Q4 2020 New Residential Investment Corp Earnings Call
[music].
Good morning, and welcome to the new residential investment Corp, 's fourth quarter and full year 2020 earnings conference call.
Participants will be in a listen only mode should you need assistance. Please signal conference specialist by pressing the star can followed by zero.
After todays presentation, there will be an opportunity to ask questions.
Please note. This event is being recorded I would now like to turn the conference over to Kaitlyn Mauritz Investor Relations. Mr. <unk>. Please go ahead.
That's great. Thank you Anita and good morning, everyone I'd like to thank you for joining us today for the new residential fourth quarter and full year 2020 earnings call joining.
Joining me here today are Michael Nierenberg, our chairman CEO and President Nick Santoro, Our Chief Financial Officer, and number of members of the new <unk> management team, including Barron's Silverstein, President and new rugs, Kathy Dunzo, our CFO, Josh Capello head of strategy and Jack Navarro, President and CEO of the servicing division of New S threat.
The call. This morning, we are going to reference the earnings supplement that was posted to the new residential website. This morning, if you've not already done. So I'd encourage you to download the presentation now before I turn the call over to Michael I'd like to point out that certain statements today will be forward looking statements. These statements by their nature are uncertain and may differ materially from actual results.
I'd encourage you to review the disclaimers in our press release and earnings supplement regarding forward looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we'll be discussing some non-GAAP financial measures during today's call. A reconciliation of these measures. The most directly comparable GAAP measures can be found in our earnings supplement and with that I'll turn the call over to Michael.
Thanks, Kate good morning, everyone and thanks for joining us.
Obviously, a big team on the call. This morning excited to take you through.
You know a little bit of last year and more importantly, how we think about the company going forward Barron's.
Barron's is going to take you through some of the presentation around the mortgage company and and I'll kick it off by by giving you. Some some comments here as we look back at last year reflect on the on their very difficult period, we had when the when the pandemic first hit I'm proud of the efforts of our team and I'm Super excited for the future of our company.
Steps, we had to take while initially painful it's put us in a great position to continue our March our March towards returning to our earnings to pre Covid levels. Our liquidity has never been stronger our portfolios have never been better finance, our mortgage company new rent is just hitting its stride and the future looks bright with.
With rates plummeting to historic lows last year, our 2018 acquisition of new Res, formerly known as <unk> partners put us in a position to consolidate our servicing and grow our origination business. This has helped to offset some of the amortization we have seen in our MSR portfolio and helped to grow earnings for our company from a macro view.
We believe interest rates will rise, which should be great for our company. This will enable us to recover the lost value. We have seen as a result of the faster speeds in our MSR portfolio over the past year or so.
As you think about slower speeds that will result in more cash flow from our MSR.
Portfolio higher recapture rates and the combination of those two should more than offset the likely decline youre going to see in mortgage origination on the investment side, we've been very patient and focusing on maintaining larger amounts of cash than in the past as investment yields remain at lower levels, our efforts to refinance our debt and locked.
In our financing last year reduced our cost of funding and reliance on repo financing. It is our expectation that the majority of our MSR financing will be financing the capital markets by the end of Q2.
We will remain patient and looking for opportunities to deploy capital, where we see the appropriate risk return for our shareholders on the mortgage company side new raise.
Had a great year, driven by low rates higher origination volumes and large gain on sale margins, while we expect volume to come off we're very excited about our growth prospects in our DTC channel, which should lead to increased market share higher earnings in that channel and better recapture rate for our MSR portfolio.
To frame the growth of our mortgage company when we acquired the company in 2018 choke point partners originated $7 billion of mortgages.
They had owned MSR to approximately $15 billion at May 30 million at the end of 2018 2020. The company originated 62 billion of mortgages ended the year with a servicing portfolio of approximately 300 billion and earnings of $930 million tremendous growth and I firmly.
Believe we were only in the middle innings as it relates to our growth initiatives, which include technology upgrades branding and working on and focusing on our customer retention on the servicing side.
Jack Navarro and his team continue to do a great job and our focus will be on working with homeowners, who need assistance, helping them with different programs to enable them to better manage their lives and stay in their homes. Finally, I firmly believe our company is in a great place as we enter 2020 and look forward to growing earnings growing dividends, providing our shareholder.
With growth with the appropriate growth that they expect from us I'll now refer to the supplement which has been posted online.
I'm going to begin with page two.
And this is our typical highlight page so over the since the company was formed in 2013, we paid $3 $5 billion of dividends, we have net equity today, a $5 $3 billion or shareholder return since inception has been 77% and our market cap today is $4 1 billion.
When you look at the diversified nature of our portfolio.
Between full and excess Msr's servicer advances loans and securities and our services business at the end of 2020, we had 23 and a half a billion dollars of an asset in assets and we're the largest nonbank owner of Msr's origination and servicing business on the origination side 2020 volume 61 six.
Billion dollars pre tax income in our origination business over $801 million and we're a top 15 nonbank mortgage originator and the servicing division. We ended the year at 297 $8 billion of U P. B.
Our pre tax income was $132 9 million.
We remain one of the top 10 non bank mortgage Servicers page three results. Our GAAP net income for the quarter 16 cents per diluted share clearly that was affected by higher amortization that we saw in the quarter as it related to our MSR portfolio core earnings 32 cents per diluted share were $137 million on the <unk>.
<unk> raised our dividend, 33% quarter over quarter stock dividend increased 8% dividend yield and shareholder return or shareholder return of 28% in the fourth quarter. We ended the year with $945 million of cash again book equity of $5 $3 billion and our book value at the end of the quarter was 10.
And 87.
Just to frame it as I fast forward to where we are today book value today is approximately $11.35 as a result of higher interest rates.
Page four just shows you the book value calculation, we tried to break it out to give to give you a little bit more detail, obviously you could see.
The dramatic impact we saw during the quarter on our cash flow from our MSR MSR business, which affected us negatively as it as a resulted from higher prepayments page five we'd like to show. This page. This is the sum of the parts page.
When we get into the Q&A I'm sure, we'll discuss a little bit around the mortgage company, but essentially the way that we think about it we have an investment portfolio of reported book value of $10 87, as we think about the implied book value and the true valuation of our mortgage company.
What we tried to do is we took operating income and took a guesstimate for 2021, where we had a range from $700 million of EBITDA to $800 million of EBITDA.
After tax five in a quarter to 600 million, we put p/e multiples of anywhere from four to six just to give you a range that relates to some of our friends and peers out there the way that day trade enterprise value between $2 $1 billion and $3 $6 billion. When you think about that from an off balance sheet standpoint, and an implied value.
<unk>.
Effectively it creates a value of anywhere from three to $6 a share above our reported book value.
