Q2 2021 New Residential Investment Corp Earnings Call
Terry portfolios of call rights.
<unk> and MSR as we will remain patient on capital deployment with this level of rates and where credit spreads are in the market today seeking to deploy capital Opportunistically on the single family rental business, we have been acquiring.
The homes and currently have 1400 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 weeks regarding our macro view the strong economy will force the feds hand at some point and we should we should see higher rates ahead as mentioned before.
We are ready for anything and should we stay here, our operating business will create higher earnings the.
The signals from Chairman, Paul and the committee yesterday of that while the economy has improved.
And they will maintain asset purchases the clock on tapering has begun.
Guarding our earnings and our stock price.
We're very confident.
Our ability to maintain and drive higher earnings in the future.
Through a combination of our operating companies and investment business lines, while the stock price has taken ahead in recent weeks our book value currently at $11.27, after our capital raise with our earnings potential of hopefully help our equity write itself.
And I'll now refer to the supplement which has been published online.
I'm going to start with.
Page 3.
When you think about our company today going back in time, we paid $3.7 billion in dividends since inception current book equity $6.1 billion shareholder return.
92% since inception and of market cap of approximately $5 billion on the investment portfolio side, we of $25 billion of an asset and we are the largest non bank owner of mortgage servicing rights.
On our mortgage company and these numbers are specific to new rigs only during.
<unk> Q2, we did $23.5 billion and origination pretax income of $75.4 million and we maintain our status as the top 10 non bank mortgage originator of.
Our servicing portfolio of $305 billion pre tax income $32.3 million and again the same we.
We maintained our status as the top 10 non bank mortgage servicer.
Page for new residential how do we set ourselves apart.
I'd like everybody to think of us as a as an investment manager with complementary operating businesses. So what does that mean, when we think about our portfolios we have core.
<unk>, we have our MSR portfolios, we have <unk>, which are linked to our mortgage company in our end of our MSR portfolios. 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, we believe that when and.
All 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 net higher core earnings as we go forward our balance sheet has never been stronger we have plenty of cash plenty of liquidity and when we think about the caliber purchase.
And if reflect to end.
After that purchase with about $1.1 billion of cash and liquidity and growing when we think about our ability to create new investment thinking about the operating machine, we will likely be a top 3 of for a mortgage.
Mortgage originator in the country with the combination of new <unk> and caliber.
And when you think about non QM or other products. We just recently announced we're rolling out of arm products. The homeowners, we believe that we can create whatever.
Products that will help hone of homeowners and helped drive higher earnings for our balance sheet, our diversified portfolio of income generating business.
For the assets again will further add to our ability to create earnings as we go forward and then when we look at our track record.
Our track record of delivering returns to shareholders as I pointed out before the 92% since inception page 5 our financial highlights for the quarter GAAP net.
Income of 1.
$21 million or 26 cents per diluted share again. This reflects dilution of <unk> <unk> from the equity offering that we did to fund the caliber purchase so essentially think of that as roughly 29.
Core earnings $146.6 million or <unk> 31.
Per diluted share same think about it is <unk> 34 per diluted share pre the equity offering common stock dividend 20.
Consistent with where we were 7.6% dividend yield as of the end of June cash on hand at the end of June $956 million and again net equity of a little bit over.
$6 billion.
When you look at book value or book value. Today, 11, 27 debt reflects dilution from the equity issuance of 16 cents. So that would put you at 11.43 versus prior quarter of.
At $11.35.
Our total economic return for the quarter of 1.1%.
And then when we look at our equity offering to fund the caliber of purchase we raised $522 million in April.
Page 6 is this the simple walk on book value.
Again of $11.43, pre capital raise 11 twenty-seven post capital range page 7.
How do we think.
Think about our results I think the company today is positioned to perform in any rate environment. The again the announcement of the caliber acquisition, which we hope to close early this quarter.
Will enable us to originate.
Expand our recapture percentages.
<unk> and drive higher earnings in any rate environment, if rates rise significantly our MSR portfolio is poised to gain.
Pretty dramatically when we look at the in the quarter, we deployed $1.1 billion and our call strategies and <unk> strategies in our loan business our balance sheet daily.
And the market exposure stands at just 1% of our total portfolio.
On the new rent side, we increased our refinanced recapture rates of 40.
The 40% that's up from roughly 28% of the previous quarter, our direct to consumer channel. While the gain is modest we actually had a gain in the quarter.
Daily marked by the fact the rates backed up in Q2, our call right strategy, which we saw the highest amount of of call rights are core.
The collapses in the quarter since Q4 of 2019, we called $666 million in collateral and our MSR portfolio, we continue to shift.
<unk> does from bank financing and mark to market to non mark to market and in the capital markets. Our current MSR financing profile is at 71% and again all of these numbers are specific to energy of new rent.
Page 9 the caliber acquisition how are we paying.
For it.
As I pointed out earlier, we expect to have $1.1 billion of cash and liquidity. After funding the acquisition, we're paying $1.6.75 billion to purchase caliber.
The funds are as follows cash and liquidity, including the proceeds from our April equity rates.
