Q3 2022 Rithm Capital Corp Earnings Call
Okay.
Good day and welcome to the living capital third quarter 2022 earnings Conference call.
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I would now like to turn the conference over to sell seven Chief Legal Officer. Please go ahead.
Thank you operator, and good morning, everyone I'd like to thank you all for joining us today for rhythm capitals third quarter 2022 earnings call.
Joining me today are Michael Nierenberg, Chairman, CEO , and president of rhythm and Nick Santoro, Chief Financial Officer of rhythm.
Throughout the call we're going to reference the earnings supplement that was posted to the rhythm capital website Www dot rhythm cap dot com. This morning, if you've not already done so I'd encourage you to download the presentation now.
Like to point out that certain statements today will be forward looking statements. These statements by their nature are uncertain and may differ materially from actual results. Please 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.
Additionally, we'll be discussing some non-GAAP financial measures during today's call reconciliations of these measures 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.
Phil Good morning, everyone. Thanks for joining us today.
As we are all aware of the investing environment remains challenging our messaging and approach.
In prior quarters has been to not fight the fed we remain biased to a higher rate environment with wider credit spreads. We will continue with his view until we feel like the fed signals, they will stop raising rates and where we see the economic data softening.
Goal is to protect our balance sheet.
<unk> book value maintain higher levels of liquidity and reduce expenses in our operating business lines, while we drive consistent earnings and dividends for our shareholders I'm proud to say today that with all the volatility that we've seen in the markets our team and our company have done that.
As we look at our company, we've been clear that we'd be looking to expand our investment strategies into other areas and we're happy to announce the acquisition of 50% of send Lac Ridge partners. Senlac is led by David well was one of the founders Abnormity partners, a vertically integrated commercial real estate investment company David.
It is and his team of 20 investment professionals have a great track record and we will be focusing on all areas of commercial real estate, including debt equity as well as transitional lending opportunities working together with the rhythm team will now have all the expertise and manpower we need to compete against anyone.
We're also happy to announce the formation of a third party fund business. This will enable us to raise callable capital in the private market investing capital opportunistically, creating value for both our shareholders and the O N E. L piece that we manage money for.
As we look back at our quarter, our servicing book and our other lending that's why it's created consistent sustainable earnings.
Originations segment was mixed as we took one time charges related to severance.
Right sizing the organization leases and some other items as we look forward. We will continue to focus on efficiency in the mortgage company marketing to our 3 million customers through our retail and DTC channels, we must be ready when the time comes that the future rate and spread environment create an opportunity to offer a cut.
<unk> savings and innovative solutions, our Genesis business originated $600 million of alone in the quarter, mostly floating rate high coupon loans.
Genesis makes business purpose loans, the portfolio was 90% floating rate and the average coupon is approximately 8.5% heading towards temporary the loan portfolio. Today is 99 point something current.
Any fixed rate exposure, we have in that organization is hedged with interest rate swaps as.
As we think about the housing market with home prices likely to to continue with a slight decline we have lowered our ltvs and tightened our underwriting guidelines.
On the single family rental business a door, we stopped acquiring units with the belief that we will be able to deploy capital at higher cap rates as we go forward there.
There will be an opportunity for us to increase and acquire units as home prices decline in cap rates increase.
There are more conversations that we're having today with builders and others than we've seen in quite some time.
In summary, we're very excited for our future while the invest the environment remains difficult and will continue to be difficult. Our experienced team has the tools and resources to continue driving shareholder value.
Our entry into the third party managed fund business, it's something that we're very excited about as we believe we'll be able to create additional value for our shareholders through fee a fee streams and the partners that we manage capital for I'll now refer to the supplement that we posted online.
So having opened on page three and just a couple of highlights here.
Book value quarter over quarter, essentially unchanged after taking into account the dilution on the on the AR on the warrants that we issued during COVID-19.
Cash and liquidity $1.8 billion again, we will maintain a higher levels of cash and liquidity as we go forward until the markets settle down.
Yeah.
On the operating company and the investment portfolio, we have 615 billion.
P. B of MSR is the gross WAC is 3.7% most of these folks that have seen the low in rates you know the.
The weighted average.
Maturity is about five year seasoned on average in our portfolio, our MSR portfolio remains unhedged and a positive duration assets across the company had been hedged for rate risk.
