Good day, and welcome to the New Residential First Quarter 2021 Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to Kaitlyn Moritz, Head of Investor Relations, please go ahead.
Great. Thank you, Cole, and good morning, everyone. I'd like to thank you for joining us today for the New Residential First Quarter 2021 Earnings Call. Joining me here today are Michael Nierenberg, our Chairman, CEO and President Nick Santoro, our Chief Financial Officer Bruce Williams, CEO of NewRez and Baron Silverstein, President of NewRez. Throughout the call this morning, 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. Before I turn the call over to Michael, 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'd encourage you to review the disclaimers in our press release and earnings supplement regarding forward looking statements and to 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.
A reconciliation of these measures to the most directly GAAP measures can be found in our earnings supplement. And with that, I will turn the call over to Michael.
Thanks, Caitlin. Good morning, everyone and thanks for joining us. As I look back and we look back, what a year it's been. I am super excited and we're super excited for our future and what lies ahead. 1 year ago, our stock was trading with a 6 handle in and around $6.50 We're raising a pool of capital 11% The world continue to feel uncertain.
Today we have more vaccines than demand. The U. S. Is healing and NRC just announced an acquisition of Caliber at $1,675,000,000 What a difference 1 year has been. Our investment business and operating business lines had Looking ahead, we feel that we are poised to grow earnings and create a world class financial services company with Caliber.
As the competitive landscape gets more difficult on the operating side, the environment will play into our strength with our capital base, Balance sheet and great leadership team. The combination of the Caliber and NewRez teams with the great talent in both organizations will create a company to be reckoned with. The possibilities for us are endless. We will be focused on rolling out other products to our homeowners and build on the great retail presence that Caliber has created. With refinancing volumes significantly lower and the purchase market for housing expected to remain robust, There is nobody that will be better positioned to take advantage of this scenario than us.
As we look ahead, our business is well positioned to take advantage of higher rates with MSRs leading the way. It will go up as rates rise, leading to more cash flow and higher earnings. The addition of Caliber and the great strides we have made around recapture at NewRez will offset the lower expected earnings we will see in the origination business As gain on sale margins continue to shrink, the potential for higher capital charges will lead to more consolidation in the mortgage industry and more MSR sales. With the GSE footprint shrinking in certain segments, we will benefit as the non GSE mortgage market grows again. The call business, so the largest single quarter since pre COVID, we called over $600,000,000 in deals.
The EBO business continues to grow. We have turned Non QM back on and with the great sales At both Caliber and NewRez, we're excited for the volumes that we will continue and hope to see. One thing that is really important to us Our culture is the need to help others. We will be working on lending programs to help all communities around the U. S.
We look forward to rolling those out soon. On the capital front, we are better equitized than at any point in our company history. As we go forward, we will retain higher levels of liquidity to take advantage of any of the opportunities that we see ahead. I'll now refer to the supplement which has been posted online. I'm going to begin on Page 2.
So when you think about NRZ,
over since
we rolled out the company in 2013, we paid $3,600,000,000 in dividends. Our equity today is $5,500,000,000 Our total shareholder return has been 101 percent. Today, our market cap is in and around $4,700,000,000
From a
balance sheet perspective, dollars 24,500,000,000 of assets on our balance sheet. On the origination side, 1st quarter volume $27,200,000,000 for NewRez. Pretax income, 191 point $2,000,000 and we are a top 10 non bank originator. On the servicing side, the servicing portfolio $304,600,000,000 UPB at the end of Q1 pre tax income $31,600,000 and again, a top 10 non bank mortgage servicer. Page 3, the earnings and company highlights.
GAAP net income, dollars 277,600,000 or $0.65 per diluted share. Pretax income, dollars 222,800,000 from our Origination and Servicing segments core earnings, $144,800,000 or $0.34 per diluted share. Dividend remained the same at $0.20 Dividend yield at the end of March, 7.1%. Q1 shareholder returned 15.2%. At the end of March, Cash on hand, little over $1,000,000,000 net equity $5,500,000,000 and our book value dollars 11.35 Book value gains from the end of Q4, 4.4 percent And total economic return during Q1, 6.3%.
And then as all of we raised $522,000,000 when we announced the Caliber transaction. Page 4 is really our book value walk. I'm not going to spend a lot of time on this. Again, book value, dollars 11.35 that's up from $10.87 As we look at Page 5, Q1 and beyond highlights. When we talk about what we did in the quarter and a little bit past the quarter, Obviously, we announced Caliber.
We're super excited about that transaction. We'll talk a little bit more about that as we go forward. When you look at our capital, Referring back to my earlier comments, we've never been more equitized in our company history. We have $2,300,000,000 of unencumbered assets, of which $1,000,000,000 is cash. When we look at our origination business, dollars 27,200,000,000 in the Q1.
That is a record for us. Call rights, Again, turn back on, highest quarterly number since the end of Q4 of 2019, we called $636,000,000 in deals. On our EBO strategy, we bought out a cumulative amount of $1,100,000,000 of EBOs. We're starting to redeliver those and we look forward to And again, our shareholder values, when we talk about book value, grew 4.4% in the quarter and our economic return went up by economic return was 6.3%. I want to spend a minute and talk about our investment business.
