Q4 2021 New Residential Investment Corp Earnings Call
Good day, and welcome to the new residential fourth quarter and full year 2021 earnings call.
All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing the star key followed by zero after today's.
Presentation there'll be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to Mohit. You. Please go ahead. Thank you Jason and good morning, everyone I would like to thank you for joining us today for new residential fourth quarter 2021 earnings call. Joining me today are Michael Nierenberg, Chairman and CEO .
President of new residential and mixing towards our Chief financial officer of New residential also with US today are bearing Silverstein, President and Jordan niche Chief operating officer of New RASM caliber throughout the call. 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 it.
<unk> I would like to point out that certain statements today will be forward looking statements.
Payments by their nature are uncertain and may differ materially from actual results I encourage you to review the disclaimers in our press release and earnings supplement regarding forward looking statements and 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 reconciliations of these men.
Sure as to the most directly comparable GAAP measures can be found in our earnings supplement and with that I will turn the call over to Michael.
Thanks, Bob and good morning, everyone and thanks for thanks for dialing in 2021 was a very good year for our shareholders and our company as we continued our strategy of building and acquiring world class operating companies with the ability to manufacture asset for our own balance sheet as well as an investment portfolio that is very hard to replicate.
The positioning of our company today as well as the investment experience of our team should enable us to drive strong returns for shareholders as we go forward.
With interest rates rising our MSR portfolios will see much slower amortization keep.
Keeping our customers through our retention efforts should drive book value higher and offset any decrease in origination earnings. We have one of the largest MSR portfolios today and MSR as do rise in value as interest rates increase.
Only 16% of our borrowers have the incentive to refinance as compared to 2020 when that number was a little bit south of 50% and then the upper forty's.
To put this into context, the 10 year Treasury, which has risen approximately 45 basis points since year end, coupled with rising mortgage rates helped increase our book value, where we stand today to between $11 75 and $12 per share.
Our mortgage company, new Red had a very good year and the addition of caliber which closed in August has created one of the best non bank mortgage companies anywhere our goal is to be the best not the biggest we will continue to focus on efforts working with our government partners on affordable housing initiatives as well as taking care of our three.
One 2 million customers operating better solutions for homeownership.
Past few years in the mortgage origination business had been very good it will not be repeated gain on sale margins will come under pressure as rates rise many customers, who wanted to refinance and have done so and lower rate environments.
As it relates to our origination business, we have many origination channels and different levers, we can pull which will enable us to adapt quickly to whatever the gain on sale climate. It looks like a great example of this is our growth in the non QM channel our year over year production numbers are up over 100% and in the fourth quarter we originated.
$700 million, we expect that number to be something close to $1 billion in the first quarter of 2022.
As you think about market share and gain on sale, we will not get into a price war with anyone we are not about market share. We will focus on areas, where we can make money and improve our retention rates on our existing portfolios.
I would also like to acknowledge the strong retail purchase franchise, we have as a result of the caliber acquisition as we go forward the purchase market will be a much larger percentage of the origination market and we are we are well positioned for what's going to come ahead.
The integration of the two organizations and Jordan will speak to this shortly has been coming along extremely well our new hire of Nino Kane as Chief Digital officer, coupled with our existing leadership team will help us continue down the path of providing our customers with a great digital experience.
We are starting to see the synergies as a result of a combination of the two companies with significant expense saves again, Jordan will speak to that shortly.
In the fourth quarter, we closed on the acquisition of Genesis capital and we're very excited to work with Robert Wiseman and his team to help grow that business just to refresh your memory, that's a fixed and flip lender.
When we acquired the company, we acquired $1 4 billion of approximately 8% coupon short duration assets for our balance sheet on the investment portfolio side will stay the course focus on Msr's call rates growing our asset for our business and looking at other asset classes in the financial services space is high.
Yields in the bond market, coupled with additional volatility should create better investment opportunities for us I'll now refer to the supplement which has been posted online.
I'm going to begin on page three this is the new residential corporate overview.
Just rolling back in time since inception, we paid $3 9 billion in dividends.
Our book equity is $6 6 billion in net equity market cap roughly $5 billion.