We have 12 billion today.
Custodial deposits as the fed continues to increase rates in the short and we will continue to see more interest income and as it relates to those deposits as we look at our the credit or the environment or where we are with home prices again, lowering ltvs at origination to protect from.
Mining home prices and housing uncertainty.
From a financing perspective, 100% of our portfolio away from the agency business has non daily mark to market funding or financing during the quarter, we priced two securitizations.
And when you look at the experience that we have on the capital market side, we feel very good of where we are as it relates to our financing and where we're going to go on a forward basis paid for financial highlights GAAP net income of $125 million or 26 cents per diluted share again book value unchanged quarter over quarter.
Water. Despite the huge selloff, we've seen in rates and the big widening we saw in credit spreads earnings available for distribution of $153 million or 32 cents per diluted share third quarter common dividend 25 cents per common share cash and liquidity as I pointed out $1 8 billion.
Total equity in the business $7 billion page five I'm not going to spend time and it's really just our evolution started in 2013 as a as an owner of MSR is grew into different operating businesses and as we go forward youre going to see a shift as we morph more into what I would call an all asset manager.
Page six rhythm 2.0, the very same theme that we want to continue to highlight.
Great operating companies on the left side of the page.
Great investment portfolio now our entry into third party managed capital. This is not new to us during the fortress as we manage the MSR funds.
And as we think about the volatility in the markets, having callable capital at times that you think you have opportunistic investments.
Investments is something that's very important to us as we drive more earnings for our shareholders. The housing market page. Seven. This is just a graph or some charts to show about how we think about the housing market.
We are bearish just to be clear, we do think home a home prices will continue to come down we do think theres going to be a four due to supply and the good underwriting that's occurred over the course of the past number of years and then finally when you look at at homeowners today that have locked in at lower and lower mortgage rates, whether that'd be two two.
And a half per cent there won't be a need for folks to turn around and sell their homes.
Page eight how we're positioned in the current market inflation continues to rear its head say, how we're what we're gonna do remain defensive 1.8 billion of cash and liquidity make sure all of our fixed rate assets are hedged.
And then at some point, we'll pivot when the fed signaled that they're going to either slow down their rate increases are and where we think that the mortgage basis will tighten and right now don't have that view, even though asset prices and yields we think are pretty attractive here as.
As we look at rates or a mortgage servicing right portfolio will continue to benefit from rising rates during the quarter. We took a modest mark as you think about it in the context of the size of our servicing book of $143 million housing.
Housing market I just spoke about.
The way, we're gonna be position there, we're going to look for a preferred a good entry point into the single family rental space at higher cap rates, we expect rental demand to be strong and we think the homeowner today continues to be strong and while we will remain strong.
As we look at our financing costs and we think about where we are we are seeing higher financing cross across all asset classes.
We've derisked, our non daily Mark to market as I pointed out before with 100% of our portfolio non daily Mark to market away from the agency business and then I love and from an investment team, we love our team a lot of experience. We've seen that you know the the highs and lows the good and the bad and we feel.
We're positioned and ready to go on a on any front.
As I look at the different business segments I'll Rip through these pretty quick.
One I'm on page 10, when you look at our business servicing top mortgage servicer.
We include 400 billion in house of MSR is and we have 91 billion service on behalf of 30 of other third parties clearly we have some third party relationships. Those include Cooper loan care in a couple of others.
Mortgage origination platform, you've heard barren talk about all the different channels, we have and we're very very focused on efficiency in each and every channel as the origination market is challenging and will continue to be challenging our big focus is how do we become more efficient while growing our business.
On the MSR front Theres nothing new there on real estate Securities as we think about it we have a we have some very high coupon loans on our balance sheet, our bond portfolio was modest.
As we as we think back to the way that we used to run the business and buying bonds for our for our call strategy right now our bond business is limited mostly to retained interests that we have from securitization that we've done over the course of the past number of years and those are all term funded with either our banks are in the capital Mark.
Single family rental business again, we will grow that business. We currently have about 3700 homes is north of 90% occupied so it's up and running but we are going to be extremely prudent on how we approach that business. We have been prudent and we're looking for better entry points to deploy capital at higher cap rates and then as we.
