Good day, and welcome to the New Residential Second 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 this event is being recorded. I would now like to turn the conference over to Caitlin Moritz, Investor Relations.
Please go ahead.
Great. Thank you, Betsy, and good morning, everyone. I'd like to thank you for joining us today for the New Residential Second Quarter 2021 Earnings Call. Joining me here today are Michael Nierenberg, Chairman, CEO and President of New Residential 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.
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 These statements by their nature are uncertain and may differ materially from actual results. I'd encourage you to review the disclaimers in our Release and earnings supplement regarding forward looking statements and a review of 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 comparable GAAP measures can be found in our earnings supplement.
And with that, I'll turn the call over to Michael.
Thanks, Kate. Good morning, everyone, and thanks for joining us. The Q2 for our company was a very good one. While the markets are challenging, we maintained book value and created stable earnings. When you think about our actual book It grew quarter over quarter before our capital raise related to the Caliber purchase.
Our core earnings were in line with Q1 taking into account $0.03 in dilution. So if you take away the dilution, our core earnings were actually $0.34 I feel very strongly that our company is positioned extremely well for all interest rate environments. The Caliber acquisition, which we announced early in the quarter, is a game changer For our company and quite frankly, the industry. We are now in a position to compete against anybody. We will be able to offer many different products to homeowners across all of The excellent leadership of both companies, the personnel of both companies, The technology on the Caliber side and the sheer scale of our business will enable us to drive results for shareholders for years to come.
While we believe that interest rates will rise to the extent they rise slowly or stay around these levels, our production machine coupled with the excellent recapture rates in the combined company Will enable us to grow our portfolio of MSRs. We are super excited about our operating business. On the investment portfolio side, the team continued to do a great job. Our financing business has never been better. We have essentially moved most, if not all of our financing away from daily mark to market other than Our call business is back to pre COVID levels and our EVO business continues to grow.
Essentially going forward with this level of rates, We will focus on our own, what I would call proprietary portfolios, call rights, EBOs and MSRs. We will remain patient on capital deployment with this level of rates and where credit spreads are in the markets today, Seeking to deploy capital opportunistically. On the single family rental business, we have been acquiring homes and currently have 1400 homes. Looking forward, intend to really grow this business and have hired a great leader and management team that we will announce in the upcoming weeks. Regarding our macro view, the strong economy will force the Fed's hand at some point and we should see higher rates ahead.
As mentioned before, we are ready for anything And should we stay here, our operating business will create higher earnings. The signals from Chairman Powell and the committee yesterday are that while the economy has improved And they will maintain asset purchases. The clock on tapering has begun. Regarding our earnings and our stock price, We feel very confident on our ability to maintain and drive higher earnings in the future through a combination of our operating companies And investment business lines. While our stock price has taken ahead in recent weeks, our book value currently at 11.2 7 after our capital raise with our earnings potential will hopefully help our equity write itself.
I'll now refer to the supplement which has Been published online. I'm going to start with Page 3. When you think about our company today, Going back in time, we've paid $3,700,000,000 in dividends since inception. Current book equity, dollars 6,100,000,000 Shareholder return 92% since inception and a market cap of approximately $5,000,000,000 On the investment portfolio side, we have $25,000,000,000 in assets, and we are the largest non bank owner of mortgage servicing rights. On our mortgage company, and these numbers are specific to NewRez only, during Q2, we did $23,500,000,000 in origination, pre tax income of $75,400,000 and we maintain our status as a top 10 non bank mortgage originator.
Our servicing portfolio, dollars 305,000,000 pretax income, dollars 32,300,000 and again, the same, we maintain our status as a Top 10 Non Bank Mortgage Servicer. Page 4, New Residential. How do we set ourselves apart? I'd like everybody to think of us as an investment manager with complementary operating businesses. So What does that mean?
When we think about our portfolios, we have call rights, we have our MSR portfolios, we have EBOs, On the MSR portfolio, we believe that when and if As rates rise and we do believe they will rise, we have significant upside opportunity, which will help drive higher book value, more cash flow and net net Higher core earnings as we go forward. Our balance sheet has never been stronger. We have plenty of cash, plenty of liquidity. When we think about the Caliber purchase, we expect to end after that purchase with about $1,100,000,000 of cash and liquidity and growing. When we think about our ability to create new investments, think about the operating machine, we'll likely be a top 3 or 4 mortgage originator In the country with the combination of NewRez and Caliber and when you think about Non QM or other products, We just recently announced we're rolling out ARM products to homeowners.
We believe that we can create whatever Products that will help homeowners and help drive higher earnings for our balance sheet. Our diversified portfolio of income Generating business and assets again will further add to our ability to create earnings as we go forward. And then when we look at our track record, Our track record of delivering returns to shareholders is, I pointed out before, 92% since inception. Page 5, Our financial highlights for the quarter. GAAP net income, $121,000,000 or $0.26 per diluted share.
