Good morning, and welcome to the New Residential First Quarter 2022 Earnings Conference Call. All participants will be in listen- only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Bohee Yoon. Please go ahead.
Thank you, and good morning, everyone. I'd like to thank you for joining us for New Residential's first quarter 2022 earnings call. With me today are Michael Nierenberg, Chairman, CEO, and President of New Residential, Nick Santoro, Chief Financial Officer, and also Baron Silverstein, President of Newrez and Caliber. Throughout the call, we are going to reference the earnings supplement that was posted to the New Residential website this morning. If you have not already done so, I'd encourage you to download the presentation now. I'd like to point out that certain statements today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I 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 measures to the most directly comparable GAAP measures can also be found in our earnings supplement. With that, I'll turn the call over to Michael.
Thanks, Bohee. Good morning, everyone. Thanks for joining us. As we all know, there's lots of pain and suffering in the world. As we think about everyone who is in need of help or a prayer, we send out our warm wishes and hope for healing and an end to the war as soon as possible. Now on to business. Despite the volatility in the markets, our company had a very good quarter. As we have mentioned during prior calls, we have positioned our company for a higher rate environment, taking all the necessary actions to protect our portfolios and operating companies from rising interest rates. During the quarter, our book value increased to $12.56. Currently, our book value sits at approximately $13.50.
We have interest rate hedges in place, which protect our long- duration assets, along with our MSR portfolio, which should only help to increase our book value as we go forward based on expected Fed actions. We have increased our cash and liquidity levels to $1.7 billion. We will be patient as we look for opportunistic investments across the financial services sector. We believe patience will be rewarded in these markets, and the first quarter was a great example of our diversified business. Regarding our operating companies, the integration of Newrez and Caliber will be done by the end of Q2. As we previously mentioned, we expected saves in the area of $175 million-$200 million.
As we go forward, we believe that number is light, and we will likely have more saves in excess of the $200 million number we initially mentioned, as we think about our homeowners. We are looking for more ways to be able to offer them loans, products, and other ways to support our homeowners as we go forward. As we all know, the origination business, which had been extremely profitable the past couple of years, is now in the middle of a serious contraction and will remain this way for the near future. The buildup of capacity is now part of the big unwind. We view the origination business as essential to our overall strategy. Our various channels will focus on customer retention, and our retail will focus on the purchase market, which will become a bigger part of the origination business.
Our ability to launch new products and focus on non-QM, jumbo, HELOCs will differentiate us from our peers. As we go forward, looking across the industry, I would expect very little profitability in the origination business unless we see the Treasury market rally back to lower yields. This will put enormous pressure on the mortgage banking community as a whole. This will lead to more M&A, and we believe this will lead to more MSR sales as mortgage bankers will need to sell MSRs in order to fund their businesses. As we look at our broader base of operating businesses, Genesis, which is a fix- and- flip lender we closed on in December. When we think about that business, we've embarked on an expansion plan that will open up many more markets across the U.S.
Our ability to cross-sell through the Caliber sales force should create additional volumes for the company. The loan portfolio of floating rate assets, coupled with the origination of high- coupon short- duration assets, make this a perfect asset for our balance sheet. On Adoor, our single-family rental business, we have taken a cautious approach to growth and believe, with housing affordability at some of the lowest levels in years, cap rates should come our way, coupled with rent growth. Having dry powder will enable us to continue building a great business. On the investment front, yields on assets are beginning to look attractive with the widening of credit spreads and the rise in yields.
To put this in context, credit spreads in securitized products, particularly in the mortgage space, have more than doubled since the beginning of the year and are now at a point where levered returns in certain asset classes are in the mid-teens. When we look at the Treasury market, the 10-year note has risen 100% from 1.50% to 3% yesterday, and the two-year Treasury note has risen from 73 basis points at the end of December to 2.73%. These are massive moves, and we have positioned the company in a great way to take advantage of where we are. I'll now refer to the supplement which has been posted online. I'm gonna start on page three. When you look at our company today, we have paid out $4 billion in dividends since inception.
Our dividend yield of 9.1%. Our net equity of $7.1 billion. Our market cap of $5.1 billion. Our balance sheet today, $38 billion. MSR portfolio, an industry-leading $626 billion of owned MSRs. When we look at our mortgage companies and operating businesses, we are a top five non-bank originator and servicer in the business. One thing I want to be clear, we're not about size, we're about profitability. As we go forward, if we originate less loans, that's what we'll do. We want to make sure that we make money for our shareholders and support our customers. We have an industry-leading business- purpose lender in Genesis, which I just referred to. Our single-family rental business continues to grow.
We have some complementary operating businesses, including title, appraisal, and a great property business, property preservation business named Guardian. Financial results for the quarter, GAAP net income, $661.9 million, or $1.37 per diluted share. Core earnings, $177.4 million, or $0.37 per diluted share. Book value, $12.56 per common share. First quarter common stock dividend, $0.25. Cash and liquidity, $1.7 billion. Net equity, $7.1 billion. Business highlights on page five. The company today is positioned to perform. We always, you know, use this line across all interest rate environments. I will tell you today we're positioned for much higher rates. MSRs, as I pointed out before, $626 billion in industry-leading MSR portfolio will go up in value as rates rise.