We think about our business purpose.
Loan business, which is the Genesis business again.
Again tightening ltvs.
<unk> credit standards, you're probably going to see less growth as we go forward until the housing market settles out all of those loans have what I would call corporate guarantees from the sponsors. So it's not like we're making loans to every single mom and pop.
Right now that portfolio for the most part is all current and as I pointed out earlier coupons are going to migrate towards 10%.
Mortgage company overview $209 $8 million of pre tax income that includes a $131 million in the MSR Mark.
It also includes some severance some lease termination fees and some write offs.
You know, that's the stickiness or or I shouldn't say the stickiness that relates to some of the onetime charges, we saw and.
In the origination business servicing 267 million of pre tax income the origination business 57 million of pretax loss.
And in that pretax loss, there's probably about $20 million to $25 million of one time charges.
As we go focus as we go forward continued focus on efficiency.
Here's an important point to note when you when you look at the time that we acquired caliber which was in it.
It closed in August of 2021, we had approximately $2 billion of capital in the origination business.
One of the things we're proud of is the ability to be portable with our capital today that number is down to $493 million and I bring that up because if the opportunities there we'll grow it if the opportunity is not there we will allocate capital to what we call other higher yielding strategies just suddenly caliber.
Transaction to give everybody a sense closed August of 2021, the return on equity to date, including all the origination gains losses, and MSR is where we book that is at 29% IRR just to give you a metric that a point out GAAP pretax income when you look to the bottom left part of the of the page.
<unk>.
Nine months of 2021 $587 million with caliber 1.5 billion through 2022.
And I've hit a bunch of metrics on the right side of that on the right side of the page clearly G&A on the bottom right is something that we continue to be focused on him to give you another sense from a head count perspective at the time of the closing of caliber in 2021, there were 13500 employees in the system.
M T.
They unfortunately due to the current market environment that number is down to about 6000 people.
And as I pointed out earlier, we will be growing certain origination segments, including our retail divisions were going to look for opportunities to acquire platforms that we think could be accretive to our company page.
Page 12, our mortgage company activity.
Again, Theres no real secret in anything higher rates.
Planning origination volumes servicing portfolio continues to perform extremely well focused on gain on sale margins. The one thing I would say is if you look at our MSR mark for the quarter.
Q2, our MSR Mark was four eight in aggregate today. Its 4.88, so just a nominal increase and I know when we get into Q&A, we're going to talk a little bit about that but I just wanted to point that out.
I'm going to skip the MSR portfolio and then as we look at values one of the questions that we always talk about as Ken MSR values go up and the answer is they can the what the our approach to this quarter with wider credit spreads seen everywhere in the fixed income markets, including agency mortgages.
We made a conscious decision to be prudent about our increase in our MSR multiple to widen our unlevered yields.
Towards 9% when we look at our MSR portfolio again, five year season, three seven gross whack, we will be ready for recapture a to the extent that mortgage spreads tightened and our rates stop going up amortization will continue to come down page 15, servicer advances not allowed to discuss there the consumer performs extremely well.
Advances are down 3% from June plenty of financing available, it's all term and.
And then finally I'll just hit the last two pages and then we'll open up for Q&A Genesis I pointed out $600 million of origination in the quarter that business will likely slow down as we tighten up credit 99, 9% are performing coupons gravitating towards 10% and then finally, the single family rental space, which I am.
Mentioned before.
With that we'll turn it back to the operator for questions.
And.
Operator, you serve thank you Oh, we will now begin the question and answer session.
Asking question me in my first Star then one on your Touchtone phone.
If you're using a speaker phone we ask you. Please pickup your handset before pressing the keys.
So the charter question. Please press Star then two.
Today's first question comes from Bose George with VW is go ahead.
Hey, Mike This is actually Mike Smith on for Bose, maybe just a few quick ones on the origination business.
You know it sounds like you've been pretty aggressive right sizing the business, but just kind of wondering in terms of the overall industry. What inning do you think are in terms of just the overall head count reduction.
I think for US we are you know, we're probably in the seventh or eighth inning quite frankly, we're towards the end I think we've been very aggressive on reducing <unk>.
You know where are we where are we.