Page six what are higher rates mean for new residential clearly we believe that we are in a rate environment that.
We will see.
More spending from the new administration and an increase in rates. If you look at most of most expectations from different economies. They are forecasting the same thing. So what we tried to do is show below on the bottom part of the page book.
Book value as of Q4 at $10 87.
If you believe.
From the end of Q4, where the 10 year ended at 90 basis points up 50 basis points of one 4% 10 year Treasury, we think the implied change in book value is going to be 90.
Up 100 basis points, we think it could be as much as $1 80 again. These are all guesstimates, but we related that we went back to look at our historical performance. How do we think about prepayments how do we think about interest rates and we truly believe believe that we are in a great great position to see increased value within our MSR business higher earnings and higher book.
Value as you look at page seven.
Again, it's a similar page.
We believe that core earnings could increased to 50 as.
As we see interest rates go up between 50, and 75 basis points and really just to simplify it on this page. This is a result of slower amortization lower earnings in our mortgage company and the net result is we think we're going to get back to pre COVID-19 levels.
Page eight.
Recapture.
I will say on the recapture side, our recapture rates on newer production have probably been lower than what we initially expected.
I think everybody has different reporting metrics as it relates to how folks report recapture if you looked at the left side of the page. What we tried to do is break it out a little bit differently for you this quarter and show you the different buckets, how we think about recapture from a refinancing perspective overall, 22%.
On the new res origination on the new <unk> originated a product, 32% and on a retail or originated product, 58%. So clearly when you think about.
Our our desire to grow our DTC channel have more customer retention that is going to help drive one higher earnings, but two more importantly, keeping keeping our customers from a retention perspective and slowing down their amortization on the bottom part of the page on the bottom left you can see recapture improvement provide.
The upside for our portfolio of 5% change in in a recapture rate at four 2% to our change in what we believe our market value will be and then Conversely, you can see on the other side, a 5% lower recapture rate will lead to a decrease in four 2% how are we going to do that having looked at the Reits.
Side of the page one is we're very focused on our brand we're working on brand awareness and again. This goes back to our customer retention operating capacity, that's something that we'll get into on the Q&A side, we continue to add employees to certain divisions, which will help us fund loans quicker.
And get loans.
But from a funding capacity to be able to drive more loans through the pipe.
We've been pretty vocal about the Salesforce partnership that goes online at the end of the quarter, that's going to be able to connect our origination and servicing.
Business and really gave US a single view of the borrower, which again will help with recapturing and other initiatives. We have there and then finally around the technology side, we got a lot of work to do there like I think every mortgage company does and we look forward to kind of growing our technology business and being a world class leader on that side of our operating business as you look at <unk>.
<unk> nine just real quick there are.
2020 was a year spent quite frankly of locking down financing rebuilding capital and staying focused on shareholder returns bottom right side of page nine you can see we did 17 securitizations during the year for $8 billion refinanced our term loan with senior unsecured.
That we did a lot of securitization, we lowered our cost of funds and overall a great job by our by the team.
Page 10, as we've talked about our accomplishments and delivering results. One is when you look at our balance sheet today, we have $1.9 billion of unencumbered assets of which $945 million in cash regained origination market share new.
<unk> was the largest fastest growing mortgage originated from 2018 to 2020 keep in mind, we did start from a low bar I pointed out earlier that we started with $7 billion in 2018.
And this year, we ended with $61 $6 billion from our homeowner perspective big focus of ours working with homeowners are around forbearance plans and helping them navigate COVID-19, the percentage of our borrowers in forbearance has decreased to five 3%, which is down from eight 4%.
At the peak in 2020 overall, when we think about financing our daily Mark to market exposure is just 2% of our investment portfolio. That's away from our agency mortgage business, which gets financed in the in the repo markets I pointed out the Securitizations and then finally, we raised our stock dividend three times in 2020.
As we rebounded to the drops from the dark days of.
Of March.
I'll now.
Going to flip to page 12, and just talk quickly to our investment portfolio.
As we think about the investment portfolio going forward one of the areas that we've been focused on we've added agency securities.
To offset some of our MSR portfolio.
And also with the with the fed in buying agency mortgages, we have seen a dramatic tightening in spreads from.
From.
March days of last year to where we are today.
We've also added $321 million of early buyouts, that's an area that we continue to stay focused one thing to point out on the Ginnie Mae space, Our Ginnie Mae portfolio as a percentage of our overall.
MSR portfolio is generally on the smaller side, we have about 60 billion of Ginnie Maes versus a portfolio of about 550 billion total which includes both full MSR is in excess msr's during the quarter, we sold $195 million of residential loans, we sold $160 million of non agency securities mostly credit risk securities.
At lower yields than our than what we've seen in quite a long time on the other side again I pointed out we bought some agency securities during.
During the quarter, we booked $12 billion of MSR is from new raise we call. We began our core business again, we called $155 million of collateral. During Q4 post Q4, we called out $387 million of collateral and will be in the market with Securitizations next month.
As we look forward and think about additional opportunities again, we expect call activity to pick up as advance balances decline in delinquencies move a little bit lower we do think theres going to be some opportunity for us in the <unk> business. We haven't been very large there that's an area that we continue to focus on.
Particularly through our origination and servicing business will continue to grow our MSR portfolio through originations with with new Reds. Our partner, we recently turned on in the mortgage company, our non QM origination business and were focused on the on the <unk> business now and we'll talk to that in a little bit on the MSR is.
I'm not going to beat a dead horse here, we truly believe that if you'll go back to 2020, we had fast amortization. We had we had write downs in the overall value of.
Of MSR is if you look at our overall market in total it's a little bit.
In and around a three multiple that was kind of unchanged in the fourth quarter. We do think in a normalized market that'll be on a four to five kind of multiple and again I'll talk to that in a minute.
On the loans and security side again.
To take you through page 14, real quick net equity on alone $708 million, which correlates to $3 1 billion.
100% of our business there has no daily Mark to market weighted average financing term of 20 months thats either financed in the in the AR.
And the capital markets through Securitizations, we have non mark to market facilities with both banks and insurance companies will.
We will continue to focus as I pointed out on the Ginnie Mae space on the right side of the page non agency residential securities just to give you a sense the larger portion of that $647 million relates to our risk retention bonds and we have a couple of other things there, including some MH residuals and and a small amount of what will come.
<unk>.
At Forbearance bonds page 15 call rights $80 billion of <unk> related to mortgage collateral nobody has that.
Population continues to clean up and we do believe it will clean up because these loans were originated anywhere from 2003 to 2007.
We believe the population is going to be more callable, while we represent today that $38 billion of that $80 billion is currently callable debt is by factor only when EQT advance balances decline and we also need to see delinquencies decline servicer advances page 16 on the quarter essentially unchanged they are up.
