New Residential Investment is increasingly focused on recruiting current customers to serve customers when applying for the next mortgage, said the chairman, CEO and President Michael Kidney in the second quarter profit call.
"We still have a lot of work to do to expand the direct-to-consumer channel," he said, pointing to the company's goal of a quarterly volume of $ 4.6 billion by the third quarter and $ 6 billion to be reached by the end of the year. At the moment it "only scratches the surface".
NewRez, the company's mortgage banking business, is forecasting $ 50 billion from all channels this year, up from $ 22 billion last year. Prior to New Residential's acquisition of Shellpoint Partners (New Penn's former parent company, now known as NewRez) in 2018, production was $ 7 billion.
Volume growth in 2020 was also boosted by the acquisition of Ditech's forward mortgage assets.
Despite the high full year target, NewRez found that COVID-19 was lower in the second quarter. During this period, $ 8.3 billion was spent, compared to $ 11.4 billion in the first quarter and $ 3.9 billion in the second quarter a year ago.
Third-party channels were largely responsible for the decline as correspondence declined from $ 7.1 billion in the first quarter to $ 3 billion and wholesale decreased from $ 1.7 billion to $ 1.3 billion.
On the other hand, direct sales increased from $ 2.1 billion to $ 3 billion, and retail and joint venture increased from $ 600 million to $ 1 billion.
Profit margins "were very robust for us and everyone in the industry," said Leberberg. NewRez had a gain on the sale of 273 basis points in the quarter, compared to 117 basis points in the first quarter and 143 basis points a year ago.
In direct sales, the gain on sales was 447 basis points compared to 197 basis points in the previous quarter and 240 basis points year-on-year.
Financial returns directly to consumers are one of the factors that motivate New Residential to grow this segment. An agreement was recently signed with Salesforce to combine the origination, service, and marketing functions and boost production.
"We'll be better at the lead conversion," said Kidneyberg on the call.
New Residential lost $ 8.9 million in the second quarter, an improvement from the loss of $ 31.9 million a year earlier.
"We believe that the company's liquidity position has remained relatively conservative during the quarter and therefore has not fully distributed its core earnings," said Bose George, analyst at Keefe, Bruyette & Woods.
As a real estate investment fund, New Residential paid a quarterly dividend of $ 0.10 per share.
The company earned $ 156.7 million and $ 23.1 million in origination and service features in the quarter, respectively. The company lost $ 291.8 million in the Mortgage Services and Advance Services category, largely due to the corona virus. However, this is an improvement over a loss of $ 440.3 million in this area in the first quarter.
New Residential had 186,674 borrowers on a forbearance plan in the second quarter. The percentage of borrowers who were granted leniency fell from a high of 8.4% to 7.8%, and approximately 34% of the borrowers were current and made their scheduled payment on June 29.
The quarter ended with an unused upfront capacity of $ 2.2 billion.
Advance payments from servicers remained unchanged from the first quarter at $ 3.5 billion. Private label MBS accounted for 86% of the $ 3 billion advance, including 11% for Fannie Mae and Freddie Mac and 3% for Ginnie Mae.
In a stress scenario, New Residential predicts that an additional $ 230 million in equity will be needed to fund the advances by the end of 2020.
The MSR portfolio was approximately $ 610 billion at June 30, compared to $ 648 billion three months ago.
New Residential was able to reduce the loss in its mortgage investment segment from $ 1.6 billion in the first quarter to $ 8.8 million after taking measures to largely eliminate the market risk associated with COVID-19, said Kidney Mountain.
And by the end of the quarter, the company had more cash than ever, partly due to a capital increase in May. The balance sheet had earmarked over $ 1 billion for contingent liability management. This is equivalent to $ 360 million at the end of the first quarter and $ 406 million on June 30, 2019.
On the investment side, New Residential has $ 77 billion in call rights for mortgage-backed securities. In the past, the company bought back these securities – in a strategy called cleanup – to reduce arrears and service advances.
When credit spreads narrowed, the company left this area, said Kidney Mountain. If the market turns, New Residential will "come back in and do business," he said.