Equity from.
The sale of agency Securities, which has already occurred and then from caliber of caliber of cash and liquidity there'll be a dividend out from caliber of to lone star of the parent and that will that will result in a reduction of both the purchase price and the cash and liquidity at closing Thats on calibers balance sheet and again, we expect to end the <unk> and.
Post that acquisition with $1.1 billion of cash and liquidity page 10, how do we think about the combined company 2021 projections of $173 billion of origination that is the combined company, our total servicing portfolio little bit under 500 billion.
Here's here's where we think we're going to see some real game changing results for our company. When you look at the upper right side of the slide and you look at the retail and direct retail JV and direct to consumer debt. It will be roughly 50% of our overall production. When you think about gain on sale margins.
<unk> and compare retail.
And direct to consumer to the correspondent and wholesale channel, we should see significant lift in P&L as we go forward and continue to grow those channels. When we think about our recapture opportunity again more customers.
<unk> recapture numbers have been terrific the.
The recapture numbers.
The new rent side as I pointed out early went from 28% to 40%. So all in all great results as we drive more of it more recapture through the system, we're going to see.
The higher earnings more cash flow for them from our MSR portfolio and more customer retention.
Age 11.
The combined platform 3.
<unk> 2 million $3.2 million customers and our full MSR portfolio 700 direct to consumer loan officers 1700, plus retail loan consultants 540 retail branches 5000 wholesale broker partners 900 correspondent lenders.
Numbers on 63rd party servicing clients, we have it all now we just have to execute once we close this deal.
Age 12 of synergies from the from the combination of the 2 companies.
I'm not going to go through every bullet here, but the way to really think about this is 1 on the revenue side, we're gonna of increased volumes we should.
There's economies of scale and I keep harping on the improved recapture which is going to lead to more cash flow and more earnings from a cost perspective, as we drive more what I'd called Digitization and we drive more technology through our entire system and the caliber system and the team at.
At caliber from Sanjiv.
Should have and others around the technology sort of done a really really good job. So we're really so we're really excited about the prospect of round. The caliber of technology platform, we will implement that across our entire company and as we go forward. We're going to we think we're going to see significant gains from a technology standpoint, and clearly we all have a lot of work.
To do around that front capital.
We will improve the cost of funds on a lot of the financing stuff that's done on both sides.
From a capital market standpoint, I think for a second to none in our ability to execute and we also have diverse diversified sources of capital strategy.
Again, we're going to expand our.
Our product offerings, we're going to cross sell across our customer base and we think we have untapped opportunities in data and analytics and how we think about our customer base.
Page 13.
Market share opportunity the 1 thing I want to point out share while.
We all talk about volumes.
In the in the market I think the thing to really highlight here is the bottom right side of the page as we go through a higher rate environment and I pointed out earlier, we think the combined company in 'twenty, 1 will do roughly of $170 billion.
Think about it this way if we did an extra 1% and market share and it's a large.
That would add $36 billion from production, if you think about $36 billion and production and if we have of product mix of <unk>.
Roughly 50% between retail and JV and you think about the margins there the net net of that it just kind of add more earnings for our company. So again Super excited.
Market excited to gain market share and again, we have.
Everything we need at this point page 14, just talks about our friends and peers on the street.
In the business if you look at the middle column.
Can you talk about product mix and you talk about products that we're currently doing and you're thinking about servicing and special.
So the racing and ancillary services and being a REIT we have it all again now it's going to be up to us to execute drive higher earnings for shareholders and get that stock price of page 15, I'm not going to spend a ton of time on that.
Alan nature to what I pointed out before.
You know our.
Specials for them and 10 mortgage platform, we have a lot of work to do the you know the caliber side as we think about the digital platform again, a great job there that will be implemented and we will continue to expand on that when we think about our customer for life strategy very very important how do we retain our customers we're going to have.
Have to drive higher recapture rates and customer service that is second to none technology continued investments in technology will help will help grow.
Our business from a gross standpoint, and a profitability standpoint the.
Page 17 of our portfolio our investment portfolio couple of things.
As we've ripped through this 1 leading mortgage originator not going to spend a lot of more time, there Paul rates, we still have the $80 billion of call rights think about this we have proprietary call rights on the $80 billion of the legacy non agency market Nobody has that our ginnie.
He may be low opportunity, we have of $50 billion portfolio of Ginnie Mae collateral there'll be more our ability to drive earnings through our <unk> business and we also are looking for from the investment side to source more EPS in the market.
I mentioned before our single family rental strategy currently.
1400 homes and have a great announcement in a couple of weeks on of New management team, that's going to run that we're going to target 5 billion in acquisitions over the next 5 years.
And from a financing perspective again.
I think for a second to none as we think about our capital markets and our ability to finance our balance sheet.
We have from an investment standpoint page 18 in the quarter and beyond the quarter.
Paul it's $666 million as I mentioned before and legacy non agency deals during the quarter, we purchased $650 million of of the agency securities and $241 million of E. B O's, we securitized.
$271 million of residential loans, and we grew our asset for our portfolio by 600 units within the average cap rate of 5.2% per.
