UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 12, 2014 (November 6, 2014)
New Residential Investment Corp.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
001-35777 | 45-3449660 | |
(Commission File Number) | (IRS Employer Identification No.) | |
1345 Avenue of the Americas, 46th Floor New York, New York |
10105 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code (212) 479-3150
N/A
(Former name or former address, if changed since last report.)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. | Results of Operation and Financial Condition. |
On November 6, 2014, New Residential Investment Corp. (the Company) issued a press release announcing the Companys results for its fiscal quarter ended September 30, 2014. A copy of the Companys press release is attached to this Current Report on Form 8-K (the Current Report) as Exhibit 99.1 and is incorporated herein solely for purposes of this Item 2.02 disclosure.
This Current Report, including the exhibit attached hereto, is being furnished and shall not be deemed to be filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into any of the Companys filings under the Securities Act of 1933, as amended, or the Exchange Act, unless expressly set forth as being incorporated by reference into such filing.
Item 9.01 | Financial Statements and Exhibits. |
(d) | Exhibits |
Exhibit Number |
Description | |
99.1 | Press release, dated November 6, 2014, issued by New Residential Investment Corp. | |
99.2 | Transcript of earnings conference call |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
NEW RESIDENTIAL INVESTMENT CORP. |
(Registrant) |
/s/ Jonathan R. Brown |
Jonathan R. Brown |
Interim Chief Financial Officer and Principal Accounting Officer |
Date: November 12, 2014
EXHIBIT INDEX
Exhibit Number |
Description | |
99.1 | Press release, dated November 6, 2014, issued by New Residential Investment Corp. | |
99.2 | Transcript of earnings conference call |
Exhibit 99.1
Contact:
Investor Relations
212-479-3150
NEW RESIDENTIAL ANNOUNCES THIRD QUARTER 2014 RESULTS
NEW YORK(BUSINESS WIRE)November 6, 2014New Residential Investment Corp. (NYSE: NRZ; New Residential or the Company) today reported the following information for the quarter ended September 30, 2014:
THIRD QUARTER FINANCIAL HIGHLIGHTS:*
| GAAP Income of $126 million, or $0.88 per diluted share |
| Core Earnings of $63 million, or $0.43 per diluted share |
| Common dividend of $49 million, or $0.35 per share |
| Book Value of $11.14 per share |
Q3 2014 |
Q2 2014 | |||
Summary Operating Results: |
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GAAP Income |
$126 million | $124 million | ||
GAAP Income per Diluted Share |
$0.88 | $0.88 | ||
Non-GAAP Results: |
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Core Earnings** |
$63 million | $56 million | ||
Core Earnings per Diluted Share** |
$0.43 | $0.40 |
* | All per share data and share amounts included have been adjusted for the 1-for-2 reverse split effective October 17, 2014. |
** | For a reconciliation of GAAP Income to Core Earnings, please refer to the Reconciliation of Core Earnings below. |
Highlights for the quarter ended September 30, 2014:
| Excess Mortgage Servicing Rights (Excess MSRs) During the quarter, New Residential invested or committed to invest $66 million to acquire an average 35% interest in five seasoned Excess MSR pools related to $25 billion unpaid principal balance (UPB) of residential mortgage loans. Certain committed investments are subject to definitive documentation, Board approval and other conditions, and there can be no assurance that we will complete any committed investment. |
| Non-Agency RMBS Deal Collapse In August, New Residential collapsed 19 Non-Agency securitizations with $534 million UPB in aggregate of underlying seasoned, high coupon loans and, in October, it sold $464 million UPB. The remaining $70 million UPB is held for investment. |
Highlights subsequent to September 30, 2014:
| Consumer Loan Portfolio In October, New Residential, along with its co-investors completed a $2.6 billion asset backed secured refinancing of their consumer loan portfolio (the SpringCastle portfolio) with a UPB of approximately $2.7 billion. As a result of distributions and refinancing proceeds, the Company has received total life-to-date cash flows of $462 million. On its initial equity investment of $241 million, the Company has generated an internal rate of return (IRR) of 70% to date. The lifetime IRR may differ materially. The Companys methodology for calculating IRR may differ from that of other market participants. |
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| Distressed Loans In October, New Residential sold $138 million UPB of loans for $86 million, generating a 53% lifetime IRR. |
| Completed 1-For-2 Reverse Stock Split New Residential completed a 1-for-2 reverse stock split of its outstanding common shares on October 17, 2014. All per share data and share amounts included in this release have been adjusted for the reverse stock split. |
ADDITIONAL INFORMATION
For additional information that management believes to be useful for investors, please refer to the latest presentation posted on the Investor Relations section of the Companys website, www.newresi.com. For consolidated investment portfolio information, please refer to the Companys most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, which are available on the Companys website (www.newresi.com).
EARNINGS CONFERENCE CALL
New Residentials management will host a conference call on Thursday, November 6, 2014 at 8:00 A.M. Eastern Time. A copy of the earnings release will be posted to the Investor Relations section of New Residentials website, www.newresi.com.
All interested parties are welcome to participate on the live call. The conference call may be accessed by dialing 1-866-393-1506 (from within the U.S.) or 1-706-634-0623 (from outside of the U.S.) ten minutes prior to the scheduled start of the call; please reference New Residential Third Quarter 2014 Earnings Call.