We saw the results of that in the first quarter. Our origination franchise will continue to be focused on purchase and recapture. Baron will talk to that in a little bit. Assets that we have on our balance sheet that have positive duration are all hedged against rising rates. When we look at shareholder returns for the quarter, book value up approximately 10%. Shareholder returns for the quarter, up approximately 5%. Our customer base, 3.2 million customers. We do a great job supporting our customers. As I pointed out earlier, we are looking more ways to support them, and that will likely be through other types of products. Down the road, as we continue to expand our financial services company, anything is possible. When we look at our capital markets and financing capabilities, currently 99% of our portfolio is non-daily mark-to-market.
That's away from our agency mortgage business. We closed five securitizations during the quarter, which represents $1.5 billion of collateral. Cash and liquidity, again, $1.7 billion. We continue to work with third parties, including our banking partners and insurance companies, to establish new financing lines and capacity across all of our operating businesses. ROE and profitability. We continue to focus on reducing our expenses. As pointed out earlier, our $175 million-$200 million expense save initially quoted when we did the Caliber deal, that will likely be significantly higher as we go forward. The integration of Newrez and Caliber continues, and it'll be complete by the end of Q2. Page six is really just our strategic evolution of the company and how it was built and formed.
It was spun out of Newcastle in 2013, really just to acquire excess MSRs and other residential assets. Over the years, we've grown into a real operating company on the mortgage side. We've added business- purpose lending. We've added other complementary businesses in the financial services sector. I'm excited for the future, and I will tell you that we've only just begun. The macro environment, there's no secrets here. Inflation at multi-year highs. The Fed's going to raise rates, we believe 50 basis points this week. The geopolitical uncertainties continues to add to market volatility and macroeconomic concerns. I pointed out about where two-year and 10-year Treasury yields have what they've done in the quarter. Credit spreads, once again, have widened significantly, double where they were in the fourth quarter of 2021.
On the housing market, housing inventory remains extremely low. Price growth continues to increase. Affordability is under pressure, and this should lead to a much better market on the SFR side. We will be patient, however, in acquiring units at appropriate cap rates. Just to point out there, when we look at the SFR business, we do not factor in HPA. We think about rent growth down the road and a great securitization market. We like where we currently sit in that business. Our overall experience in the markets. We have a very seasoned investment management team who has seen not only these current challenges in the markets. We've seen the Great Recession. We've seen obviously the, you know, the 2020 March period during COVID, and we think we can handle anything. We continue to learn from difficult markets.
Our balance sheet, again, $1.7 billion of cash and liquidity. We will continue to maintain an opportunistic approach to investments and capital allocation, prioritizing return on equity. Goal is to be the best, not just the biggest. Page eight, just to show you how we performed really in the first quarter, as you think about the company. Mortgage rates rose, Treasury yields rose rapidly in the first quarter. That drove our MSR portfolio much higher. We will have much lower amortization as we go forward. Earnings overall in the segment. Origination pre-tax income $25 million in the quarter. That'll continue to remain under pressure. Book value growth will continue. 1,256 at the end of Q1, 13.5 today.
When we look at core earnings, very, very stable core earnings if you look across where we are today, citing a $0.37 core earnings number for the first quarter of 2022. Page nine, our ability to manufacture assets. We do not need to go out in the marketplace and compete against others to go buy assets. What we listed here is the total addressable market and what we believe across the different mortgage products. Agency origination for 2022, we expect to be in and around $2.5 trillion. The non-agency origination market in and around $600 billion. Business purpose lending, about $500 billion. Below that, you can see our different operating companies, Newrez, Caliber, and then to the right side of the page, you'll see Genesis Capital, which is our business purpose lender.
Page 10, our playbook. Large portfolio of MSRs will go up in value, again, complement the operating businesses. Industry-leading origination franchises across not only the single-family residential business, but also in the business lending market. As we look into 2022, you know, I've been pretty vocal about getting into the commercial real estate space. We're going to be patient. We have some opportunities ahead of us, and we're very excited for what the opportunities will be put in front of us as we go forward. I'll now flip to page 12 just to talk about our business and investment summary. When you look at our business across all the different verticals that we have or things that we can do here. Top five mortgage banking originator with many different channels.
Servicing, leading a non-bank mortgage servicer. Combined servicing owned is about $625 billion, of which $400 billion is serviced in-house. We have MSR-related investments. We have MSRs serviced by third parties. We love that asset right here in this rate environment. From a real estate standpoint, our bond businesses, you know, when you look back to the first quarter, we did very little on the investment side with the markets being extremely choppy. We expect that to remain constant as we go forward until the markets settle down here. Page 13, really just on the MSR portfolio today, which is a really interesting stat. Only 4% of our full MSR portfolio is in the money to refinance. If you go back to 2020 or 2021, that number was up towards 40%.