A balance sheet of approximately $40 billion in assets, we are the largest non bank owner of Msr's.
Now a top five nonbank mortgage originator and servicer and then if you think about our business over the past few years, we've acquired a number of what I would call. It complementary businesses to the mortgage space that includes title appraisal field.
Yield services and other businesses, which helped drive our earnings higher page four financial highlights for the fourth quarter GAAP net income of $160 million or <unk> 33 per diluted share.
Core earnings of $191 $9 million 40 per diluted share.
Common stock dividend 25, or nine 3% dividend yield cash and liquidity at the end of the year was $1 4 billion today. It sits at about 1.3, just to give you a placeholder book value of 11 44 at the end of December that was up from 11 35 I quoted in my opening remarks.
Mark's remarks book value of approximately $11 75 to $12 and then again in the fourth quarter, we closed the acquisition of Genesis capital 2021 highlights.
The acquisition of caliber was a game changer for our mortgage business quite that deal closed in August of 2021, I pointed out Genesis during the year, we did a little under $4 billion in Securitizations shareholder returned 17% full year core earnings of $1 48 did a little bit around the capital formation side.
The common stock offering as well as a preferred stock offering and then in our mortgage company when you're thinking about the origination and servicing business, we originated $178 billion in loans.
And we have a servicing portfolio between energy and the mortgage company of 630 billion, which includes alone service both at our own mortgage company as well as Mr. Cooper loan care and Ocwen.
Page six our strategic evolution.
<unk> was formed in 2013.
To create to really be an MSR.
Asset owner, we got good REIT status and the first one to make that happen with the IRS and overtime. We grew we grew into what I would say from a small asset managers focused on the MSR and advances so where we are today, which is <unk>, which is a great investment portfolio with really good complementary operating.
<unk> companies are really proud of the growth and where we sit today.
Page seven business highlights.
$630 billion MSR portfolio as I pointed out earlier <unk> go up in value as interest rates rise.
Well the 190 410 year note. This morning of 190 510 year note. This morning.
We should see further gains in market value on our MSR portfolio dividend twenty-five closed the acquisition of Genesis.
The thing to point out at 99% of our portfolio away from the agency business is non daily Mark to market cash and liquidity $1 3 billion today of $1 4 billion at the end of the year and our call right business remains strong.
Page eight just have a quick look at the left side of the page. It's really just talks about our business. We have a mortgage company that we originate and service we have Genesis capital, which is a large provider of loans to the real estate industry around both building and fix and flip lending our MSR portfolio non agency.
Loans and securities today, our non agency securities portfolio is virtually zero other than risk retention and then we have a bunch of loans as it relates to our origination activities.
Market conditions today, our belief is that the fed is going to go with somewhere between five and seven times in 2022.
We expect it to continue to rise as the easing of financial conditions goes away, including the buying of mortgages in treasuries.
The origination front I can't be more clear I don't care, if we originate one loan or free originated 100 loans. Our goal is to service our customers make money and if origination volumes go down, which we expect them to do and bear and we'll talk to that in a minute so be it our MSR portfolio more than office.
Set any decrease in earnings were going to see in the origination business as we look at the non agency part of our business and the origination side.
I mentioned non QM zero to 700, a year over year in the fourth quarter. This quarter, we expect to do a $1 billion and we're growing our are our prime jumbo origination as well and the borrower remains healthy when you look at our delinquency trends.
On the asset side this.
This is the way that we think we could originate.
Different pools of assets for our own balance sheet for the marketplace. When you look at the agency origination market is roughly two and a half trillion that we expect for 2022. The non agency business, we expect little approximately 600 billion and the business purpose lending business, we see a total addressable market of about <unk>.
<unk> 500 billion.
Page 11, our playbook MSR MSR as that matures as rates rise operating businesses Genesis capital.
Gordian asset management, which is a property preservation business, we ever own title insurance business and we have an appraisal business on the origination side, New Reds caliber again, very large mortgage company focused on making money not just creating size Genesis capital and then we speak to.
Our ability to adapt to different interest rate environments as well as gain on sale environments. So the growth in non QM jumbo prime investor loans and business purpose loans will be a priority this year.