A simultaneous webcast of the conference call will be available to the public on a listen-only basis at www.newresi.com. Please allow extra time prior to the call to visit the website and download any necessary software required to listen to the internet broadcast.
A telephonic replay of the conference call will also be available two hours following the completion of the call through 11:59 P.M. Eastern Time on Thursday, November 20, 2014 by dialing 1-855-859-2056 (from within the U.S.) or 1-404-537-3406 (from outside of the U.S.); please reference access code 24940862.
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Unaudited Condensed Consolidated Statements of Income
($ in thousands, except per share data)
Three Months Ended September | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Interest income |
$ | 97,587 | $ | 21,885 | $ | 261,733 | $ | 61,075 | ||||||||
Interest expense |
33,307 | 3,443 | 108,816 | 6,993 | ||||||||||||
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Net Interest Income |
64,280 | 18,442 | 152,917 | 54,082 | ||||||||||||
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Impairment |
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Other-than-temporary impairment (OTTI) on securities |
| | 943 | 3,756 | ||||||||||||
Valuation provision on loans |
1,134 | | 1,591 | | ||||||||||||
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1,134 | | 2,534 | 3,756 | |||||||||||||
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Net interest income after impairment |
63,146 | 18,442 | 150,383 | 50,326 | ||||||||||||
Other Income |
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Change in fair value of investments in excess mortgage servicing rights |
28,566 | 208 | 40,670 | 43,899 | ||||||||||||
Change in fair value of investments in excess mortgage servicing rights, equity method investees |
31,833 | 20,645 | 50,950 | 41,741 | ||||||||||||
Change in fair value of investments in servicer advances |
22,948 | | 105,825 | | ||||||||||||
Earnings from investments in consumer loans, equity method investees |
22,490 | 24,129 | 60,185 | 60,293 | ||||||||||||
Gain on settlement of investments |
938 | 11,213 | 57,834 | 11,271 | ||||||||||||
Other income |
15,289 | | 19,539 | | ||||||||||||
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122,064 | 56,195 | 335,003 | 157,204 | |||||||||||||
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Operating Expenses |
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General and administrative expenses |
7,499 | 2,449 | 14,886 | 5,640 | ||||||||||||
Management fee allocated by Newcastle |
| | | 4,134 | ||||||||||||
Management fee to affiliate |
5,124 | 4,484 | 14,525 | 6,747 | ||||||||||||
Incentive compensation to affiliate |
10,910 | 4,470 | 33,111 | 5,348 | ||||||||||||
Loan servicing expense |
1,778 | 89 | 2,210 | 219 | ||||||||||||
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25,311 | 11,492 | 64,732 | 22,088 | |||||||||||||
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Income (Loss) Before Income Taxes |
159,899 | 63,145 | 420,654 | 185,442 | ||||||||||||
Income tax expense |
7,801 | | 29,483 | | ||||||||||||
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Net Income (Loss) |
$ | 152,098 | $ | 63,145 | $ | 391,171 | $ | 185,442 | ||||||||
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Noncontrolling interests in Income (Loss) of Consolidated Subsidiaries |
$ | 25,726 | $ | | $ | 92,524 | $ | | ||||||||
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Net Income (Loss) Attributable to Common Stockholders |
$ | 126,372 | $ | 63,145 | $ | 298,647 | $ | 185,442 | ||||||||
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Net Income Per Share of Common Stock |
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Basic |
$ | 0.89 | $ | 0.50 | $ | 2.22 | $ | 1.47 | ||||||||
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Diluted |
$ | 0.88 | $ | 0.49 | $ | 2.16 | $ | 1.45 | ||||||||
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Weighted Average Number of Shares of Common Stock Outstanding |
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Basic |
141,211,580 | 126,536,394 | 134,814,020 | 126,520,766 | ||||||||||||
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Diluted |
144,166,601 | 129,944,643 | 137,972,639 | 128,274,974 | ||||||||||||
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Dividends Declared per Share of Common Stock |
$ | 0.35 | $ | 0.35 | $ | 1.20 | $ | 0.49 | ||||||||
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Consolidated Balance Sheets
($ in thousands)
September 30, 2014 | December 31, | |||||||
(Unaudited) | 2013 | |||||||
Assets |
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Investments in: |
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Excess mortgage servicing rights, at fair value |
$ | 409,236 | $ | 324,151 | ||||
Excess mortgage servicing rights, equity method investees, at fair value |
342,538 | 352,766 | ||||||
Servicer advances, at fair value |
3,214,113 | 2,665,551 | ||||||
Real estate securities, available-for-sale |
2,079,712 | 1,973,189 | ||||||
Residential mortgage loans, held-for-investment |
629,398 | 33,539 | ||||||
Residential mortgage loans, held-for-sale |
492,399 | | ||||||
Consumer loans, equity method investees |
264,039 | 215,062 | ||||||
Cash and cash equivalents |
187,601 | 271,994 | ||||||
Restricted cash |
29,962 | 33,338 | ||||||
Real estate owned |
52,740 | | ||||||
Derivative assets |
28,686 | 35,926 | ||||||
Other assets |
42,977 | 53,142 | ||||||
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$ | 7,773,401 | $ | 5,958,658 | |||||
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Liabilities and Equity |
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Liabilities |
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Repurchase agreements |
$ | 2,738,349 | $ | 1,620,711 | ||||
Notes payable |
2,847,251 | 2,488,618 | ||||||
Trades payable |
213,050 | 246,931 | ||||||
Due to affiliates |
35,141 | 19,169 | ||||||
Dividends payable |
49,484 | 63,297 | ||||||
Deferred tax liability |
22,485 | | ||||||
Accrued expenses and other liabilities |
11,780 | 6,857 | ||||||
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5,917,540 | 4,445,583 | |||||||
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Commitments and Contingencies |
