more conservative members of his caucus, and support that type of stepped up unemployment payments. And I would say to you that if you get any extension of the unemployment benefits, then rent roll should hold very strong. And you have to also keep in mind, there is a huge amount of equity capital that has been accumulated in all of the assets that we have loans on over the last 10 years. And so while rent rolls may degrade somewhat, the concept that owners would default on their loans and…

That’s helpful. And then on just a real big picture issue, the FHFA has put up capital guidelines for comment. I did note with a certain amount of irony that the risk weighting on multifamily was essentially twice that on single, even though multifamily is the area where you don’t see the losses. Do you have any thoughts on what’s going on with the GSEs? And whether we will see a recapitalization? Whether we will really change the market? I mean there were a lot of thoughts floating out there last fall, and now we have at least a capital proposal to react to.

I would put forth that, a, as you know, Henry, there’s a lot of activity in Washington right now [indiscernible]. And the issue of the FHFA plan privatization with Fannie and Freddie, I think is heavily dependent on the outcome of the November election. As it relates specifically to the capital standards, as you can imagine, we have read through the proposals. We have worked with the industry associations to comment on those proposals. And I would say from just Walker & Dunlop’s position, there are things we are commenting on, but there’s nothing in the proposed capital standards that we are overly concerned about at this point. And then the second thing I would just say is that depending on the outcome of the election, I think that if you have President Trump being reelected, Mark Calabria will stay in as FHFA Director, and I think that the administration of FHFA will continue to push to privatizing Fannie and Freddie. I think that if Vice President Biden is elected, former Vice President Biden is elected President, that those efforts will likely be solved that there will likely be a new FHFA director put in by newly elected President Biden and that there will be a new strategy for the agencies. And as I have said multiple times, from Walker & Dunlop’s perspective, Henry, it’s sort of heads we win and tails you lose. If they continue as parts of the federal government, they are going to continue to provide capital to multifamily and we are going to continue to be one of their largest partners. If they get privatized, there are clearly benefits to that in the sense that they are now outside of the federal government. They can pay their senior managers on a more, if you will, market-pay scale. And they can become increasingly innovative. Although I would say, within the confines of conservatorship, both Fannie and Freddie, they’ve been wildly creative in trying to create new products and to lead the multifamily financing market.

Super. Listen and congratulations on a solid quarter and a pretty tough period. So, thank you.

Solid, that’s – is that an understatement, Henry?

Very, very solid.

Appreciate it.

Thanks, Henry.

Extra special solid.

Our next question will come from Steve Delaney of JMP.

Steve, we can’t hear you yet, you might be on mute.

Can you hear me now?

Yes, we can.

I’ll just say congrats on an excellent quarter, how about that? I mean we can put that aside. Willy, you made it very clear that your – the new loans are not just churning your own book, but they’re new loans, new – in some cases, new clients to WD. So my question is, where are the loans coming from? What types of institutions are seeing these loans being paid off? And if you could, we’ve obviously had a huge drop in rates. Can you quantify with the rate benefit is kind of a range of the rate benefit that these borrowers are realizing when they go out of their current loan into their new 10-year fixed loan or so that you’re putting them with Freddie and Fannie? Thank you.

Sure, Steve. First of all, thanks for joining us this morning. First is well over 100 basis points is typically what we are seeing as it relates to the pickup on the new rates. We are right now new debt out at between 2 50 and 3 depending on leverage levels, sponsorship, asset, etcetera, etcetera. Some loans are dipping below 2 50 and getting into the 2 30s and 2 40s. Some loans are around the 3 coupon, but that’s just generally speaking, the range and most of the paper that we’re refinancing right now had a four handle on it previous us redoing it. So there’s a very significant step-up there. I would also say, we did a financing on an investment sale that we actually brokered during – at the end of the quarter. And one of the interesting news there was there was only a 4% price difference in the sale price of the asset from pre-COVID pricing to when we transacted at the end of June, 4%. And you sit there and you say, wow, wouldn’t there be more of a discount between pre-COVID pricing and a deal that went off at the end of Q2. And the issue with it is their underwriting on the financing at pre-crisis was 100 basis points higher as far as their coupon rate than it was when they actually closed on it. And so they can afford to only take a 4% discount on the sale price because they picked up so much in their cost of capital and what the return was going to be on buying at that level. To your question as it relates to clients and the expanding of our market share. I’d say, look, you have to keep in mind that out of the…

You mentioned the new leadership in the HUD program in Ginnie Mae loans, and that was obviously a big contributor. Could you give us a sense of what percentage of total volume going forward, a range of what you would expect HUD to grow to? And remind us, I know it’s the highest margin business that you have, but kind of embedded in your new – Steve’s new gain on sale margin, what are you specifically assuming on HUD loans? That’s my final.