So when you look at gain on sale margins. Those those four areas are have significant gain on sale margins net net at the end of the day and then as we look into 'twenty two I've been pretty vocal about getting into the commercial space. We will do that at some point in 'twenty, two and hopefully that sooner rather than later.
Q4 performance MSR portfolio.
I'm not going to beat a dead horse here, just a couple of things to point out 16% of our portfolio is in the money to refinance as compared to 29 at the end of Q3, and that's down from a little under 50% in 2020.
MSR speeds, we expect MSR speeds and amortization to truly slowdown we're starting to see that now I think speeds that came out a couple of days ago were much slower than street expectations. We expect that to continue as we go through the course of the year keep in mind January February .
And looking back to December typically slower months in the mortgage origination space, but we expect that to pick up as we go forward.
Page 15, just have a look at the right side of that actually look at the middle part of the page the change in in 10 year Treasury rate and what that means to overall amortization as we see it in our portfolios and what we think it's going to do to the origination P&L and just take the middle part of the left side of the page rates up a 100 basis.
Points, we expect amortization has slowed down by approximately $175 million and origination pgi to go down by 125 net need net net gain of $50 million. If you looked at the right side of the page what does that mean for shareholders. It's an increase of 11 cents an annual core earnings.
The other thing to point out on this page if you look at our MSR multiples at the end of 12 31 to 3.9 as we go forward in rates increase this is what's going to drive our book value or higher of 100, we expect multiples to go to a four for $4 54, 5% and potentially even higher than that.
Call rights.
Talking about this for years our portfolios remain.
As the homeowner cleans up and delinquency trends continue to go lower and advance balances come down we will continue with our call right strategy of acquiring more and more loans single family rental strategy at the end of the year. We had approximately 2700 homes. We did our first securitization in this quarter total equity in there.
Business just to give you a sense is a little over $100 million and we will and expect to continue to grow that business. We are going to be prudent about it we will announce a small acquisition of some homes, we acquired from Zillow over the course of the next 30.
<unk> 30 days or so probably won't announce it publicly but it's just to let you know.
It's roughly.
300 homes, so that business will continue to grow and we're gonna be smart about it is we think home prices are I personally think home prices could come off a little bit here.
From the growth that we've seen on the loan side. If you look at page 18, performing and nonperforming loans right now our portfolio at the end of Q4 was $1 2 billion E V. OS on the energy side was $500 million in non few AUM was 300 million. All this stuff will either be redelivered in the case of E V O us into the Ginnie Mae Mark.
In the case of our loan business, either securitization or outright sales on that on the servicer advance side balances remained low we haven't tried to have excess capacity as I pointed out earlier, the homeowners and in great shape and then when you look at our interest rates on our financings and we had an extended those at the lows are.
Our cost of capital is very very low there.
Now I'll turn it over to Darin, who will take you through the mortgage company highlights at him in Jordan will take you through the next section.
Thank you Michael this is Jordan.
As Michael mentioned, the integration of new Red and caliber is well underway as we continue to combine our origination platform technology and service and leadership.
If you look through the fourth quarter, we realized approximately $90 million of our target synergies as a result of actions taken in 2021.
These synergies include personnel reductions reduced cluster fun and vendor consolidation as well as increased efficiency due to alignment and best practices.
We expect to achieve an additional $45 million to $60 million of synergies in 2022, as we complete our origination platform consolidation removal of duplicate technology system and Finalization of our servicing strategy once completed.
Full year 2022 target run rate synergy is expected to be between 175 to 200 million.
As Michael mentioned this other exciting news, we hired a new Chief Digital officer, and she will help us drive digital innovation user experience.
Customer experience and increase engagement across our customer production and servicing channels.
We've kicked off the year with both companies aligned with a single vision of helping our customers improve learners I'll now turn it back.
Thanks, Jordan and good morning, turning to slide 21, the origination division ended the second quarter with $101 million of pre tax income funded volume of $38 1 billion, which is a decline of 43% and 14% respectively quarter over quarter.
The biggest impact of PPI was the pressure on gain on sale margins, which had an 18 basis point drop quarter over quarter.
