New Residential records 3Q profits on strong origination activity

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New Residential Investment returned to profitability in the third quarter, with increased income from loan originations and reduced losses in its mortgage servicing rights and servicer advances portfolio operation.

The company earned $77.9 million in the third quarter, compared with an $8.8 million loss in the second quarter. In the third quarter of 2019, it earned $224.6 million.

Michael Nierenberg, chairman, CEO and president of New Residential said the company is looking to take advantage of "the great opportunities we are seeing" in their origination and servicing channels, which both fall under the NewRez brand.

However, he noted that "we do not see great opportunities on the portfolio side today and will maintain higher levels of cash and liquidity while being patient and being opportunistic."

While the mortgage company had a strong quarter, Nierenberg is setting his sights on growing the company's market share: "We are still relatively new in the operating business and still have room to improve."

Nierenberg specifically called out the company's intention to grow the direct-to-consumer channel in the previous quarter’s earnings call. That focus should help New Residential pick up market share in the originations business while also slowing down amortization in the MSR portfolio as recapture rates improve, he said.

During the quarter, the origination business earned $236.1 million, compared with $126.5 million in the second quarter. Servicing earned $24.2 million in the third quarter, up from $17.6 million in the second.

The MSR and servicing advance segment lost $187.6 million for the third quarter, an improvement over the second quarter loss of $256 million.

But the losses under the corporate and other category grew to $106.9 million from $24.4 million one quarter prior.

The company also earned $85.2 million in the residential securities and call rights segment and $26.8 million on its residential loan investments in the third quarter, down from $88.6 million and $38.9 million respectively in the second quarter.

New Residential originated $18.1 billion in the third quarter, up from $8.3 billion in the second quarter and $5.7 billion in the third quarter 2019.

The correspondent channel was once again New Residential's largest source of originations, after a second quarter that was disrupted by the chaos of the pandemic. It did $11.5 billion in the third quarter up from $3 billion in the second.

In the first quarter of the year, the correspondent channel pulled in $7.1 billion of the company’s total production of $11.4 billion. In the fourth quarter of last year, as it added Ditech's forward mortgage business, the correspondent channel did $6.9 billion of New Residential's $10.6 billion total volume.

The direct-to-consumer channel originated $3.4 billion during the quarter, up from $3 billion in the second quarter and $1.2 billion one year prior.

"Looking forward, we believe the company aims to focus on the operating business, which we believe should perform well in the low-rate environment, as well as opportunistically invest in targeted assets with term financing/low leverage," said a report from B. Riley Securities analysts Michael Smyth and Randy Binner.

Meanwhile on the portfolio side, New Residential has resumed making clean-up calls for its mortgage-backed securities, an activity it had suspended at the start of the pandemic, issuing notices for up to $400 million on various non-agency securitizations for November, Nierenberg said.

The company has call rights for $75 billion of loans collateralizing RMBS; of that total, 59% is currently callable as the current balance for those mortgages are equal to, or lower than, 10% of the original loan balance.

He also addressed the growing number of nonbank mortgage companies going public, saying "we will continue to drive towards unlocking value in our operating business and seeing our equity trade where it should."

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