It's appropriate I will say that as we look at and we think about our business. We have a larger servicing portfolio. So as we look forward at some point the fed will stop raising rates, we think that the terminal rate will continue to increase over the near term, but lets assume that when you get into a Q2, the fed's pause done raising rates.
Mortgage spreads started coming in we think the origination businesses could be pretty robust, particularly if home prices come off you know another.
10% or so so we're going to be ready, we want to maintain a presence with all of our customers I think we have 3 million plus.
Customers that have mortgages with us.
And you know the overall business you have to look at the origination business says as a as a hedge today to our servicing we just have to make sure. We don't bleed too much as we go forward.
Yeah, no that makes sense and you kind of mentioned that as the opportunities there you'll look to grow the origination business kind of wanted to get your thoughts on you know the overall outlook for consolidation just given the sell off in some of the public equities do you think that sellers are reluctant to sell or buyers are reluctant to buy or just any kind of color there would be it would be helpful.
So on the mortgage origination side or the mortgage company side Youre going to see some folks I think throwing the towel just because a lot of privately held mortgage companies have had a good run you will likely see some MSR sales as we go forward, we haven't seen a ton of those yet I also.
You know when we look at our retail business. For example, there's been some what I would call poaching of some of the folks on on on our side.
We made a conscious decision we've spoken to our retail folks we're gonna be coming out strong looking for opportunities to grow that organization in a prudent way and create what we think are going to be real good revenue streams. As we go forward, but we haven't seen a lot of folks throwing the towel you will see that happen as we go forward I will say the origination environment is extremely.
Dreamily challenging and the folks that can rightsize quickly and take expenses out or become more efficient are going to be the winners there and hopefully that's us.
Great and then just one more for me have you decided on a technology platform for our for the servicing portfolio.
You know right now our plan is to bring all of our servicing in house, our current software as service director and that's the path that we believe we're going to use.
Great. Thanks, a lot for taking the questions.
Thank you. Thank you and our next question today comes from Eric Hagen P. P. I G. Please go ahead.
Okay.
Hey, Thanks, Good morning Hope you guys are good.
First one is just on the financing for non agency assets, including the warehousing for loans loans with Genesis because you guys talk to that like what's the balance of.
Funding that you currently have there and the outlook for financing costs and non agency.
So out of the port So why don't I'll take the I'll take the latter part of the financing costs are high everywhere.
You know if you look where sulfur is and you look at margins typically whether it's sofa, plus 250 or something like that I think that financing costs are going to remain high as we go forward. When you look at the way that we finance the business we have some some.
Assets in the capital markets and we have other stuff that's termed funded with some of our lenders you know I will say on the capital markets front. When you look at our team Sanjiv kind of for example, who's been with US for a number of years hadn't been in the business for a number of years has done a great job opening up new channels of financing with our insurance.
Insurance companies and other what I would call regional banks.
So everything we're trying to do is is really term funded non mark to market. Some facilities are little bit shorter others are others are longer but I think our general view for as we go forward is that the cost of funding is going to stay high as a result that could create some opportunities down the road, but right now it's.
It's high.
Got you.
What is the balance for the non agency funding that you currently have on the balance sheet.
We have term facilities in all of our retained interest.
The loans are financed either with insurance companies and banks in term structures.
As you look at these the so called Genesis business, it's probably.
75, or 80% term funded with some of our bank partners. So that's the way we're set up.
Got it that's helpful.
So how are we thinking about the Super C. How are we thinking about the super seasoned loans in the portfolio and the MSR portfolio and maybe just kind of what it says about their credit profile that they weren't able to refinance over the last couple of years like I guess, what I'm asking is like how would you describe the value that shareholders are getting for that.
Seasons, MSR relative to like a newer or cleaner.
Servicing portfolio.
Well clearly the cash flow is longer because they were out of the money. So if you look at you know four or see if our portfolio is call. It five to six years seasoned you know.
The old season.
Even in that there are some higher WAC loans that were originated in you know oh, seven or eight or something like that but the lower coupons seasoned msr's or are they what I would call. Some of the credit impaired MSR is that we have on our balance sheet will remain sticky as we go forward keep in mind.
Most of these folks have seen you know two or 2.5% mortgage rates. So if they if they wanted to refinance than they would've done that so we like the stickiness of it I did point out that our MSR mark for the quarter.