When we think about the go forward for us, I think that this plays extremely well into our strengths. We do believe that the private label market We'll start to grow again as the GSE landscape pulls back in certain areas. So when you think about us as a REIT and you About the talent on our investment portfolio side, we're very excited about that and we think that will be accretive as we go forward. Call activity, Again, $636,000,000 in the Q1. The call business is back, and when we think about it from a profitability We're super excited about that as well.
MSR Asset sales are likely to rise as gain on sale margins continue to contract. Originators are going to need more liquidity. And if you think back to our history, we're poised to take advantage of MSR sales in the marketplace. On the NonQM front, I mentioned earlier, we started rolling out NonQM on the origination side. The combination of NewRez and Caliber should make us one of the largest non QM originators In the marketplace and when you think again about our securitization business, our investment portfolio, we're very excited about what's to come.
On the single family rental side, I haven't spoken about this in the past. We have a pipeline of about 1100 homes, About 50% to 60% of those are already funded and we look forward to continuing to grow that business. And then again on the EBO front, That's a business line that we expect to continue to grow. On Page 8, just looking at our investment portfolio, During the quarter, we purchased $1,600,000,000 of agency securities, dollars 333,000,000 of Ginnie Mae EBOs. During the quarter, we sold $750,000,000 of residential loans and $186,000,000 of legacy non agency securities, Mostly down in the capital stack from a credit perspective as dollar prices have rebounded and even surpassed the highs that we saw in the Q1 of 2020.
Post Q1, we grew our SFR portfolio, as I mentioned, And we have already in this quarter called $100,000,000 of non agency deals. The bottom part of the page, you could have a look and just see from our investment portfolios that should give you a sense of how we think about our business on a go forward basis. Page 9, On the MSR front, just a couple of things to point out here. One is, while we saw MSR values rise in the Q1, We do believe there's a lot more to come there. We have not seen the massive slowdown that we expect going forward From a speed perspective, which will lead to lower amortization and more cash flow, Q1 was still fairly robust On the amortization front, when you look at our financing business around the MSR portfolio, continue to move our MSR financing business From bank balance sheets into the capital markets and that will be a common theme as we go forward once everything is transferred to our bank balance sheets into the capital markets.
When we look at our mortgage rates for the quarter, 2.79% versus 2.86% in the 4th quarter. On the servicing side, we increased new res and SMS servicing to 53% of our overall portfolio, Which is up from 50% at the end of Q4. On the recapture front, I mentioned we continue to grow our recapture rates. The group has done a great job there. If you think about where we are in the low 20s, Caliber is north of 50% and you think about the $515,000,000,000 portfolio of As far as we have at the end of Q1, again, we think that as we get better and better and the refinancing markets Continue to contract, you're going to see a lot more cash flow and higher earnings for the company as we go forward.
Page 10, As we think about rates in the Q1, again NRZ, our MSR portfolios benefited from higher rates. Referring back to my earlier comments, MSRs are one of the few assets that will go up as rates rise. You can see some sensitivity tables at the bottom part of the Page on the left side, changes in recapture rates, what that will do to our market values and then overall multiples on the bottom right side of the page, what that will do to Implied book values as we go forward. So again, you know, 11.35 book value at the end of Q1. As we go forward and as rates rise, we think that book values will continue to increase.
Call right business, Again, not to beat a dead horse, dollars 636,000,000 of collateral called in the Q1, we have already called $100,000,000 this quarter. We did some loan sales and we expect to continue to increase our call business as we go forward. Page 12, I'm not going to spend a lot of time on it. There's no real material change from our balance sheet as we think about the loan business or the non agency Our legacy business still relatively small as we look back in the company history. Again, during that COVID Period, if you recall back to March of last year, we sold $6,000,000,000 of non agency legacy securities today.
Our total balance sheet around that is about $1,300,000,000 of which 52% are risk retention bonds that we have to hold for Dodd Frank. On the servicer advance side, Page 13, not a lot really to talk about. Actual advances went down quarter over quarter. We have a ton of capacity. And again, to the extent that advances increased down the road, We are well positioned to handle anything that comes our way.
I'll now start talking a little bit about the operating business. I'll turn over A chunk of this section to Barron, who is sitting to my left. Starting on Page 15, the acquisition of Caliber, Again, super excited. I think the combination of NewRez and Caliber will put us in a position to compete against Anybody in the industry. We have a lot of what I would call high aspirations.
Just a couple of highlights on this. One is we hope to close this in the Q3. I know a number of you are thinking about that as you model up Earnings and the balance sheet. From a purchase price standpoint, roughly one times book, we had $140,000,000,000 of MSRs. This is Currently, recapture rates on the caliber front north of 50% industry leading there.
When we think about the retail footprint, We have when we think about Merrell and their retail network and they refer to as the Thundering Herd, I'd like to think about our retail and the caliber retail folks as like a thundering herd. As I pointed out, rates are up a fair amount The Q4 refinancing markets have come off a fair amount in the Q1. So what does this mean? You're going to continue to see In much larger purchase market, and again, there's very few companies that I think are well as well positioned as we are Once this deal closes with the great retail network on the Caliber side to take advantage of that. We think about asset generation, there's roughly 380 branches on the Caliber side.
