New Residential Investment Corp. reported gains in originations and servicing segments in the second quarter, and expects MSRs and residential investments, along with its recent
The New York-based REIT announced $121.3 million in net income for the second-quarter in its earnings call Thursday, compared to a net loss of $8.9 million in the same COVID-impacted quarter last year. In this year’s
With the portfolio of recently acquired Caliber Home Loans largely complementing New Residential’s NewRez lending business, company executives were optimistic about future prospects, particularly in originations, after the deal closes in the third quarter.
“On the retail business and the JV business, there's no overlap. So, in our view, that's 100% accretive. On the [direct to consumer] business, it’s the same. They're managing their servicing portfolio, and we’re managing our servicing portfolio.” said Baron Silverstein, NewRez president. “And then you look at the third-party channels — based upon our analysis, there is very limited overlap, and actually, that was a significant pleasant surprise as we looked at both of those third-party channels about the accretive nature of the business.”
New Residential’s originations operations posted net income of $53.1 million, compared to $151.3 million in the first quarter. Origination-funded production at NewRez equaled $23.5 billion in unpaid balance, down 14% quarter-over-quarter and 184% year-over year. The second quarter gain-on-sale margin decreased to 1.31% compared to 1.43% in Q1.
The company also reported net income of $24.2 million in its servicing segment, up slightly from $23.7 million the previous quarter. The company’s servicing portfolio of unpaid balances grew to $305.9 billion, flat for the quarter, but up 10% from the second quarter of last year.
The quarterly fortunes of other divisions at New Residential were mixed. Its residential securities and call rights business posted net income of $124.7 million, recovering from a $234.9 million net loss in the first quarter.
But its MSR and servicer advances segment registered a net loss of $206.3 million, compared to a $292.1 million gain at the close of the first quarter. New Residential’s MSR portfolio totaled $489 billion in unpaid balance as of June 30. The average rate of newly originated MSRs was 2.96% compared to 2.79% the previous quarter.
Despite the segment’s loss, New Residential saw solid future potential of its MSR business to increase the bottom line.
“When we look at the operating side we continue to hunt for opportunities, and think about ourselves as opportunistic investment investors on the MSR portfolio,” said New Residential’s president and CEO Michael Nierenberg.
“We believe that when and if rates rise — and we do believe they will rise — we have significant upside opportunity, which will help drive higher book value, more cash flow and net higher core earnings as we go forward,” he said.
In its residential loans segment, the company reported net income of $165.2 million, compared to $89.9 million the previous quarter.
New Residential has major plans in the single-family-rental market, including a new brand to be unveiled in the coming days. According to Nierenberg, New Residential is targeting $5 billion in acquisitions over the next five years in the SFR sector.
“We have been acquiring homes and currently have 1,400 homes. Looking forward, we intend to really grow this business and have hired a great leader and management team that we will announce in the upcoming week,” he said.
New Residential’s push to diversify its offerings positions it well, noted Eric Hagen, director and mortgage and specialty finance analyst at BTIG, as it might help “smooth the volatility in mortgage origination volume.”
In a research note, he said, “The company has mentioned the master plan is to eventually have a menu of potential products and sources of connection (beyond just servicing and recapturing) to offer the 2.4 million households in its servicing portfolio once the Caliber deal is complete. It's probably too early still to assign significant value to that broader opportunity, but something noteworthy.”
Reflective of the plan, NewRez recently rolled out marketing efforts to promote its
In the second-quarter call, New Residential also reported earnings of $0.31 per diluted share, matching analysts’ estimates. EPS from both last quarter and for the same period last year came in at $0.34.
The company’s stock value immediately rose after Thursday morning’s call, opening at $9.65, up 1.9% from the previous day’s close, and finished the session higher at $9.87.
With New Residential’s recent moves, Nierenberg felt the company was poised for continued growth, no matter how markets might develop in the coming months.
“The announcement of the Caliber acquisition, which we hope to close early this quarter, will enable us to originate, expand our recapture percentages and drive higher earnings in any rate environment. If rates rise significantly, our MSR portfolio is poised to gain pretty dramatically,” he said.