Our newly originated MSRs this quarter had an average mortgage rate of 3.33%. A lot of those mortgages were originated in the fourth quarter. From an MSR front, I'm not gonna beat a dead horse. Let's move on to page 15 and just talk about our single-family rental business. Today, we have roughly 3,500 units. Our average cost basis is $255,000. We're positioned across 19 markets in 12 states. Our average cap rate is 5%. We're going to maintain discipline around our cap rates. Stabilized occupancy, 98%. Then when we look at rent growth, we continue to see good rent growth in the area of approximately 5%. This business will grow over time.
Call rights, not a lot of activity on the call rights sector, as market volatilities prevent us from calling deals that the economics simply don't warrant it. We'll continue to build up more cash as we go forward. Page seventeen, our servicer advance business. Not a lot to talk about there. Servicer advances were down to $3.1 billion, which is down 7% from December. We have plenty of capacity. We do an excellent job in financing that business. Now I'm gonna turn it over to Baron, who will talk about the mortgage company, and then we'll come back for some Q&A.
Thanks, Mike. Good morning, everyone. As Michael mentioned earlier, the current macro environment has changed dramatically over the last few months. Sharp increase in interest rates has certainly slowed refinance volumes and are pressuring origination margins overall. However, for Newrez and Caliber, and coupled with our partnership with NRZ, the market environment proves the benefit of a balanced origination and servicing business. It's shown in our performance for the first quarter with pre-tax income of $787 million, which includes an MSR mark-to-market gain of $631 million. We originated approximately $27 billion in funded volumes, which is a 29% decline quarter-over-quarter, and increased our servicing portfolio to $497 billion notional servicing balances. With our reduction in originations, our MSR and sub-servicing will continue to provide the stabilization in a higher interest rate market.
Over the past two quarters, we've been talking about our integration progress of Newrez and Caliber, and we continue to see successes through implementing best practices between both companies. We expect to exceed our initial run- rate synergies target of $175 million-$200 million by the end of the year, and we will have finalized our origination channel integration by the end of the second quarter, as Mike will talk about. Now our focus has shifted to aligning our business to the current environment. We continue to take steps to lower our overall costs and be disciplined in managing our capacity while ensuring we deliver the best experience for our employees, customers, and partners. Even with the current origination headwinds, we continue to evaluate opportunities in our sector to maximize the value in our platform. Turning to slide 19.
The origination division ended the first quarter with approximately $26 million in pre-tax income and approximately $27 billion in pull-through adjusted lock volume, which is a decline of 74% and 20% respectively quarter- over- quarter. Regarding margins, there's further detail on slide 32 in the appendix. We continue to see pressure in all channels. In our direct-to-consumer channel, we were able to maintain our margins with only a slight decline throughout the first quarter. The interest rate spike in April has further compressed margins, but still above historical averages for the channel. Our distributed retail and joint venture platform saw a 17% drop in margins quarter- over- quarter, which, coupled with seasonal factors, has added to the competitive pressures to this division. However, we have seen some easing in April as the spring buying season continues.
The wholesale division has maintained margins quarter- over- quarter, benefiting from approximately 20% of our funded volume coming from our non-QM product. Similar to other channels, lower volumes, increased competition has driven correspondent lending margins lower. Our platform there is highly scalable, and we have been able to maintain the margins quickly and are seeing a flattening in April as well. While our decline in pre-tax income reflects the current market conditions and these margin pressures, it also reflects our strategy of focusing on ROE while being disciplined, patient, and taking advantage of pricing opportunities when they arise. Turning to slide 20. We have an incredible origination platform, and we've proven to be able to grow our purchase volume and market share, and we will continue to do so through opportunistic partnerships, new joint ventures, and the expansion of our retail platform.
Our growth strategy also includes, you know, a focus and alignment with the FHFA affordable housing targets and expansion of our local footprint, continued growth of our non-QM program throughout all channels, growth of our product set. Michael talked about this in our partnership with Genesis Capital through fix- and- flip renovation and construction-to-perm, which will help our LOs referral partners succeed in their respective markets. Expansion of our ancillary and title businesses within our own platform and also adding new third-party accounts. Our purchase-focused platform, coupled with product partnerships and investment in tech, is the path to succeed in this environment. On slide 21, the servicing division ended the first quarter with approximately $762 million in pre-tax income, predominantly driven by the mark-to-market gain.
As Michael previously talked about, the size of our MSR portfolio, but our servicing platform will remain positioned to benefit from higher interest rates and lower amortization. We also increased the size of our direct service portfolio by approximately 3% quarter-over-quarter, and that includes an increase of our sub-servicing portfolio by approximately 9%. We have remained focused on growing our sub-servicing portfolio, and that shows in our results for the first quarter and in our clients' confidence in us and our focus in helping homeowners stay in their home. We have a lot of opportunity in our servicing business, and coupled with the New Residential MSRs, we have approximately 3.2 million homeowners to assist throughout their homeownership journey. On the last slide 22, talking about recapture, you'll see that our refinance recapture rates have remained strong quarter-over-quarter.