We are going to be rolling out more and more products To that system, I could imagine down the road at some point we have a consumer business and leverage off the retail network. If you think about some of our history here at Fortress with OneMain and some of the and SpringCastle early on, I think that Again, our possibilities are endless and what we could do with this company. When we think about talent, scale and our capacity, the mortgage industry over the past couple of years has suffered from a lack of available talent. The combination of these two organizations give us all we need to support growth and grow in a meaningful way as we go forward. On the technology front, the combined company spend well north of $300,000,000 I look forward and we I think all of us look forward to game changing mortgage technology.
When you look at the valuations on some of these mortgage companies that are theoretically mortgage technology companies on The origination side, quite frankly, in my mind, there's a lot of bells and whistles around that. There's no reason that we can't be the same or better As we think about that and think about our technology investments, so we're very, very excited about that. And then overall, when we think about the transaction, it's going to be very accretive For our company, our employees and our shareholders, so very excited there. Page 16, this is really just a snapshot of Caliber Pre tax income and this goes back to 2020, dollars 891,000,000 in 20 20, 25% CAGR, 54% retention rates, 5th largest non bank originator by Volume, again, a very, very important status. You think about the refinancing markets kind of rolling off, roughly 380 retail locations And the 6 largest non bank retail lender and 630,000 customers on a scale platform.
So overall, Again, super excited about the transaction, the complementary business models and I think where we go from here. I will now turn over the presentation to Barron. So Barron?
All right. Thanks, Mike. Good morning, everyone. Turning on Slide 17 and just to echo Mike's sentiment, we're also really excited about the opportunity to combine the new res and Caliber platforms. And while we're in the early stages of our integration discussions, we believe the 2 companies will have significant upside that's Accelerate our objectives, goals for the origination and servicing efforts.
As this slide show, we feel the combination of the platforms will provide a strong alignment in both our business models and long term strategies, whether that's in direct to consumer by increasing our recapture rates over 50%, Leveraging Caliber's distributed retail channels to improve our JV franchise or in wholesale, further penetration in the direct to broker channel while expanding our NonQM platform, growing our correspondent footprint, expanding our servicing franchise in both our customer for life and special servicing strategies And as Michael also just talked about, talent, scale, capacity, order growth along with our transformational mortgage technology. Transaction is going to be great for both companies, and we're looking forward to providing more details in the months that follow. So turning to Slide 18, give a little bit of color on the new res operating results. Q1 of 'twenty one was a great quarter for our origination platform, including record quarterly fundings and record quarterly pull through adjusted lot volumes. For the division, we ended the Q1 with $191,000,000 of pretax income, a 23% decline quarter over quarter.
Primary reason for the decline is peak margin compression as we saw margins compress along with the rate move in February. However, in April, we've seen a stabilization in margins in all channels other than wholesale, which has remained under competitive pressure due to some of the moves from the larger players in When I look at the performance of each channel during the quarter, we made progress on many of the key goals and initiatives that we talked about on our last earnings call. Direct to consumer remains a huge focus for NewRez and NRZ and a continued long term opportunity for our company. We've continued to grow this channel 30% every quarter and in March we had our largest funding month closing $2,300,000,000 in loans. This is something we are really excited about as our added Lower than the rest of the year given the seasonal lot volume slowdown in December January.
Our JV channel has also been historically purchase And we're seeing more purchase volume as refinances slow down. Regarding our wholesale channel, we We continue to grow our platform by adding new customers, new broker relationships, building our branches and while margins have compressed the relaunch of our Non QM channels begun to pick up steam. We're now out with all of our product offerings. Sales teams have picked up momentum. We saw lots of $35,000,000 in April with the goal to get back to our pre COVID levels of $125,000,000 per month.
In our correspondent channel, we had another record quarter purchasing Over $17,000,000,000 in mortgage loans with March being our largest funding month ever at over $6,500,000,000 and we will continue to evaluate the market dynamics of our correspondent channel opportunistically buying MSRs and adding to our customer base. So when I think about our performance for The Q1, both in terms of funded units and other metrics we used to evaluate our performance, we saw great progress. Turning to Slide 19. We showed this slide last quarter as well, but I do want to highlight the market share growth As that continues to be agnostic to market conditions as all mortgage companies have grown origination production and profitability in 2020, meaning rising tides of all boats. However, we've demonstrated our ability to successfully grow not only our origination bonds but also our market share, and our focus is to continue capturing more market share.
We believe we can do that across our platform and across our channels. At the end of the Q1, our market share has grown to 2.5%, which is 30% growth quarter over quarter. Small The market share can have a big impact on our overall profitability and that's what we're planning for. We also have one of the largest servicing portfolios with Over 1,700,000 homeowners that we want to retain as customers of NewRez. And as we continue to build out our brand and get better at recapture, The right side of the page reflects our recapture performance in the Q1.
I mentioned earlier that some of our process 27% increase quarter over quarter. And this proves out the importance of our brand awareness Moving to Slide 20, I already highlighted the performance of our direct to consumer channel in my earlier comments. However, just to reiterate that we've done a great job growing this channel and you can see that in the top left chart. Increased Volume in quarterly fundings up to $5,700,000,000
pull through adjusted lap volume
of $6,400,000 which in turn drives our recapture performance. We continue to see margin compression quarter over quarter. The DTC margins increased slightly in April, So expectations are that margins may flatten for the remainder of the quarter. We had our largest funding month again in 2021 in March We've also entered the new customer acquisition business and expect that expansion will offset some of the reduction in refinance volumes in the months to come. Turning to Slide 21.