Again, this reflects A dilution of $0.03 from the equity offering that we did to fund the Caliber purchase. So essentially, you could think of that as roughly $0.29 Core earnings, dollars 146,600,000 or $0.31 per diluted share, same. Think about it as $0.34 per diluted share common stock dividend $0.20 consistent with where we were, 7.6 percent dividend yield as of the end of June Cash on hand at the end of June, dollars 956,000,000 and again, net equity of a little bit over $6,000,000,000 When you look at book value, our book value today, dollars 11.27 that reflects dilution from the equity issuance of $0.16 so That would put you at 11.43 versus prior quarter at 11.35. Our total economic return for the quarter, 1.1%. And then when we look at our equity offering to fund the Caliber purchase, we raised 522,000,000 Page 6 is just a simple walk on book value.
Again, 11.43 percent pre Capital raise, 11.27, post capital raise. Page 7, how do we think about our results? I think the company today is positioned to perform in any rate environment. Again, the announcement of the Caliber acquisition, which we hope to close Early this quarter will enable us to originate, expand our recapture percentages And drive higher earnings in any rate environment. If rates rise significantly, our MSR portfolio is poised to gain pretty dramatically.
When we look at that in the quarter, we deployed $1,100,000,000 in our call strategies and EBO strategies in our loan business. Our balance sheet daily mark to market exposure stands at just 1% of our total portfolio. On the NewRez side, We increased our refinance recapture rates to 40%. That's up from roughly 28% in the previous quarter. Our direct to consumer channel, while the gain is modest, we actually had a gain in the quarter despite the fact that rates backed up in Q2.
Our call rights strategy, we saw the highest amount of call rights collapses In the quarter, since Q4 of 2019, we called $666,000,000 in collateral. In our MSR portfolio, we continue to shift from bank financing and mark to market to non mark to market and in the capital markets. Our current MSR financing profile is at 71%. And again, all of these numbers are specific to NRZ and NewRez. Page 9, the Caliber acquisition.
How are we paying for it? As I pointed out earlier, we expect to have 1 $1,000,000,000 of cash and liquidity after funding the acquisition. We're paying 1,675,000,000 To purchase Caliber, the funds are as follows: cash and liquidity, including the proceeds from our April equity raise Equity from the sale of agency securities, which has already occurred. And then from Caliber, Caliber has cash and liquidity, there'll be a dividend out From Caliber to Lone Star, the parent, and that will result in a reduction of both the purchase price and the cash and liquidity at closing that's on Caliber's balance And again, we expect to end post that acquisition with $1,100,000,000 of cash and liquidity. Page 10, how do we think about the combined company?
2021 projections, dollars 173,000,000,000 of origination, that is Our total servicing portfolio, a little bit under $500,000,000,000 Here Here's where we think we're going to see some real game changing results for our company. When you look at the upper right side of this slide and you look at the Retail and direct retail JV and direct to consumer, that will be roughly 50% of our overall Production, when you think about gain on sale margins and compare retail and direct to consumer to the correspondent wholesale channels, We should see significant lift in P and L as we go forward and continue to grow those channels. When we think about our recapture opportunity, again, more customers. Caliber's recapture numbers have been terrific. The recapture numbers on the NewRez side, as I pointed out earlier, went from 28% to 40%.
So all in all, great results as we drive more recapture through the system, we're going to see higher earnings, more cash flow from our MSR portfolio and more customer retention. Page 11, the combined platform, 3,200,000 customers in our full MSR portfolio, 700 direct to consumer loan officers, 1700 plus retail loan consultants, 540 retail branches, 5,000 wholesale broker partners, 900 correspondent lenders and 63rd party servicing clients. We have it all. Now we just have to execute once we close this deal. Page 12 synergies from the combination of the 2 companies.
I'm not going to go through every bullet here, But the way to really think about this is, 1, on a revenue side, we're going to have increased volumes, we should have economies of scale and I keep harping on the improved recapture, which is going to lead to more cash flow and more earnings. From a cost perspective, as we drive more, what I would call digitization And we drive more technology through our entire system and the Caliber system and the team at Caliber from Sanjeev And others around the technology side have done a really good job. So we're really excited about the prospects around The Caliber technology platform, we will implement that across our entire company. And as we go forward, we think we're going to see significant gains From a technology standpoint, and clearly, we all have a lot of work to do around that front. Capital, we will improve the cost of funds on a lot of the Financing stuff that's done on both sides.
From a capital market standpoint, I think we're second to none in our ability to execute, and we also have Diversified sources of capital. Strategy, again, we're going to expand our product offerings. Page 13, market share opportunity. The one thing I want to point out here, while We all talk about volumes in the market. I think the thing to really highlight here is the bottom right side of the page.
As we go through a higher rate environment, and I pointed out earlier, we think the combined company in 'twenty one will do roughly $170,000,000,000 Think about it this way. If we did an extra 1% in market share, and it's a large market that would add $36,000,000,000 in production. If you think about $36,000,000,000 in production and if we have a product mix of roughly 50% between Retail and JV and you think about the margins there, the net net of that, it's just going to add more earnings to our company. So again, super excited, Super excited to gain market share. And again, we have everything we need at this point.