$3 4 billion or $3 6 billion, that's really related to the seasonal nature of property tax in escrow.
We expect that to continue to normalize and stay around the $3 4 billion.
Number during the quarter, we reduced our weighted average financing cost on advances to 134%, which is down from $2 one 7%. So.
A remarkable job and honestly taken advantage of the AR. The front end of the yield curve, where you have two year treasury rates at 12% to 13 basis points.
On our outstanding advance balances were financed with 3 billion of debt of which $2 billion in the capital markets to <unk> 85, LTV and all of our advance.
Financing is non mark to market and nonrecourse.
Finally on the investment portfolio on the NRG side. This is a quick slide here Covid related forbearance as have continued to flatten I pointed out earlier peak of eight 4% down to five 3%. This is something thats really important to us as we think about homeowners, where we sit in the ecosystem and how our servicer and specialty.
Service will continue to work with homeowners to keep them in their homes.
I'll now flip to.
On page 19.
And actually.
Barry you want to take it because youre doing fine I'll take we'll talk a little bit about our origination and servicing business and then I'll turn it over to Barry <unk>, who will take you through a little bit more in detail Q4 summary, $247 9 million of pre tax income.
Our reported is down 21% as volumes, a little bit lower and gain on sale margins a little bit tighter during the quarter, we funded $23 9 billion of origination which is up 32%.
And from a pull through and adjusted lock volume $25 8 billion or up 18% in the quarter as we look at.
2020 summary.
The origination business pre tax income $801 6 million up 447% year over year funded origination of $61 6 billion up 176% year over year and our pull through adjusted lock volume of $69 8 billion.
Which is up 178% year over year.
Again, our growth as we think about this the thing that I think is really important to focus on and we will continue to be as our growth in our DTC channels.
Which is better and we'll talk to you in a minute as we look at page 20 across every channel.
Direct to consumer up 25% quarter over quarter, or 169% year over year wholesale up 18% quarter over quarter of 57% year over year, our joint venture base business, which is a origination channel that we work on through.
Different real estate brokers up 2% quarter over quarter, and 93% year over year, and then finally, our correspondent business up 40% and up 133% year over year.
I pointed out in my opening remarks, I think that we're in the early to middle innings for this company and I firmly believe that and thrilled with our management team, who I think are going to lead us to new heights, there on the servicing side.
Q4 servicing.
Pre tax income $47 8 million up 58% quarter over quarter keep in mind, we did transfer a lot of servicing into the company from some of our other third party servicers.
Continue to consolidate our.
Our servicing counterparties bring servicing back in house and try to increase our recapture percentages as it relates to them ended the year again to $297 8 billion of <unk> up 4% quarter over quarter.
From a customer perspective, $1 7 million customers served up 5% quarter over quarter and again we.
We estimate that.
At the end of Q1, our servicing portfolio will be give or take about 300 billion.
I'm now going to turn over the rest of the presentation of bearing and then we'll open up the call to Q&A alright, Thanks, Mike and good morning, everybody on the next few slides I wanted to just provide a brief overview of what makes new risks different.
A lot of news about mortgage companies in.
The market of late.
I thought it'd be helpful to differentiate new risks from the pack.
I felt it appropriate to say a big differentiator for US is of course, our parent company NRG and our relationship with NRG is a critical part of our strength, including capital market knowledge visibility and a core foundation of the mortgage industry and I cannot stress enough the importance of this partnership.
So just turning to slide 23 adjusted.
A quick summary, overall of how we present our plan to position our operating platform for the future.
Including profitability and scale market share growth recapture that Michael talked quite a bit about non agency products and of course, our special servicing strength.
Moving to slide 24.
Two or three years ago, you Werent really hearing about new risks, but since that time, we've established ourselves as a significant competitor in the origination and servicing market with growing profitability origination footprint servicing portfolio customer base and market share is also good.
Kinder that our platform originated $7 billion in 2018. So you can really see the impact of the acquisition of the <unk> assets and the importance of the partnership with energy and the MSR portfolio, we may be the new Guy in town.
We'll have a lot of work to do but we're well rounded diversified mortgage platform and a lot of room to grow.
Turning to slide 25.
Just wanted to highlight the market share growth as that's agnostic to market conditions as all mortgage companies have grown origination and production and profitability in 2020.
We demonstrated our ability to successfully drove not only our origination volumes, but also our market share and as Michael said earlier, our focus is to continuing to capture more market share.
We believe we can do that across our platform and across our channels at the end of 2020, our market share was approximately one 7% with two year growth of approximately 130 basis points that we picked up.
Small changes in market share can have a big impact on overall profitability and that's what we're playing for and we also have one of the largest servicing portfolios was approximately $1 7 million homeowners that we want to retain as customers of new risks as we continue to build out our brand.
And get better at recapture the plan is to execute on that goal.
Turning to slide.
2006.
As Michael previously discussed MSR valuations will benefit as interest rates rise. However, we believe our platform is well positioned to perform across different rate environments from a historical perspective.
As can be seen on the left side of the slide our multiple channel multichannel origination strategy allows us to position our focus to either refinance or a purchase market.
In anticipation of higher rates, we have a plan to position our channel to take advantage of the changing markets.
The direct to consumer channel is a huge focus for new rigs as well as energy and a long term opportunity for our company within the next few months will be launching our new brand strategy that will enhance brand awareness and recognition to further build customer loyalty the focus being as we get better connecting to our consumers. Our DTC platform will only continue to grow.
We're also planning to restart our lead acquisition strategy to shift some of our capabilities, if and when the refinance market slows down.
Regarding our retail JV business, our joint ventures, our joint venture business, we have 18 partnerships with different realtors and preferred partners across the country.
These partnerships are purchased focused and provide sticky origination volume.
We will continue to grow our capture rates.
Our wholesale channel, which has historically been purchased focus continues to grow with a record funding month in December by closing approximately $820 million with a plan to expand our platform by adding new broker relationships and building out our direct to broker channel.
And our correspondent loan channel will continue to evaluate the market dynamics.
Opportunistically by buying MSR is in adding to our customer base. It should be noted we had record growth in the fourth quarter purchasing $16 billion of mortgage loans, which grew our platform by 40% quarter over quarter as we continue to build out our capabilities and adding new customers.
Turning to slide 27.
We have proven the ability to originate non agency products for borrowers that meet our credit and underwriting criteria. While we pause. This production channel in March of last year, we relaunched our non agency jumbo product in the third quarter and originated in excess of $150 million in the fourth quarter, which is already back to pre crisis levels.
Last month, we also announced the relaunch of our proprietary non QM program non QM being a core competency for new reps and the relaunch is very exciting for us.