Q2, we sold $5.4 billion of agency Securities, we sold $880 million of residential loans for MSR portfolio.
Folio on page 19, total as I pointed out earlier 490 billion.
At the end of June 100% of our MSR financings are non daily Mark to market.
Our new origination new origination during the quarter was 296% compared to $2.7 9.
During Q1, so when you think about this what we're trying to articulate here is as our portfolio changes over time.
This WAC as a little bit higher than than the $2.79 during Q1, but as we believe rates will rise the <unk>.
Zaire of homeowners to refinance these lower interest.
The rates will be lower and lower again, leading to more cash flow slowing slower speeds and the higher higher earnings over time on the servicing portfolio.
Currently 55 per cent of the NRC servicing portfolio of being serviced at the new Reds or SMS keep in mind, we of third party relationships with.
With the with our friends at Cooper loan care in a couple of others and then we also believe again net recapture rates slowing speeds will lead to further.
Further gains in cash flow on our MSR portfolio page 20.
It's really just a summary of our MSR portfolio and how we think about our financing.
It's currently at 71% in the capital markets, we priced 7 securitization since the dark days of Covid in March of 2020.
21, as you think about our MSR portfolio of an origination platform.
Improving recapture rates have a look at the bottom right side of the page.
So a change a 10% change actually let's start with a 5% change of 5% change of recapture rates on our portfolio will lead to a change of market value of 4% or <unk>.
And earnings per comments common share so clearly.
Age of a huge focus on recapture huge focus on.
Data and analytics huge focus on.
What we're doing on the digital side to drive higher recapture and again more earnings for the for shareholders page 22 of our core rate business.
Again, I'm not going to beat the dead horse here.
The.
Largest amount of calls since Q4 of 2019, we expect this to continue as delinquencies trend lower and advanced balances remain muted. When you look at page 23, and think about our investment opportunities.
Our loan business will.
Again target of our own what I, what I'm going to refer to as proprietary collateral call rights.
Woods.
As you think about the broader world and where credit spreads are going out for us to buy loans of just not that interesting. Our core REIT business is very interesting. The <unk> business is very interesting when we think about the agents.
The mortgage market.
During the early part of 2021, we sort of shrinking a shrinking GSE footprint to the extent that things change with the Gse's that'll provide a what we think is a pretty robust pipeline of opportunities for us to deploy capital in the mobile call agency eligible.
For both Securities. While you saw also in the in the in the first 2 quarters is the agencies pullback on non owner occupied so that could create another opportunity for us and conforming balance non owner occupied loans non QM will continue to be a growing part of our business as we go forward, particularly as we think about higher rate environment.
Agents and again for a potential for of shrinking GSE footprint page 24, our asset for our business.
1400 units currently average basis 209000 G geographic.
Exposure of if you look to the bottom left part of the page most of the South east of little.
In the southwest in the Midwest targeted net lifetime yields of 12% to 15% average underwritten cap rate 5.2%. If you think about housing supply and I know a lot of a lot of.
What I would call appears in different types of firms of announced entering the space and.
<unk> folks have done a great job already in this space I think the opportunity is large and we're excited about what this business will can and will become and again Paul.
Look for an announcement at some point during the month of August on our leadership team servicer advance balances not to spend a lot of time here Dave.
Some decrease from $3.4 billion of $3.2 billion.
Average amount of capital continues to shrink their the team here has done a great job financing that keep in mind going back to 2015, when we acquired <unk> debt, we add a $11 billion of advances outstanding.
Uh huh.
And with 4 of 11 billion of financing with $8.3 billion of of.
Advances outstanding.
Page 27, a barrel here fairmount range when he can take us through these next couple of slides and then we'll turn it back to the operator and open up for some questions.
Thanks, Mike and good morning, everyone.
Turning to slide 27 for the origination division at New raise we ended the second quarter with the $75.4 million of pre tax income and funded volume of $23.5 billion. Some of the themes in the broader market such as increased competition ongoing margin pressures impacted our performance during.
During the quarter, we continued to deliver across all of our channels on the number of aspects such as growing recapture and our product set the <unk>.
Sides of these market headwinds as I just mentioned, we continue to build and grow our business and are well positioned to take advantage of future market opportunities. For example, we've grown our direct to.
Our business with record funded volume of $6.4 billion, which is the 12% increase quarter over quarter and our sixth consecutive quarter of increased production.
We announced last quarter, the relaunch of our non QM business, which continues to gain momentum and we locked over $100 million in June alone.
Alone our non agency jumbo business is back to pre COVID-19 levels.
With over $250 million of quarterly lock volume and we also added our 19th JV partnership and we have additional JV announcements coming into the third quarter as well the other important point of.
Gain on sale margins, while gain on sale margins have decreased 12 basis points quarter over quarter, we're beginning to see a flattening of.
Of the decline of margin for our direct to consumer business margins dropped 10 basis points from March and of remain range bound in the low 3 hundreds for the past 3 months, including July.
<unk> channel margins dropped 25 basis points in June but flattened in July and this is the first reduction we have seen since 2020 and is primarily driven by the change in purchase volume from refinance volume Mark.