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Equity |
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Common Stock, $0.01 par value, 2,000,000,000 shares authorized, 141,382,603 and 126,598,987 issued and outstanding at September 30, 2014 and December 31, 2013, respectively |
1,414 | 1,266 | ||||||
Additional paid-in capital |
1,330,090 | 1,158,384 | ||||||
Retained earnings |
237,284 | 102,986 | ||||||
Accumulated other comprehensive income, net of tax |
6,628 | 3,214 | ||||||
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Total New Residential stockholders equity |
1,575,416 | 1,265,850 | ||||||
Noncontrolling interests in equity of consolidated subsidiaries |
280,445 | 247,225 | ||||||
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Total Equity |
1,855,861 | 1,513,075 | ||||||
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$ | 7,773,401 | $ | 5,958,658 | |||||
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Reconciliation of Core Earnings
($ in thousands)
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
2014 | 2013 | 2014 | 2013 | |||||||||||||
Net income (loss) attributable to common stockholders |
$ | 126,372 | $ | 63,145 | $ | 298,647 | $ | 185,442 | ||||||||
Impairment |
1,134 | | 2,534 | 3,756 | ||||||||||||
Other Income Adjustments: |
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Other Income |
(122,064 | ) | (56,195 | ) | (335,003 | ) | (157,204 | ) | ||||||||
Other Income attributable to non-controlling interests |
12,619 | | 57,360 | | ||||||||||||
Deferred taxes attributable to Other Income, net of non-controlling interests |
4,459 | | 20,762 | | ||||||||||||
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Total Other Income Adjustments |
(104,986 | ) | (56,195 | ) | (256,881 | ) | (157,204 | ) | ||||||||
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Incentive compensation to affiliate |
10,910 | 4,470 | 33,111 | 5,348 | ||||||||||||
Non-capitalized deal inception costs |
1,433 | 107 | 3,258 | 4,329 | ||||||||||||
Core earnings of equity method investees: |
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Excess mortgage servicing rights |
9,158 | 8,091 | 27,029 | 13,500 | ||||||||||||
Consumer loans |
18,628 | 18,260 | 53,080 | 38,053 | ||||||||||||
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Core Earnings |
$ | 62,649 | $ | 37,878 | $ | 160,778 | $ | 93,224 | ||||||||
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CORE EARNINGS
New Residential has four primary variables that impact the Companys operating performance: (i) the current yield earned on its investments, (ii) the interest expense incurred under the debt incurred to finance its investments, (iii) its operating expenses and (iv) its realized and unrealized gain or losses, including any impairment and deferred tax, on its investments. Core earnings is a non-GAAP measure of the Companys operating performance excluding the fourth variable above and adjusting the earnings from the consumer loan investment to a level yield basis. It is used by management to gauge the Companys current performance without taking into account: (i) realized and unrealized gains and losses, which although they represent a part of the Companys recurring operations, are subject to significant variability and are only a potential indicator of future economic performance; (ii) incentive compensation paid to the Companys Manager; and (iii) non-capitalized deal inception costs.
While incentive compensation paid to the Companys Manager may be a material operating expense, the Company excludes it from core earnings because (i) from time to time, a component of the computation of this expense will relate to items (such as gains or losses) that are excluded from core earnings, and (ii) it is impractical to determine the portion of the expense related to core earnings and non-core earnings, and the type of earnings (loss) that created an excess (deficit) above or below, as applicable, the incentive compensation threshold. To illustrate why it is impractical to determine the portion of incentive compensation expense that should be allocated to core earnings, note that, as an example, in a given period, the Company may have core earnings in excess of the incentive compensation threshold but incur losses (which are excluded from core earnings) that reduce total earnings below the incentive compensation threshold. In such case, the Company would either need to (a) allocate zero incentive compensation expense to core earnings, even though core earnings exceeded the incentive compensation threshold, or (b) assign a pro forma amount of incentive compensation expense to core earnings, even though no incentive compensation was actually incurred. The Company believes that neither of these allocation methodologies achieves a logical result. Accordingly, the exclusion of incentive compensation facilitates comparability between periods and avoids the distortion to the Companys non-GAAP operating measure that would result from the inclusion of incentive compensation that relates to non-core earnings. With regard to non-capitalized deal inception costs, management does not view these costs as part of the Companys core operations. Non-capitalized deal inception costs are generally legal and valuation service costs, as well as other professional service fees, incurred when the Company acquires certain investments. These costs are recorded as general and administrative expenses in the Companys statements of income. Management believes that the adjustments to compute core earnings specified above allow investors and analysts to readily identify the operating performance of the assets that form the core of the Companys activity, assist in comparing the core operating results between periods, and enable investors to evaluate the Companys current performance using the same measure that management uses to operate the business.
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The primary differences between core earnings and the measure New Residential uses to calculate incentive compensation relate to (i) realized gains and losses (including impairments) and (ii) non-capitalized deal inception costs. Both are excluded from core earnings and included in the Companys incentive compensation measure. Unlike core earnings, the Companys incentive compensation measure is intended to reflect all realized results of operations.