Page 14 just talks about our Friends and peers on the street in the business, if you look at the middle column, when you talk about product mix and you Talk about products that we're currently doing and you think about servicing and special servicing and ancillary services and being a REIT, We have it all. Again, now it's going to be up to us to execute, drive higher earnings for shareholders and get that stock price up. Page 15, I'm not going to spend a ton of time on this. Similar in nature to what I pointed out before, Our platform, N10 Mortgage platform, we have a lot of work to do. The Caliber side, As we think about the digital platform, again, a great job there that will be implemented and we'll continue to expand on that.
When we think about our customer for life strategy, very, very important. How do we retain our customers? We're going to have to drive higher recapture rates and have customer service that's second to none. Technology, continued investments in technology We'll help grow our business from a growth standpoint and a profitability standpoint. Page 17, Our portfolio, our investment portfolio, a couple of things as we rip through this.
1, leading mortgage originator, Not going to spend a lot more time there. Call rights, we still have $80,000,000,000 of call rights. Think about this. We have proprietary call rights On $80,000,000,000 of the legacy non agency market, nobody has that. Our Ginnie Mae EVO opportunity, We have a $50,000,000,000 portfolio of Ginnie Mae collateral.
There'll be more ability to drive earnings Through our EBO business and we also are looking from the investment side to source more EBOs in the market. I mentioned before, our single family rental strategy currently have 1400 homes. Going to have a great announcement in a couple of weeks on a new management team That's going to run that. We're going to target $5,000,000,000 in acquisitions over the next 5 years. From a financing perspective, again, I think we're second to none as we think about our capital markets and our ability to finance our balance sheet.
From an investment standpoint, page 18, In the quarter and beyond the quarter, while $666,000,000 as I mentioned before, in legacy non agency deals, During the quarter, we purchased $650,000,000 of agency securities and $241,000,000 of EBOs. We securitized 271,000,000 of residential loans and we grew our SFR portfolio by 600 units with an average cap rate of 5.2%. Post Q2, we sold $5,400,000,000 of agency securities and we sold $880,000,000 of Residential loans. Our MSR portfolio on Page 19 totaled, as I pointed out earlier, dollars 490,000,000 At the end of June, 100 percent of our MSR financings are non daily mark to market. On our new origination, New origination during the quarter was 2.96% compared to 2.79% during Q1.
So when you think about this, what we're trying to articulate here As our portfolio changes over time, yes, this WACC is a little bit higher than the $279,000,000 during Q1. But as we believe rates will rise, the desire of homeowners to refinance these lower interest rates will be lower and lower, Again, leading to more cash flow, slower speeds and higher earnings over time. On the servicing portfolio, Currently, 55% of the NRC servicing portfolio is being serviced at NewRez or SMS. Keep in mind, we have 3rd party relationships with our friends at Cooper, LoanCare and a couple others. And then we also believe again that recapture rates, slowing speeds will lead to further gains and cash flow in our MSR portfolio.
Page 20 is really just a summary of our MSR portfolio and how we think about our financing. It's currently at 71% In the capital markets, we priced 7 securitizations since the dark days of COVID in March of 2020. 21, as you think about our MSR portfolio and our origination platform, improving recapture rates. Have a look at the bottom right side of the So a change, a 10% change or actually, let's start with a 5% change. A 5% change in recapture rates On our portfolio, we'll lead to a change in market value of 4% or $0.02 In earnings per common share.
So clearly, a huge focus on recapture, Huge focus on data and analytics, huge focus on what we're doing on the digital side to drive higher recapture and again more earnings for shareholders. Page 22, our Call Right Business. Again, I'm not going to beat a dead horse here. Largest amount of calls since Q4 of We expect this to continue as delinquencies trend lower and advanced balances remain muted. When you look at Page 23 and think about our investment opportunities, our loan business will again target our own, What I'm going to refer to as proprietary collateral.
Call rights, EBOs, as you think about the broader world and where credit spreads are, Going out for us to buy loans is not that interesting. Our Call Right business is very interesting. The EBO business is very interesting. When we think about the agency mortgage market, during the early part of 2021, we saw a shrinking GSE footprint. To the extent that things change with the GSEs, that will provide a, what we think is a pretty robust pipeline of opportunities for us To deploy capital in what we'll call agency eligible securities.
What you saw also in the first two quarters As the agencies pull back on non owner occupied, so that could create another opportunity for us in conforming balance non owner occupied loans. NonQM will continue to be a growing part of our business as we go forward, particularly as we think about higher rate environment and again a potential for a shrinking GSE Page 24, our FFR business. 1400 units currently, Average base is 209,000. Geographic exposure, if you look to the bottom left Part of the page, mostly Southeast, a little bit in the Southwest and the Midwest, targeted net lifetime yields 12% to 15%, average underwritten cap rate 5.2%. If you think about housing supply, and I know a lot of what I would call peers and different types of firms have announced Entering this space, and some folks have done a great job already in this space.