Right. So I’d say this, Steve, first of all, I mentioned Sheri and Stephanie Wiggins, who is our Chief Production Officer, who is also new to Dunlop, has done an amazing job of our HUD business. And to process that much business in Q2, when the federal government shut down for a lengthy period of time, and I’m not trying to poke at HUD, but they are not exactly the most technologically savvy lender in the world, able to process that amount of business in Q2 is just a Herculean effort and an incredible accomplishment for our team. I am going to demure on giving you a forward look on – I’ll tell you one thing. First of all, our Q3 pipeline is fantastic, and that will carry into Q4. So as it relates to what we’re working on today, the team has got a pipeline that is, as I said in my comments, extremely full, and I feel very good about our Q3 HUD volumes. And at the same time, I will also say that we’ve been in the HUD business for a long time. It’s a very difficult business to project volumes because of the commitment time frame, you’re working on a deal, you expect it to be a Q2 deal, and for whatever reason something has come up where you got to go redo something, and lo and behold, it becomes Q3. And so I would only say that, we feel very good about the Q3 pipeline on our HUD book. I’d love to see us do a redo in Q3 of what we did in Q2. We clearly have visibility to doing something like that. But quite honestly, I can’t tell you that we are going to get there, or not right now, just with the amount of work [indiscernible] now during the quarter.

Yes. Well, apart from volumes, which I understand, can you quantify the gain on sale opportunity on HUD, when and if those loans come? When you’re looking at your third quarter of 190 to 210, sort of what is the rough range at which you would expect HUD loans to contribute to that margin on a basis point?

A lot of that depends on whether we’re doing, a lot of 223, which are refinancings or whether we’re doing E4s, which are construction loans and how we account for that, but Steve, do you want to – we haven’t broken out ranges on various lines of business in the gain on sale margin. Do you want to give Henry some color on that? I mean, sorry, Steve, some color on that?

Yes. And look, part of it, too, Steve, is a function of how much debt brokerage volume we do as well, right? So that was a suppressed number in Q2, which also helped to elevate the gain on sale margin of it...

Understood. Yes.

On that level. So if get a pick-up in debt brokerage in Q3 and HUD was about 10% of the overall volume in Q2. I’d love to see it stick around at that level going forward. But to Willy’s point, it’s hard to predict that. The pipeline certainly looks good, and that’s factored into the estimate we’ve given.

Got it. Well thank you most of the comments and again, congratulations on the progress you’ve made in 2020.

Thanks, Steve.

Our next question will come from Jade Rahmani of KBW.

Hi, can you hear me?

Yes, Jade.

Okay, thanks very much. Just wanted to find out on the pipeline for Fannie Mae and Freddie Mac, how is that looking for the third quarter? And in the second quarter specifically, were there any outsized originations that occurred?

Yes. So Jade good morning, and thanks for joining us. As I said in my remarks, our pipeline for Fannie and Freddie in Q3 is extremely strong. We have great visibility on our Fannie and Freddie business in Q3, and it looks great. As it relates to Q2, one of the big things to keep in mind is as much as – in responding to Henry’s question on the – or actually, it was Steve’s question on the net addition to the servicing portfolio, and I mentioned the southern Management deal. The Southern Management deal was not in our Q2 origination numbers. We recognized $2.1 billion of the $2.4 billion on the Southern management deal in Q1 so all of the originations in Q2 were those 1s in 2s, if you will, that I mentioned. And so the loan count was significantly up. There was no portfolio in there and there was no big loan in there. And so I mean, quite honestly, that’s where we get not only new clients, but we also get a lot of margin. Because when you do large structured transactions, origination fees come down, servicing fees come down. And so when we’re doing those one-off transactions, you’re typically getting full origination fees and full servicing fees. And that was a big driver in Q2 of our economic performance.

Okay. In terms of the financial outlook, I just wanted to make sure I got the that the guidance that was provided was basically the third quarter gain on sale margin of 190 to 210 basis points, which I believe is driven by increased mix of brokered business and non-Fannie Mae business. And secondly, you still expect double-digit EPS growth in 2020 is there any comments that you could add with respect to adjusted EBITDA for the year?

Steve, do you want take that?

Do you expect that to grow or?