And as I look at each one of the businesses for our direct to consumer business. Our margins increased approximately six basis points, even with the reduction of funded volume, which was 17% reduction over that those two quarters. We've also seen a 14% pickup in lock volume in January and a.
Flattening of margins when comparing December to January of 2022.
For our retail and JV channels, our margins decreased approximately 23 basis points with a reduction in funded value volume of 14% quarter over quarter, while we expect further competitive pressure within our retail channels our platforms allow us to take advantage of the expected growth in the purchase market to come.
For our third party wholesale and correspondent channels margins decreased 17 basis points and 13 basis points respectively.
However, while the higher interest rate environment present headwinds for our origination business, our balanced business strategy provides us a competitive advantage over other monoline competitors as.
As Michael previously mentioned, we intend on managing our business to focus on profitability take a disciplined approach to right sizing the cost basis our.
Our plans include concentrating on our higher margin channels retail and direct to consumer which was 42% of our funded volume in the fourth quarter. We're also looking to expand our partnership business through our joint venture platform, we're going to adjust our lower margin channels towards higher margin products, including non agency <unk>.
Non QM products.
We're going to remain opportunistic on MSR origination and acquisition and on the expense side. Our overall expenses decreased approximately 13% quarter over quarter, a portion of which are synergies that Jordan talked about but this also includes additional savings as we reduce our origination capacity based upon the current market environment.
Our plan for the first quarter to stay focused on the efficient integration of both companies readjusting origination volumes based upon profitability and being vigilant on reducing costs.
Turning to slide 22.
And we've said this for the past few quarters, but our extensive presence in our distributed retail and JV business plus our direct to consumer channel, that's coupled with $3 2 million homeowners in our MSR portfolio allows us to take advantage and grow market share and the forecasted growth in purchase market in 2022.
It's difficult to replicate these models and these models differentiate us from the competition.
We are also fully rolled out our smart series programs, which previously was referred to as non QM, even though approximately 50% of our portfolio has been to qualified self employed consumers.
Michael talked about this we have seen our locked volume nearly tripled quarter over quarter and in January alone lock volume was 50% of everything we did in the fourth quarter.
We continue to see growth in our smart series programs as approximately 75% of these purchase had been to purchase customers and to date only 10% of our sales force has participated so far.
It is with our partnership with NRG, coupled with our ability to continue to rollout new products that will continue to drive growth in our origination business.
And it's with these products can we further expand on our relationships our existing relationships and build new relationships through our retail wholesale and correspondent programs.
Turning to slide 23.
Michael talked about the size of our NFC portfolio, but I just want to talk about two different things here and the first is given our focus on special servicing we increased our sub servicing portfolio by approximately 5% quarter over quarter and our expectation is that we can capture additional share as the market dynamics change in 2022.
The second point is we've announced a new head of servicing for both the caliber of new red servicing platforms that will allow us to finalize our servicing strategies and align on best practices promoting Shane to run servicing will assure our core focus of helping homeowners stay in their home third party sub servicing clients and continue to grow and build our servicing portfolio.
Folio.
On the last slide slide 24 talking about recapture on the top right Youll see that our recapture performance remained strong quarter over quarter.
In the bottom two charts, you see our recapture performance, where we have previously originated alone in our ability to recapture the customer is much stronger whether through purchase recapture or refinanced recapture so as we continue to mature and our relationships with our homeowners will be able to take a higher share of opportunities.
Whether offering additional products and services, including recapture in the future even in a higher interest rate market, our ability to offer customers the ability to purchase a new home provide cash out refinances business purpose loan alternatives through Genesis and other home equity solutions will provide for ongoing fuel and our direct to consumer channels.
On that Michael back to you. Thanks, Darren Thanks Jordan.
We'll wrap up our.
Supplement and then we'll go to Q&A.
Page 25, just talks about our operating companies I am not going to read these off to you but.
We are.
We have a full scale.
But I would say financial services company. When you look at the complementary businesses that go along with our mortgage company.
And then on page 26 is really just the slide how we think about ourselves we think about ourselves first as an investment manager and then two when we look at our you know.