I think the opportunity is large, And we're excited about what this business will can and will become. And again, we'll look for an announcement at some point during the month of August on our leadership team. Servicer advanced balances, not to spend a lot of time here, they've decreased from $3,400,000,000 to 3,200,000,000 Average amount of capital continues to shrink there. The team here has done a great job financing that. Keep Going back to 2015 when we acquired HLSS, we had $11,000,000,000 of advances outstanding And with for $11,000,000,000 of financing with $8,300,000,000 of advances outstanding.
Page 27, I have Barron here. Barron, why don't you take us through these next couple of slides and then we'll turn it back to the operator and open it for some questions.
Thanks, Mike. Good morning, everyone. Turning to Slide 27. For the Origination division at NewRez, we ended 2nd quarter with $75,400,000 of pretax income and funded volume of $23,500,000,000 Some of the themes in the broader market, Such as increased competition, ongoing margin pressures impacted our performance during the quarter, though we continue to deliver across all of our channels on a number of aspects such as growing re Capture and our product set. Besides these market headwinds, as I just mentioned, we continue to build and grow our business and are well positioned to take For example, we've grown our direct to consumer business with record funded volume of $6,400,000,000 which is a 12% increase quarter over quarter and our 6th consecutive quarter of increased production.
We announced The relaunch of our non QM business, which continues to gain momentum, and we've locked over $100,000,000 in June alone. Our non agency jumbo business is back to pre COVID levels, with over $250,000,000 in quarterly lock volume. And we also added our 19th JV partnership, and we have additional JV announcements coming into the Q3 as well. The other important point is gain on sale margins. While gain on sale margins have decreased 12 basis points quarter over quarter, we're beginning to see a flattening of the decline of margins.
For our direct to consumer business, margins dropped 10 basis points from March and have remained range bound in the low 300s for the past 3 months, including July. For our JV channel, margins dropped 25 basis points in June But flattened in July, and this is the first reduction we have seen since 2020 and is primarily driven by the change in purchase volume from refinance volume. Margins in wholesale channel dropped from March to April but have remained range bound for the entire quarter, including July. Similar theme in our correspondent channel as margins pressured by approximately 12 basis points in the second half of the quarter and a flattening in mid June July. However, given the size of our correspondent channel, which is 60% of overall volume, it's a significant driver in quarter over quarter margin And as mentioned, given interest rate change in July and the removal of the FHFA adverse market fee, We've already seen ability to take back some margin and are looking forward to that in the months to come.
The last comment on this slide is We're really excited about the opportunity to combine the new resin caliber platforms. Michael talked a lot about that. We believe the 2 companies will have Significant benefits that accelerate our objectives, goals for both origination and servicing efforts and continue to gain market share. Turning to Slide 28. And I've continued to say this for the past few quarters, but our DTC or direct to Consumer channel remains a huge focus for NewRez and NRZ and continues to present a long term opportunity for our company.
Our process changes have taken hold And that can be seen in our increased fundings, but also our refinance recapture statistics with a 44% increase quarter over quarter. While we have improved our turn times, enhanced our scale and capacity, the importance of our brand awareness and recognition to further build customer loyalty are also Critical to our success. That's seen by a 25% increase of NewRez originated refinance recapture and A 13% increase in NewRez originated refinance recapture. In April, we launched our new brand, and I invite all of you to visit newres.com to see our improvements in our digital marketing and consumer experience. The message being as we get better connecting to our consumers, Our DTC platform will only continue to grow.
Turning to Slide 29 and just some quick highlights on the other channels. Our joint venture business continues to perform well in any market environment. It originated $1,000,000,000 for the quarter and was flat Quarter over quarter even with higher interest rates. In addition, we saw a return to normalization with purchase transactions, which Comprised approximately 80% of funded volume versus 54% in the Q1. And as I mentioned before, we announced our newest JV Joint Venture Mortgage Company, Coast 1 Mortgage LLC, a partnership with the Smith Family of Companies, Our 19th JV partnership, and we welcome them to the NewRez family.
In our wholesale channel, we continue to grow our platform By not only adding new customers, new broker relationships and building on our branches, but also focusing on non agency products, including NonQM, which comprise 20% of our overall lot volume in the Q2. In our correspondent channel, we continue to add new customers, Approximately 40 with a focus on best efforts where we can add additional margin, also creating operational efficiencies to improve customer relationships and add new products such as non QM through our non delegated clients. So when I think about our performance in the second quarter, both terms of funded units and other metrics we use to evaluate our performance, we continue to see great progress. Turning to Slide 30. For the servicing division, we ended the 2nd quarter with $32,000,000 of pretax income, a 2% increase quarter over quarter.
We also added A table showing historical servicing pretax income, which has proven to be a ballast to the volatility in origination, PTI, and our servicing business Is a core strategy for NewRez overall. We ended the 2nd quarter with aggregate servicing portfolio of 306,000,000,000 And approximately 1,700,000 customers representing modest growth quarter over quarter. And then on a cost per loan, Continued to increase slightly, which was impacted based upon the COVID impacted homeowners as we continue to achieve Loss Mitigation Solutions and retain their home. On the last slide, Slide 31, since the CARES Act was 1st and active, we've helped over 250,000 homeowners navigate the COVID pandemic. Over 160,000 loans have resolved their forbearance and remain active in our portfolio and our active forbearance is now 2.3% versus 3.5% in the 1st quarter.