Margins in wholesale channel dropped from March to April, but also but have remained range bound for the entire quarter.
For our new July <unk>.
Similar theme of our correspondent channel as margins pressured by approximately 12 basis points in the second half of the quarter and a flattening in mid June and July however, given the size of our correspondent channel, which is 60% of overall volume, it's a significant driver in quarter over quarter margin.
Including.
And as mentioned given interest rate change in July and the removal of the FHFA adverse market fee, we've already seen an ability to take back some margin and are looking forward to that in the in the months to come from.
Last comment on this slide is we're really excited about the opportunity to combine the new resin.
<unk> and caliber platforms, Michael talked a lot about that we believe the 2 companies will have significant benefits that accelerate our objectives goals for both origination and servicing efforts and continue to gain market share.
Turning to slide 28.
And I've continued to say this for the past few quarters, but our DTC our direct to consumer.
Tumor channel remains a huge focus for new Red and enters the and continues to present of long term opportunity for our company. Our process changes have taken hold and that can see can be seen in our increased fundings, but also a refinance recapture statistics with the 44% increase quarter over quarter.
While we have.
Indoor turn times enhanced our scale and capacity the importance of our brand awareness and recognition to further build customer loyalty are also critical to our success that seen by 25% increase of new resonated refinanced recapture and a 13% increase in new risk originated refi.
The improved recapture in April we launched our new brand and I invite all of you to visit new res Dot com to see our improvements in our digital marketing and consumer experience the message being as we get better connecting to our consumers. Our DTC platform will only continue to grow.
Turning to slide 29 and.
Just some quick highlights on the other channel.
Our joint venture business continues to perform well in any market environment and originated a $1 billion for the quarter was flat quarter over quarter, even with higher interest rates.
In addition, we saw a return to normalization with purchase transactions, which comprised approximately 80% of funded volume versus.
<unk> of 54% in the first quarter.
And as I mentioned before we announced our newest JV.
Joint venture mortgage company coast, 1 mortgage LLC in partnership with this new family of companies, which is our 19th JV partnership and we welcome them to the new risk family.
In our wholesale channel, we continue to grow our platform.
The only adding new customers, new broker relationships and building on our branches, but also focusing on non agency products.
<unk>, non QM, which comprise 20% of our overall lock volume in the second quarter.
And our correspondent channel, we continue to add new customers approximately 40 with a focus on best effort.
That's where we can add additional margin also creating operational efficiencies to improve customer relationships and add new products, such as non QM through our debt of non delegated clients. So when I think about our performance in the second quarter. Both in terms of funded the units and other metrics, we use to evaluate our performance we continue to see great progress.
Turning to slide 30 for the servicing division, we ended the second quarter with $32 million of pre tax income of 2% increase quarter over quarter. We also added a table showing historical servicing pretax income, which is proven to be of balance to the volatility in origination PCI.
Our servicing business.
Our core strategy for new res overall.
We ended the second quarter with accurate servicing portfolio of 306 billion and approximately $1.7 million customers, representing modest growth quarter over quarter, and then on a cost per loan.
Continued to increase slightly which.
Impacted based upon the Covid impacted homeowners as we continue to achieve loss mitigation solutions and retain their home.
On the last slide slide 31.
Since the cares Act was first enacted we've helped over 250000 homeowners navigate the COVID-19 pandemic over 160000 loans of resolve.
Barents and remain active in our portfolio and our active forbearance of about 2.3% versus 3.5% in the in the first quarter. Our focus remains to work on every possible method to engage these homeowners and all of available loss mitigation programs, including a series of newly introduced Fannie Freddie and Judy modification programs.
Our numbers are in line with the industry and continued good work, but more to do to help homeowners.
On that.
Back to Kate we will open the line for questions.
We will now begin the question and answer session.
I'll ask the question you May Press Star then 1 on your Touchtone phone.
Therefore, because youre using a speakerphone please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
And the first question comes from Kenneth Lee from RBC.
<unk> capital markets. Please go ahead.
Hi, Good morning, Thanks for taking my question just 1 on the gain on sale margins.
Saw some improvement with sandy the J.
<unk> and the DTC channels I'm, just wondering if you could just elaborate and just talk about.
What's driving that improvement.
I mean, we've seen we've seen of flattening as the message is delivered and so less less of it we did see a decline as I mentioned in each 1 of the channels.
In our JV channel margin dropped 25 basis points in June but they flattened.
And we haven't seen any reduction in our JV business at all since 2010.
<unk> so.
And our DTC business. We've also seen a reduction as I mentioned of <unk>.
10 basis points from March, but they remain range bound.
For the the last 3 months.
<unk> July.
Got you that's very helpful.
Thanks, and just 1 follow up if I may.
In terms of the the estimated <unk>.
2021 origination volumes for the combined caliber and the Reds 1.
Under if you could just talk about some of the key assumptions you have there driving that estimate thanks.
Right.
So.
On the.
If you just for you really need to look at each of the underlying channels that make up <unk>.
Our estimate which you can see on slide I'm I think it's on slide 11.