Core earnings does not represent cash generated from operating activities in accordance with GAAP and therefore should not be considered an alternative to net income as an indicator of the Companys operating performance or as an alternative to cash flow as a measure of the Companys liquidity and is not necessarily indicative of cash available to fund cash needs.
ABOUT NEW RESIDENTIAL
New Residential focuses on opportunistically investing in, and actively managing, investments related to residential real estate. The Company primarily targets investments in: (1) mortgage servicing related assets, (2) residential mortgage backed securities (RMBS), and (3) other related investments. New Residential is organized and conducts its operations to qualify as a real estate investment trust (REIT) for federal income tax purposes. The Company is managed by an affiliate of Fortress Investment Group LLC, a global investment management firm.
FORWARD-LOOKING STATEMENTS
Certain statements in this press release may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, such as statements regarding committed investments and life to date IRR. These statements are based on managements current expectations and beliefs and are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements, many of which are beyond the Companys control, such as the consent of third parties. The Company can give no assurance that its expectations will be attained. Accordingly, you should not place undue reliance on any forward-looking statements contained in this press release. For a discussion of some of the risks and important factors that could affect such forward-looking statements, see the sections entitled Risk Factors and Managements Discussion and Analysis of Financial Condition and Results of Operation incorporated by reference in the Companys Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, which are available on the Companys website (www.newresi.com). In addition, new risks and uncertainties emerge from time to time, and it is not possible for the Company to predict or assess the impact of every factor that may cause its actual results to differ from those contained in any forward-looking statements. Such forward-looking statements speak only as of the date of this press release. The Company expressly disclaims any obligation to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Companys expectations with regard thereto or change in events, conditions or circumstances on which any statement is based.
ESTIMATED RETURNS; IRRs. The Company calculates the estimated return, or the IRR, of an investment as the annualized effective compounded rate of return (assuming monthly compounding) earned over the life of the investment after giving effect to existing leverage. Life to date IRR is based on the purchase price for an investment and the estimated value of the investment, or mark, which is calculated based on cash flows actually received and the present value of expected cash flows over the life of the investment, using an estimated discount rate. IRRs are based on assumptions about collateral performance, and actual results and returns could differ materially from the Companys expectations as a result of higher than expected prepayment rates, delinquency rates and a variety of factors outside our control. Income and cash flows recognized by the Company in future periods may be significantly less than the income and cash flows that would have been recognized had expected returns been realized. As a result, an investments lifetime return may differ materially from an IRR to date. The Companys calculation of IRR may differ from a calculation by another market participant, as there is no standard method for calculating IRRs.
Source: New Residential Investment Corp.
New Residential Investment Corp.
Investor Relations, 212-479-3150
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Exhibit 99.2
NEW RESIDENTIAL INVESTMENT CORP. FQ3 2014 EARNINGS CALL NOV 06, 2014
Call Participants
EXECUTIVES
Michael Nierenberg
Chief Executive Officer, President and
Director
Unknown Executive
ANALYSTS
Chas Tyson
Keefe, Bruyette, & Woods, Inc.,
Research Division
Douglas Harter
Crédit Suisse AG, Research Division
Henry J. Coffey
Sterne Agee & Leach Inc., Research
Division
Jason S. Deleeuw
Piper Jaffray Companies, Research
Division
Michael Robert Kaye
Citigroup Inc, Research Division
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Presentation
Operator
Good morning. My name is Bonnie, and I will be your conference operator today. At this time, I would like to welcome everyone to the New Residential third quarter earnings call. [Operator Instructions] I would now like to turn the call over to Ms. Mandy Chalk [ph] of Investor Relations.
Unknown Executive
Thank you, Bonnie, and good morning, everyone. I would like to welcome you today to New Residentials third quarter earnings conference call. Joining me today are Michael Nierenberg, CEO; and Jonathan Brown, Interim CFO and CAO.
Before I turn the call over to Mike, I would like to point out that certain statements made 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 earnings release and investor supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC.
And now I would like to turn the call over to Michael.
Michael Nierenberg
Chief Executive Officer, President and Director
Thanks, Mandy [ph]. Good morning, everybody, and thanks for joining our third quarter earnings call. New Residential had a terrific quarter, and were looking forward to sharing our results and thoughts with you as we go through our supplement.
Throughout the call, I will be referring to our supplement, which has been posted online. As we flip through the deck, I
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think youll find that our core business, which is investing in excess MSRs in callable nonagency mortgage securities, is very unique as its very difficult to replicate that portfolio today. Were in a great position leveraging our expertise in the business as well as our manager, Fortress, in creating value for you, our shareholders.
Now if you could refer to the supplement, and were going to begin on Page 2. We continue to invest in the $20 trillion U.S. housing market. In the quarter, we recorded the highest quarterly results in the companys history. Weve had core earnings of $0.43 per share. And since our spin in May of 2013, weve generated a 29% return on equity. Well go through more of the numbers in detail over the next couple of pages.
Our message is simple. We invest in assets that offer reliable mid-teens type returns through various interest rate scenarios. Today, our portfolio consists of excess MSRs; nonagency mortgage securities, of which we own call rights on approximately 95% of our assets; and other investments, which well call which are more opportunistic in nature.