For the servicing division, we ended the Q1 with $31,600,000 of pretax income, a 34% decline. The primary reason for the decline in PTI is related in large part to both seasonal adjustments to accruals that were released at the end of last year and reduction in For context, our Q3 2020 PTI was $30,000,000 and more in line normalization of our servicing P and L. We ended the Q1 with an aggregate servicing portfolio of approximately 305,000,000,000 UPB and approximately 1,700,000 customers, which represents modest growth quarter over quarter. And on the bottom right, you'll see a slight pickup Quarter over quarter in terms of cost per loan to service, which is due to the efforts we employ to help COVID impacted homeowners achieve a loss mitigation solution and retain their home. We expect these costs to continue through the end of the foreclosure moratorium.
On Slide 22, We continue to provide this summary as it's important to me, it's important to our business to showcase the strength of our best in class special servicer and our special servicing Jack Navarro and our special Shellpoint Mortgage Servicing team do an outstanding job and are well recognized in the industry as one of the best special servicers in The recognition for both Moody's and Fitch to upgrade our platform after the significant growth and the challenges from COVID are further testament to our strength in special servicing. On this last slide, Slide 23, I think it's just worth Highlighting the continued progress we see in terms of borrowers on forbearance, since the CARES Act was first We've helped over 234,000 homeowners navigate the COVID pandemic, 142,000 resolved their forbearance, 40,000 homeowners have resolved their forbearance and since refinance or paid their loans in full. Our numbers are in line with the industry And good work so far, but more to do to help out homeowners. Now with that, I'll turn it back over to Mike.
Operator, why don't we turn it back over to you and open up the lines for Q and A.
Thank you. We will now begin the question and answer session. And at this time, we'll pause momentarily to assemble the roster. Our first question today will come from Kenneth Lee with RBC Capital Markets. Please go ahead.
Hi, good morning. Thanks for Just one on the funded origination volumes. Wondering if you could just provide a bit more color around what you saw in the quarter? And perhaps, wonder if you could just share some of the key factors that's driving the expected origination volumes in the Q2? Thanks.
So, I mean, just keep in mind in the context of our funded volumes, right, there is a lag in the context of From lock to closing and that depends on the channel of origination, say, between 30 or 60 days or more in certain channels. I think what we've seen is and Michael briefly talked about this, we have seen a decline in our overall refinance volume As rates have risen, our refinance numbers are down probably close to about 20% or 25%. And we are starting to see a little bit of a stabilization, as I mentioned before, in the context of the month of April, where we've kind of leveled into what I would say perhaps depending on what happens on the interest rate environment, hopefully a more normalized market. And I
Great. Very helpful. And just one follow-up, if I may, just around the call rights. Wondering if you could just talk about
So in the Call Right business, I mean, a lot of it has to do with Spread and where assets are trading quite frankly. When you look at the loan markets, you look at the non agency bond markets, We've been pretty clear we're not putting out a lot of capital for non agency mortgage securities here as we think the risk returns For us, they are not great. As we look at the call business, however, and you look at again asset pricing, you look at What's happened with forbearance rates, we expect our call business having $70,000,000,000 to $80,000,000,000 of call rights to remain robust as we go forward From here on, and that's really what the drivers have been.
Great, very helpful. Thank you very much.
Thank you.
And our next question will come from Trevor Cranston with JMP Securities. Please go ahead.
Thanks. Good morning.
Good morning.
You guys mentioned normalization of gain on sale margins a couple of times. I was wondering if you could dig into that a little bit more and maybe provide some context for where you're seeing margins Today versus where they were in the Q1 or just generally, what you guys would think of as a normalized Overall margin for the origination business? Thanks.
It really depends on the channel and we look at each of the channels on A different framework. I would tell you that the direct to consumer channel, we're seeing margins in the low to mid-300s. The JV channels or our retail channels, we're seeing our margins coming in, say, the mid-four 100s. TPO has been, as I talked about, Somewhat volatile in the context as margins continue to compress given the competitive pressures that we've seen. And we are now basically sub-one 100.
And then we've seen declines month over month. There's been a very, very, very steep decline in margins overall within the wholesale Channel and that's why it's so important for us to focus on alternative products that Michael continues to talk about our non QM franchise. And really for us, it's a big push to make sure that we get that rolled out between us and as well as the partnership on the Caliber side. On the correspondent side, We have definitively seen kind of what we're hoping for is a little bit more of a flattening of where we are with margins and I would tell you that They probably range around 35 basis points and it just really comes down to how your splits are and how you attach to the channel overall. I would tell you that they've also flattened out around that 35 basis point range.
Just one further comment on that. I mean, you would expect, as we go forward, Margins to normalize back to probably 2019 kind of levels, I think for the industry and you think about where we are and Baron always refers to the so called channels, with The combination of Caliber and NewRez and thinking about retail and the refinancing markets coming off, the retail channels or the retail Our network is so important to us. The direct to consumer channel is very important to us and then we think about our JV channel. We're getting out of any channel, but I'm just saying when you think about from a profitability standpoint, a lot of those three areas are very sticky In nature, when you think about it from a profitability standpoint.
