Income from new dwellings will increase as income from servicing will increase

Fueled by increased revenue from its services unit, New Residential Investment Corp. posted earnings growth for the fourth quarter and discussed expansion into specialty credit products, other investment sectors and potential future acquisitions to sustain growth in its earnings call.

Net income for the last three months of 2021 at the non-bank mortgage and investment company was $160.4 million, up 9.8% from $146.1 million in the third quarter. Earnings also increased 134% from $68.6 million in the fourth quarter of 2020. Diluted earnings per share were $0.33.

For full-year 2021, the New York-based company reversed its 2020 loss and reported net income of $705.5 million, compared to a loss of $1.5 billion in the last 12 months impacted by the pandemic .

While other companies and major banks' mortgage divisions reported lower quarterly profits, New Residential's large portfolio of services helped it overcome lower revenues from declining lending, a trend the company expects to continue.

"As interest rates rise, our MSR portfolios will pay off at a much slower rate, retaining our customers through our customer retention efforts to increase book value and offset a decrease in origination revenue," said Michael Kidney Mountain, CEO and President of New Residential , in the company's profits call.

Fourth-quarter net income from the Lending segment, consisting of production from both its own Newrez business and its 2021 acquisition of Caliber Home Loans, totaled $72.4 million, down 49 % from $142.2 million in the previous three months and down 69% from $236.1 million a year ago. However, origination production rose 10% to $38.1 billion from $34.5 billion in the third quarter. Selling margins also increased to 165 basis points from 161 basis points in the third quarter, surprising some analysts.

"This is likely due to a full quarter of Caliber's higher-margin retail volume," said Bose George, managing director at Keefe, Bruyette & Woods, in a research note.

In comparison, New Residential's services unit saw a substantial 631% increase in net income over the third quarter, increasing from $17.1 million to $125 million, while for the fourth quarter of 2020, net maintenance income was $24.2 million . Unpaid balances in New Residential's services portfolio totaled $629 billion, down 0.9% from $635 billion on a quarterly basis.

The company's fourth-quarter service performance comments reduced the likelihood that it would move its remaining service to Black Knight's mortgage services platform, of which Caliber was an existing customer, KBW said.

In its investment division, New Residential also reported quarterly net income of $29.8 million for its residential securities and purchase rights segment, up from a loss of $20.1 million in the third quarter. Real estate and home loan segment revenues decreased to $4.1 million from $8.7 million in the third quarter.

New Residential's revenue, which includes mortgage operations, home investing and the new mortgage lending segment it acquired through its purchase of Genesis Capital, totaled $1.1 billion last quarter, up 15% from $952.7 million -dollars three months earlier. For the full year, revenue was $3.6 billion, up 117% from 2020's $1.7 billion.

With profit margins expected to decline, company officials are actively seeking profitable opportunities in other avenues and reallocating capital where appropriate.

"Growth in non-QM, jumbo prime, investor and commercial loans will be a priority this year," Kidney Mountain said.

The production of non-QM loans increased by more than 100% year-on-year according to Nierenberg. In the fourth quarter, New Residential originated about $700 million in non-QM loans and expects the number to be close to $1 billion in the first quarter of this year.

The company also hinted at more acquisitions, including an expansion of commercial and single-family rental space. Over the next month, Nierenberg said, the company plans to acquire about 300 homes from Zillow's portfolio and is reviewing additional prospects.

"We believe there will be opportunities to acquire some originators or smaller originators given the current interest rate environment," Kidenberg said. "So, for example, we kept an eye on some good retail ginnie producers."

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