While rates continue to rise, we have also seen the percentage of direct-to-consumer cash-out refinances continue to rise, which based upon April production now exceeds 75%. Since over half of our customer base now has at least 40% equity in their home, we are launching a new HELOC product that will target our servicing customers and allow homeowners to retain their existing low rate mortgage while allowing them to tap into their home equity for home expansion renovations or otherwise. We expect this to be a successful product launch and also benefit us in retaining our customer base. Also beginning the second quarter, our plan to strategically distribute leads across channels to utilize our local network and partner channels to maximize purchase and refinance outcome.
The key being, as we continue to mature with our relationships with our homeowners, we'll also be able to take a higher share of opportunities by offering additional products and services, including recapture in the future. On that, Michael, back to you.
Thanks, Baron. Just two quick slides or just a couple quick comments. Page 23 is really just about our operating companies. This will grow over time. As I pointed out again, we will be in the commercial space once the market's settled down. We have a couple things we're working on that we're very excited about. Then finally, on page 24, how we think of ourselves and set ourselves apart. We like to think of ourselves as not just a REIT, but really an investment manager allocating capital appropriately across different investment strategies. No need to continue to talk about the MSR portfolio. Cash and liquidity, I think this is a really important note. $1.7 billion of cash and liquidity today.
If you go back a couple years ago, if we deployed $1 billion of that 1.7, and just think about it this way, if we deployed it at, let's call it a, even use a 12% levered return, that would be an extra $120 million a year in earnings. If you think about that with roughly 480-ish million shares or 470 million shares, it's substantial. That would be a substantial pickup to core earnings in our business. We're just simply not gonna go there because we do think we will be rewarded, having a much larger cash, and liquidity, on our balance sheet today as we go forward. Our ability to manufacture assets, I think that truly differentiates us. We will be extremely prudent. We are in a horrible market for mortgage origination.
It's only gonna get worse. Gain on sale will only get worse. I think you're gonna see a lot of folks actually have to really pull back in that business. Thus, that will create some great opportunities for us on the MSR side. We haven't seen a ton of it yet, but I do think that will come going forward. As we think about our track record, being a steward of shareholder capital, we really care about making returns. Our numbers are good. With that, I'll turn it back to the operator, and we can open up for Q&A.
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question will come from Bose George of KBW. Please go ahead.
Hey, everyone. Good morning. Thanks for the book value update. Just curious, what does that imply in terms of, you know, servicing valuations, and then how much room is left for further MSR valuation increases if, you know, if we see rates continue to trend up?
At the end of the quarter, Bose, our weighted average MSR multiple was approximately 4.5 or 4.49. As we look forward, you know, taking the 10-year Treasury rate, which at the end of 3/31 was 2.34, if we go up 100 basis points, now I quoted a book value of approximately 13.5 today. Up 100 basis points, we project an MSR multiple of about 4.89. And the change in book value would be $700 million. Of that, some amount of that is already captured, but you're, you know, you'd likely get to somewhere between $14 and $15 in book value on the company.
Okay, great. Thanks. That's helpful. Then on your sub-servicing contract with Ocwen, that ends, I think, in July. I mean, is there any benefit to moving that stuff to your own platform, or is that just too delinquent, or just how do you think that plays out?
You know, obviously, we have a good working relationship with Ocwen. I think there's more to come. We'll likely keep the portfolio with Ocwen. You know, we have discussions with them frequently on that, and I think you'll see something, hopefully in the near future come out on that.
Okay, thanks. Just actually one more. On servicing technology, have you know, made a plan about consolidating onto one platform, or is it, where is that progressing?
We're currently on two different platforms. One is Servicing Director, which is the legacy Sourcepoint system. When we acquired Caliber essentially fired Sagent and went to MSP. We're currently in discussions, as you could imagine, with a number of different parties regarding what would be best for our company and what we think will be best for the market. There could be some equity component that comes along with that. We've had discussions with all the likely players in the marketplace, and we'll continue to do so. We hope to have a decision on that shortly.
Okay, great. Thanks a lot.
The next question comes from Kevin Barker of Piper Sandler. Please go ahead.
Good morning. Thank you. Could you discuss some of the, you know, initiatives that you're putting in place to reduce operating expenses in the origination channel and whether you've considered, you know, bigger structural changes, whether that's, you know, reducing the amount of channels you're in or just focusing on retail and correspondent? I was just wondering if there's anything you structurally you're looking at on the origination side in order to, you know, sustain profitability. I understand you have a significant amount of cost synergies that are coming in place from the Caliber merger. You also alluded to additional cost savings there, but obviously it's a very difficult environment. Anything you can add as far as what you're looking at on the origination side?
Look, everything, Kevin, everything is on the table from the perspective of us to make sure that we maintain profitability. Our view is, and that includes from our technology perspective, you know, and how we evaluate each of our businesses. You know, we like the ability to be in all four channels. We want to make sure that each of our channels are profitable on a fully loaded perspective. You know, that is where we are today, and our expectation is that, you know, as I talked about, as we continue to drive additional products, as we continue to build out additional partnerships with our existing partners and continue growth is the way we will succeed.
Kevin, just.