Yes. Look, I think, Jade, as I alluded to in my comments, one of the primary drivers of the quarter-over-quarter decline in adjusted EBITDA was the low interest rate environment and the impact that, that has on our escrow earnings. I think we are, obviously, long term, very bullish about that asset for us. But in the short run, I don’t see any impetus that rates going back up on that. So I think we’re going to continue to see escrow earnings at a more muted level than what we we’ve seen over the last couple of years, just where interest rates are. And all things equal, that’s going to put pressure on the year-over-year comps on EBITDA. I think at the end of the day, we still feel really good about the cash generation of the business and the operating cash flows that we’re generating. And as the services portfolio continues to grow and as we put more business into the portfolio at a higher servicing rates, that’s going to bode well for our cash generation in the future, as Willy mentioned.

Okay. Bigger picture question regarding the outlook for multifamily. Tracking homebuilders and single-family rental REITs, they are both – both sectors are noting an uptick in move-outs from multifamily and from denser environments into the single-family housing space. At the same time, it seems that collections in multifamily have been strong in performance, strong and clearly, very, very low forbearance levels as evidenced by the strong results in WD servicing portfolio. So how would you square those two tensions as it relates to the outlook for multifamily credit and the potential for an increase in suburbanization and an increase in single-family housing demand?

Yes. Jade, we’ve discussed this before. I’m not as convinced as you are that this great suburban migration is underway. And there’s an economic reality that sit behind all of this. If you’re an associate at Goldman Sachs and living downtown in Manhattan and you decide you want to stop renting your apartment from related move out to Greenwich, Connecticut, you could have done that a year ago, you can do that tomorrow and likely you are doing that. But that’s not the core of our business. We’re not – and first of all, we don’t have a loan on a related asset in downtown New York to start with. And the second thing is that we’re focused on the middle market. We’re focused on workforce housing. We’re focused on affordable housing. And the economic reality is that we have over 20 million people unemployed in the United States today. If they couldn’t go and buy a single-family home previously, they can’t go buy it today. Diana Olick was on CNBC this morning talking about the fact that there’s no supply of entry-level, single-family housing. I’ve said that to you, Jay, for 5 years running that until there is a new supply of affordable entry-level single-family housing, people will continue to be renters of multifamily. And for the last 5 years, that is exactly what has happened. Occupancy levels have held up. Is there marginal people who say, I don’t want to live in a building with 300 other people because there’s a pandemic going on, and I’d like to move out into single-family home? Yes. Is there a great opportunity for SFR, single-family rental? Yes. But as you also know, the SFR stock that’s out there today is full. So yes, there are billions of dollars being put out there to build single-family homes for SFR, but they’re not going to be out there between now and when the pandemic is hopefully over. And then they’re going to have a competitive price point of staying in multi or moving to SFR. So look, we are in uncharted times. There are plenty of people out there who are voting with their feet to move from an urban location to a suburban location, if they can afford it. But at the end of the day, the majority of people who would be first-time homebuyers can’t afford a new single-family entry-level home, and the homebuilders having built that product to make it available, which is just pushing the cost of that entry-level housing up, which is making it increasingly unaffordable to the average American.

Okay, Yes. And I think in terms of these trends, it’s too early to tell what will become a long-term change behaviorally in the market. And I think it’s highly uncertain at this point. In terms of the volume strength, how much of it was refi activity? And how long do you expect this current refi wave to last?

We have got 90-10 in the quarter as it relates to refi versus acquisition. But as you also saw in the numbers, we made $460 million of investment sales in Q2. And I told you we already have a pipeline for Q3 of closing with $1.3 billion or $1.4 billion of acquisition activity. And I also made reference in our call to a deal that we sold at the end of Q2, where we brokered it and we also financed it. We’re seeing more and more deals, where we are both listing the property and financing the property, showing the power of the platform and the investment sales team that we’ve got at Walker & Dunlop. So as investment sales comes back, we can see the volume of acquisition financing go up. But as I also said, as it relates to the overall outlook for Fannie and Freddie on a just pure refinancing basis, you’ve got an extremely healthy pipeline for Q3.

Thanks very much. Congratulations on a great quarter. And thanks for taking the questions.

Thanks, Jade.

Thanks, Jade.

Thank you. There are no further questions, so I will now turn the floor back over to Willy for closing remarks.

I reiterate my thanks to everyone, who joined us this morning for the call. And I’d also reiterate my congratulations to the W&D team for a truly outstanding Q2. It has transformed our company, and we got a lot of exciting times ahead of us. So thank you, everyone, for joining us today and have a great day.