Our focus remains to work on every possible method to engage these homeowners in all available loss mitigation programs, including a series of newly introduced Fannie, Freddie and Ginnie modification programs. Our numbers are in line with the industry and continued good work, but more to do to help homeowners. On that, Back to Kate.
We'll open the line for questions.
We will now begin the question and answer session. And the first question comes from Kenneth Lee from RBC Capital Markets. Please go ahead.
Hi, good morning. Thanks for taking my question. Just one on the gain on sale margins. You Saw some improvement within the JV and the DTC channels. Just wondering if you could just elaborate
I mean, we've seen a flattening is the message I delivered. And so We did see a decline, as I mentioned, in each one of the channels. In our JV channel, margins dropped 25 basis points in June, but they've flattened. And we hadn't seen any reduction in our JV business at all since 2020. So in our DTC business, we've also seen a reduction, As I mentioned, 10 basis points from March, but they remain range bound for The last 3 months, including July.
Got you. That's very helpful. And just one Follow-up, if I may. In terms of the estimated 2021 origination volumes For the combined Caliber and the RES, I wonder if you could just talk about some of the key assumptions you have there driving that estimate? Thanks.
Right.
So on the if you just you really need to look at each of the underlying channels that make up our estimate, Which you can see on Slide, I think it's on Slide 11, no, on Slide 10. So on the retail business and the JV business, there's no overlap. So in our view, that's 100% On the DTC business, it's the same. They are managing their servicing portfolio, and we are managing our servicing portfolio. And then you look at the 3rd party channels based upon our analysis, there is very limited overlap.
Actually, that was a significant pleasant surprise We looked at both of those 3rd party channels about the accretive nature of the business. So for example, Caliber is in direct to broker And NewRez is not, and then the overlap between both of the channels has been very limited. And also on top of that, their focus and our focus, meaning NewRez is focused on The type of customers in our view is accretive. So our view is from our current projection is really based Our view of interest rate markets for the remaining 5 months of the year and our view of our pro form a of the overlap between the two companies
The next question comes from Bose George with KBW. Please go ahead.
Good morning. Actually, first, just wanted to ask about the EBO opportunity. In that slide where you give the portfolio size, I think it's 700,000,000 Is that the portion of EBOs that you've already purchased and it's on your balance sheet already? And then just going forward, can you help us size it? I mean, you've got $50,000,000,000 of Ginnie Mae MSR, it seems like a sizable opportunity.
I mean, we just saw your saw Cooper Booked 180,000,000 of gains just this quarter. So just curious what we could see from that opportunity?
Good morning, Bose. So the $70,000,000 or the $700,000,000 we have is on our balance sheet. When we think about the broader opportunity Between origination that we believe will go forward, I mean, you're obviously in a great credit cycle. However, should things change, there will be Some potential opportunities to buy out loans and redeliver in the EVO business. I think in some of the numbers we quoted and having a $50,000,000,000 Ginnie Mae MSR portfolio, It's hard to tell exactly what that number is.
So if you think about that $50,000,000,000 you match it up to where Cooper is or where Penny is, I think the way to probably think about that is, we're not the biggest Ginnie Mae originator. However, I do think that Over time, we'll likely grow our Ginnie Mae exposure, so therefore that $700,000,000 could increase pretty dramatically over time. But again, I think a lot of it depends on where we are in the cycle and what's going to happen with the overall the credit of the homeowner.
Okay. So for now, the $700,000,000 you've all you've repurchased the 90 day delinquent stuff out of that the pool. So to the extent there's more, it's basically if more flows into the delinquent bucket, is that right?
Correct. And that 700 On our balance sheet, there's steady flow that we're actually buying out. The numbers Massive on an overall weekly basis, but there is steady flow that continues to come on to the balance sheet.
Okay, great. Thanks. And then actually just a follow-up to the question on gain on sale. In that footnote, you say that the gain In the DTC and JV excludes the recapture MSR. So I mean is that just saying that the gain essentially would have been 100 basis points or whatever higher, but Yes, instead that piece is just flowing through the servicing to replace the lost MSR?
Yes, that is correct. So a number of us book things differently as a REIT prior to being in the operating business that we capture is in our MSRs And other on the mortgage company side, if you look at what Cooper does, their MSRs are in their overall Our origination business.
Okay, great. Thanks. And then actually one last quick one. Can you give an update on your book value quarter to date?
It's pretty constant, right? As of today, it's pretty similar to where we were prior to the End of Q2.
Okay, great. Thanks.
Thank you.
The next question is from Eric Hagen with BTIG. EIG, please go ahead.
Hey, thanks. Good morning. The servicing book looks like a mix of higher coupon season loans and of course there's a fair amount of New loans that you guys have originated over the last year or so with lower coupons. I'm wondering how the recapture rates and the strategy around targeting certain borrowers differs depending on The seasoning and note rates and such, especially in environments like right now where rates are well. Barry, you want to take that one?