But while we've done this before we are cautiously entering back into originations to determine the extent of borrower demand credit profiles in pricing, but we expect momentum.
To pick up in the months to follow.
Turning to slide 28.
Yes.
We've talked a lot about origination, but it's important to recognize our incredible servicing division and in particular, our special servicer Sailpoint mortgage servicing Jack Navarro and the entire servicing division do an outstanding job and are well recognized in the industry is one of the best special services in the business.
In addition to growth in the changing environment. We helped over 200000 homeowners that were impacted by the Covid pandemic with support and solutions. The chart on the right side provides quarterly information for the aggregate number of homeowners that were impacted approximately 58% of all homeowners have had their forbearance and their hardship resolved.
28% of homeowners impacted still have their forbearance outstanding and approximately 14% of homeowners impacted our inactive loss mitigation, where shell point, where help homeowners move into permanent solutions, such as repayment plans deferments and loan modifications.
Turning to slide 29, we're extremely focused on our technology platform and are working towards new and innovative changes to make our company better some of the changes were focused on including optimizing our customer journey by combining our lead generation and marketing to predictive analytics, which will help us drive.
Our conversion rates.
Ranges to our fulfillment operations to improve employee efficiency improve timelines and reduced overall cost we've seen some of that change and improvement already with DTC fulfillment capacity, where we've had new funding milestones month after month for the past six months and our largest funding month ever in December of 2020 closing.
$1 6 billion in Rome.
Loan servicing has added our portals to assist consumers face in Covid hardships, but also connectivity between the origination team to ensure best customer outcomes, which include and relate to our partnership with sales force that will be launched by the end of the first quarter and of course, our customer experience, which is critical to everything we do as a.
Any deliver solutions that produce exceptional customer satisfaction, along the homeownership journey.
Turning back to Michael Thank you, Thanks, Brandon great job.
Operator, now well now turn it back to you for some Q&A.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Thank you from please pickup your handset before question Keith.
Your question. Please press Star then two.
The first question today comes from Kevin Barker with Piper Sandler. Please go ahead.
Thank you.
I appreciate you all haven't closure on new Res Hey, Michael.
That was very helpful to see all the different channels and the progress that you guys made over the last couple of years.
Typically within those different channels and the growth in the business.
So the follow up on some of the.
Disclosures on new range could you talk about where you stand on the filing of the S. One.
Given the confidential filed back in November and.
Where where that stands as far as the.
The separation of the two.
So we are.
Without getting too specific we continue to evaluate.
What a total separation would mean to the company.
Meaning NRG core and new range. So if we think that it will create more value for shareholders by separating the company and bringing it into the public markets. It's something that's absolutely on the table.
As you've seen from some of the recent.
Either attempts or.
Is that have come out with some of our friends and peers in the mortgage company side some of them have gone, okay, others have not gone as well.
But we continue where we are there as we think about it but we wanted to make sure when we show it or when we do it that is really going to add value for shareholders and create one higher book value and then more importantly, as we think about higher earnings and higher dividends et cetera, but it's on the table. It's just one of those things that we just wanted to make sure before we do.
Do it.
That it's going to be something Thats worth it for our shareholders and I will tell you that being part of the fortress family.
When you think about the amount of companies that we've taken public over the years, it's been a tremendous amount of companies. So we have a lot of experience obviously in that side of the.
World as it relates to markets.
I think when you look at NRG today, with give or take 1 billion north of cash the mortgage company, making north of $900 million I think on the MSR side, we are poised to see slower amortization fourth quarter. For example on the amortization side was $450 million that comes down I do think youre going to see lower production so evaluating.
The MSR side with the origination side and how to think about that as something that we think we play around with every day, but we are essentially ready to go.
Okay.
When you think about the separation.
The two companies would you.
Part of this closure was about $900 million of equity in the operating subsidiaries.
Would you expect it to be a spin off where you would see the existing shareholders go with that $900 million in equity that's already capitalizing the operating business or would you expect new capital we put in place.
At the.
Operating companies in order to separate the two companies and how should we think about accretion.
There is enough capital in the company to do go either direction to be honest.
And again I think our whole thing about bringing we have a public company a lot of these mortgage companies don't have a public company they don't have.
A.
What I would.
What I would say an uncle to be able to go out there and raise capital around different initiatives as we think about raising equity or raising debt for.
The only reason that we would do this is to create separation and create more value for shareholders is there and.
So I think.
To your question there is a new.
Capital in the company so it could be a spin or we can just stay or if we wanted to raise capital separately, we could do that but I think for now this assume theres enough capital in the system and it would likely be at this point it could be to sustain.
Alright, and then there was a.
You are also part of the.
<unk> that was created.
Is there anything to preclude that back from having some type of transaction with the operating subsidiaries given the structure thats in place today.
I would tell you on this back this factory doesn't have anything really to do with energy what it does do for us as a management team as it enables us to look at many different companies and think about ways to evaluate things.
That are in the financial services space. So it makes it is obviously a lot smarter clearly we've been approached by a number of stacks relating to take.
Taking new red public through a spec type vehicle.
I would tell you that at this point I would preclude this back from taking this company public.
And continue to focus on either.
<unk> spin and.
An IPO or keeping it as part of new Red and probably and keeping part of I'm, sorry, as part of energy Z and in keeping as part of energy did always likely be some relationship between the two companies as Barry alluded to earlier.
Okay. That's all very helpful. Thank you. Thank you Michael Thanks, Kevin.
The next question comes from Eric Hagen with <unk>. Please go ahead.
Hey, good morning, guys a.
A couple on the MSR and another one in originations can you share how youre thinking about hedging the MSR.
Sarah with rates potentially on the move and then separately can you just give some color around how financing terms on the.
The securitization market differ from term notes from US all right now and then on the origination side.
Do you feel like the origination business is comfortably staffed at this point you guys looking at ads from loan officers and underwriters share in.
Maybe you can go into a little bit more detail on where in the non agency.
Channel you feel you can be more competitive.
Which which cohorts of the market you have your eye on I think I think I heard you mentioned single family rental.
That'd be really helpful. Thanks.
Sure so on the.
On the first question, which was.
You gave us three questions.
Of hedging.
Hedging the MSR was my first question from the hedging of the MSR is what I would tell you is we're long mortgages against our MSR as we also have hedges against the mortgages that were long. So net net we are biased to a higher rate environment to realize a lot of value that we have.
We gave up in 2020.
But there is a strong bias to one having to mortgage basis on and protect the MSR, but the other side is to protect against higher rates.
Part two.
Why don't I I'll take question three before question too and just talk about the non agency opportunities in the <unk> space.
