The uneven stock performance of non-bank lenders who recently went public has given New Residential Investment, which is considering its own IPO for the New Rez division, a break.
"We believe it will create more value for shareholders by separating the company and bringing it to the public market," said Michaelörenberg, chairman, CEO and president, on his fourth quarter conference call. "But as you have seen from some of the recent trials … some of them have gone okay; others have not done so well."
A confidential registration statement was filed in November. Should there be a public offering, the two companies would still be intertwined as New Residential would likely hold a significant stake in a publicly traded NewRez, he said.
When asked when a decision would be made, Kidneyberg said that this is something the company values every day.
"It's not just about getting a company public. We have a public REIT (on New Residential) that can raise capital and help the mortgage company grow," he said. Any decision to release NewRez will depend on whether it will benefit New Residential shareholders, he said.
The level of mortgage production this year will be a key factor in that decision, said Randy Binner, an analyst at B. Riley Securities.
"We believe that mortgage origination may be better than the market and the Mortgage Bankers Association's expectations, as profits from sales margins are still high enough that mortgage bankers should be flexible enough to increase the volume at a large To maintain level, "said Binner in a report. Part of the discussion is about the benefits of New Rez going public. "This could create a more constructive environment for this potentially positive catalyst later in 2021."
New Residential posted net income of $ 68.4 million for the fourth quarter, the second profitable quarter in a row. That compares with net income of $ 77.9 million for the third quarter and $ 300,000 for the fourth quarter of 2019.
However, the company suffered a massive loss of $ 1.6 billion in the first quarter when the value of its mortgage-backed securities investments was devastated by the intervention of the Federal Reserve at the start of the pandemic. As a result, the company posted a net loss of $ 1.47 billion for the full year.
NewRez, which became the company's primary operating business as a result of the pandemic-induced changes, posted net income of $ 169.8 million in its original unit and $ 36.2 million from service for the fourth quarter. But the mortgage servicing rights and servicer prepayments portion of that deal lost $ 179 million in the quarter.
The volume of mortgages funded in the fourth quarter was a record $ 23.9 billion. This was led by the correspondence business volume of $ 16 billion. The segment continues to bounce back from secondary market disruptions caused by Fed measures that reduced volume to just $ 3 billion in the second quarter.
It was $ 11.5 billion in the third quarter and $ 6.9 billion a year ago.
The direct-to-consumer channel, which Kidneyberg said would be a focus for the company as early as July, reached $ 4.3 billion in funding, up 25% from $ 3.4 billion. In the third quarter and 169% from production of $ 1.6 billion in the fourth quarter of 2019.
NewRez's sales margin gain decreased to 157 basis points from 204 basis points in the third quarter. For the first quarter, NewRez expects an origin between $ 23 billion and $ 25 billion.
The service portfolio was $ 298 billion as of December 31, compared to $ 219 billion as of December 31, 2019. The first quarter is expected to be $ 300 billion.
In its investment portfolio, New Residential made $ 80.1 million in residential real estate and securitization securities. But it lost $ 7.4 million investing in home loans. The company also posted a loss of $ 31.2 million for the corporate and other segments.
"From a macro perspective, we believe interest rates should go up, which should be great for our company," said Kidneyberg.
Slower prepayment speeds mean more cash flow from the MSRs and a higher recovery rate. The combination should overcome the likely decline in mortgage origins, he said.
This ties in with New Residential's expectations for the direct-to-consumer channel, which is primarily aimed at attracting existing customers looking for a new mortgage from another lender.
The company is "very excited about our growth prospects … which should result in higher market share, higher revenues in this channel and better recovery rates for our MSR portfolio," said Kidneyberg.