And now if you could flip to Page 3, our financial highlights for Q for the third quarter. We had a great quarter. Our GAAP income today is $126 million. On a per share basis, thats $0.88. Core earnings, highest in companys history of $63 million or $0.43 per share. We declared a regular common dividend of $0.35, and we and that was $49 million. If you take a look at that relative to the second quarter of 14, weve had record results in our company, and we look forward to hopefully creating that in quarters to come.
Now if you take a look at Page 4. Since our spin from NCT, we have delivered significant value for our shareholders. Our core earnings have grown from Q3 of 2013 from $38 million to $63 million in Q3 of 2014. On a year-on-year basis, thats a 65% growth rate.
Our net income. Weve doubled our net income from Q3 2013 from $63 million to $126 million, and our cumulative dividends paid have been $290 million or $2.19 per share. What we tried to do on the bottom part of this page is just to show you a chart that shows our growth in core earnings on a year-over-year basis. So overall, our financial performance has been terrific.
If you flip to Page 5, New Residential today. Our core business in New Residential today continues to be to focus on our
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excess MSR portfolio and sourcing new excess MSRs and a nonagency deal collapses. As I mentioned earlier, our portfolio is very unique in that excess MSRs and called loan securities are very hard to replicate. Our calls, of which we have over 800 our calls that we have in our portfolio represent 800 different mortgage deals, which is backed by $100 billion of mortgage loans. And that represents 15% of the entire nonagency market. We continue to add calls when we can and feel both of these strategies are long term in nature and afford us the ability to generate mid-teens plus returns for our shareholders.
On the chart below, you can see our capital allocation, net equity investments and our targeted yields.
Now if youll flip to Page 6, our Q3 highlights in executing our strategy. Now Id like to talk to you a little bit about how were doing that. On excess MSRs, we not only funded some new MSRs. We committed to purchase other portfolios of MSRs. We continue to grow our portfolio and see a real visible pipeline. With new capital rules expected for nonbank servicers, our partner, Nationstar, is in a great position to acquire portfolios. Jay Bray and his team have done a terrific job working with the different regulatory authorities. His outreach to everyone has been great. With all of the noise surrounding others, we feel they are in pole position one and look forward to growing our portfolio with them.
On a nonagency deal collapse strategy. In the quarter, we called 19 different mortgage deals with a combined UPB of $540 million. We will continue executing on this strategy. And again, with 800 different with calls on 800 different deals on $100 billion of collateral, we believe this strategy will go on for a long time. We expect to call more in Q4.
On our SpringCastle refinancing. On our initial investment, we invested $241 million on a pool of consumer loans that was approximately $3.9 billion. On the $241 million of investment, to date, we have received $462 million and have generated an IRR of approximately 70%. We expect this to grow over time as we now have the remaining cash flows market 0, and we expect cash flows over the course of the life of this investment to be between $100 million and $150 million. This is what I would call a great example of an opportunistic investment.
Now what I would like to do is talk to you a little bit about our portfolio, give you an update and then after that, well open it up for Q&A. On Page 8, we put together what we an Excess MSR is. We tried to create a simple slide for those of you that are new to the company. Its something that I think will help get you grounded on what an Excess MSR is.
4 |
On Page 9. Now Id like to take you through the MSR market. The mortgage servicing market is a very large one. Its $10 trillion. In 2010, the banks owned 89% of all mortgage servicing rights. With regulatory and capital pressures affecting the banks, we saw a shift, where the banks were selling mortgage servicing to nonbanks. Banks have reduced their footprint from 89% in 2010 to 77% today, and we expect that to go to at least 50%. We feel the opportunity to invest capital in the Excess MSR sector will continue. I would also like to point out, with new capital rules likely to be implemented on nonbank servicers in the coming years, the barrier to entry is very high, and our partner Nationstar is in a very great place as it relates to that.
Now Id like to talk to you a little bit about our portfolio on Page 10. Our own portfolio is $251 billion UPB of excess MSRs. We own seasoned MSRs, where we estimate 88% of the borrowers are credit-impaired with limited refinancing options. This will provide stable cash flows in all types of interest rate scenarios.
Our life to date performance has been terrific. We invested $759 million initially. We received $333 million of cash, and were currently carrying the investment at $752 million. Thats generated a life to date IRR of 31%. If you think about it, we received 43% of our initial investment back. In the future, we expect cash flows to be $1.2 billion.
On Page 11, we talk about our resi loan securities and call rights. We think this, again, is very unique to our company and very unique to the market. Through our many acquisitions of servicing, we have acquired call rights in, again, on over 800 different mortgage securitizations. To date, we have called 35 deals, which represents approximately $820 million of collateral. We continue to pursue this as a core strategy for our company and expect to call more loans in this quarter. This will represent approximately $1.5 billion of loans through the end of Q4 that we will have called within this year.
On a go-forward basis, there are currently a little under $10 billion of securities that are callable. We will call these deals over time as delinquency pipelines clean up as well as our strategy of buying mortgage bonds at a discount. To date, we have been making between 2 and 3 points on this called loan strategy.
As we look forward, were in current discussion with a number of institutions on acquiring more calls through our relationships as well as acquiring more calls as we purchase more MSRs.
5 |
On Page 12. This talks a little bit about our other investments. Our other investments consist of more opportunistic investment investing, where we feel we can generate 20-plus percent returns on a less frequent basis. This part of our business consists of consumer loans, distressed loans and servicing advances. A great example of this strategy is our consumer loan portfolio, which I referred to earlier. Total return of this investment through the life of the security is likely to be close to 100%. Our loan portfolio is something that we will grow organically as we call more mortgage deals.