Got it. Okay, that's
I just think the channels can actually perform Differently depending on the market, so having the multiple channel, multi channel strategy can be beneficial, right. So even if one is underperforming, you can actually You don't outperform in the other market.
Sure. Okay. And Last quarter, you guys published a table that showed the earnings benefit from rates increasing. And obviously, there's 2 big moving parts there. 1 was less amortization on MSRs and then the offset was lower Income from the origination business.
I was just curious as we've actually seen interest rates rise about the Level of magnitude that you had in that chart, is there anything that you feel like has changed versus those numbers, which I think You know showed an overall $0.18 core earnings benefit on either the MSR side or the origination
We haven't seen the benefit from an amortization standpoint in the Q1. While we've seen gain on sale margins come in And overall origination profitability will be lower as we go forward. At least, that's our guesstimation right now. The MSR Our assets should go up and you will get more cash flow, because when you look at the refinancing markets, they're probably off 30 plus percent. I know Barron gave a number, we're down 20% or 25%, I think from an industry standpoint and this has been published by a number of our friends and peers out there as they've reported, There is going to be less refinancing activity, which will lead to higher valuations on MSRs.
The one difference I think where we are today versus if you roll back the clock a few years ago where we didn't have as many agency securities, You know in the Q1 agencies widened a little bit then came back. While rates are up, the absolute value of that mortgage asset on the agency side is a Seaside is a little bit lower, so that impacted, from us overall book value a little bit, but and we have hedges against some of our agency securities as But as you go forward, I think you're going to see that real lift when amortization slows down. And I think from an industry standpoint, we expect amortization to slow down by about 30% as we go forward.
Okay. Appreciate the comments. Thank you.
Thanks, Trevor.
And our next question will come from Henry Coffey with Wedbush. Please go ahead.
Good morning and thank you for taking my question. Just to continue with what Trevor was asking about, in terms of really watching where your amortization rates are going, Is it as easy as just kind of checking the pool factors every month and seeing where agency speeds are or are there other issues that we should be looking at?
We have been pretty vocal over the in the past about our credit impaired Portfolio, we still think that the amount of we have a $515,000,000,000 portfolio of MSRs. We think that the eligible population of that is about 30% for refinancing right now or in the money. The government came out with some new programs where they're going to try to increase origination to folks that haven't been But a refinance in the past, we'll see how that is and really the impact on our portfolios. We don't think it's material. So I think part of it, Henry, is the factor.
The other part is, I would just say 30% right now and as we go forward monitoring rates and mortgage rates. And we'll try to get a little bit more refined on that. The other part about that is, you know, with the NewRez team increasing their recapture percentages probably more into I guess into the mid-20s now from when we were in the teens, you look at the job that Sanjeev and his team have done at Caliber on a recapture From a recapture percentage in north of 50 on a number of their channels, we do think amortization will slow down and We look forward to much higher marks on our MSR portfolios, higher book values and higher earnings as we go forward towards the latter part of 'twenty
And you are, in many respects, hedging the MSRs with agencies. So, is the real contribution going to I mean, not on a one to one basis, but there's some of that there. Is the real contribution from the MSRs going to be related to amortization and Sort of total yields or how should we be thinking about it?
Well, it's kind of both. We have a give or take of $14,000,000,000 or $15,000,000,000 Agency mortgage position, some of that has to do with compliance from a REIT perspective and 40 Act compliance. Against that, we have a material amount of swaps where we have payers on against that, meaning that we're effectively hedging out Our agency book, so net net, we're short. So an increase in rates will lead to higher MSR values, obviously. It will lead to a P and L, positive P and L on a swap book and a lower P and L on our specified book and you saw a little bit of that Play out in the Q1 when you look at swap P and L up, agency mortgage P and L down Then the MSR P and L up.
Then finally, you haven't been excited about investment opportunities in a long time. I think the bargains were back in March, which Didn't really matter to anybody as we all kind of tried to rectify books. How much of the recently raised capital is going to go into the new investment opportunities like Single family rental and how much is going to be just retained for ultimately going into the Caliber transaction?
I think the way that all of us or the way that we think about the world, we will have higher amounts of capital on our balance sheet at all You know, the it's your point Henry, we've been pretty vocal that the investment opportunities have not been great. They're not great right now by any means. When I think about the engine that we have here, again with the Caliber folks, We could produce a lot of product. The product with the GSE footprint pulling back a little bit, that's going to create some really interesting opportunities We're already seeing that now. Obviously, the EBO stuff has been pretty fruitful.
We have never been We're a large Ginnie player, however, so some of our again, some of our friends and peers out there have had better results in that space. But we're going to be patient. We're going to have plenty of capital on hand at all times to take advantage of what we think is going to be a higher rate environment And at some point, give us the opportunity to deploy capital away from our operating business. And then thinking about the MSR business, for example, There will be higher capital requirements put on all, I think, mortgage originators as we go forward. So what's the result of that?