Yes. So I mean, Certainly, we are targeting based upon a number of different factors, including just what we call trigger leads or leads based upon consumers that may Have interest in either refinancing or even looking to buy a home, but our biggest strategy from a marketing perspective continues to be in the context The borrowers that are in the money, and that is our focus. So we look at if you look at current coupons as of today, based On the overall size of the NRZ MSR portfolio, we're talking about approximately 1,000,000 customers that we continue to target.
Eric, the one thing I would point out, when you look at where we were a year ago to where we are today, Not only with the team on the NewRez side, but also with the team that Sanjeev has assembled on his side. I think in one of the slides, I'd point out data and analytics And technology gains. I think those couple areas as we continue to get better on data and analytics and really identifying A homeowner who's ready to refinance and that's what you're seeing in the NewRez numbers going from 28% to 40%, it's going to add huge lift. So So as I look at our core earnings going forward, and I hate giving guidance, but We are I really do believe our higher recapture rates, anticipated slowdown in speeds if we end up in a higher rate Environment are going to add significantly to our core earnings and overall value of the company.
Got it. That's helpful. Thanks. Then one on just the capital structure. I mean, considering Caliber has no unsecured debt, I wondering how you guys think about that capital structure and the appetite for additional leverage as you guys combine the platforms?
I think when we look at Our capital structure on the from a parent level or down to the, what I would call the operating subs, We have not put on a lot of what I would call corporate debt. While saying that as the operating businesses continue to grow, we'll continue to evaluate the best way to fund the business. Currently, as a result of the equity rates we did in April, and where we sit with Coming out of this deal with $1,000,000,000 of cash and liquidity and we expect by the end of Q3 3, depending upon what we do from an investment standpoint, we expect that 1.1 to be anywhere from 1.3 to 1.5. We really don't have a need for more cash or liquidity right now, but we'll always evaluate based on where we think the markets Having more capital, I know people shareholders hate it, Particularly because it's a drag on earnings, is never a bad thing because it will give us the opportunity to actually be opportunistic from an acquisition standpoint as well as
And the next question is from Trevor Cranston with JMP Securities. Please go ahead.
Great. Thanks. Actually, a follow-up on the question about the improved recapture rate this quarter. Obviously, there was a nice spike and that's something you guys have been really focused on. I was wondering if you could maybe Comment more specifically on what you think sort of came together that allowed that to grow so much this quarter and how we should think about the
I don't want to ever have an excuse, but I think we're just Getting better and better. I mean, we have very good focus. The person that's leading and quite frankly, we brought in some really great marketing On the NewRez side, and as our marketing folks and we get better, It's only made us a better company and improved our recapture rates. I'd like to go back to 2018 for a second. If you think about acquiring Showpoint 2018, I think the production number was about $7,000,000,000 in 2018.
When you look at the Caliber acquisition, the combined company is going to do $70,000,000,000 So we clearly have growing pains in between 2018 And now, quite frankly, but we're just getting better and better. So when I look at the prospects of Where I think we can go and that's why I said, I think we're ready to compete against everybody and we're just going to get better And we have to get better because we have a large MSR portfolio. And if you go back to one of the comments I made and point out, X percent higher and recapture is going to lead to a couple of cents more in core earnings and slowing down speeds. We want to get back to where We're printing $0.40 $0.50 $0.60 in core earnings and the book value continues to grow and the stock is back to $15 to $20 which is kind of where it should be now, but that's what we're focused on.
Got it. Okay. And then on the SFR business, you talked about expanding that operating platform and bringing in some new management To run that, I guess as you think about growth of that strategy in particular, where do you anticipate Capital coming from to fund continued growth of that over the next Couple of years, is it coming from another area of the portfolio which you're anticipating maybe being in more of a runoff mode or how should we think
It could come from other areas of the portfolio. The financing of that In the capital markets, it's pretty efficient at this point. And again, I think Eric asked a good question. Currently, we have 1400 homes, and we have a little bit under $100,000,000 in equity. So when you think about our balance sheet, Expecting to end the quarter in Q3 of $1,300,000,000 to $1,500,000,000 of cash and liquidity depending upon What our investments look like during the quarter, we think we have plenty of capital to continue to grow without the need of any additional capital.
Again, if we think about unsecured debt or the capital markets to the extent that we need capital into a very large portfolio, We would consider either a debt deal or a preferred deal or something like that.
Okay. Got it. And then one last one, just to clarify on the early buyout opportunity, When you mentioned the size of the servicing portfolio and everything, does that include Caliber or does bringing in the Caliber portfolio Change the sizing of the EBO opportunity in any way?
Yes, it does. It does not include Caliber. With Caliber, obviously, the opportunity grows exponentially.
Okay, great. Appreciate the comments. Thank you.
Thanks, Trevor.
The next question comes from Kevin Barker with Piper Sandler. Please go ahead.