When you think about the broader NPL and RPL markets, to date, weve seen approximately $40 billion of loans sold into the marketplace. Our investment in this sector in buying loans in the secondary market has been less than 2%. We have a total invested equity of $175 million as of the end of Q3 or less and again, less than 2% of our loans sold. We view this as more opportunistic rather than a core activity at this time as this space is fairly crowded.
In closing, Id like to talk to you about how were thinking about the company and looking forward. We had a great quarter. We continue to make a lot of money for our shareholders. We will continue to try and grow our core earnings. At this time, we have approximately $262 million of cash to be invested. MSR pipelines are looking better and better. And with Nationstar Mortgage as our partner, we should have an edge in the marketplace. Well continue to focus on our core business of MSRs and deal collapses.
To the extent that rates rise, our portfolio will fare extremely well as the MSR portfolio is a negative duration portfolio and should rise as interest rates go higher.
In the appendix, youll find further detail on our portfolio. And now I will turn the call back over to the operator, and we look forward to answering any questions.
6 |
Question and Answer
Operator
[Operator Instructions] Our first question comes from Douglas Harter of Crédit Suisse.
Douglas Harter
Crédit Suisse AG, Research Division
Michael, when youre doing the one of the cleanup or using exercising the call rates, how long does it does that capital get used in order to generate those 2 to 3 points?
Michael Nierenberg
Chief Executive Officer, President and Director
It depends. Typically, it could be a 30- to 60-day kind of gestation period. There were times when were able to do it all within a couple of weeks. Weve been able to source a large amount of financing for our company through our relationships in the banking world. So theres times where well call deals, for example, for October, and the way that will work is well call them on roughly the middle part of the month. Therell be a small amount of capital thats outlaid for the next couple of weeks up until settlement. So I would think about it more in the context of like a 30-day period.
Douglas Harter
Crédit Suisse AG, Research Division
So Im guessing the return on your invested capital is then quite high in that.
Michael Nierenberg
Chief Executive Officer, President and Director
Yes, thats correct.
Douglas Harter
Crédit Suisse AG, Research Division
Got it. And then just noticing that you had kind of moved the servicing advances into kind of the other investment category. I guess, are you viewing there to be less growth in that and sort of putting it in that section?
Michael Nierenberg
Chief Executive Officer, President and Director
We put it there because the amount of capital or our carrying basis on our existing servicing advances today is $135 million. Obviously, in December, when we embarked on or we did this first transaction with Nationstar, we havent seen a ton of nonagency mortgage servicing sold into the marketplace. We are working on a couple of portfolios that we believe, at some point, may come to fruition. But overall, we think its a little bit spotty, so were going to so we put it more into our opportunistic investing bucket.
Operator
Our next question comes from Henry Coffey of Sterne Agee.
Henry J. Coffey
Sterne Agee & Leach Inc., Research Division
Yes, continuing where Doug was. The call strategy, your value-add nobody gets anything for free. Is your capacity to manage the whole capital process, is it really tied to your relationship with Nationstar? Is it your ability to manage the re-securitization? What where do you step in and sort of create value in the equation?
7 |
Michael Nierenberg
Chief Executive Officer, President and Director
Well, the first thing is Henry, is we own calls, which pretty much a very few people own in the marketplace. So when we think about this opportunity, its very unique to us. As we pointed out, we own calls in over 800 different mortgage securitizations. With our expertise in the capital markets between all of the folks we have here, we probably have about 150 years of mortgage experience, and that makes us all kind of collectively. So I think our capital markets expertise is terrific. Our relationship with our partner, Nationstar, is terrific because they service a lot of these securitizations. So overall, I think its, one, having the call to New Residential; two, our relationship with Nationstar; and three, quite frankly, the our group here that has this many, many years of experience in the mortgage market.
Henry J. Coffey
Sterne Agee & Leach Inc., Research Division
And how much kind of shelf life is here in terms for how many quarters do we get to really think about that?
Michael Nierenberg
Chief Executive Officer, President and Director
Well, we expect, through Q4, that we will call approximately $1.5 billion of deals. If you think about that, and there is $100 billion left to call, or $99 billion, this is something that could go on for many, many years. Currently, the callable pool of loans that we or securities that we could call today is a little bit under $10 billion. Keep in mind, not all of those will be able to call today. Because some of these deals are just noneconomic as you work through the delinquencies. Another way that we go about it, is we go into the marketplace and buy discount mortgage securities, which then lower our basis. So it gives us the ability to call loans even when they dont execute well above par.
Henry J. Coffey
Sterne Agee & Leach Inc., Research Division
And this is in terms of REIT income, this is considered a gain, good REIT, bad REIT income? How does that work into the equation?
Michael Nierenberg
Chief Executive Officer, President and Director
The way weve done it, Henry, is weve called mortgage securities, we call the pool of loans. Weve then done a securitization or sold up loans at a premium. In these pools, typically, theres a certain amount of delinquent loans that we retain for our portfolio. Those delinquent loans, as we liquidate them, will continue to flow into core earnings. So we think that the growth in our core earnings one of the areas of growth in core earnings will come from this business.