If gain on sale margins We continue to contract, which is very possible. There will be sales of MSRs and we think that the REIT itself Is poised to benefit from that as we think about higher rates, higher capital needs and lower gain on sale.
My last question, can you tell us sorry, can you tell me something about the single family rental business? Is that an operating business or how is that going to work?
Yes, it's small for us now. We have about 1100 homes. A lot of that is funded. We work with a third party who is really our operator. We're in certain markets.
We're currently in 15 markets. The current the top markets for us are Atlanta, Houston, Florida. Are doing some stuff in Mississippi. So it's small now. We will monitor home prices quite frankly.
This is not just Buy homes to buy homes, I think our early acquisitions in this business have been good. Our performance has been good. Right now, I think our average cap rate on this stuff unlevered is about 5.5%. We have good financing on it. We'll see how it goes, but we expect it to be a real business as we go forward.
We think the shift in the United States with home prices continuing to rise in certain markets, Very good on the rental side. We're pretty excited about that. We have a good team that's really allocated to working on that business.
Great. Thank you very much.
Thanks, Henry.
And our next question will come from Bose George with KBW. Please go ahead.
Hey, everyone. Good morning. Actually, I wanted to go back to the questions on the gain on sale margin. I think, Baron, you noted that the TPO margin is now sub-one hundred basis points. Richie, where was that like last quarter and in the 4th quarter?
Last quarter, we ended it was basically double that into The end of last quarter, close to 200. And then I would tell you basically at the end of the 3rd quarter, you're almost another 100 basis points above that. So you really dropped in about 100 basis points per quarter.
Okay, great. Thanks. And then, what's can I get an update just on the book value quarter to date? And then just a related question. On the MSR mark, We did see like some other companies take some pretty big MSR marks.
So I was wondering like if I look at your MSR portfolio versus the others, does The lack of or the lower prepayability for part of it sort of make the market a little more subdued versus the peers?
Yes. Let me start with the mark. We expect to see marks increase On that portfolio, fairly dramatically as we go forward. When we saw the high levels of amortization, think March even came in a little bit higher than people expected. Prepayments in March were about 18% faster than what people thought.
I think part of that is a day count thing, but overall, as we see speeds come off and again, we do think they'll be 30% slower as we go forward. This is really going to be a big deal for us because this is what's going to lead to higher core earnings as we go forward. So marks will go up and that will help our book value obviously, but I think really as we think about getting back to Much higher core earnings on a go forward basis that will start to kick in we hope in the Q3 3rd to Q4 of 'twenty one. Regarding book value, Nick's here. Nick, why don't you just walk through some of the adjustments in book value?
Sure. So Bose, From quarter end, from a performance standpoint, book value is relatively unchanged. The one thing you need to factor in is the additional share issuance. So that will bring our book value down by approximately $0.15
And our next question will come from Eric Hagen with BTIG. Please go ahead. Thanks.
How are you guys? Maybe another one on the MSR and just the framework for how to think about that valuation. When we look at the MSR value At the end of 2018 is maybe one good proxy for when speeds were basically at their lows. I think the MSR was carried at a multiple of around 4. And so when we think about the sensitivity going forward and sort of the overall upside that I think you noted in the presentation, is it right to think that you guys 4x kind of area, because you have a more robust recapture framework now or is there something else that could drive that?
It's a really good question. I think if you go back to 2018, the product mix we had on our balance sheet at that time was very, very different than where we are now. So when you think about, if you're originating, I think our gross rate in the Q1 was 2.79 or something like that. That's a newer production MSR. If you think about that MSR today, it's probably a 4.25%, 4.5% multiple.
If you think To the old days going back to 2018, we had this legacy, we probably had more legacy MSRs, so at a 4 multiple. So I think the way to think of us going forward as there's more production in these lower rate mortgages that were originated going back to the Q4 and the Q1 of Respectively, 'twenty and 'twenty one, those will go up a fair amount more than that 4 multiple. The legacy stuff will go up, Not as much just because you have more seasoning on it. So getting back to that 4 multiples, is that doable? Absolutely.
Do I think it happens Today, no. Will it happen over the course of the year? I think it's very likely.
Good stuff. That's helpful. I think NewRez issued some securitized warehouse funding last week. Can you talk through some of the deal economics there and how it compares to bank warehouse funding right now? And separately, did you guys say how much origination volume Caliber did last quarter?
So on the Caliber front, we did not. But I think the way to I spoke to Sanje, obviously, we talk all the time. On the Caliber side, I would Expect their origination volumes for the year to be something comparable to what they were in 2020. So when you look at that page, it's give or take about probably $70,000,000,000 to $80,000,000,000 something in that range. In 2020, it was $80,000,000,000 So that's on the caliber side.
On the warehouse side, and I'll let Barron talk to some of the math around it. Our goal, and this will continue to be as a company, will We to limit the amount of real exposure we have to any one counterparty as we think about our business going forward. So the more stuff that we All about getting away from real mark to market. This does have mark to market provisions. The mark to market provisions on this stuff are better, but the cost of funds and the advance rates are actually better versus bank funding.
