Rithm Capital Corp.

Good day, and welcome to the new residential fourth quarter and full year 2021 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal conference specialists by pressing the star key followed by zero. 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 Bohi Yoon. Please go ahead.

Thank you, Jason, and good morning, everyone. I would like to thank you for joining us today for New Residential's fourth quarter 2021 earnings call. Joining me today are Michael Nirenberg, Chairman, CEO, and President of New Residential, and Nick Santoro, Chief Financial Officer of New Residential. Also with us today are Baron Silverstein, President, and Jordan Leach, Chief Operating Officer of New Res and Caliber. Throughout the call, 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. I would 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 encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non-GAAP financial measures during today's call. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement. And with that, I will turn the call over to Michael.

Thanks, Bohi. Good morning, everyone, and thanks for dialing in. 2021 was a very good year for our shareholders and our company as we continued our strategy of building and acquiring world-class operating companies with the ability to manufacture assets for our own balance sheet as well as an investment portfolio that's very hard to replicate. The positioning of our company today, as well as the investment experience of our team, should enable us to drive strong returns for shareholders as we go forward. With interest rates rising, our MSR portfolios will see much slower amortization. Keeping our customers through our retention efforts should drive book value higher and offset any decrease in origination earnings. We have one of the largest MSR portfolios today, and MSRs do rise in value as interest rates increase. Today, only 16% of our borrowers have the incentive to refinance as compared to 2020 when that number was a little bit south of 50% and in the upper 40s. To put this into context, the 10-year Treasury, which has risen approximately 45 basis points since year end, coupled with rising mortgage rates, helped increase our book value where we stand today to between $11.75 and $12 per share. Our mortgage company, New Res, had a very good year, and the addition of Caliber, which closed in August, has created one of the best non-bank mortgage companies anywhere. Our goal is to be the best, not the biggest. We will continue to focus on efforts, working with our government partners on affordable housing initiatives, as well as taking care of our 3.2 million customers, offering better solutions for home ownership. The past two years in the mortgage origination business have been very good. they will not be repeated. Gain on sale margins will come under pressure as rates rise. Many customers who wanted to refinance have done so in lower rate environments. As it relates to our origination business, we have many origination channels and different levers we can pull, which will enable us to adapt quickly to whatever the gain on sale climate looks like. A great example of this is our growth in the non-QM channel. Our year-over-year production numbers are up over 100% And in the fourth quarter, we originated $700 million. We expect that number to be something close to $1 billion in the first quarter of 2022. As you think about market share and gain on sale, we will not get into a price war with anyone. We are not about market share. We will focus on areas where we can make money, improve our retention rates on our existing portfolios. I would also like to acknowledge the strong retail purchase franchise we have as a result of the Caliber acquisition. As we go forward, the purchase market will be a much larger percentage of the origination market, and we are well positioned for what's going to come ahead. The integration of the two organizations, and Jordan will speak to this shortly, has been coming along extremely well. Our new hire of Neenu Kanth as Chief Digital Officer, coupled with our existing leadership team, will help us continue down the path of providing our customers with a great digital experience. We are starting to see the synergies as a result of the combination of the two companies with significant expense saves. Again, Jordan will speak to that shortly. In the fourth quarter, we closed on the acquisition of Genesis Capital. We're very excited to work with Robert Wasman and his team to help grow that business. Just to refresh your memory, that's a fix and flip lender. When we acquired the company, we acquired $1.4 billion of approximately 8% coupon short duration assets for our balance sheet. On the investment portfolio side, we'll stay the course, focus on MSRs, call rates, growing our SFR business, and looking at other asset classes in the financial services space as higher yields in the bond market, coupled with additional volatility, should create better investment opportunities for us. I'll now refer to the supplement, which has been posted online. I'm going to begin on page three. This is the new residential corporate overview. Just rolling back in time since inception, we've paid $3.9 billion in dividends. Our book equity is $6.6 billion in net equity. Market cap, roughly $5 billion. We have a balance sheet of approximately $40 billion in assets. We're the largest non-bank owner of MSRs, top five non-bank mortgage originator and servicer. And then if you think about our business, over the past few years, we've acquired a number of what I would call complementary businesses to the mortgage space. That includes title, appraisal, field services, and other businesses which help drive our earnings higher. Page four, financial highlights for the fourth quarter. Gap net income, $160 million, or 33 cents per diluted share. Core earnings, $191.9 million, 40 cents per diluted share. Common stock dividend, 25 cents, or 9.3% dividend yield. Cash and liquidity at the end of the year was $1.4 billion. Today it sits at about 1.3, just a give you a placeholder. Book value, $11.44 at the end of December. That was up from $11.35. I quoted in my opening remarks, book value approximately $11.75 to $12. And then again in the fourth quarter, we closed the acquisition of Genesis Capital. 