All right.
Just on that front, you know, Baron spoke about, you know, fully loaded units. Every single day, we look at each channel to say, "Does that break even or make money?" Part of the calculus when you think about where we are in this business, you know, we have gotten significantly smaller over the first quarter and into the second quarter on the origination business. Each unit we produce, we wanna make sure that the channel in that unit is making money when you fully allocate corporate and all expenses to that channel. To the extent that we don't think we can make money in that channel, we'll either pull back, you know, much more significantly or we'll get out.
I think where we are now is we're, you know, we pulled back significantly. Our volumes are down a lot. My earlier comments about this being a horrible market for mortgage origination, I think that continues as we go forward because there's so much capacity in the system, as we all know. People are gonna be fighting for units. That's not gonna be us. You know, we'll roll out different products. I mentioned before about, you know, Baron mentioned. I mentioned HELOC, Baron mentioned HELOC. We have non-QM, Prime Jumbo, and maybe some of the other things. I would like to see us become a real full-scale financial services company, roll out other types of products to our customers, which I think could offset the decline you're gonna see in gains in the origination business.
You know, we're not gonna do something for the sake of doing it to compete against some of the larger originators in the market. We don't need to compete for a conventional loan or a Ginnie Mae loan. Unless the flip side of that could be is we love the MSR value, and we think it's gonna go up a lot. Now, on the MSR value side, we all know at some point that they get capped because they have negative convexity. They'll only go up so high. Where we are now, in Bose's question about, you know, essentially our market, 4.5%, we think there's plenty of room to go. At some point, we'll be extremely mindful that we don't think they're gonna go up a ton more and the risk/reward is skewed to the downside.
I mean, just to follow up on those comments. You know, the servicing multiples that we're seeing in the market today, you know, approaching 5x. Some cases, transactions that are, you know, pushing 6x servicing fee. I mean, do you feel like it's you're getting to a point where you could start hedging or putting in place, you know, some type of instruments to protect the value, given that we're, I would say, probably the highest servicing multiples we've seen post-financial crisis?
Yeah, no, it's a good question. You know, there's room to go. New production MSRs, I think, have a five handle right now on the conventional side. If you think about it, if you put a hedge, if you get long an instrument against that and the 10-year goes to 4% and Fed funds go to. You know, I'm looking at some charts this morning. Fed funds. One of our economists sent me a chart this morning that shows the Fed's projection is that Fed funds rate goes to north of 4% in 2024. If you look at the Fed futures, the implied Fed futures, we go to 3.5% in the middle of, call it, 2023. Getting long a fixed income asset that has duration will just go down in value.
It will protect you if the market, you know, obviously goes the other way. I think in that case, I'd rather keep more cash reallocated to. You know, I pointed out in the investment business, you could generate ROE. We think right now, if we deploy capital with proper financing, we're gonna be able to deploy capital in kind of a mid-teens type return. I think we need, and this is where we go back to being really an investment manager and not a REIT. We have to think about how we deploy capital across the different paradigms. We're not just gonna originate mortgages to originate mortgages and take on undue risk.
Yeah, I'm just saying, like, could you buy a significant amount of agency MBS at this point? By utilizing that cash to buy those assets, that would probably have a, you know, it would be a countercyclical type asset class versus the MSR while still retaining some yield.
Well, think about it this way. You're originating an MSR, let's say it's 5.5. You get long a Fannie 3% coupon. That 5.5 will go to 6, and your Fannie coupon is gonna go down ten points. You know, I don't, I mean, at some point, we may get there if we think we go into recession, quite frankly. I don't. You know, right now, we're not gonna fight the Fed, and we're not gonna fight what Treasury is gonna do around the mortgage basis.
Okay. Thank you for the question. Thank you, Michael.
Thank you.
The next question comes from Eric Hagen of BTIG. Please go ahead.
Hey, thanks. Good morning, and nice quarter. Do you guys have any perspective on the liquidity and capital rules which FHFA and Ginnie Mae are in the process of modifying right now, and how that might drive the approach to capital management at all?
Why don't we let Nick handle that one?
Sure. I'm sure you've read the FHFA, all the comment letters that have gone back. As the industry has put out, the expectation is, as written, the rules would increase capital, call it three times current requirements. We believe the FHFA is listening to the industry, and those requirements will come down. We're comfortable with our liquidity position in meeting the requirements as written and the requirements as we ultimately think where we're landing.
Great. Thank you. With MSRs appreciating in value, is there the opportunity to achieve a higher advance rate on those assets with secured funding? Can you remind us of the current secured funding, how much is fixed versus floating?
So the answer to your first question is yes. Right? As the value of the asset goes up, theoretically, your LTV is going down, so you could create more equity. Thus, when you look at our $7.1 billion of net equity at the end of the quarter, a lot of that's been due to the MSR asset. When we look at our funding, essentially, most of it's in the capital markets that's fixed. We do have some stuff with some of our banking partners, which is either locked in with fixed or it is floating. On the other side, we have strategic interest rate hedges on our own balance sheet, which offset the rise that we're seeing in the Fed funds rate.