On slide 10.
So on the retail business and the JV businesses Theres no.
So in our view of Thats, 100% accretive on the on the DTC business. It's the same.
They are managing their servicing portfolio and we are managing our servicing portfolio and then you look at the third party channels based upon our analysis. There is very limited overlap of actually that was a significant pleasant.
Overlap of surprises we looked at for both of those third party channels about the accretive nature of the business. So for example caliber is in direct to broker and new Res is not and then the overlap between both of the channels has been very limited and also on top of that their focus and our focus meeting new res is focus on the the type of customer.
Supply and our view is accretive so.
Our view is from our current projection is really based upon our view of interest rate markets for the remaining 5 months of the year and our view of our pro forma of the overlap between the 2 companies as I just described.
Very helpful.
Helpful. Thank you very much.
Thank you.
The next question comes from Bose, George with <unk>. Please go ahead.
Thank you the first just wanted to ask about the <unk> opportunity.
When you get the portfolio size.
$100 million is.
Is that the portion of EPS that you've already purchased.
On your balance sheet already and then just going forward can you help us size of it I mean, you've got $50 billion of Ginnie Mae MSR.
It seems like a sizable opportunity.
We just saw you saw of Cooper book of $180 billion of million dollars of gains.
Just this quarter. So just curious what we could see from some of that opportunity.
1 of the boat show, the 70 to 70 or the.
$700 million, we have is on our balance sheet. When we think about the broader opportunity between origination that we believe will go forward I mean, you're obviously in the great credit cycle.
However, should things change there will be some potential opportunities to you know to buyout loans and and and redeliver in the email business. I think you know in some of the numbers, we quoted in the and having a $50 billion of Ginnie Mae MSR portfolio.
It's hard to tell exactly.
What that number is so if you think about that $50 billion you match. It up to you know where Cooper is aware of Penny is I think the way the probably think about that is you know we're not the biggest ginnie Mae originator. However, I do think that you know over time will likely grow our ginnie Mae exposure. So therefore that.
$700 million could increase pretty dramatically over time, but again I think of lot of it depends on where we are in the cycle and what's going to happen with the overall you know the credit of the homeowner.
Okay. So for now the $700 million, you've all of the repurchase the the 90 day delinquent stuff out of the the pool so to the.
It's more it's basically.
More of flows into the delinquent bucket is that right correct and that's 700 thats on our balance sheet. It is steady flow, they're actually buying out of the numbers arent massive on a on an overall weekly basis.
But there is a steady flow of that continues to come in.
Come on to the balance sheet.
Okay, great. Thanks, and then actually just a follow up to the question on gain on sale you know in the footnote you say that the gain in the D. T. C. N J b excludes the recapture of MSR. So I mean is that just saying that the gain essentially would have been 100 basis points or whatever higher but you know what.
Instead.
That piece of just flowing through the servicing to replace the lost MSR.
That is correct. So you know.
A number of other things differently as a REIT you know prior to being in the operating business you know the recapture of in our of Msr's and other you know on the mortgage company side.
If you if you look for what Cooper does.
You know there they're msr's are in there are overall, our origination business.
Okay, great. Thanks, and then actually 1 last quick 1 and can you give an update on your book value quarter to date.
It's pretty constant right as of today, it's pretty similar to where.
For our prior to the end of.
End of Q2.
Okay, great. Thanks.
Thank you.
The next question is from Eric Hagen with P. T. I G. Please go ahead.
Hey, Thanks, good morning, the servicing book like it looks like a mix of.
Higher coupons season loans and of course, there's a fair amount of new loans that you guys of originated over the last year or so with lower coupons I'm wondering how the the recapture rates and the strategy around targeting certain borrowers differs depending on you know the seasoning of note rates in such especially in environments like credit right now where rates are low.
We were able to take care of it yeah. So I mean, certainly we are targeting based upon a new.
Number of different factors, including just what we call trigger leads or at least based upon consumers that may have interest at either refinancing or even looking to buy a home, but our biggest strategy from a marketing.
Getting perspective continues to be in the context of the borrowers that are in the money and that is our focus so we.
We look at if you look at current coupon debt for today based on the overall size of the NRC MSR portfolio, we're talking about approximately a million customers that we continue to target.
The 1 thing I would point out the need.
Where we were a year ago to where we are today I'm not only with the team on the on the new rent side, but also with the other team that he's assembled on his side I think of 1 of the slides I point out data and analytics and technology game I think there was a couple of areas as we continue.
The new to get better on data and analytics and really identifying a homeowner who is ready to refinance and that's what you're seeing in the new red numbers going from 28 per cent for 40% of.
It's gonna add huge lift so as I look at you know our core earnings going forward and I hate giving guidance, but.
Looking at.
We are I really do believe our higher recapture rates anticipated slowdown in speeds. If we end up in a higher rate environment are going to add significantly to our core earnings and an overall value of the company.
Got it that's helpful. Thanks.
And then.
1 of them, but just the capital structure I mean, considering caliber has no unsecured debt I'm wondering how you guys think about that capital structure and the appetite for additional leverage.