So, Barron, I don't know if you want to say
anything here. Yes, I think the real key here for us is that we're able to obtain 3 year committed warehouse financing, right, at a very cost effective rate cheaper than what we get from the banks, Right. And that I would tell you, especially with my prior background, is very, very attractive and accretive for our platform. And in the context of doing capital markets transactions, so as Michael talked about, there are it's A little bit more favorable than how we benchmark our bank financing. We are always still going to have bank financing there.
Those are important partners to us. But To the extent that we can diversify and obtain 3 year committed financing, we're going to look to try to do that.
Thank you guys very much.
Thank you.
And our next question will come from Kevin Barker with Piper Sandler. Please go ahead.
Thanks. You mentioned your funded volume is going to be down slightly quarter over quarter in 'twenty and in the second quarter, Partly due to direct to consumer the decline in refinance demand for direct to consumer, what other channels are you seeing a little bit Pressure there on volume, recognizing that pull through adjusted locks were only up 4% quarter over quarter?
Yes. I mean, look, we look at each channel from an overall return perspective as opposed to necessarily focusing on Focusing on volume. On our direct to consumer, we're very much focused on recapture right now And we still have a significant number of consumers that are in the money. I think that as Michael, I think in prior talked about the in the money calculation of consumers that can save $100 a month. We still have approximately 1,000,000 consumers in the money for us today At today's interest rates, so we do look at the context of our direct to consumer franchise having Continued upside and growth as we expand into that new customer acquisition.
Our JVs are definitively going to see refinances slow down, And we've seen that already as talked about, but that's a purchase business with our partnerships with Realtors across the U. S. So it's really just more of matter as to how we're maximizing our ROE through our 3rd party channels, including wholesale and correspondent. And at this point, we still believe the correspondent Business is accretive to our franchise, and we look opportunistically in TPO and we talked about NonQM.
The other thing, Kevin, on that front is, from a volume perspective and I know everybody always talked about We care about making money. And so if we do less volume and we make more money, that's really where we're going to shake out. The other thing is when you think about The spread compression you're seeing in the correspondent business, which is you go back to the old days, that's a good MSR creation vehicle for us if we Rates are going to go up. So when we think about the amount of volume we do there, it's essentially you're buying a closed loan. So, that's something that we'll continue to monitor, 1 from a P and L standpoint, but 2 from a market direction standpoint as we think about, the overall REIT market.
Okay. And then several of your non bank competitors have continued to build capacity and have looked To continue to take market share as we move through this year, but and it seems like We're definitely seeing lower demand. What gives you confidence that the direct to consumer channel can maintain on sale margins at 2019 levels. With that type of dynamic, where Capacity is still building and 2019 was a relatively good year when we look at post Crisis, mortgage origination profitability?
So, one of the reasons we did the Caliber Transaction, one is it's a great company. 2, they have obviously a great leadership team and what I would refer to this so called thundering herd. So that purchase market is going to be something that's really important to us. It's not when we think about real volumes and we think about real P and L, You're going to see a lot more efficiencies, I think, around the technology side. We have a lot of initiatives that we're currently working on, getting loans closed quicker.
And when you talk about sheer scale, I do think the mortgage business is here to stay. It doesn't mean people are going to do anywhere near the same volumes as we go forward because If refinancing volumes continue to go down by 30%, at some point, if the housing market rolls over a little bit, Volumes are going to come off pretty dramatically and I do think you see margins squeeze. Think about our business. We have 500 plus 1,000,000,000 of MSRs. We are so perfectly situated to actually take advantage of virtually a very low Velocity origination market as we go forward, that coupled with I think the recapture rates that we have both on the NewRez side, which Growing and what Caliber has done on their side, you'll see lower volumes.
I do think the mortgage business is here to stay. I think the valuations The mortgage companies, whether it be us or we always think we're undervalued honestly. But when we think about other peers out there, Whether it be Jay and Cooper and David and his business, it's here to stay. And We all know that the mortgage business is episodic as it relates to P and L and flows, but it's a real product. It's a huge market.
It's a multi $1,000,000,000,000 market. And so volumes may come off, P and L may come off, but long term, it's here to stay. And I think everybody having capacity is going to matter.
Okay.
Thank you for taking my questions.
And our next question will come from Giuliano Bologna with Compass Point. Please go ahead.
Good morning and thanks for taking my questions. I guess from a little bit of a starting point, one of the areas where I was curious to get your input was when we look at the Caliber transaction, I think they had a little bit over $1,400,000,000 of MSRs towards the end of February. It was a little bit over 1,100,000,000 December 31, I was curious kind of about 2 different things there. 1, do you know if those numbers include any kind of Any recapture assumptions or if those are pre recapture? And then the second part of that is kind of twofold, but when you bring on If you were to merge the 2 entities, Caliber recapture performance is pretty impressive.
And that could obviously lift your recapture performance over time, Not be immediate, but that could push your recapture assumptions higher over time for your core portfolio, which could be accretive. And also the Caliber portfolio itself may also get some embedded Recapture benefits when assuming the transaction closes and the transaction happens, the way that I calculate that is that It could be $150,000,000 plus of additional upside, if not more, for the Caliber portfolio before any kind of tack on benefits to your core portfolio. And that could more than offset all the dilution from the secondary. Is that a good way of thinking of it? And am I going off in the wrong direction there?