You know, leading to that, to that same question in my comments earlier about us hedging our fixed rate or assets that have duration with interest rate swaps. Our entire balance sheet has interest rate swaps, which will protect us towards higher rates. That also is applicable to our Genesis business where when you look at those loans, they're fabulous. They're give or take 8% coupon initially or 7%-8% floating rate loans. As they sit on our balance sheet and we get ready for either a securitization or working with our banking friends from a financing standpoint, we have hedges to protect us in the front end as we do believe Fed funds are gonna continue to increase. Across all of our different asset classes that we have, we're biased more to the short side.
going back to Kevin's thing, if we thought we were gonna enter into a recession, we would just, you know, we'd immediately adapt to a longer rate bias. Right now, I think everything's protected on the balance sheet from an interest rate hedge standpoint. Our financings with our bank friends are protected, as we have these assets on our balance sheet with front-end swaps. We feel that we're more than covered or more than protected for the rate environment we're in.
That's really helpful. Thanks, Michael.
Thanks, Eric.
The next question comes from Douglas Harter of Credit Suisse. Please go ahead.
Thanks. Mike, I was hoping you could just help quantify. You said you wanna run with kind of more liquidity. You know, just I guess, how should we think about how much of that $1.7 billion of cash and liquidity today is kind of investable? You know, how much of that are you kind of saving to be opportunistic if you know, if there are deals that come around or would you kind of put it into the, you know, teens returns that you see available today?
Yeah. I think, you know, listen, I mean, of the $1.7 billion, could it be $1 billion that could be investable? Yeah. Would we invest $1 billion in today's market? The answer is no. I'm not sure that the worst of what we've seen is over. You know, just looking at some quotes as we're on this call, Paul Tudor Jones said, you know, quote, "This is the worst investing environment he thinks for bonds and equities that he's seen based on the Fed being in play and what's going on in the world." So we're likely not just gonna go out and spend money. I do think we'll diversify away from some of the single-family residential stuff over time. You know, the commercial space, again, I, you know, I keep harping on that.
We're going to be very patient in that space. We are making some strategic investments there, small amounts, in some commercial real estate debt and things like that. You know, it's gonna be patience. We wanna get rewarded. You know, we wanna think about our balance sheet today as when we do put out that capital, one is the financing has to be great, and two is that the rewards have to be, you know, 15%-20% returns as we go forward.
Just on the commercial, you know, something you've talked about. I guess, do you feel like you have the right investment team kind of in-house already, or is that something that might require kind of an investment and, you know, or an acquisition to kinda get the right team?
Yeah, no. Listen, we have great resources, you know, on the NRZ side. We, you know, the investing in the commercial real estate space will come with some folks. You know, people that we know for a long time who have a great proven track record, who know how to make either LPs money or shareholders money. You know, our team here is terrific, but it's gonna, you know, we'll bring in more expertise around the business.
Great. Thank you.
Thank you, Doug.
The next question comes from Steven DeLaney of Raymond James. Please go ahead.
Hi. Good morning. Wanted to follow up on Kevin's question about the expenses. You know, the sequential decline. Can you talk about how much of that is tied to variable compensation related to the decline in loan originations? You know, how much of that decline was the synergies that you guys have been able to achieve so far? As we think about, you know, from here, are there other steps you can take or, you know, with the industry at kind of over capacity, you know, should we expect to see, you know, more formal headcount reductions kind of across the sector, you know, with where the outlook for mortgage volumes are today?
Why don't I take the last part of your question, and then I'll refer to Baron and Nick on what we've realized so far. You know, the mortgage origination business, when we look back to 2020, we were hiring 500 people a month to keep up with volumes. Most of those folks sat at home from a remote perspective, because you needed folks to process loans because volumes as we, you know, if we look at last year, we did $180 billion of origination. This year we'll do 80-ish or something. I don't wanna just quote a number there because it's gonna be about profitability. If we thought we could make money and reduce our costs, we would originate more mortgages.
I do think that the industry itself, you know, every day you read another snippet, whether it be on HousingWire or some other rags that people are letting people go. It's gonna get smaller. There's just too much capacity in the system. For those folks that don't reduce their headcount, what you're gonna see is they're going to compete for units to try to make up for or to substantiate headcount. As a result, you know, there's no money. There's gonna be very little money to be made per unit. We've taken the approach to making sure, one, we reduce our headcount. Two, synergies. You know, one thing we didn't mention before, and I think we probably mentioned in a prior call, we hired Nino Cates from who has a lot of experience.
She worked with Cooper on the digital marketing side. She's leading our effort there. When we think about our ability to either reduce costs or drive savings in technology, Nino, coupled with our head of technology, Dino Lack, we're pretty pumped about, you know, those two folks and those groups. You gotta get synergies out of your business. You gotta create more efficiency, but you're going to see headcount get smaller across the industry. We've made significant, you know, cuts. We don't wanna be those folks, but we need to get our business right sized for the current environment and just move forward. And then as far as saves, maybe you guys wanna take that, kind of where we are.