It's pretty modest because we wanted a wide and what I would I, what I would call yields relative to the way that we look at the broader fixed income markets as as we think about you know the marks.
When you look at new production MSR is here's another area you know I looked at production this morning from yesterday.
In our business I think we produced 200 plus million of of loans, our Ginnie Mae multiple on that had a three handle so it's low and one of the things that we discuss and you know every day are our assumptions around some of the MSR multiples on new production too low.
For example, if we raise our MSR multiples, obviously, we're going to create more earnings or revenue for the company number one but number two are we going to drive more revenue through the pipe. So so that or more volume through the pipe. So that's another thing that would that we continue to wait and look at it on a daily basis, but everything we do we try to put in the context of the broader markets.
As we have a what I would call as a more macro view on whether it be fixed income corporate credit and there's other areas that we can deploy capital not just in the mortgage market.
Yup got you. Thank you guys very much.
Thank you.
And our next question today comes from Doug Harter with Credit Suisse. Please go ahead.
Thanks can you talk a little bit more about your plans for a third party capital what what products asset classes would you look to target and kind of what might be the timeline for starting to raise some of those third party capital.
So the timeline is now you know if you take a step back we've always manage third party capital.
Whether you know in in in our lives as we go back to work you know so called fortress days.
As you think about the world today, our equity our book values 12, and change our stock trades eight and change today, So big discount to book in it and one of the things that we take a step back and look at what are the opportunities for us to deploy capital and how do we think about that capital deployment.
So we're going to leverage our expertise I would say in financial services.
If you look at the team there as you know and I mentioned this earlier in the call. There is a ton of experience that we have in house. We just we just announced the Senlac deal with David Walsh and his team and we go back you know a long way with David It and quite frankly, his brother Aron, who we work together with our years ago. So.
We're gonna stay true to the asset classes that we know are things that we don't have on our balance sheet. We don't have a big commercial real estate presence in in rhythm on on our balance sheet, you could see some co investment opportunities, but the short answer is we're out where we're now we're talking to L piece now.
As well as other what I would say Oh asset managers. They may want to you know.
That will potentially work together to seed new new businesses, and then as it relates to the volatility going back to book value.
We want to have callable capital that we think we could deploy when you know when the world is upside down which we're currently in that period when our equity is trading at an extreme discount to book value and I think that's really the M O around that plus the fees from the third party capital are going to flow to rhythm shareholders. So that's just going to be an added benefit.
Yeah.
Great. Thank you.
Thank you.
And our next question today comes from Kevin Barker of Piper Sandler. Please go ahead.
Thanks for taking my questions I, just wanted to follow up on <unk>. It looks like you reposition the portfolio a bit probably mostly in the agency mortgage backed side could you talk about some of the repositioning you did there that cause a large realized loss, but you also have like a very large fair value offset to it could you describe some of the movement within.
The portfolio and getting the losses associated with it.
Sure. So on our agency book, we carry agency mortgages agency mortgages for 40 of compliance to maintain good REIT status. All we did really in the quarters. We went up in coupon you know early on if you. If you go back to I guess, it's probably Q1 or something like that we had to in a haves and and.
We went up to force this quarter, we went up from forest to fives.
And it's likely as we go forward as rates continue to increase should they continue to increase we'll likely go from five to six years or something like that it's just more to stay current coupons to make sure you're not bleeding a lot of negative carry.
Okay, Great and then.
You mentioned looking at buying a retail originator earlier in your prepared comments could you expand upon that and why you see that as an opportunity is this something you are looking at like publicly or some of the private ones that are out there I know I know you made some comments about folks thrown in the towel they've had a good run and so forth.
Yeah, So here's what I would say when we did the caliber deal one of the attractive features of the caliber deal was the retail presence that they have it's a hard business to run them on you know, we're not going to say that I would say today, we're not the best at running that clearly.
What I would say, though we do think there's going to be opportunities.
Two bolt on could be other retail platforms could be public could be private most likely it'll be private you know probably some of the smaller folks.
And as we run it more efficiently and you look at the gain on sale numbers and in the customer retention that we want to achieve through that business as well as you think about the purchase market and then finally, the Genesis business in the builder space, We think all of those things add up to us.
I'm trying to grow this business in a prudent way with with real good producers.