Guys combine the platforms.
No I think we when we look at our capital structure on the from the parent level or down to the what I would call of the operating.
<unk> subs.
We have not put on a lot of what I would call corporate debt, while saying that at the operating businesses continue to grow well.
We will continue to evaluate the best way to fund the business.
Currently as a result of the equity raise we did in April.
And where we sit with you know coming out of the deal.
With the 1 billion, 1 of cash and liquidity and we expect.
By the end of Q3, depending upon what we do from an investment standpoint, we expect at 1 point I wanted to be anywhere from 1.3 to 1.5 we really don't have a need for more cash or liquidity right now, but we'll always evaluate.
You know, where we think the markets are and what they're gonna give us having more capital you know I know people shareholders hate it, particularly because it's a drag on earnings is never a bad thing because it'll give us the opportunity to actually be opportunistic from an acquisition standpoint, as well as protect our balance sheet.
Based on days like we saw in March of last year.
Got it that's helpful. Thank you very much thanks, Eric.
And the next question is from Trevor Cranston with JMP Securities. Please go ahead.
Alright. Thanks.
And for you.
I'll follow up on the question about.
The improved recapture rate this quarter.
Obviously, there was a nice spike and that's something you guys have been really focused on.
I was wondering if you could maybe comment more specifically on what you think sort of came together that allowed us to grow so much this quarter and how.
I wish the growth too.
Central for continued improvement in that range sort of over the near term.
You know.
And I I don't want to ever have an excuse but I think we're just getting better and better I mean, we have very good focus.
The person, that's leading them and quite frankly, we brought in some really great marketing people on the on the.
New roadside and as as our marketing folks and we get better. It's only it's only made us a better company and improved our recapture rate you know I like to go back to 2018 for a second if you think about acquiring the <unk> 2018, I think the production number of its about $7 billion.
2018.
When you look at the caliber of acquisition. The combined company is going to do $170 billion. So we clearly have the growing pains and between 2018 and you know now quite frankly, but we're just getting better and better. So when I look at you know the prospects of where I think.
Go and Thats why I said, I think we're ready to compete against everybody and.
We're just going to get better and we have to get better because we have of large MSR portfolio and you know if you go back to 1 of the comments I made in point down X percent higher and Recaptures can lead to a couple of cents more on core earnings.
Slowing.
Down speeds.
Wanted to get back to where we're printing 40, 50.60 cents in core earnings and you know and the book value continues to grow and the stocks back the 15 to $20 for which is kind of where it should be now, but that's what we're focused on.
Got it okay.
We can and then on the other bar business, you talked about expanding net operating platform and bringing in some new management.
To run that.
I guess as you think of as you think about gross of that strategy in particular.
Where do you where do you anticipate low capital coming from too.
Hum.
1 continued growth of debt.
You know over the over the next couple of years the.
Coming from another area of the portfolio, which you're anticipating maybe being more of a run off mode or how should we think of a threat.
It could come from other areas of the portfolio.
No the.
The the financing of that asset in the in the capital market is pretty efficient at this point and.
And again I think Eric asked the good question. We currently we have 1400 homes.
We have a little bit under 100 million of equity. So when you think about our balance sheet.
We're expecting the end of.
<unk> for Q3 of the at 1.3 to 1.5 of cash and liquidity, depending upon what we know what our investment look like during the quarter.
We think we've got plenty of capital to continue to grow without the need of any additional capital and again. The you know if we think about unsecured debt or the capital markets are to the extent.
Sent that we need capital and it's a very large portfolio of then we would consider either of debt deal or a preferred deal or something like that.
Okay got it and the 1 last 1 just to.
Clarify on the early buyout opportunity.
You know when you mentioned besides of the servicing portfolio.
For everything.
Does that include caliber or just bringing in the caliber of portfolio change the sizing of the day you'd view of opportunity in anyway, yet it does not include caliber.
With caliber obviously the opportunity grows exponentially.
Okay.
I appreciate the kind of chunky thanks Trevor.
The next question comes from Kevin Barker with Piper Sandler. Please go ahead.
Could you give us a update on maybe what do you think earnings will look like for caliber of versus your previous expectations. When the deal was announced.
Leave you got from.
Somewhere around $295 million.
The operating income in 2022, I mean, do you feel like your caliber still on that run rate or.
Do you think there's anything that may have changed just given the competitive dynamic in the origination market.
Hey, Kevin I think you know here here's a couple.
I believe in and the 1 thing that we haven't discussed on this call are synergies you know when I look at the financing of caliber and sanjiv and and his team and our team have had discussions about this I think realistically from a synergy standpoint, and forget about gain on sale and compress margin.
Margins or where were going I think synergy wise.
From the financing of alone.
We think we're gonna be able to pick up something around $50 million a year from a financing perspective. So that's why of Hollywood, we highlight a little bit in our in our investor deck about the financing side, we take over all the synergies are gonna be.
All of things from between $115.200 million kind of per annum basis.
So when we think about that do you think about where gain on sale margins of our when we underwrote the deal we sized it to 1918.19 kind of gain on sale margin. So we're in line with how we're thinking about that and I don't I don't see any change of.