Henry J. Coffey
Sterne Agee & Leach Inc., Research Division
And then just looking forward, what the exciting thing about you guys, youre always looking at the next edge. The capital requirements in the servicing business, youve already got one in Nationstar, as competitors are talking about selling assets. Is are you going to be deploying capital, do you think, in areas around traditional servicing? Do you think its going to be more in the Ginnie Mae area? Is it just going to be helping with MSR financing? Or can you give us some sense of where the opportunity lies in terms of capital redeployment?
Michael Nierenberg
Chief Executive Officer, President and Director
Sure. I think, first of all, Nationstar, as I pointed out earlier, Jay and his team have done a great job working with the regulators, making sure their balance sheet is super sound and tight. So we feel really, really good about where they are as it relates to the new proposed capital rules that will come to the nonbank servicers over the course of the next year or so. So we feel really good about that. As it relates to New Residential and our ability to deploy capital in the MSR space, we think the next portfolio of MSRs that we will likely acquire is probably going to be in the Ginnie Mae space. However, were in discussion on a number of different portfolios. I would tell you that were probably more optimistic today than weve been in a long time about our ability to source more MSRs and actually execute on them. And a lot of that has to do with the job that guys at Nationstar have done with the regulators and actually doing an outreach program and keeping the regulatory bodies very involved in their business. So we feel really good about that.
8 | ||
Henry J. Coffey
Sterne Agee & Leach Inc., Research Division
Plus they just bought $43 billion in servicing. Im assuming thats an opportunity for you, too.
Michael Nierenberg
Chief Executive Officer, President and Director
Yes.
Operator
Our next question comes from Bose George of KBW.
Chas Tyson
Keefe, Bruyette, & Woods, Inc., Research Division
This is actually Chas Tyson on for Bose. Just a couple of more on the cleanup calls. How much are you guys retaining from that as opposed to calling and then securitizing? And is there a difference between the returns on the retained portion versus the kind of the trade portion where you call unsecuritized?
Michael Nierenberg
Chief Executive Officer, President and Director
On the amount we retain, it depends deal by deal. The more delinquent loans you have, obviously, in a deal, the more youre going to retain. Because typically, those will not go into the securitization. As it relates to the economics, we view the economics in a similar fashion. We own these we own the delinquent loans at what well call as a very, very attractive basis for our company. And as we liquidate those over time, we still think were going to generate returns well in excess of 20%.
Chas Tyson
Keefe, Bruyette, & Woods, Inc., Research Division
Okay, thats helpful. And then is there I mean, I know you guys talked about this kind of a significant runway on this opportunity. Theres billions to be called. But is there kind of an easy way for us to think about how to model this going forward on kind of a quarterly basis there I think we can look to?
Michael Nierenberg
Chief Executive Officer, President and Director
The way as I pointed out earlier in the presentation, the our experience so far has been weve been averaging something in the vicinity of, call it, 2 to 3 points on each deal collapse. To date or through Q4, we expect to call about $1.5 billion of securities. I think it will be a bit lumpy. But if you use that and actually think about that potentially growing over time, because we did our first one, I believe, in May of this year, we think the run rate will continue for a long time and the amount of loans, hopefully, as we acquire more nonagency securities at discounts will continue to grow. So its a hard one. I know its a pin point, but were typically in this kind of 2 to 3 point range. Year-to-date, well be about $1.5 billion as we get through Q4.
Chas Tyson
Keefe, Bruyette, & Woods, Inc., Research Division
Okay, thats helpful. And then just one last one. I wanted to get your, guys, color on the NPL market. What you guys are seeing in terms of pricing? How active youve been in seeking out new NPLs? And if the pricing has kind of come down off recent highs.
Michael Nierenberg
Chief Executive Officer, President and Director
9 | ||
The way that we look at the NPL market is we think about it more opportunistic. The investments we made have been strategic. I we have seen $40 billion of loans sold into the marketplace to date. We have purchased about 2% of that. Our equity in the in, call it, the secondary NPL market is about $175 million as of the end of Q3. We actually monetized some early HUD pools that we purchased in the quarter for 53% IRR. And this was stuff that we purchased last year, and that generated a gain of approximately $9 million. So the way that were going to look at it is more opportunistic. I wouldnt anticipate us going out and buying large portfolios of NPLs, unless pricing cheapens up. Subsequent to Q3, we did buy a small amount of HUD NPLs, and the pricing on that was down approximately 5 to 6 points from some of the recent prints. So again, its a more opportunistic thing. I dont anticipate a lot of growth unless this sector really cheapens up, and our growth in our NPL business will be sourcing loans through our called loan strategy. And one of the point Id like to make is that we are actually very when we buy a pool of loans, were very much aware of where we or we have thought as far as what we think of the housing market on a go-forward basis. So we try to typically buy loans that have to the extent we can buy loans that have equity, we do that. And about 50% of our portfolio today currently has equity, so that protects us from downside risks to the extent housing softens up.
Operator
Our next question comes from Michael Kaye of Citigroup.
Michael Robert Kaye
Citigroup Inc, Research Division
You had a couple of very strong quarters back to back. Just wondering how youre thinking about the dividend here, as the core earnings are well above the dividend?
Michael Nierenberg
Chief Executive Officer, President and Director
Its something that we are currently evaluating and thinking about without giving you forward guidance, which we cant do. But its something thats obviously on our minds, and Im sure its on the minds of all of our shareholders. As we think about the company, we try to grow our core earnings. Weve I think weve represented that weve done a good job doing that. And any kind of as you make decisions around our dividend, well go to well discuss it with our board and then be back to the market.