I mentioned earlier, we lost some some folks.
Two one or two people and you know obviously with people not originating a lot of loans you can't blame people, but as we look going forward, we want to make sure that we maintain a good presence the caliber name in the retail space is a very good one and we want to grow it prudently, while driving more revenue and taking expenses out.
But we have a lot of work to do on that front.
So just to clarify you're talking about a distributed retail franchise not a call center based upon.
No the distributed retail just like we currently run.
And then just to follow up on that is there any other adjustments that you may be looking to do in the origination channel just given your focus more on.
Distributed retail would you look to maybe streamline operations, even further whether its exit certain channels.
So forth.
Yeah on the you know we have five channels I think what youre going to see is the JV business that we currently have will be merged with the retail business. So they don't make that like you know more simplistic we have wholesale.
You know the wholesale stuff I think we've made a lot of good headway on the expense side overall, it's really how do you think about becoming more efficient taking expenses out and then obviously on the other side growing revenue, but I think you'll see the JV business merge with the with the retail business will take expenses out the title business the title and appraisal business is going to go.
Our Guardian subsidiary Theyre going to run that business as a third party business. So obviously right now there's not a ton of production, but that that's what will happen. There. So everything that we do when we look at our operating companies a lot of them are linked and in many different areas.
Areas of others of you know different lines of business, we're trying to explore efficiencies in and how to take costs out.
Thank you Michael.
Thanks, Kevin.
Ladies and gentlemen, as a reminder to ask a question. Please press Star then one our next question comes from Jeremy Campbell with Wedbush. Please go ahead.
Hey, Thanks for taking my questions just wanted to ask on the <unk> business.
You said, you expect cap rates up there and have slowed down on buying homes.
Our function.
The higher prices or is there a lack of inventory out there to grow the business.
It's probably it's probably a little bit of both we you know when we started in the <unk> business, we've been really slow and methodical on how we grow them or how we started acquiring homes.
Our average cap rate I think is north of 5% on the homes that we acquired.
And again I think this relates back to our capital markets expertise and the seasonality or the season group that we have you know we look at how do we fund it how do we think about cap markets. If your upside down on that end and you think home prices are going to go down why buy a home.
So on our own portfolio you know our focus is making sure that everything is leased up your rent rolls continue.
Your homes continue to get leased up we've added some staff around the house, we're doing a great job in the field, making sure that our you know the one the homes are maintained we do own Guardian, which is a property preservation business. They were doing more work around the house now so you're going to see more increase revenues stay in house versus go to third parties, but.
We want to see cap rates higher quite frankly and home prices stable. We do think home prices are going to go downward as I pointed out earlier, there will be a lid on how low they go but theres going to be opportunity to deploy capital at higher cap rates and at a better entry point.
And then on Genesis and just be P O in general.
Could you talk there.
It sounds great that you're at 99% current but I guess when $99 nine is.
Sorry, 90 949.
I guess when when do you see the problems there are going to be some developing is it going to be later this year as they try to finish and <unk>.
Sell these homes or just kind of how are you thinking about the credit quality of that book as we go into the winter and spring.
Again, all of our loans are essentially to what I would what we would call sponsors and there is guarantees of course, you know corporate guarantees with those individuals and organizations you know I was out in on the West coast visiting with Genesis a couple of weeks back with or ahead of Craig.
Paul and you know we did a bunch of sight towards essentially it comes down to what you think the finished LTV is on these products and you know with the low sixties on most of the homes that or most of these building projects that we've that we've learnt on we feel really good about that I think really what it's going to come down to for us.
If we're gonna grant extensions, it's gonna be with higher rates. So I think you can see on our existing portfolio more.
Net income than where we would've been if if these loans just rolled off and paid off so we like one we like the you know the weighted finished ltvs on the on these projects too. We think we're going to see higher rates for us are more net interest income and if we have to grant extensions there'll be points and everything like that so we feel good about where we are.
Or are we like we like our Ltvs.
Just on new loans, we're going to be tighter and tighter.
Yeah.
And then one more if I could.
I thought that was interesting that you're talking about.
And yet in some of the origination business into what Youre going to do with Genesis I mean is that going from construction to Perm and then putting the finished mortgage on the house or or maybe get a little more depth on that please.