You know, Michael did talk about it as where we were at $140 million, what I call run- rate synergies. You obviously see, you know, even in our origination business, our overall expense rate, from a run rate perspective is down $90 million quarter-over-quarter. We expect to see, you know, that number continue to drop with our, you know, as we continue to forecast out, you know, where we think originations are headed for the rest of the year. You know, with respect to what I'll call the fixed versus variable, what I would recommend is just having a follow-up call, and we can have a discussion on that.
Excellent. Look forward to that. As a second question, you know, it looks like you did your first SFR securitization, your first residential transitional loan securitization. You know, can you talk about market reception for those? You know, obviously the volatile rate spread environment, you know, how you look at those markets and availability and pricing there going forward as you continue to grow in SFR and the resi transitional loans.
Yeah. I think one is the reception to our securitization was great. The advance rate on those assets creates a you know a truly once you're fully leased up you know north of 20% ROE or for you know for that pool of assets. The one thing that's really important, Steven, is that you know when we look at our business, we wanna make sure that we assume the capital markets are shut down. When we look at the volatility that we saw in the first quarter, and that's why we called I think $80 million in loans, when we think about volatility, we wanna ensure that all of our financing is extremely buttoned up. That if there is no capital markets, how do we protect our balance sheet?
That's the way that we're running our business today. We'll have another securitization probably either late this quarter, probably into the third quarter as we acquire more units. Just to be clear, we are, you know, right now from an overall unit standpoint, we're roughly 3,500 units. We're very, very small. The amount of total equity in the business is small today. We're really looking to grow that. We're in some talks with some folks about adding resources, adding operating capacity. We have some very good relationships in the industry and this will be a big growth area for us as we go forward. We'd like to, you know, with housing affordability decreasing, we do think that cap rates need to go up a little bit.
Our entry points, we think, are gonna be in a very good way as we go forward.
Great. Appreciate the comments this morning.
Thank you.
The next question comes from Giuliano Bologna of Compass Point. Please go ahead.
Hello. Good morning, and Russ, on a great quarter. One of the areas I was curious about, just to pick your brain on was on the custodial deposit side. I'm curious if you disclose, you know, the size of your custodial deposit portfolio on the servicing side. And the reason for that is just to get a sense of, you know, how big it is and, you know, how and kind of the direction of the size of that portfolio to get a sense of what, you know, kind of upside you might be able to have from, you know, short rates moving higher and obviously getting some additional carrying income on those deposits.
Can we get?
Hi, Giuliano. It's Nick. Our custodial balances, we don't disclose them in our financials, but they do run about $13 billion-$15 billion on average.
Gotcha.
To your question, if the Fed is more aggressive and raises rates in a more, you know, we'll call it extreme fashion, you will see higher floating income off our deposits.
That's right. That was kind of what I was getting to. Just looking at some of the different pieces of the model that might have some upside and, you know, as short rates move higher, obviously there's if we move, you know, 150, 200 basis points, that's a material impact on $13 billion-$15 billion.
Right. The pickup in value, Giuliano, as you know, is embedded in our MSR value.
That's right. And then, you know, shifting topics a little bit, I realize that, you know, certain, very, you know, a couple people have asked very similar questions around, you know, things like hedging or, you know, how to think about MSR values as they reach kind of closer to kind of, you know, peak values from, you know, in terms of looking back over the last 10-15 years or so.
Well, I would be curious from your perspective, you know, there are a lot of platforms out there, you know, there are even a handful of public companies that are out there that have, you know, MSR portfolios that, you know, that may be interesting, that are, you know, marked lower than where you have your MSRs marked, and you also have some unique kind of origination platforms showing a discount.
You know, do you have a preference or do you have any interest in adding more origination capabilities? Or do you need something very unique on the origination side to add more capabilities there? Or are you more asset focused at this point?
You know, we have all the pieces that we need at this point. If there was a great kind of distressed opportunity on the origination side, of course we'd pursue it. I think it goes back to some of our earlier comments. Capital allocation matters. We're not a mortgage company. You know, we're an investment manager. We're not a REIT. So as we think about deploying capital for us financial services, you know, for example, we have a property preservation business named Guardian, which has a lot of third-party clients. Those guys do a great job. That's an example of something that's not where, you know, we need to go out and just buy assets or we need to go out and buy another operating company.
That company will grow, assuming that if the economy does go into a recession at some point, the earnings in that company will continue to grow. That's just a cash-on-cash business. I think the most important thing that I'd like to get across, or one of the more important things to get across on this call, we're sitting on a lot of cash and liquidity. We don't need to just go spend it. Our core run rate will likely be in the area of where we currently are. Book value should continue to grow. Capital allocation is a big deal. You know, just because you're in the mortgage business doesn't mean that you have to take $1 billion and go buy another mortgage origination platform or buy MSRs at a 6x multiple. If the opportunity comes our way, we'll do that.
It's more about how do we diversify, one. Two, and how do we deploy capital in a more meaningful way that's gonna drive higher core earnings and higher returns for shareholders. I think that's the point to get across.