When you look at the non agency space, where do you think about the loan space today re performing loans are trading two and three quarters to 3% yields something around 3% use that on an unlevered basis for our cost of capital and the way that we think about risk return and the world that probably doesn't work for US right now so I don't see a lot of opportunity there.
When our comments of selling some loans in what I would call credit related securities.
In Q4 and buying some agency mortgages, we think that is a huge pickup in an IRR or return on equity for right for shareholders. As we look at the <unk> space clearly that space is something that.
Obviously started many years ago quite frankly, we were not early there today, we have give or take about.
I think it's 500 homes, we expected too.
We're adding roughly 50 a week in that space.
We think from a cap rate perspective, we're focused on different geographies and our overall cap rate is about five and three quarters Unlevered with financing. It's about a 15% return I did point out earlier, we're working with some insurance companies and other.
Banks on what I would call term financing so to not have mark to market financing on their product.
It's a hard business, we're working with specific managers to collect rent renovate homes as you may or may not recall, we bought a company about two years ago. I think it is called Guardian, which is a property preservation business, they're a great partner of ours.
The company has grown pretty dramatically and we expect that to continue to grow.
So it's an area of focus the other point on the on the non agency side I referenced that the mortgage company is starting to turn on.
Non QM I would expect that to be a bigger part of our business as we look forward, but most importantly, we have to be patient with capital.
There is not a lot of yields in the market, we don't want to chase everything that's out there we're going to continue to maintain higher levels of cash and think about ways that we can be.
Deploy capital in an accretive way I did point out that we think MSR is here are very very cheap we see from our Unlevered perspective.
We see that cash flow today give or take about eight unlevered with financing something closer to 13% to 15%. So we'll continue to focus there. Obviously, we have a large portfolio of their higher rates are going to be I.
I believe good things for our company.
Conversely on the other side, we do see a rate rally in the market bearing and his team are extremely poised to continue to grow origination and grow earnings around that which will hopefully offset a large amount of amortization will continue to see Barry you want to talk a little bit about hiring and staffing yes, I mean, we are.
Continuing to hire.
However, the flip side to that is we're currently punching above our weight as I would look at it I think we're our teams across all of our different channels in our servicing.
Continue to outperform versus the amount of growth that we've had so to the extent that we're looking at higher rate environments I think.
We will end up.
Being sized appropriately if that was to occur on top of that as we continue to build out our technology will continue to be more efficient in the processes that we do however, we definitively still continue to hire employees, whether thats on the SaaS excuse me on the sales side or even on the on the fulfillment side.
Thanks for the helpful color I appreciate it.
Thanks, Eric.
The next question comes from Doug Harter with Credit Suisse. Please go ahead.
Thanks.
Michael hoping you could put some context around.
The earnings.
Put up projected earnings for 2021.
Much of the rate increase but did you show on the subsequent funds.
Just kind of baked into that forecast are you kind of assuming more of a steady state Michael yes.
No I think.
First of all good morning, Doug I think as we look at the market as we look at the macro environment around around rates and we look at either MBA forecast or we look at as a <unk>.
Alluded to earlier.
<unk> forecast from some of our different economists out in the world where the marketplace. We do think rates are going to rise the numbers that we put out there.
We've grown I think 2019 EBITDA for the mortgage company was about $200 million.
2020 was 930, we think that number is going to come off.
Youre going to see tighter margins and lower origination volumes as you think about that the growth for us.
We're not.
Theres not disparaging, we didn't we're not where we want to be.
As it relates to in certain channels more specifically in the DTC channel. So when Baron talked about our ability to gain market share that's going to hopefully get us to the numbers that we projected in there now it is purely a projection, but we think if you look at 900 ish for 'twenty.
And project something around seven to 821, we feel thats really a doable thing.
You had a $1 10 to $1 15, 10 year Treasury, that's up from 90 basis points at the end of the year.
We believe doing this being in this business for a long long time, we could easily see a market where rates are up.
Before you know it 50 to 100 basis points as the government is going to continue to rollout.
Thank bill after bill and really try to stimulate the economy and get us back to where full employment is next year, you heard yellen say cheating a full employment could be next year.
The Covid vaccine.
So this is I think our forecast is.
Considering all factors and what we think and consulting with some of the different economists in the marketplace.
Thanks, and then thinking about.
The dividend.
How are you thinking about what the right kind of payout ratio is.
Yeah.
Easily covering the dividend today.
Others flow in a rising rate environment of earnings.
Earnings can get back to 50 cents.
How do you think about the different potential paths for the dividend.
And in those scenarios.
So.
We raised our dividend three quarters in a row, obviously during March which is a very very difficult period for us.
We cut our dividend from <unk> 50.
As everybody knows.
Maintaining 30 or 40 or 35.
We want to grow our dividend so as the company continues to grow and we truly believe that we're going to see higher core earnings.
Well, we'll get back to a normalized dividend policy. So we'll raise our dividend. So I would hope as we grow earnings and rates rise if they do rise.
I would expect you'll see higher dividends.
Great. Thank you.
The next question comes from Bose, George with cash Dws. Please go ahead.
Hey, guys good morning.
And in response to an earlier question you'd noted the 8% unlevered yield on the MSR is that just on the GSE side or is it the same for Ginnie Mae.
And then do you see anywhere else that you'd like to put money to work now our MSR is kind of the best returns out there.
So it's.
Your MSR multiples the way that we view ginnie versus conventional or Ginnie multiples are lower than conventional because obviously there is an element of credit risk in Ginnie Mae MSR is versus conventional so I would say I would assume that anything between seven and eight or 7% and seven five and eight and a half and again. These are all guesstimate ins based on where you think prepayments are going to come in.
From an investment perspective, there is.
Quite frankly, both theres not a lot of anything great out there to invest in other than in our self and our operating business, where the return on equity is terrific. The MSR business, where we think again a higher rate environment is going to lead to much higher earnings for our company. So that's where we're going to continue to stay focus if there is a one off thing that we're pretty.
Could be an opportunistic investors. If there was something for example in the consumer space for us to consider we would likely do that.
If there was something in a different space, we would consider that but for now our core focus operating business, our existing portfolios growth in the <unk> business and growth in.
Our core business and then.
On the MSR business.
Okay. Great. Thanks, that's helpful. And then on slide seven again, where you showed that <unk> run rate, which is helpful.
When you look at.
Economic return since that was a core earnings number.
Economic return do you think going to be.
Fairly similar to that because I feel like most people are looking more at that core.
Core earnings.
Let me give you a little context, as we think about let me just get to seven per surgeon.
Yes.
We think about our earnings and prepayments.
<unk> put together a slide when we think about going back to 2019.
Just to give you a sense of 10 year treasuries 180 to 30 year mortgage rate was three 7% and amortization for US was 21.
CPR.