So the the if you think about it going back to Kevin's question. You know we have the distributed retail system and Theres a lot of folks in that and they do focus on.
Whether it be real estate companies are real estate agents, you think about what Genesis does making loans to them.
You know more kind of corporate builders in nature, bringing all those things together and then thinking about the Genesis side of that I mean, the guardian side of the business. We take all of these things we have a lot more work to do internally and to be able to extract value and bring these synergies together and in all three areas, but if.
If you think about it if the if the retail system on the.
New Reg caliber side has this ability to offer product.
Two you know from the Genesis side or we get leads that way, we think it's going to be we need to do we need to be better there and I think it could be accretive from an revenue and income standpoint.
Alright that sounds great. Thanks for the time.
Thank you.
And our next question today comes from Sugar Cranston JMP Securities. Please go ahead.
Okay. Thanks.
One question on the servicing portfolio, obviously speeds.
Come down a lot there.
But you know with so many loans out there hunting.
Deeply out of the money interest rates and housing turnover slowing I guess, how low do you guys see the turnover speeds I'm getting into your MSR portfolio compared to kind of what you'd normally expect turnover speeds historically.
You know I think that youre going to see I think our portfolio now is somewhere between seven and eight C. P. R.
Most of that obviously is due to housing turnover of people moving them I think you'll see it go down to somewhere between four and six CPR in the near term. If you go back to 'twenty one keep in mind you know our origination business was we did 180 billion or 185 billion of production killed it on the origination side.
He shows and he saw speeds extremely quick I think where you're going to see now and what we're trying to do is moderate the origination business stay in it grow it prudently and make sure that we're ready for recapture when we come out of this rate environment and it could be again I don't we don't see it in the fourth quarter, but as quick as we go.
Here, we think you could see something.
Happening in in Q2, and it doesn't necessarily mean that interest rates need to.
Drop a ton I think the mortgage basis, where we are now it's historically wide for many reasons and that's liquidity and you know where the banks are et cetera, but we do think we're going to moderate here something between four and six CPR on our existing portfolios.
Okay got it and then you mentioned the possibility that we could start seeing some bulk MSR has come up for sale.
To the extent that happens I guess do you guys have.
Appetite for continuing to add more low work MSR or would you be more interested in.
Current coupons to the portfolio.
It's all about price.
It's all about yield you know if you think about our capital and not just being a mortgage company or quite frankly, not just being a REIT. If we if we think there's a better opportunity to deploy.
Wondered or $500 million at a 20 or 25% return on the MSR asset is going to yield on a levered basis, 12, or something like that we will do the 20% to 25% return everything we look at is how do we assess what what is a good risk adjusted return for each dollar of capital that we want to invest so that's why.
When we talk about you know our new third party.
Business that we're gonna be raising capital for that's one number two is how do we think about the announcement with sand lack and David Welch and his team and what the what the return there. So it doesn't have to be specific that we need to grow. Our MSR is we have a lot. We have taken I think a more cautious approach than us.
There is in growing our origination business from an MSR multiple standpoint, and as I mentioned earlier, if we tweak or multiples and change those a little bit we're going to make more money as an organization. We just wanted to assess the risk return and how we think about it as it relates to new Msr's clearly folks are out there they want originate new MSR as you can get.
For the recapture opportunity and the new gain on sale when the market rallies worse or mortgage spreads tightened we want to be in a position to do both but we do like the sticky nature of the low coupon MSR.
That we have in our portfolios you'll have you'll have less volatility you know the one thing I think that we have shown through in these are really really hard markets is that our book value has actually gone up.
Book value has gone up and I think the way that we run our business and being extremely disciplined around hedging.
And in a more macro view of the market puts us in a I think a pretty unique place. So it's.
It's all about risk adjusted returns and return on equity for shareholders.
Sure. Okay makes sense. Thank you.
Thank you.
Ladies and gentlemen, this concludes our question and answer session I'd like to turn the conference back over to Michael Nierenberg for any closing remarks.
I think that's it for US we appreciate everybody's questions and dialing in this morning, and look forward to our continued growth and diversified and the diversification of our company as we go forward and if you have any follow up we're here if not everybody stay well and look forward to.
You are speaking soon.
Thank you.
Thank you Sir This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.