That's great. I really appreciate, yeah, that. That answers the questions, and, I'll jump back in the queue.
Thank you.
The next question comes from Trevor Cranston of JMP Securities. Please go ahead.
Hey, thanks. One more question related to MSR valuations. You mentioned the possibility of more MSR coming out for sale as, you know, mortgage companies potentially struggle more over the course of the year. Can you talk about how much appetite you guys would have for adding sort of the low coupon MSR that's been originated over the last couple of years? More generally, kind of how you would see returns on bulk MSR purchases today versus other asset classes you might be able to deploy capital into. Thanks.
Trevor, it all comes back to returns. You know, it's, are we, you know, are we gonna buy a 3% gross WAC MSR at a 6.5x multiple? I don't think so. If we could buy them at the right levels and we think we could get, you know, mid-teens returns because we think we could deploy that same capital in a different way at mid-teens returns, I think that's really what it's gonna come down to. We'll add MSRs if we think the value is there, but we don't need to add any more. We got $625 billion between excess and full. Can we grow that? The answer is yes. Will we? Yeah, we can grow it organically through our origination business.
One of the things we look at every day is we say, okay, what's our break even on the MSR portfolio? Where can we originate that unit? How do we think about the macro environment going forward? If we think the macro environment is gonna sell off, then it just comes down to saying, okay, can we produce that unit fully loaded at this yield? How does that compare to, for example, when Charles Sorrentino is looking at the broader NRZ investment universe, how does that compare to him deploying capital, for example, in a AAA security on a levered basis that's gonna be a 15? So it all depends on. Again, it goes back to the capital allocation thing.
Is there an operating business that may be in the commercial real estate side or in the consumer side that we think we're gonna generate 20%+ outsized returns. So it's not just to grow an MSR business, it's not just to grow a mortgage company, it's not just to grow a single-family bond business. It's really how do we create value for shareholders thinking of us as a total return manager with your capital?
Yeah. Okay. Makes sense. Thank you.
Thank you.
The next question comes from Crispin Love of Barclays. Please go ahead.
Hey, guys. Thanks for the time here and for the questions. Really just getting in the weeds. You know, is there any color that you might be able to provide with regards to how the quarter panned out with regards to monthly cadence pertaining to origination volumes? You know, obviously, the first quarter was super volatile. We started the quarter with a 30-year at, what, 3.25%. Throughout March, we averaged about 4.5%. You know, huge difference there. One of the things that the market and, you know, I'm trying to gauge is how sticky this consumer is on the purchase side. You know, in the past, we've seen demand drop off around that 4%-4.5% area, and this consumer seems much more resilient to me.
Do you guys have any thoughts there? Also, you know, any color on how April is trending so far? Really appreciate it. Thank you.
I think on the consumer side, yeah, it's resilient. You know, the consumer is resilient. If you look at home price appreciation for the first quarter, I think the numbers were like 13% or something across the country. You know, listen, I'm not an economist and, you know, we obviously read a lot into where we are. The unemployment rate continues to remain lower. People project that to go even lower as folks drop out of the workforce because they don't wanna work or they're of age and retiring. I do think, you know, right now. Mortgage rates are in and around 5.5%. If you think about it this way, going back to the fourth quarter, mortgage rates have doubled.
The average payment for a homeowner is double, and home prices are up 13% in the first quarter. I do think at some point that will impact the consumer and you'll have some slowdown. That's just my own personal opinion. So far, the trends have been, I think, you know, where the consumer is pretty strong. You've seen a lot of folks rush into, I think, acquire homes in the first quarter with the expectation that mortgage rates are going up. You know, right now, the consumer seems pretty healthy. The flip side of that is you couple, you know, a $5 cup of coffee at Starbucks, $5 a gallon for gas, mortgage rates double. I think at some point it has to impact the consumer.
One of the things that, you know, if you look at the mortgage banking industry, with the amount of folks that are actually leaving the system, I do think at some point it plays on the consumer. We haven't seen it yet. The consumer remains strong. Probably worth looking at the data from like a Bank of America or a JPMorgan, you know, have a large swath of data around their card business.
All right. Thank you. Any color with regards to monthly cadence in the quarter? Anything even directionally would be appreciated. Thank you.
Relating to the consumer?
Relating to origination volumes.
Yeah. I mean, we put in a forecast already that our expectation is that, you know, our funded volume will be somewhere between 17-22. You know, we expect to be somewhere in that higher end of that range, but that's the guidance that we provided.
It's all related to profitability. It's not about the volume number. You know, we did $25 billion in the first quarter. You know, we project $80 billion-$90 billion or something like that for the full year. That number could be $50 billion. That number could be $150 billion. It depends on. We have the machine to do it. It just depends on how much money that we think we can make for shareholders on each unit and what kind of service we can provide to the homeowner.
Yep. Understood. Thanks, guys.
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.
Thanks, everybody, for your questions and joining the call this morning. Look forward to hopefully performing for everybody as we go out through the course of the year. Stay well, and we're around for any follow-up questions. Have a great day.
The conference is now concluded. Thank you for attending today's presentation, and you may now disconnect.