Good morning. Could you give us a Update on maybe what you think earnings would look like for Caliber versus your previous expectations when the deal was announced. I believe you estimated somewhere around $295,000,000 in operating income in 2022. I mean, do you feel like your Caliber is still on that Run rate or do you think there's anything that may have changed just given the competitive dynamic in the origination market?
Hey, Kevin. I think here's a couple of things, and the one thing that we haven't discussed on this call are synergies. When I look at the financing of Caliber and Sanjeev and his team and our team I have had discussions about this. I think realistically from a synergy standpoint and forget about gain on sale and compressed margins or Where we're going, I think synergy wise from the financing alone, we think we're going to be able to pick Something around $50,000,000 a year from a financing perspective. So that's why we highlight a little bit in our investor deck about the financing We think overall synergies are going to be something between $150,000,000 $200,000,000 on a per annum basis.
So when we think about that, we We think about where gain on sale margins are. When we underwrote the deal, we sized it to 2018, 2019 kind of Gain on sale margin, so we're in line with how we're thinking about that. And I don't see any change of where we're going 21 or 2022. I actually think with Sanjeev and Barron and the complementary teams on both sides and bringing this thing together, We're only going to see more lift and hopefully higher earnings as we go forward because we're only going to get better.
Could you unpack that a little bit more? I mean, you said $50,000,000 in synergies due to financing. Is that on top of the $36,000,000 that you laid out originally? And can you help us understand the did you say $150,000,000 to $250,000,000 or $150,000,000 to $200,000,000
I think the synergies, What we're going to be able to do between the financing side and overall integration and And where we're going with technology is going to be something between $150,000,000 $200,000,000 on a per annum basis. So if you relate that and think about that with 4 50 ish 1000000 shares outstanding. It's a pretty sizable increase to core earnings and earnings overall for Part of that is going to be around synergies, part of that is around financing, and part of that is going to be truly around other things We'll identify within both organizations. Could be space, it could be there's a lot of different things that we continue to work on. So if we
have a market similar to 20 18, 2019 like you described, And then add on the synergies of $150,000,000 to $200,000,000 above, you originally stated $36,000,000 Probably going to have potential operating income from Caliber north of $400,000,000 Is that your expectation On a normalized origination market or something more
I think your initial assumption around Caliber's operating income It's pretty consistent with where we go, what we believe, because again, the deal was underwritten to 2018 2019 numbers. And on top of that, your $150,000,000 to $200,000,000 in total synergies, not 36 Another 150 to 200, but just think about 150 to 200 in total synergies, that's kind of the math on how we get to much higher core
The next question Comes from Stephen Laws with Raymond James. Please go ahead.
Hi, good morning.
Good morning. I just
wanted to follow-up
A follow-up on the SFR side, targeting mainly Southeast, that's a pretty competitive Sector and environment, can you really talk a little bit about your sourcing? Can you quantify at all maybe capital allocation or Unit growth or any metrics we can kind of look to as far as 6 or 18 month targets or anything like that?
I think we'll have more to come, Stephen, in a couple of weeks as we make a broader announcement, including a new brand that we are ready To rollout with, currently we're doing, I would say 50 to 70 units a week. We have a broad sourcing Team working on this now. We also have technology partners that we're working with On the operating side, we have a pretty vast network. If you think about NRZ as a parent, we have we bought I I guess a couple of years ago, we bought a company called Guardian, which is a property preservation business. Obviously, that's been a very good acquisition That works alongside our SFR business along with third parties who are running some of the operating side.
But we put out in our deck that we expect over the next number of years to get to $5,000,000,000 of acquisitions. I think you just saw Pulte Homes announce a deal with Invitation Homes. We would gladly partner with One of the large homebuilders out there, which I think would help us jumpstart certain initiatives that we're thinking about. So I think there'll be more to come. And again, I don't want the cart to lead the horse, but we have the new management team Who will work very closely with us, they will come in with they have a plan, they'll come in with a I
appreciate the color. And as a follow-up question, if we Switch to the calls and potential gains there.
I know $666,000,000 in the quarter.
Can you talk about How much accretion or the ROE on that are expected as you fully refinance those loans that were called? So and then how do we think about it? I know that's going to be lumpy, but maybe on an annual basis in 2022 and 2023, how do we think about The call volumes and potential upside on the returns there over the next couple of years.
So I'll let Nick comment in a sec. But the I mean, it is a little bit more episodic. I do believe though these loans that have been stuck in these pipelines for many, many years are starting to come out. So when we look at deals that we've issued that go back over the course of the past few years, for example, in non QM, RPLs, NPLs, Some of the call activity was related to that. Some of it's related to the legacy side.
I think just for simple math, this last result we had was quite frankly Fantastic around our call business. And I'll let Nick talk to that. But I think the way to think about the business, if we get back to a steady state where we were Early on in probably 2018, 2019, we'll call in about $300,000,000 a quarter. I would expect us to do at least that as we go forward. I'm hopeful anyway.
And the math has generally been around a couple of points. This Last one was a much better one, but I factor in on average about 2 points. And Nick, I don't know if you want to talk about The last one. And just one other thing about that, we didn't securitize. We announced a large sale of loans, which is I think $800,000,000 or 9 $100,000,000 out of the $1,100,000,000 or so that we did in the quarter.
