New Residential Investment Corp. (NRZ)

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Where Will New Residential be in the Next 3 Years

New Residential Investment (NYSE: NRZ) is one of the larger mortgage real estate investment trusts (mREITs) in today's market. The company -- which specializes in originating and servicing residential mortgages and investing in agency and nonagency securities -- is growing quickly, putting this mREIT on a lot of investors' radars.

Since announcing its acquisition of Caliber Home Loans, and at a time when mortgage applications are on fire, there's reason to believe the company could be in a much stronger and larger position within the next three years.

New Residential Investment today
The company earns revenues in a variety of ways, including loan originations through its mortgage subsidiary NewRez, servicing through its subsidiary Shellpoint, mortgage servicing rights (MSRs), and servicing advances. Additionally, the company buys and securitizes loans and other securities and sells them in the secondary market.

Calling, buying, and selling these loans and securities allows the company to recapitalize and leverage its portfolio to buy and originate more loans, thus helping it grow its portfolio and revenues.

As of Q1 2021, the company had $24.5 billion worth of assets in its portfolio and $304.6 billion worth of loans in its servicing portfolio, making it the largest non-bank owner of MSRs and a top 10 non-bank mortgage servicer. In the first quarter of 2021, the company originated $27.2 billion in loans, up 138% year over year (YOY).

The growth over the past few quarters has largely been driven by market conditions among residential real estate. High demand for housing backed by low interest rates has created a refinancing and buying frenzy.

These conditions have surely boosted the company's revenues and, in turn, helped offset some of the negative impacts from the COVID-19 pandemic, including New Residential's 60,350 borrowers among its servicing rights currently in forbearance and the 25% of its residential loan and securities portfolio that is delinquent. Despite this recent boost, core earnings per share as of Q1 2021 is still down 29% YOY.

In April 2021, New Residential raised $522 million in a common equity offering, which is being used in part to acquire Caliber Home Loans for an acquisition cost of $1.675 billion. This acquisition adds $141 billion in unpaid balances to New Residentials portfolio while adding new systems, software, and technology to its business model.

Where the company could be in three years
The latest acquisition and current market conditions should propel New Residential forward over the next few years, adding to its earnings per share and net revenues, particularly from its servicing rights and loan portfolio growth. The company predicts the acquisition alone will result in a 25%+ return on investment by 2022.

The biggest challenge the company faces within the next five years is the low-interest-rate environment and risk of increased defaults as forbearance plans begin to expire. A significant portion of the company's portfolio is in some stage of delinquency or forbearance.

Eventually, the company will need to rectify these delinquencies either through a loan sale or loss-mitigation efforts, which can be timely and costly. Its leverage ratio is 3.5x, so the company does carry notable debt in relation to its assets, making it something to keep an eye on over the next several quarters.

The company's share prices plummeted at the start of the pandemic, having yet to recover to pre-pandemic levels. General uncertainty over the long-term impacts of the mortgage and financial market has kept many investors on the sidelines until a clearer outcome can be determined. This means its -9.05% annualized return over the last three years is a far cry from the strong performance of the S&P 500 and most other REITs, despite pandemic-related concerns.

Right now, its book value is $11.35, while current share prices are below $10, meaning the company is trading below value. This is why the company has been repurchasing a great deal of its shares over the past year and will likely continue its buy-back program until trading values get closer to projected book values.

Given its growth prospects, I don't think it's unreasonable to see the company grow three times or more over the next five years, dividends included. Prior to the pandemic, the company achieved just over a 13% annualized return from 2017 to 2020.

While this could be a worthwhile growth stock for more risk-tolerant investors, it's important to remember the volatility that comes with buying into this REIT. Investors should only buy in knowing the risks and uncertainties that could unfold over the next three years.

I don't think NRZ's drop has anything to do with TWO's secondary. I think it has to do with the (Jeffries) analyst downgrades of RKT, UWMC and LDI on Monday. NRZ competitors in origination.

Mortgage companies GOS margins are contracting as the competitive landscape heats up. NRZ mentioned the pressure on GOS in their last CC. NRZ's focus on the DTC channel (direct to consumer) offers the highest margins but even that is contracting as well.

Jeffries Thesis: Carr emphasized his expectation that the retail mortgage market could experience an extended period of margin pressures.

“With a price war ongoing in the wholesale channel, we conducted a proprietary survey of mortgage brokers and found very low prices are likely to bleed into retail, while we get the sense that the war will continue past ‘22,” Carr wrote in a note.

I began to put some of my STMP winning into NRZ yesterday.
After hour dip to $9.64-9.65 yesterday was really a gift, thanks to "TWO"'s secondary offering.

Inflation headline is bad, but it should be transient: how often do you see used car price going up like crazy?
People are worrying about printing money, but just remember during pandemic period, lots of productivity wasted (flowers got rotten, flood unsold got thrown away). Those money need to be temporary replaced, just like after 2008, Fed needed QE to inject liquidity into the economy. Several years after QE, US stock market, US bond markt, US dollars all at all time highs, those are the final vote that QE solved the liquidity problem that caused by 2008 Financial crisis.

Now: the bigger pool, the bond mkt, is climbing back, people there are not worrying about inflation, equity mkt is at all time high, forex mkt is steady now (FX volatility is almost dead these days), US dollar is not going lower; so I will be optimistic and hoping for the best.

Checked 2 multi-million dollars home over the past 2 weeks, they are all gone within 10 days. Mkt slowed a little bit, many people who wanted to buy good school district houses have done that, but the makt is not slowing down that much ...

New Residential Investment Corp. (NRZ)
Forward Dividend Yield: 7.50%
Payout Ratio: 56.1%
Price: $10.66
Market Cap: $5.0 billion
1-Year Total Return: 54.9%1
New Residential Investment is a mortgage REIT. It provides capital and services to the mortgage and financial services industries. The company invests in assets with stable, long-term cash flows. Its investment portfolio includes mortgage servicing-related assets, non-agency securities, residential loans, and other related investments....

NRZ is down in early afternoon trading to 9.99....

Inflation breakout will drive 10-year Treasury yields above 2% in coming months, Wells Fargo predicts.

Keep in mind, rising interest rates cause fewer prepayments and the vale of mortgage servicing rights increases.

Caliber acquisition closes in Q3. Accretive in first year.

Combine all this with a still strengthening economy and I believe NRZ sees $17+ by EOY 2022. jmo.....