One is a very very strong balance sheet with a lot of cash and liquidity to the MSR portfolio. In this rate environment is is quite frankly AGM. It was hard in 2020.
We did a lot of origination, but it is truly AGM today, and we expect that to provide very good returns as we go forward with that I'm going to turn it back to the operator, we will open it up for Q&A. Thanks.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys to withdraw your question. Please press Star and then two at.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from Bose George from <unk>. Please go ahead.
Hey, Bose good morning, Hey, Mike. Good morning. Thank you first question just on gain on sale margins you guys noted that in <unk>, you've seen a flattening.
But you could see more pressure in retail going forward can you just give us some color on how much pressure you think you could see just how do you think things will play out this year.
Yes. So those are just all I said is in one month, we saw a flattening and our direct to consumer channel.
Month over month, we've certainly continued to see pressure.
Across the board in the context of margins for each of our channels and Thats due to overcapacity and.
You know less production in the marketplace, Michael has been very clear.
And is on his message and we're pivoting our origination business to focus on core profitability right. We continue to have attractive margins I will tell you within our retail our retail JV and our direct to consumer channels. It's a third party channels from our perspective that continue to see what we look at as you know.
Additional pressure in those and we'll just continue to focus on our view on profitability and then we'll be opportunistic about which assets that we're looking to basically participate in in those channels to the extent that margins continue to compress.
You could say it further to that.
Talking about origination whether we do one loan of 10 loans.
It's if you take a step back and you look at what our business is.
Wanted out or I keep pointing out our $630 billion MSR portfolio.
To <unk> point earlier, the wholesale and correspondent side Youre going to see a lot more competition more competition, because United Wholesaling and rocket are huge in those in wholesale.
The one thing I would say is if we can create MSR is even if we don't have a huge gain on sale, we will originate that loan. So if we like we haven't so our multiples and values are for example in the Ginnie space right now.
We like where multiples are so if we could originate.
100 billion quite frankly in the in the wholesale and correspondent channel. We make we may think about doing Nike can't because the market share as a result of the overall production market is smaller but that may lead us into a potential acquisition of Virginia originator. For example, so we could focus on.
On growing our Ginnie presence. So it's one of these things gain on sale margins are in because youre in the winter months, I mean, youre going to have less months less production Youre also seeing the highest level of 10 year rate that we've seen since December of 2019 to give you a sense. So I think once the market suddenly come into spring, we're going to have a good.
Purchase market or retail in DTC franchises will thrive and our origination business will be good. We just wanted to be prudent about how we think about making money and not just originating widgets, unless we really like the value of the MSR.
Okay. Great. Thanks, that's very helpful. And then actually just one on the servicing consolidation of servicing on one platform is that.
What's the timeline for that and is that the plan is still to move it on to calibers. The MSP platform. Yes, we continue to evaluate it pose and we have not made a final decision as to where we're headed the change in the servicing leadership for US was the first step.
In the context of us evaluating which servicing platform.
We'll end up operating on.
And the other important fact for US is making sure that we're basically servicing the loans based on best practices to help our homeowners that was the most of them really a critical fact for us and making sure that our leadership is aligned.
Okay, great. Thanks, a lot thanks both.
The next question comes from Kevin Barker from Piper Sandler. Please go ahead.
Good morning, Thanks for taking my questions I just wanted to follow up.
Michael.
I wanted to follow up on the comments around the tangible.
Tangible book at $11 75 to 12 or was that booked value.
That's booked value.
Okay and then.
Does that include the dividend could you outline.
What's driving that as far as quantifying how much was MSR markup.
And then how much of that was offset by maybe portfolio marks or fair value marks.
Sure Kevin So.
The range of $11 75 to $12 does include <unk>.
Estimate for dividend keeping it the same as prior quarter and the ink the pickup is primarily due.
The increase in MSR marks.
<unk>.
It does follow the page that we have in the deck that references the basis point change and the subsequent increase in fair value.
And so just can't get the sensitivity that you outlined.
That's correct. It's in line with essence, and Kevin part two of your question as we think about other potential marks were fully hedged across our business. We've had this.