You fast forward to Q4 of 2020 are.
Our amortization rate was double that at 40, the 10 year Treasury was 90 basis points and the 30 year mortgage rate was two 8% so what I'm what I'm driving at is as you think about this.
On our MSR is youre going to see lower amortization at some point, we think that is going to be a huge boon to our core earnings and as a result, that's how we get to a place where we think our.
Dividends willing earnings will increase dividends will increase and we'll get back to that normalized run rate of 50.
If you go back to March of last year.
During that during the that two week period of help for us.
What happened was we sold a large think about the company what what's different than.
Essentially very little to no credit risk because our financing stuff is locked down everywhere. We added our agency portfolio, we had a fair amount of agencies pre COVID-19.
The difference then is that the government back in March weighted to buy agency mortgages. So we ultimately sold them before the government bought them, but the big difference between then and now as we sold.
6 billion of non agency securities and the mortgage company wasn't functioning anywhere near the way. It is now because you fast forward the difference in the company as we don't have that large portfolio of credit.
The agency business is still kind of the same but the mortgage company is clicking on all cylinders and we still have this large MSR portfolio. So as you think about that youll see lower amortization higher rates.
And from a mortgage rate perspective.
We expect mortgage rates at some point to continue to creep up and at some point the government to take their foot off the pedal and stop buying all these mortgages because they've got to fund everything else that there from a physical standpoint that they are trying to do.
Yes.
Totally makes sense I guess, what I was just trying to get at was it.
If that rate.
Scenario plays out could you could we see you're making $2 a year at while keeping your book value essentially flat to up.
At the same time, yes, no I think book value is going to go up I pointed out book value today, which is up from the end of.
The year book value went from 10, 87% to $11 35, I think book value continues to increase and.
And earnings continue to increase so the answer is yes and yes.
Okay, that's great. Thanks.
And then actually going back to the earlier question just about the separation of NRG potentially.
Right now the origination piece, obviously provides essentially kind of a macro hedge to the servicing piece. So to the extent there is a separation would that going to change the business model at the.
Are you essentially have to be more proactive on the hedging side.
On the mortgage company today, the mortgage company currently hedges its own pipeline, which is separate from your new Reds hedges its own pipeline, which is separate from NRC.
As you go forward if there was a separation the company would function as it as its own company, obviously, there would still be some relationship because NRC.
One the company essentially even if it's in the public markets because as we all know when you take these companies public typically.
10% of the equity or so gets sold into the public markets. So thats still be that relationship or affiliation with each side.
But it would likely be where origination will continue to flow onto the new Reds balance sheet, unless we think there's a better way to do that where NRG, obviously does either in excess transaction with new res or some other sort of transaction that that on a go forward basis from a flow standpoint, depending upon how capital.
Might you make new raise.
Okay, great. Thanks.
Both.
The next question is from Stephen laws with Raymond James. Please go ahead.
Hi, good morning.
Two follow up questions to Doug Harter his questions earlier, the first one on volume. So I think trying to reconcile page 26 and page seven you've got.
It was 18 billion of purchase volume, which was about 30% to 70% refi.
The page seven I think on a longer term or page six refis down 76% potentially under certain rates to new logos.
By the MBA can you talk about which of the channels might be disproportionately.
Impacted or are more or less in the others from a decline in refi activity and kind of on a blended basis. How we should think about that impacting your gain on sale margin. If we look out to.
At the end of next year, which I think was where that slide.
The slide page six page seven was appointed.
Well I would say.
We focus on our direct to consumer channel right given the size of our servicing portfolio versus the size of our direct to consumer platform, even in a rates up 50.
Scenario, we still have a significant number of consumers that we service that remain in the money from a refinance perspective. So we do believe that our runway with respect to our overall direct to consumer channel still is long on.
On top of that we talk about growing our lead acquisition strategy. The other the other thought is that the market will continue to gradually increase from.
Rate perspective, as opposed to what we're looking at the MBA forecast for any of the economists forecast as to the gradual increase in rates is another view as to how we look at.
The performance of the direct to consumer channel overall.
Wondering if we could talk a little bit to the growth of what you've seen in the direct to consumer side, what you've done from quarter over quarter and what you expect Q1 the day right. So and then the other thing I should just mentioned because you just briefly.
Talked about.
Margins.
Certainly.
Margins have compressed over from the third quarter, the fourth quarter that was the.
The primary reason for the decline in earnings between the third quarter and the fourth quarter. However in January we have seen a stabilization of margins from where they ended in December that specifically noted to our direct to consumer NRG V channels.
Albeit our third party channel do remain under competitive pressure across the market.
However, we do believe that they are in context of where they were.
As to.
As to where they were a year ago the.
The other thing is with respect to our growth overall, we continue and I've mentioned this before that we continue to find more and more volume in December alone. We funded $1 6 billion that was our largest funding months for the direct to consumer channel. We actually funded more loans in January and we're going to continue to see that progression.
Within our direct to consumer by continuing to grow out that business.
The remainder of the quarter and what we believe will lease fee for the first half of 2021.
Great. Thanks for the color on that.
As a follow up to the.
You know rough run rate earnings outlook of growing to about <unk> 50 per share, we're getting there relative to the dividend payout can.
Can you give us a rough approximation of how much of that 50 would be in a taxable REIT subsidiary that will be retained and maybe your thoughts on.
Distribution levels of that 50 cents versus retaining.
Some are as much as possible to simply grow book value by low to mid single digits. In addition to a dividend and how you think about the retaining earnings versus dividends. When you have the flexibility from income in the Trs.
So.
Couple of questions. There Steven one is as we think about 50. So if we get to 50 and we can grow our dividend back to where we were obviously were going to do that.
Pre COVID-19 just to throw a number to everybody I think early March our core earnings were projecting for the quarter was I think 61 or something like that.
So when you think about the 50, what's in our taxable REIT subsidiary.
Or what gets paid out keep in mind as a REIT business.
90% of our taxable earnings get paid out.
To our shareholders.
Good chunk of that will likely be in the form of excess which will be generated from our MSR portfolio assuming that your origination.
Origination gains continuing to get compressed so a lot of it is going to come from the $550 billion that we have in the MSR portfolio, which.
Which would not be taxable obviously, the mortgage companies stuff is taxable, but a lot of that sits in the Trs.
Great and lastly.
You've covered those quite as some details on a potential <unk>.
Separation or spin or IPO entity.
Can you talk about timing of that is that.
Q1 decision is it first half kind of what is the how.
How do you think about the calendar as far as when that may occur when you make it to make a decision on the right course of action.
I would say it's in every day decision.
And meaning like if we think it's going to work for shareholders. We're there I did point out earlier that fortress, we've done a ton of.