2021 highlights, the acquisition of Caliber was a game changer for our mortgage business. That deal closed in August of 2021. I pointed out Genesis, During the year, we did a little under $4 billion in securitizations. Shareholder return, 17%. Full-year corning to $1.48. Did a little bit around the capital formation side with a common stock offering, as well as a preferred stock offering. And then on our mortgage company, when you think about the origination and servicing business, we originated $178 billion in loans. And we have a servicing portfolio between NRC and the mortgage company of $630 billion. which includes loan service both at our own mortgage company as well as Mr. Cooper, LoanCare, and Aquin. Page six, our strategic evolution. This company was formed in 2013 to really be an MSR asset owner. We got good REIT status, the first one to make that happen with the IRS, and over time we grew. We grew into what I would say from a small asset manager focused on MSRs and advances to where we are today, which is a great investment portfolio with really good complementary operating companies. So really proud of the growth and where we sit today. Page seven, business highlights. Again, $630 billion MSR portfolio. As I pointed out earlier, MSRs go up in value as interest rates rise. With a 194 10-year note this morning or 195 10-year note this morning, we should see further gains in market value on our MSR portfolio. Dividend 25 cents, close the acquisition in Genesis. Another thing to point out, 99% of our portfolio away from the agency business is non-daily mark-to-market. Cash and liquidity, $1.3 billion today or $1.4 billion at the end of the year, and our call rate business remains strong. Page 8, just to have a quick look at the left side of the page, this really just talks about our business. We have a mortgage company that we originate in service. We have Genesis Capital, which is a large provider of loans to the real estate industry around both building and fix and flip lending, our MSR portfolio, non-agency loans and securities. Today, our non-agency security portfolio is virtually zero other than risk retention and and then we have a bunch of loans as it relates to our origination activities. Market conditions today, our belief is that the Fed is going to go somewhere between five and seven times in 2022. We expect the 10-year note to continue to rise as the easing of financial conditions goes away, including the buying of mortgages and treasuries. On the origination front, I can't be more clear. I don't care if we originate One loan, or if we originate, 100 loans. Our goal is to service our customers, make money, and if origination volumes go down, which we expect them to do, and Barron will talk to that in a minute, so be it. Our MSR portfolio more than offset any decrease in earnings we're going to see in the origination business. As we look at the non-agency part of our business, in the origination side, I mentioned non-QM, zero to 700 year-over-year in the fourth quarter. This quarter, we expect to do a billion, and we're growing our prime jumbo origination as well. And the borrower remains healthy when you look at delinquency trends. On the asset side, this is the way that we think we could originate different pools of assets for our own balance sheet and for the marketplace. When you look at the agency origination market, it's roughly $2.5 trillion that we expect for 2022. The non-agency business, we expect... approximately $600 billion, and the business purpose lending business, we see a total addressable market of about $500 billion. Page 11, our playbook. MSRs, MSRs, MSRs as rates rise. Operating businesses, Genesis Capital, Gordian Asset Management, which is a property preservation business. We have our own title and insurance business, and we have an appraisal business. On the origination side, New Res Caliber. Again, very large mortgage company, focused on making money, not just creating size. Genesis Capital. And then we speak to our ability to adapt to different interest rate environments, as well as gain on sale environments. So the growth in non-QM, jumbo prime, investor loans, and business purpose loans will be a priority this year. They're also, when you look at gain on sale margins, those four areas are important. have significant gain on sale margins net-net at the end of the day. And then as we look into 22, I've been pretty vocal about getting into the commercial space. We will do that at some point in 22, and hopefully that's sooner rather than later. Q4 performance, MSR portfolio. I'm not going to beat a dead horse here. Just a couple things to point out. Sixteen percent of our portfolio is in the money to refinance as compared to 29 at the end of Q3. and that's down from a little under 50% in 2020. MSR speeds, we expect MSR speeds and amortization to truly slow down. We're starting to see that now. I think speeds that came out a couple days ago were much slower than street expectations. We expect that to continue as we go through the course of the year. Keep in mind, January, February, and looking back to December, typically slower months in the mortgage origination space, but we expect that to pick up as we go forward. Page 15, just have a look at the right side of the, actually look at the middle part of the page. The change in 10-year treasury rate, what that means to overall amortization as we see it in our portfolios, and what we think it's going to do to the origination P&L. And just take the middle part of the left side of the page. Rates up 100 basis points. We expect amortization to slow down by approximately $175 million. and origination PTI to go down by 125. Net net gain of $50 million. If you look to the right side of the page, what does that mean for shareholders? It's an increase in 11 cents in annual core earnings. The other thing to point out on this page, if you look at our MSR multiples at the end of 12-31, the 3.9, as we go forward and rates increase, this is what's going to drive our book value higher. Up 100, we expect multiples to go to 4.4, up 150, 4.5, and potentially even higher than that. Call rights, been talking about this for years. Our portfolios remain, but as the homeowner cleans up and delinquency trends continue to go lower and advanced balances come down, we will continue with our call right strategy of calling more and more loans. Single-family rental strategy, at the end of the year, we had approximately 2,700 homes. We did our first securitization in this quarter. Total equity in the business, just to give you a sense, is a little over $100 million, and we will and expect to continue to grow that business. We are going to be prudent about it. We will announce a small acquisition of some homes we acquired from Zillow over the course of the next 30 days or so. Probably won't announce it publicly, but it's Just to let you know, it's roughly 300 homes. So that business will continue to grow, and we're going to be smart about it as we think home prices, or I personally think home prices could come off a little bit here from the growth that we've seen. On the loan side, if you look at page 18, performing and non-performing loans, right now our portfolio at the end of Q4 was 1.2 billion EBOs. On the NRZ side was $500 million, and non-QM was $300 million. All this stuff will either be redelivered, in the case of EBOs, into the Ginnie Mae market. In the case of our loan business, either securitization or outright sales on that. On the servicer advance side, balances remain low. We have a ton of excess capacity. As I pointed out earlier, the homeowner's in great shape. And then when you look at our interest rates and our financings, and we had extended those at the lows, Our cost of capital is very, very low there. Now I'll turn it over to Barron, who will take you through the mortgage company highlights, and him and Jordan will take you through the next section.