So it wasn't securitized. It was actually sold in loan format. The return on equity was huge. Nick, I don't know if you can give whatever color you'd like.
Sure. So for this quarter, we generated approximately $0.03 From the call strategy, the mix of income on calls is a little bit different from what In the past, where we saw more income coming from the accretion side. Given where our portfolio is Today, more income is going to come from securitization side. And as Michael mentioned, We did do a loan sale in the month of July. That will result in core earnings in the Q3, so it's not reflected In the Q2 and you can see that when you look at our P and L from the loan mark that we actually recorded in the second quarter.
Great. Nick, Michael, thank you very much.
Thanks, Stephen. Stay well.
The next question comes from Henry Coffey with Wedbush. Please go ahead.
Good morning and thanks for taking my call. Some small questions first and then One large question. The JVs, what's the incentive of the companies for joining up? Is it Are some of them homebuilders or most of them independent operators? Maybe you could give us some thoughts around that.
Most of our JV partners are Right across the entire U. S. And it really comes down to those owner operators looking to basically monetize On mortgage origination income on through their retail Through the retail sales force, and that's really what it comes down to. When you do the joint ventures to basically work through the rest of the rules From any kind of lead references that we pass through to our loan officers.
Are these companies that are just generating doing lead gen for you or No,
no, no. These are just real estate brokers. They're We're working with consumers looking to buy their home. And they basically make referrals to our loan officers or their partnership Loan officers within our joint ventures and we help those consumers buy their homes. And it's a partnership directly with their real estate offices.
And then on the wholesale front, any comment on where Gain on sale margins are going sort of in July August given that we have seen some stability there as
Yes, I mentioned that. We've seen stability for basically the quarter. We saw a drop from March to April, and we've seen basically stable margins in our wholesale channel for the
And then, Mike, for you a big question. All of this is going to take time. I mean, if you had one primary ingredient that you could accelerate, it would be quote time because It takes time to put the businesses together. It's going to take time for interest rates to go up, etcetera, etcetera. You are earning your dividend by a healthy margin.
And what is the logical trigger for seeing an increase there?
Henry, it's a great question. I think that when we take a step back and I look at our company today and I try to think about I'm looking at our equity price. So as we're going through this call, I'm writing down some notes here. Our equity, we announced the Caliber deal. We raised capital around 10.10.
Stock gets back to 11 and change. We announced Book value now give or take at 11:30 after everything. We took a big hit on our equity, Which goes back to, I think, in June when you look at where when 2 Harbors came out and announced lower book value and did a capital raise. As I think about where we're going with the company, we have a great, great operating business that will be second to none. I'm very Confident that when you talk about time, I don't want to rush time in life nor does anybody.
We want to rush through the integration, so we get through And we have an operating business that's second to none. And both teams, Sanjeev's and his Excellent management team and Barron and Bruce and our excellent management team have done a great job so far getting us to the place when We have the final close that we want to hit the ground running. But back to my thought here, When you look at us, we have this operating business that we get no credit for. We have a lot of proprietary channels, I think, In our business, whether it be call rights, we talk about EBOs and the gains that Jay and his team have done. But again, we're not getting properly valued, I think, As it relates to the operating business or on the investment business, where I think the investment business can go.
So When I think about the increase in recapture and I look at forward earnings that 0.40 dollars 0.50 dollars 0.60 As we go forward, and I'm not going to short that now because we all have a lot of work to do. And I look at current trends and amortization. The big question for us is how do we think about our dividend policy, quite frankly. We have an operating business, certain operating business Pay dividends, others don't. We have a REIT that's paying $0.20 right now.
And it's a very good question. Would I like to see our dividend increase? Absolutely. Do I think we'll get there? Absolutely.
We want to get through the Caliber closing, then we'll reassess everything and then we'll hopefully come out with Some news that makes everybody happy. But I think it's a really interesting time for us as a company and how we think about Our investment company and the operating businesses and the portfolios that we have and quite frankly get valued properly for who we are and the hard work that the team has put in to drive shareholder results. So we'll get there. It's a question of when. I don't think this is that far out in the future.
And then the question is really what does our dividend policy look like?
Is this something we can harass you about in the fall or is something that we should wait till next year when you've really digested everything and Calibre is up and running and you have a bigger sense of what the 2020
I think you can harass me anytime. Okay. I asked. So our goal and I bring up our stock price because I'm very frustrated with where we're trading with an 11 40 book and or 11:30 book and the results that we put up, if I want our stock, if we get properly valued, there's no reason that Stock shouldn't be when you think about the sum of the parts and we took that slide out that we shouldn't be between $13 $15 right now. But we're not and we got to do our job on our side to get this out there.
So we'll do all we can.
Great. Thank you.
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.
So thanks to everybody always for your support, your questions. I would like everybody to think about The results, the book value that we continue to drive and where I think we're headed. Stay well. Have a great rest of the summer. It goes quick.
Henry, don't rush time and look forward to catching up with everybody soon. Take care.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.