Ipos and spins and raise capital in the public markets.
So we do evaluate it every day, but it's not just to take a company public debt from one thing I want to I want to make sure everybody understands because we have a public REIT that can raise capital and help grow the mortgage company, it's got to be something thats truly beneficial to shareholders to separate the two which drives higher earnings and higher dividends for shareholders are made.
Thing right now is to make sure that we grow earnings and we grow our dividends to get back to that place. That's why we alluded to this so-called 50.
In core earnings and.
And that correlates obviously to a a dividend policy, that's that's comparable to where we were pre COVID-19.
Great I appreciate the color today, Michael and Bernie.
Thank you.
The next question comes from Julianna <unk> with Compass point. Please go ahead.
Good morning, and thanks for taking my questions.
Going back to a similar topic.
Chris as quick as possible here.
We think about the separation of the operating businesses just like we separate the origination platform and the servicing business.
With some of the ancillary businesses.
One of the.
The big questions. There is kind of how the relationship would work because youre originating loans generate MSR is if the originator and you might be selling them or transfer day transferring portion over.
To the REIT to book.
And the REIT subsidiary would you structure that is a kind of a forward flow agreement or anniversary refusal.
Moving on your disclosures.
The language around the MSR is going from the origination segment to the servicer has changed in the last couple of quarters, where you are now describing it as a sale versus a transfer I'm just trying to figure out how you how you construct for that.
I think we can look at it a number of ways I did point out. If you did have a separate company you could have a flow agreement between new res and <unk> Z.
And the REIT you could also do it where the MSR is to state on the new <unk> balance sheet.
And continue to grow it that way and that company would then.
Either settlement to the public markets are retaining them on their balance sheet, depending upon it could be depending upon capital and all and.
Overall earnings so I think it really depends.
I think you hit on something that we didn't discuss this morning, yet on the call when we think about our business at <unk>.
I think the way that we'd like to articulate. This company is one we are a great investment portfolio that has a large amount of <unk> that are going to benefit from higher rates, we have in our loan and bond portfolio that is locked down and from a financing perspective, we have an agency mortgage position, which helps hedge our MSR.
Portfolio and then we have our rate hedges against the HD.
The agency MBS position, just to protect us again and higher rates.
When we think about the operating business you have a great mortgage company in a new raise we have an origination business. The servicing business you have a special servicer, which is under the brand of <unk>, which is really just its a division of the servicing business and the one area that we didn't discuss it.
Mourning his title.
And appraisal business really the ancillary business lines that we really don't get any credit for so if you turn around and you look for example at a title business and thinking about the amount of production, we do and others do in the origination market and you assume some kind of multiple on that business you could argue that our title business in <unk>.
The business of the value of something if you'd even just running at a number for 'twenty $1 million to $50 million you could argue that that business is worth something between four and $500 million thats not captured on our balance sheet. So the point is when you look at the ancillary businesses Theres no credit given for that the REIT trades give or take something around book.
Book.
So whether it be MSR is being sold between NRG and new raise the capitalization of some of these ancillary businesses I think theres a lot of different things that are that we had in our portfolio that are probably not as well understood as we'd like to articulate to the marketplace.
I think you made a couple of great points on the growth on.
The ancillary services, but then also on the new road side.
I guess, what's probably helpful. There is it sounds like there might be the option with the original reserves from the operating businesses to maintain from retained MSR is on that side of the business because one of the big questions that comes up conceptually is that you have a business day.
At the end of the third quarter at least from $750 million book value.
$130 million pre.
Pre tax income.
Not really shouldnt really be book value business, but value.
The next question that always comes up is how do you deploy that capital and it sounds like retaining more MSR is within that platform might be in Austin.
Are there any other options beyond that.
Yeah.
I think theres a lot of tools.
So called tool chest or so net our sole focus by one of our sole focus is.
And I brought up the title stuff because we look at a lot of ancillary businesses.
That are out in the marketplace and I think the valuations on some of these things even if you think about at Black Knight that trades at 20 times EBITDA not that were black Knight by any means I think theres a lot of a lot of value to kind of.
To unleash out of our company as we continue to work towards doing that but really the focus is how do we drive higher earnings and how do we drive higher dividends that is that is the sole focus of what we do.
And we need to get that we need to get back to the pre COVID-19 days and Thats what were focused on clearly we've made a lot of headway and progress over the course of the past.
Nine months and it seems like we've been at this for 20 years quite frankly, but we wanted to get to a place where that dividend is back to where it was so.
If theres ways to do that by.
Whether it be by spinning out new res.
Getting book value back to the higher levels, we think that that will happen. So.
I'm really pumped about where we sit with the amount of cash and the potential for earnings growth in our company.
That's great I really appreciate it and I'm going to jump back to Egypt.
Thank you.
The next question comes from Henry Coffey with Wedbush. Please go ahead.
Yes, good morning, and thank you for taking my question.
Well, obviously, you're talking about the same thing over and over.
The.
If we just focused on dividend and earnings.
The combination of the mortgage company in the REIT, it's almost optimal because.
There's no debate about how to finance, what's the reach there to do the financing.
Mortgage company is there to do the origination and the servicing.
And if you could get all that working smoothly together like you said it gets us back to 50 cents a share. So the open issue than it's just getting the appropriate valuation on each each of your key pieces.
And that leads to the question of what goes where if we're building a.
We're going to build a three part model, where we look at the REIT we.
We look at the title and close and other ancillary businesses and services.
And then we look at the originator servicer and maybe even the special servicer.
What goes where.
Okay.
Good question I think Henry I think it really just comes down to how the the biggest part of that obviously.
Biggest parts are the portfolio composition, which assume at some point, we migrate back towards book.
And then the mortgage company, what kind of valuation you get on the mortgage company and.
And if we thought that the valuation of the mortgage company is such that we traded at six times and a multiple of book clearly thats something that we need to make sure that we capture for shareholders now that doesn't mean, if you did that you couldnt have a flow agreement between new res and <unk> Z or new Reds and some other.
<unk>, our new resin and quite frankly, some other company.
And I think it depends on.
Truly the valuation and the mortgage company I think early on I commented about some of the recent ipos that have happened from these different companies.
And a lot of them quite frankly, having traded as well as I think anybody probably would've hoped for but and the other thing is as I related to some of the.
Values that we've seen in the spot market I think mortgage companies in general based on their earnings profile. They are actually pretty cheap on a relative basis compared to some of these other companies that are projected to make money at some point down the road.
In the financial services space, So to me and to US it's really all about how we extract value for the mortgage company. If we can do that we showed the implied book value page of 14 to $18 a share.
Couple that with higher interest rates.
Baron pointed out as we as we try to gain more traction in our direct to consumer business MSR speeds slow down.
