New Residential earnings increase as servicing income surges

Fueled by increased income from its servicing unit, New Residential Investment Corp. posted a gain in profits for the fourth quarter, and in its earnings call discussed expansion into specialized loan products, other investment sectors and potential future acquisitions to sustain growth.

Net income in the final three months of 2021 at the nonbank mortgage and investment company came in at $160.4 million, a 9.8% increase from third quarter’s $146.1 million. Profit was also up 134% from $68.6 million in the fourth quarter of 2020. Diluted earnings per share came out to $0.33.

For full year 2021, the New York-based company reversed 2020’s loss, reporting $705.5 million in net income, compared to a $1.5 billion loss over the pandemic-impacted previous 12 months.

Where other companies and mortgage divisions of major banks have reported reduced quarterly profits, New Residential was able to overcome reduced revenue from slowing originations due to its large servicing portfolio, a trend that the company expects to continue.

“With interest rates rising, our MSR portfolios will see much slower amortization, keeping our customers through our retention efforts to drive book value higher and offset any decrease in origination earnings,” said Michael Nierenberg, New Residential’s CEO and president, in the company’s earnings call.

Fourth-quarter net income from its originations segment, consisting of production both from its own Newrez business and the 2021 acquisition of Caliber Home Loans, totaled $72.4 million, down 49% from $142.2 milion the prior three months, and 69% from $236.1 million a year ago. Origination production, however, increased by 10% to $38.1 billion from $34.5 billion in Q3. Gain on sale margins also increased to 165 basis points compared to 161 bps in the third quarter, surprising some analysts.

“This is likely due to a full quarter of Caliber's higher-margin retail-channel volume,” said Bose George, managing director at Keefe, Bruyette & Woods, in a research note.

By comparison, New Residential’s servicing unit posted a sizable 631% net-income increase from the third quarter, rising to $125 million from $17.1 million, while in the fourth quarter of 2020, servicing net income equaled $24.2 million. Unpaid balances in New Residential’s servicing portfolio totaled $629 billion, down 0.9% from $635 billion on a quarterly basis.

The company’s comments on servicing performance in Q4 reduced the probability that it would be moving its remaining servicing over to Black Knight’s mortgage servicing platform, on which Caliber had been an existing client, KBW stated.

In its investments division, New Residential also reported quarterly net income of $29.8 million for its residential securities and call rights segment, improving from a loss of $20.1 million in the third quarter. Income from the properties and residential loans segment decreased to $4.1 million from $8.7 million in Q3.

Revenue generated across New Residential, including mortgage operations, residential investing unit and the new mortgage loans receivable segment acquired through its purchase of Genesis Capital, totaled $1.1 billion in the most recent quarter, a 15% increase from $952.7 million three months earlier. For the full year, revenue came in at $3.6 billion, up 117% from 2020’s $1.7 billion.

With gain-on-sale margins expected to decrease, company officials are actively seeking profitable opportunities in other avenues and reallocating capital where necessary.

“The growth in non-QM, jumbo prime, investor loans and business-purpose loans will be a priority this year,” Nierenberg said.

Year-over-year production in non-QM loans was up over 100%, according to Nierenberg. In the fourth quarter New Residential originated approximately $700 million in non-QM loans and expects the number to be close to $1 billion in the first quarter this year.

The company also hinted at further acquisitions, including expansion in the commercial and single-family rental spaces. In the next month, Nierenberg said the company is planning to acquire roughly 300 homes from Zillow’s portfolio, and is looking at other prospects.

“We do believe there's going to be opportunities to acquire some originations or smaller originators as a result of the current rate environment,” Nierenberg said. “So we have our eyes out on some good retail Ginnie producers, for example.”