Of where we're going in 'twenty, 1 or 'twenty, 2 I actually think you know with with sanjiv and bearing and in the complementary teams on both sides and bringing this thing together, we're only going to see more of lift and hopefully higher earnings as we go for it because we're only going to get better.
Could you unpack that a little bit more.
Something you said $50 million of the synergies due to financing is that on top of the 36 million that you've laid out originally.
And.
Can you help us understand the did you say 150 to $2.50, or 150 of Tomorrow I think the synergies what we're what we're going to be able to do between the financing side of it.
I'm, Paul integration, and and where we're going with technology is gonna be something between 150 and $200 million and of per annum basis. So if you relate that in thinking about that with 450 ish million shares outstanding its a pretty sizable increase to core earnings and an earnings overall for the company.
The over all of that is going to be around synergies as part of that is around the financing.
And part of that is gonna be truly around you know other things that will identify within within both the organization.
Could be could be space it could be there's a lot of different things that we continue to work on.
There will be of a market.
Similar to 2000.1918 19 like you described.
And then add on the synergies of 150 of 2.1 above the.
The originally stated at $36 million.
Probably gonna have you know potential operating income from caliber.
The north of 400 million.
Company for your expectation.
On a normalized the origination market or something more.
Yeah, I can take care of your initial of your initial assumption around calibers of operating income is pretty consistent with where we go where what we believe because again the the deal and the deal was underwritten to 18.19 number.
And on top of that you know you have 150 to 200 million of in total synergies not 36, plus another 150 to 200, but just thinking about 150 to 200 and total synergies. That's that's kind of the math on how we get to much higher core.
Okay, Alright, that's helpful.
<unk>. Thank you.
The next question comes from Stephen Laws with Raymond James. Please go ahead.
Hi, good morning.
Or any of the following morning Paul.
Up on the S. The bar side no targeting you know mainly southeast that's of a pretty competitive.
So.
And environment can you really talk a little bit about your sourcing.
Can you quantify at all maybe the capital allocation of unit growth or any metrics. We can kind of look to you know as far as 6 or 18 month targets or anything like that.
You know I think well have more to come Steve It in a couple of weeks as we make a broader.
The announcement, including a new brand that we have ready to kind of like you know to rollout with currently redoing I would take 50 to 70 units of week, we have a broad sourcing a team working on this now we also have technology partners that will.
Sector with a on the operating side and we have a pretty vast network. If you think about and are Z at the parent.
We have.
We bought I guess of couple of years ago, We bought a company called Guardian, which is of property preservation business. Obviously, that's been a very good acquisition does that work for.
Work Lidar at debt for our business along with third parties, who were running you know some of the operating side, but.
We we put out in our in our deck that we expect over the next number of years to get to $5 billion of acquisition.
Thank you just saw of Pulte homes announced the deal with invitation homes.
We would gladly partner with the 1 of the large homebuilders out there, which I think would help us jumpstarts for and initiatives that we're.
Thinking about so I think there'll be more to come and again I don't want the core to lead the horse, but you know we have a the the new management.
For long team, who we'll work very closely with us.
They will come in with the you know they have a plan that will come out with the with a proper head count of which will enable us to truly grow the business overtime.
I appreciate the color of and as a follow up question of if we could switch.
The the calls and.
And the potential gains there are no 666 of core.
<unk>.
Can you talk about the how much accretion or the Aro the.
Roy on that.
Our expected as you as you fully refinance those loans that were called.
So you know and then how do we think.
So that's going to be lumpy.
But but you know maybe on an annual basis and 22 and 23, you know how do we think about the the call volume some potential upside on the returns there over the next couple of years.
So I'll, let Nick comment on the effect, but the.
I mean, it is a little bit more.
The product I do believe though these loans that had been stuck in these pipelines for many many years are starting to come out. So when we look at deals that we've issued that go back over the course of the past few years for example in non QM Rpm's N. P. O. Some of the call activity was related to that some of it is related to the legacy side.
I think just for a simple math you know the this last result, we had was quite frankly fantastic around our core business and I'll, let Nick talk for that but I think the way to think about the business. If we get back to a steady state where we were you know.
Early on in probably 18, 19, where we're calling it about 300.
Episodic quarter I would expect us to do at least that as we go forward I'm hopeful anyway, and the math has generally been around a couple of points.
Last 1 with the much better 1 but I I'd factor in are on average about 2 points of Nick I don't know if you want to talk about.
For the last 1 and just.
The thing about that we get in the securitized, we announced the large sale of loans, which is I think 8 or $900 million out of that 1 billion, 1 or so that we did in the quarter. So it wasn't securitize. It was actually sold in low format. The return on equity was huge and Nick on it.
Or whatever you'd like Oh sure so.
1 of the quarter.
We generated of approximately 3 cents for the calls from the call strategy the.
The the.
The mix of income on causes a little bit different from.
From what what occurred in the past, where we saw more income coming from the accretion side.
Given where our protocol.
For the portfolio is today more income is going to come from the securitization side.
And as Michael mentioned, we did do a loan sale in the month of July.