I think I've alluded to this maybe forever, but to higher rates in the market and we're really starting to see that play out.
The way, we're positioned whether it be in our loan portfolios, having hedges or anything anything else I feel like were extremely well protected.
And when you look at the increase in book value I think that going forward, hopefully, we see more and more of that to the extent that we remain in this rate environment towards higher rates.
So if you're fully hedged shouldn't the mark the.
Minimal or just incremental.
Relative to your total equity.
Or do you feel like Youre still quite bias to higher higher rates given the composition of the portfolio. So that we are very biased higher rates and quite frankly, if the market has rallied significantly the other way.
Origination business you flip the switch and you start doing a ton.
<unk>.
As of now we are extremely biased higher rates MSR portfolios fully hedged across all of our investment portfolio. So we feel like we're in good shape.
Okay. Thank you. Thank you.
Again, if you have a question. Please press Star then one.
The next question comes from Eric Hagen from <unk>. Please go ahead.
Hi, Thanks, good morning.
Good morning can you guys discuss how the capital allocation across the business might evolve with higher interest rates like do you see yourself potentially reallocating from the production side. The other areas of the business as origination volumes close and how the capital needs.
To support the MSR might evolve along with that.
So.
Answer to your first question is yes.
There'll be less capital in the origination business unless you know listen we're going to strive for higher ROE in our in our business overall.
So if that means that to barron's point in all of our points. If wholesale is not going to produce anything on the agency side, but it's going to produce more on the non QM and jumbo side, we're going to put more capital in the wholesale side on those production channels.
I think overall, you'll likely see more capital allocated I pointed out if we can find any.
We do believe there's going to be opportunities to acquire some origination or smaller originators as a result of the current rate environment. So we have our eyes out on some good retail.
Jeanine producers for example.
I don't know if there's anything else you want to elaborate on that front.
As we think about the potential acquisition in the mortgage company around some.
I think in this.
I think as you mentioned in this market environment there'll be and we're seeing smaller players that are looking to the kind of cash in our exit out.
Because gain on sale margins.
Folks are holding onto their MSR. So there are only out as either a or sell themselves or sell the msr's.
And Eric to your point would we allocate more money to the MSR business. The answer is absolutely yes.
So.
You'll likely see a shift from some capital out of the origination business into the MSR business and the other thing is when we look at our origination business, we haven't spoken about this.
Between hiring knee new on the digital side, we just promoted Dino lack.
On the technology side, who is doing a great job for us to help drive down the cost of origination coupled out with Bob Johnston Who's running our.
Fulfillment and upside as we bring down our cost of production and we need to do that.
It is more competitive than some of the more what I would say very competitive channels, which may enable us to actually get a little more aggressive there. So a lot of focus on bringing costs down, but a lot of focus on bringing cost down through the technology initiatives that we have and with the new leadership.
That's really helpful.
I think you noted you expect the fed to go five to seven times. This year any thoughts on how that could translate into spreads at the longer end of the yield curve.
We think that they are going to as you know.
Whether they have reinvestment strategies around mortgages in treasuries, we had a good.
<unk> call was whenever economic advisers yesterday, and we went through this the general feeling is that.
They think five.
<unk> rate hikes not seven.
And then the other the other thing Thats out in the market is 50 basis points in March they don't and I don't think they go 50 basis points in March and at every meeting folks are going to be like whether they go into 25 or 50 and that could rock the markets.
It could be wrong, but that's my own personal view as well as our advisors.
I do think rates and the long end are going to go up.
Charles Sorrentino My partner, who is sitting next to me here.
We were talking about 2018, we were hedging out some of our business and we were paying on swaps at $3 27 in 10 today tens of 195, you have inflation at the highest levels <unk> seen the fed is going to stop buying.
Mortgages and reduce their balance sheet. So I think rates go up a fair amount in the long end I really do I think the market is under pricing where they tend to you know could actually go it's still historically thinking about 190 510 year notes. So historically very very low we do think youll get your bear market rallies, but I do think rates are hyster.
<unk> low, particularly in the longer end.
Thanks, and then one more on the portfolio construction since the end of the year have you guys done anything with the agency MBS portfolio as a hedge for the MSR and just where that sits.
