New Residential Investment is increasing its emphasis on recapturing current servicing customers when they apply for the next mortgage, Chairman, CEO and President Michael Nierenberg said in the second-quarter earnings call.
"We have a lot of work to do" in growing the direct-to-consumer channel, he said, noting the company's goal of $4.6 billion in quarterly volume by the third quarter and $6 billion by the end of the year. Right now, it is "only scratching the surface."
NewRez, the company's mortgage banking business, is projecting $50 billion in volume this year from all channels, up from $22 billion last year. In 2018, prior to New Residential's acquisition of Shellpoint Partners (the former parent of New Penn, now known as NewRez), it did $7 billion of production.
Also enhancing its 2020 volume growth was the acquisition of the forward mortgage assets of Ditech.
Despite the lofty full-year goal, NewRez noted that it notched a lower second-quarter volume due to COVID-19. It did $8.3 billion over that period, down from $11.4 billion in
Third-party channels were largely responsible for the decline, as correspondent lending fell to $3 billion from $7.1 billion in the first quarter and wholesale dropped to $1.3 billion from $1.7 billion.
On the other hand, direct-to-consumer rose to $3 billion from $2.1 billion and retail and joint venture increased to $1 billion from $600 million.
Gain-on-sale margins "were really robust for us and everybody in the industry," Nierenberg said. NewRez reported a 273 basis point gain-on-sale in the quarter, compared with 117 bps in the first quarter and 143 bps one year ago.
In direct-to-consumer, the gain-on-sale was 447 bps, up from 197 bps in the prior quarter and 240 bps year-over-year.
The direct-to-consumer financial returns are one of the factors motivating New Residential to grow that segment. It recently entered into an agreement with Salesforce in an effort to connect the origination, servicing and marketing functions and boost production.
"We will be better around lead conversion," Nierenberg said on the call.
In the second quarter, New Residential lost $8.9 million, an improvement on
"We believe the company remained relatively conservative with its liquidity position during the quarter, and therefore didn't fully distribute its core earnings," said Bose George, an analyst at Keefe, Bruyette & Woods.
As a real estate investment trust, New Residential paid a $0.10 per share dividend during the quarter.
The company made money on the origination and servicing functions in the quarter, at $156.7 million and $23.1 million, respectively. But in the mortgage servicing rights and servicer advance category, it lost $291.8 million, largely related to the coronavirus. However, that is an improvement from a $440.3 million loss in this area in the first quarter.
New Residential had 186,674 borrowers in a forbearance plan in the second quarter. The percentage of borrowers granted forbearance fell to 7.8% from a peak of 8.4%, and approximately 34% of forborne borrowers were current and made their scheduled payment as of June 29.
It ended the quarter with $2.2 billion of unused advance capacity.
Servicer advance balances were unchanged at $3.5 billion from the first quarter. Private-label MBS made up 86% of the advance balance ($3 billion), with 11% for Fannie Mae and Freddie Mac and 3% for Ginnie Mae.
In a stress scenario, New Residential is forecasting it would need an additional $230 million of equity to fund advances through the rest of 2020.
The MSR portfolio totaled approximately $610 billion as of June 30, compared with $648 billion three months prior.
New Residential was able to reduce the loss in its mortgage investment segment to $8.8 million from $1.6 billion in the first quarter after it took actions that eliminated much of the mark-to-market risk that arose because of COVID-19, Nierenberg said.
And at the end of the quarter, the company had more cash on hand than ever, in part due to
On the investment side, New Residential has $77 billion in call rights on mortgage-backed securities. In the past, the company would repurchase these securities — in a strategy known as
But when credit spreads tightened, the company exited this area, Nierenberg said. When the market turns around, New Residential will "get back in the game and start calling deals," he said.