That will result in a core earnings in the third quarter. So its not reflected in the second quarter and you can see that.
When you look at our P&L.
From the low more AR that we actually recorded in the second quarter.
Great net Michael Thank you very much thanks, Stephen say well.
The next question comes from Henry Coffey with Wedbush. Please go ahead.
Good morning, and thanks for taking my call.
Paul.
Some small questions first and then the 1 large question of the the Jv's, what what's the incentive of the companies for joining up is it.
Of.
All of our some of them homebuilders or most of them independent operators, maybe you could give us some kind of around that most.
Most of our JV partners are realtors right across the entire U S.
And it really comes down to those those owner operators looking to basically monetize on mortgage origination.
Income on the through there there are retail.
For the retail sales force and that's that's really what it comes down to those of you do the joint ventures.
So if we work through the rest of the rules from you know.
From from.
Any kind of the references that we pass through to our loan officers.
Alright are are these companies that are just generating.
You know doing lead Gen for you or not.
Just real estate brokers, they're effectively working with consumers looking to buy their home and they basically make referrals to our loan officers for their partnership loan officers within our joint ventures, and we help those consumers buy their homes.
And as the partnership directly with their real estate offices.
And then and then on the wholesale front.
You know you any any comment on where gain on sale margins are going sort of in July and August given the.
Yes.
We have seen some stability there as of late yes, I mentioned I mentioned.
And that we've seen stability for basically the quarter, we saw a drop from March to April and we've seen basically stable margins in our wholesale channel for the rest of the quarter, including July.
And then Mike for you a big question you know all of this is going to take time I mean, if you. If you had 1 primary ingredient.
Of that you could accelerate it would be quote time, because it takes time to put the businesses together, it's going to take time for interest rates to go up.
Et cetera et cetera.
You are earning your dividend by a healthy margin and.
And what is the logical trigger of foreseeing.
Seeing an increase there.
Yeah, Henry it's a great question I think that you know when when we take a step back and I look at our company today and and I try to think about you know I'm looking at our equity price. So as we're going through this call I'm, writing down some notes here you know our equity.
We announced the caliber of deal we raised capital of around 10, 10 stock gets back to 11 and change we announced book value now give or take at 11.30 a M.
After everything we took a big hit on our equity, which goes back to I think in June when you look at where.
When 2 harvests came out in the announced lower book value and and did a capital raise.
As I think about where we're going with the company. We haven't we have a great great operating business that'll be second to none of them very confident of that when you talk about time I I don't want to rush kind of in life and go into new.
Nor does anybody we want.
1 of rush through the integrations, so we get through and we have an operating business that second to none and the end both teams <unk> and his excellent management team in bearing and Bruce in the our excellent management team has done a great job so for getting us to the place when we have the final close that we want to hit.
1 of them running but back to my thought here when you look at US we have this operating business that we get no credit for we have a lot of proprietary channels I think in our in our business whether it be core rates, we used to talk about <unk> and the gains of Jay and his team have done but.
But again, we're not getting properly valued I think as it relates to the operating business or on the investment business, where I think the investment business can go.
So when I think about the increase in recapture and Isa and I look at forward earnings that you know $40.50.60, as we go forward and I'm not going to short.
That now because we we all have a lot of work to do and I look at current trends and amortization I.
The Big question for US is how do we think about our dividend policy quite frankly.
We are of an operating business certain operating businesses pay dividends, others don't we of our REIT, that's paying 20 right now.
N.
And it's a very good question, what I like to see our dividend increased absolutely too I think we will get there absolutely we want to get through the caliber of closing then we'll reassess everything and then we will hopefully come out with the.
Some news that makes everybody happy, but I think it's a really interesting time for us as a company.
And how we think about our investment company in the operating businesses in the portfolios that we have and core.
Frankly get valued properly for who we are and the hard work that the teams put in.
To drive shareholder results. So we'll get there. It's a question of when I don't think this is that for out in.
For the future and then the question is really what is our dividend policy look like.
Is this something we can for US you about and in the fall or something that we should wait till next year, when you really digested everything and.
Caliber is up and running in.
The bigger sense of what the.
The 2020.
It's gonna look like.
I think you can harass me anytime okay.
I asked.
Our our goal and you know quite quite tight and I bring up our stock price because I'm very frustrated with where we're trading within 11.40 booking and the or.
30 book and the results that we put up.
So I want our stock if we get properly valued theres no reason that our stock should it be when you think about the sum of the parts and we took that slide out that we shouldn't be between 13 and $15 right now, but we're not and we gotta do our job on our side to get the stock there. So we'll do all we can.
Great. Thank you thank.
Thank you.
This concludes our question and answer session I would like to turn the conference back over to Michael Nierenberg for any closing remarks.
So thanks to everybody for your support of your questions.
I would like everybody to think about.
The result, the book value that we continue to.
To drive and where I think we're headed stay well have a great rest of the summer. It goes quick Henry don't Rush time, and Lakota eye catching up with everybody soon take care.
The conference is.
Is now concluded. Thank you for attending today's presentation you may now disconnect.