When on the agency MSR side on the when we acquired calibrate there was some hedge against the MSR. There we've taken that off so there at this point there is no hedge against the MSR.
Okay. Okay.
Okay. Thanks, guys appreciate it.
Okay.
The next question comes from Douglas Harter from Credit Suisse. Please go ahead.
Thanks, I was hoping to.
Clarify the comments around the expense synergies.
Does that include the updated synergies does that include any further actions youre, taking or would those further actions be on top of those synergies.
Yes. The further actions are going to be on top of those synergies we looked at synergies as specific to the eventual merger or both.
Operating businesses and we looked at you know further adjustments due to market conditions and just be a U <unk>.
Expense cost reductions.
So I guess when when all of a sudden done in kind of those expense reductions are done and obviously there. It does take time you know I guess, how would you expect expect your costs.
<unk> per unit of production to compare kind of where they were.
Last year.
I mean, as Michael just talked about as well with our initiatives in the context of the technology side.
We believe our costs are going to be materially lower than where they are today and the other really great.
Vantage point that we had with the acquisition of caliber was we were able to look at two different operating businesses and the mouse traps that they each had two effects effectively closed mortgage loans and then you saw the differences between the cost and we've been able to take advantage of best practices within our.
Fulfillment strategy to effectively.
Have a plan to reduce cost obviously that also take some technology initiatives for us to basically ensure that we meet those objectives and goals, but that is what we're basically working towards.
Great very helpful. Thank you.
Thanks, Doug.
The next question comes from Trevor Cranston from JMP Securities. Please go ahead.
Okay. Thanks.
Question on the non QM side, you mentioned that you're expecting.
The quarterly volume to reach up to about $1 billion this quarter.
So as that number grows to potentially 1 billion plus per quarter.
Is the anticipation that you.
You guys will have the appetite and capital the ability to bring that onto nrg's balance sheet or is there going to be some mix expected between selling loans to third parties and keeping some for one or is it you know.
The mortgage company is about making money NRC is obviously by making money as well.
Currently we don't expect to be selling non QM loans into the marketplace.
The NRC team works extremely close with the mortgage company and I think that the beauty of our of our corporate structure and capital structure.
<unk> is very different than anybody else. So.
As we look where we are today, if we can grow this to a multibillion.
Multibillion dollar a year origination business.
One of the things that we have a lot of experience in here over at Fortress Center, XE and the mortgage company would it be barren Jordan, Charles and everybody else.
As we've been in the securitization markets for I had been for 30 years 30, plus years. So I expect no change other than growth and for the mortgage company that work very closely with our with the <unk>.
Okay got it that's helpful.
And you mentioned it briefly in the prepared comments that you guys were exploring the commercial space.
And could get involved there in 2022.
Can you elaborate any on sort of what segments of the commercial market.
Would be the most likely place for <unk> to potentially be comfortable.
We have some small investments now.
I'd say in the commercial space, we have some secured term loans and the like.
We will.
We're exploring.
There was a.
A terrific group of what I'd call conduit originators that are that we've been in discussions with four.
A while we're looking at sort of redevelopment and stuff with it with some proven operators and this is not this is not quite frankly to hire somebody to come in and just look and see MBS. This has to be something a little bit more strategic.
Do you think about the growth in our business, where we went from being an MSR owner to where we are today with having operating companies that support of our overall business.
An example of that is the new <unk> caliber side, which is focused on recapture our recapture rates on the refi side on caliber in this <unk> on new rents are in the mid Forty's.
That's a big big deal to support our overall MSR franchise. So as we looked at the commercial space is going to be something that's more strategic and more growth oriented as we go forward and you know.
We're hopeful that we'll get something done there.
Probably over the next quarter or during this quarter.
Okay, Great I appreciate it. Thank you. Thank you.
Again, if you have a question. Please press Star then one.
Our next question comes from Giuliano Bologna from Compass point. Please go ahead.
Good morning.
I just want to touch on some of the sensitivities.
So you guys put out there on slide 15.
When I look at that table, one of the things that I just want to kind of make sure I was thinking about correctly there was.