Michael Robert Kaye
Citigroup Inc, Research Division
Great. The returns on the SpringCastle coinvestment have been obviously fantastic. Just looking ahead if hypothetically, if Springleaf were to do a large acquisition of another consumer lender, could this be something that New Resi could be a part of? I wasnt sure if a New Resi coinvestment would be possible if a structured more of an entire company investment versus buying a portfolio like SpringCastle.
Michael Nierenberg
Chief Executive Officer, President and Director
Yes. I think we look at it deal by deal. As it relates to any potential acquisitions by Springleaf, clearly, with our relationship with our manager, Fortress, and some of our sister companies, theres always what well call opportunistic investments that we see. I would say now, where Springleaf sits, they sit in a very good place based on some of their recent activity to do what they have to do. So its on a deal by deal basis, Michael.
Operator
Our next question comes from Jason Deleeuw of Piper Jaffray.
Jason S. Deleeuw
Piper Jaffray Companies, Research Division
The call pipeline pace. Can you just help us kind of understand what the key driver of that pace is? It sounds like its working the delinquencies lower. Is that the key thing to focus on in terms of trying to think about the pace of those deals coming into a callable position?
10 | ||
Michael Nierenberg
Chief Executive Officer, President and Director
Its that. Its also our ability to source collateral at a discount, which would then lower our bases. So if you think about it with Nationstar servicing a fair amount of the deals, and as we work through the pipelines on these delinquent loans, clearly, thats going to make them more attractive to be called. The other thing is the other way that we think about it is to the extent that we can buy discount mortgage securities in the marketplace, that will lower our basis. So to give you an example, today, on our portfolio, we own call rights of on 95% of our securities that are sitting on our balance sheet, and thats as of the end of Q3. And our basis on those on our securities as of the end of Q3 are approximately $0.67 and $1. So we think about it from a discount security standpoint and as we clean up the pipeline. So thats why it is going to be a bit lumpy, but we think the runway for growth in that business for us is going to be for a very, very long time.
Jason S. Deleeuw
Piper Jaffray Companies, Research Division
And just to be clear, are all those earnings, would they all flow through the core earnings? Or is there some GAAP earnings in there, too? Can you just kind of help us understand that a little bit more?
Michael Nierenberg
Chief Executive Officer, President and Director
Our current strategy is to try to grow our core earnings for shareholders. So again, as I pointed out in our example before, if we call a pool of securities, we then turn around and issue a securitization at a premium. As we acquire more, call it if theres more delinquent loans in that portfolio, the likelihood is that, that would flow through our core earnings. To the extent that its an entirely clean pool of collateral, where you liquidate the entire pool of collateral at that time, that would probably flow through GAAP earnings. And we did that, I believe, in the second quarter.
Jason S. Deleeuw
Piper Jaffray Companies, Research Division
Okay. So when you guys think about the dividend and you got to kind of because this is going to be a source of earnings here with the callable deals, you got to kind of think about what would be core and what would be GAAP. Is that how youre thinking about it? Or in terms of what you would set your and your core dividend at versus what you will do for a special dividend?
Michael Nierenberg
Chief Executive Officer, President and Director
Yes.
Jason S. Deleeuw
Piper Jaffray Companies, Research Division
And then the $262 million of uninvested cash, how quickly do you think you can put that to work? It sounds like theres some MSR opportunities here. Can you just give us a sense of when you can get that capital working again?
Michael Nierenberg
Chief Executive Officer, President and Director
We always see different opportunities. One of the things that I think we that were mindful of is and this goes back to the turmoil we saw in the markets in early October. We always want to make sure we have an ample amount of cash on our balance sheet to protect our company and you, our shareholders. On the $262 million, were looking at pools of MSRs that were hopeful that we could agree upon. Our pipeline today really is $150 billion. Not all of that works, quite frankly. But some of that, we believe, will work. We also see a bunch of nonagency portfolios that continue to trade in the marketplace. So we think its something that well be able to deploy over the near future.
Jason S. Deleeuw
Piper Jaffray Companies, Research Division
11 | ||
Great. And then lastly, the capital structure. Any update on the capital structure that youre thinking about for NRZ?
Michael Nierenberg
Chief Executive Officer, President and Director
Meaning?
Jason S. Deleeuw
Piper Jaffray Companies, Research Division
Im just wondering. From a debt perspective, is there any way to possibly, from a balance sheet perspective, maybe add more debt to the business here or not? Are you guys comfortable with where youre at? Just how youre thinking about the equity and the debt capital kind of going forward.
Michael Nierenberg
Chief Executive Officer, President and Director
I think were very comfortable where we are right now. When you think about the company, its very, very low leveraged relative to a lot of other kind of investment vehicles in the market. Our leverage is between 1 and 2x. And I think were going to kind of try to maintain that at this point. Obviously, if theres something huge that comes along thats really accretive to our company, well think about all kinds of different capital strategies. But for now, I think were comfortable where we are.
Operator
[Operator Instructions] At this time, there are no further questions. Ill now turn the call back to Mike.
Michael Nierenberg
Chief Executive Officer, President and Director
Thanks, everyone. I look forward to talking to you next quarter.
Operator Thank you. This concludes todays conference call. You may now disconnect.
12 | ||
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