I can't ask you to repeat that question, but so why don't we start with the Caliber portfolio. The Caliber When we quote the $140,000,000,000 that's as of the end of twelvethirty one. So the way the transaction works, it's a closed box. So once it closes, We get all the so called assets and on from a balance sheet perspective, the 140,000,000,000 There's no formula that's put into that recapture percentage as it relates to that $140,000,000 just so we have that. As you think about Caliber and if Caliber does, call it, dollars 75,000,000,000 to $85,000,000,000 of production and You have to assume some kind of amortization rate and recapture rate.
The net of that will be that's What our MSR portfolio will be. We think As we integrate and bring both companies together and the transaction closes, the lift that our overall business will get from, Quite frankly, both sides and the recapture percentages going up are going to be significant from an income standpoint on our Overall earnings for our company profile. I don't know exactly what that is. I think, you know, when we did the When we announced the Caliber transaction, our goal is obviously to make as much money for our shareholders as possible. It is highly accretive.
We believe this transaction, but I don't want to short a specific number. I may have done that in
the past, so if you go
back and listen to some of our other calls, but I see no reason why we won't get back to a much higher earnings stream.
That makes sense. And I realize that my question was pretty convoluted. What I was curious about, which A little bit of a different direction was the book value impacts and if post merger if there are any benefits of adding higher recapture assumptions into your MSR Fair value analysis that could push your MSR values up and also similarly for the MSRs that will be coming over on the Caliber side. Yes,
we haven't changed any of our book value assumptions related to any Lift we're going to get on any recapture from the Caliber franchise at all. One thing and Nick pointed out, and Just when you think about book value today and as we think about the Q2, so everybody can model this correctly, why don't you just share the $0.03 thought?
Sure. So as I mentioned to Bose earlier, the expectation is there's an approximately $0.15 dilution On book value related to the share issuance, in addition, the impact on core earnings is going to be a dilution of $0.03 And as Michael mentioned earlier in terms of book or anticipated We haven't factored in any lift from factoring in recapture into the caliber mark.
That is perfect. I really appreciate it and I will jump back in the queue.
Thanks for the question.
And our next question will come from Mark DeVries with Barclays. Please go ahead.
Yes, thanks. You highlighted the opportunity in non QM originations. That market has been really slow to develop ever since kind of the whole QM Can you just talk about what's limited the growth of that market? What you think may be changing to make it a bigger opportunity? How big you think it could be for you?
And then finally, kind of how the returns for that may stack up to originating QM loans particularly kind of in light of the fact you just don't have the same kind of legal safe harbors?
Yes. I mean just The reason it hasn't started up is the industry is short, quite frankly, capacity. The combination of the 2 companies will give us The other thing is when you think about the nature of the origination market in 2020 with So much production on the agency side. There was not enough folks quite frankly to process non QM loans. As you think about refinancing volumes coming off and the need for what I would call non QM products and non government guaranteed products, We expect it to be a pretty significant part of our business.
Caliber has been there before. We've been there before and Baron, I think, alluded to $125,000,000 a I'm looking at him and thinking like that's very low. So we will try to grow prudently around that space, But it's really the governor has been the ability to process loans and capacity. From a profitability standpoint, it's a pretty profitable business. I mean, We I think in our deck, we alluded to an asset sale of $750,000,000 of loans.
We've called some deals Where we issued in the past, and dollar prices on those assets have been $106, $107,000 something around That range and if you go back to the COVID crisis, those couple of tough weeks for us and others in March, Those loans were trading give or take $0.90 So you've seen obviously a dramatic recovery in pricing that will help drive I think more production for us, That's having the capacity, the greater the great so called retail network on Caliber as well as us, We want to get these products out as soon as possible and I think it's really going to be a good profitable business for us.
Okay, got it. And do you see that as also being an opportunity Create some credit assets for the REIT to hold?
Absolutely. I mean, one of the things, if you think about even Sanjeev and his Management team, they come from a consumer banking background. There is no reason why we shouldn't be able to think about, and we're working on this now, You know, A OneMain type business, obviously, it's credit profiles, you know, we'll be evaluating different credit profiles, But there's no reason why we shouldn't be able to roll out different products into the marketplace through the Caliber retail network as well as on the NewRiz side. We have a great sales On the new risk side.
Okay. Got it. And then just one last for me. As you think about the opportunity to Do more bulk MSR acquisitions coming back as origina gain and sell margins compress. What kind of returns do you think you'll be targeting for those acquisitions.
We have to be thoughtful. Obviously, we have a huge production machine When the two companies come together, so we're mindful of that. We've always been out there saying give or take 8% unlevered. I think we'll Probably stay with those kind of numbers. With proper financing, you're in the double digits.
So That's part of it. The other part to think about is, we are in the middle of an acquisition and we have to think about balance sheet and governors and Our friends in D. C. And how we think about capital. So, there's some things to think about there, but we want to be in a position to be supportive of, 1, the industry, but 2, obviously, taking advantage of any opportunities that come our way around MSR sales.
Okay, great. Thank you.
Thank you. And this will conclude our question and answer session. I'd like to turn the conference back over to Michael Nierenberg for any closing remarks.
That's all I have. We appreciate everybody's time this morning on the call and questions. Any follow-up, give us a holler and
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.