As the amortization goes down obviously, increasing.
Eligible pre tax income, but on the origination side youre, reducing taxable income.
So think about it from that perspective, because it was roughly call it 20%, 21% tax rate on the origination side for the impacts should actually be selected greater than just the pretax income numbers that you have.
Yes, I think Thats correct I mean, obviously there is a portion of the MSR if youre not in the operating business.
The MSR become pretty good REIT assets. So the answer is yes to your question.
That sounds good.
Then thinking about.
I'll follow up on a question that came up earlier.
Earlier about capital allocation.
Yes.
Originated $17 billion more MSR is more.
You could even you ran off in the quarter Andrew.
And you're off with you obviously have some growth plans with some of the other assets.
I'm just trying to think about how you think about capital allocation of the capital needs to fund some of the growth in the balance sheet versus selling up the dividend.
So first one on the MSR side and the capital allocated if you think about there was a lot of capital that sits in the mortgage company today. So there's plenty of capital to shift from the origination business over too.
If we want to acquire MSR is there whether it be in the mortgage company <unk> on the NRG side with $1 3 billion of cash and liquidity, we feel like we're in a good position today I've been pretty clear over you know over the past number of earnings calls that we are going to run with a lot more capital in.
It's not to take every last dollar invested in some asset so we drive an extra penny a share.
Going to liberalize that way.
As we look forward and think about the dividend.
It's really a board decision quite frankly.
I think the run rate of the company.
It is going to be from our all of our perspective, I think it's going to be interesting to see what happens in the spring as we come out of the winter months and what happens to the origination business, meaning gain on sale of really what the demand is for mortgages.
That will help drive a little bit of our dividend strategy as we go forward.
One thing to be clear as you look at some of our peers out there.
Our book value.
We continue to see increase in book value, because it's because of our positioning in the market and our macro view is we as we go forward over time until that kind of changes.
So I think the net of it is we're hopeful that we continue to drive book value a higher reserve.
So that should hopefully drive our stock price higher.
And with rates still at 190 500 tens are 2% wherever they are after this call.
It's my belief that our equity is extremely cheap whether you trade at an 8% dividend yield a 10% dividend yield at 6% dividend yield.
I feel like grain and a great place as it relates to our capital.
Our earnings projections, and our book value projections as we go forward. The dividend discussion is a board thing and we'll continue to evaluate as a group, but there's nothing I can say to that.
That makes sense and then just.
Quicker growth.
So it's kind of a two part question, but I noticed there is a segment.
You guys dropped off the consumer segment kind of reporting good luck to them.
If I can start and you added mortgage loans receivable I'm, assuming there's some of those.
Moving consumer loans.
Either.
And the mortgage loan receivables and the students regenesis.
I'm wondering if that's correct and then when you think about Genesis is there a sense of.
How much you can originate on the Genesis platform and what kind of assets you know kind of the assets should resemble the portfolio that came over on the $1 5 billion.
So if I can take the balance sheets.
Income statement and stuff and then I'll take the Genesis.
Correct Julianna so the.
Genesis business has shown in a separate segment and we did move to consumer segment given its size.
And then on the Genesis side.
You know we're in the.
First inning, we're getting up to the plate together as partners.
I think the growth opportunities there are going to be pretty significant as we go forward keep in mind. They were owned by Goldman Sachs little bit different of a corporate structure them than us.
Clearly.
We're going to be in the market with the securitization on the Genesis side, probably in the next two weeks, we acquired $1 4 billion will probably be out with I think 500 million ish on our first securitization. So we think theres a lot of growth there and we look forward to bringing to creating more products for.
Either the homebuilding industry or the fix and flip industry and as a result that business should grow pretty significantly over time.
That's great. Thank you for taking my questions.
Thanks Julianna.
There are no more questions in the queue. This concludes our question and answer session I would like to turn the conference back over to Michael Nierenberg for any closing remarks.
Thanks for joining us. This morning are very excited for what for where we are today with our.
Whether it be on the investment portfolio side.
Leadership team on the on the mortgage company side and look forward to updating you during the quarter and.
And next quarter.
Stay well and have a great day. Thank you.
Conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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