I think we are in a great place.
But I don't know that Theres any easy answer now we put part a b or C. It's just a question of how we monetize that for investors and can we get paid for that by creating three separate companies.
When we look at that.
I would almost argue is that the easier you can make it for us to understand the REIT.
Maybe even show an average balance sheet the way the banks do that so we can just plug right into what that looks like.
And then the better job we can do in.
Projecting the earnings is just the mortgage business that might get you there it's a tough road.
It's an understatement to say that investor sentiment around mortgage companies is kind of negative right now yes.
I get it I think what we did this quarter.
And kudos to Kate and the team has really tried to show a full breakout of the mortgage company and how to think about the profitability in different channels.
But obviously the.
The more we can do to articulate and convey our story.
We will continue to do that do we think about the mortgage company is owning msr's or as more of a sub servicer.
I would I would assume it is going to own MSR is the question is what's the quantum of MSR is that at all.
If the mortgage company is a capital light vehicle would trade better which is earnings from origination and servicing and selling the MSR is two way another party.
And we would do that again, it's all about value creation, and how we create value and I think we're pretty good at that so now that we're kind of back at it after what I would call a very tough first and second quarter I think that that we're poised to really do new things and continue to extract.
Value on where we see higher valuations of of what I would call.
Different types of companies in whether it's in whether it be the public markets and private markets ancillary businesses what have you.
No. Thank you and you are right I mean, the breakout in this deck is extremely helpful. So.
And probably represents an enormous amount of work so thank you.
Thanks Henry.
The next question comes from Jason Stewart from Jones trading. Please go ahead.
Hey, good morning.
I think we've beat the horse on the mortgage company. So if I could switch back to the investment portfolio quickly could you talk about how much capital was allocated to agency and sort of what the net ROE was in the fourth quarter.
It included net of hedges that'd be helpful.
The total capital that's allocated to the agency book is approximately 600.
We ended the quarter with $13 billion market value and agencies.
And can you give an approximation of what the ROE contribution to earnings was in the fourth quarter.
The contribution to core earnings was approximately $50 million or 12 cents for the quarter.
Core okay.
Thanks, and then.
Michael I understand your point as rates go up we should see speeds go down obviously in the fourth quarter I think 10 year rates were up 22 bps in there up 23 quarter to date, so far this year.
There's some other factors that are that are inter playing their tighter primary secondary spreads and burn out all of those.
Factors come together can you talk about how you think that plays out in terms of the MSR.
And then maybe if you could just add one more point for your number for.
Book value today was there any increase from the multiple on the MSR.
Yeah, there was a slight increase in the multiple on the MSR.
We're still in the low threes overall, what youre seeing on multiples just to give you a sense in the origination business now you have what I would call conventional production in <unk>.
This use of correspondent channel multiples right now are give or take about four to four and a quarter on the Ginnie side, we see multiple something around three and a quarter ish.
During the quarter to three and a half so you've seen multiples go up from the lows fairly dramatically.
As I pointed out we ended 12 31 with an overall multiple on our.
On a book in the low threes.
As we look at.
As we think about other competing factors clearly the government is buying pretty much all day by call. It $7 billion a week of production you would think as we get to a more normalized world at some point that will.
That will stop or that will slow down.
As that happens youre going to see speeds come off your point on the primary secondary rate is a good one because we've seen mortgages tightened pretty dramatically.
Overall, you've seen rates back up in let's say in the 10 year from 90 to 115 basis points since the end of the year and Fannie two in Hampshire unchanged and price. So overall tightening of spreads as a result of government buying I think that'll subside at some point and again youll see a slower amortization.
To your point, it's not only just a right thing in the treasury market, but it's also I think sponsorship from the government.
Great. Thank you.
Thank you.
The next question comes from Trevor Cranston with JMP Securities. Please go ahead.
Alright. Thanks.
One more question on the DTC channel.
One of the initiatives you guys brought up that Youre working on is.
Increasing the brand awareness.
And you put that in the context of improving recapture performance, but I was wondering as part of that effort to increase brand awareness is also going to be aimed at increasing non portfolio originations in the DTC channel in the future.
And how we should put growth long term strategy around that.
Yes, the brand awareness actually is going to be for we look at it two ways both internally for our company overall and our employees, but also.
Externally and how.
Our customers our existing customers and even new customers will continue we will see.
We will see new res overall, we've already basically launched at least initially launched or are changes on our website, but that's going to include just what our overall customer strategy will be.
In the context of.
How we market, how we market to existing customers, how we evaluate where we think they may be looking either to buy a new home or even potentially evaluate what their refinance strategies are so the brand across the board as a multi pronged strategy for us.
For new rigs, obviously, it will impact.
<unk> the direct to consumer channel, but our plan is to take that brand.
And then bring that down to our joint venture partnerships as well as to expanding it into our wholesale channel when we.
When we launched our director broker initiatives, so it's going to be across all three of our direct to consumer channels, where we are talking directly to each of those consumers.
Got it okay.
And then one follow up on the question about.
The interplay between interest rates.
MBS in MSR valuations.
So just to clarify when we look at page six and you show the plus 50, and plus 100 basis point Treasury rates.
Do you guys, assuming that the mortgage rates would be up a similar amount and I guess kind of generally speaking if we did we saw a 50 bips increase in treasuries.
How much would you realistically expect.
Mortgage rates are free of crews.
It's a great question and I wish I had a crystal ball I do think obviously, it's all related to.
Where you see government support for the product.
As I look back EBIT, even pre Covid days, there was no bid from mortgages as we all know in in that two week March period until the fed came out or until the government came out and started announced they were going to start buying mortgages. So when we look at rates, we have to assume some backup in mortgage rates.
I also think you're going to have a burnout factor I mean, the mortgage industry. If you look at two of the largest players out there who are great at refinancing mortgages I mean, they really are.
So as you think about where we are from a rate perspective, we touched.
Little below 50 basis points and the 10 year note last year.
I, just think youre going to burn out youre going to have mortgage rates creep up your primary or secondary rate has tightened dramatically and overall youll.
Youll see speeds really slow down, but I think it's a very good question where.
What happens to mortgage rates as a result of a 10 year treasury call. It a one 5% they will go higher because there's real relative value players that will say I'm just not going to buy these things at these rates.
Because all of a sudden treasuries will be cheaper than mortgages why would you not buy treasuries.
Alright that makes sense, okay I appreciate the comments thank you.
Thank you.
This concludes our question and answer session I would now like to turn the conference back over to Michael Nierenberg for any closing remarks. Thank you. Thanks, everyone for all your questions and your support and look forward to updating you throughout the quarter end.
And everybody stay well.
Thanks.
This conference has now concluded. Thank you for attending today's presentation you may now.