Good morning. My name is Jake, and I’ll be your conference operator today. At this time, I’d like to welcome everyone to the New Residential Second Quarter 2015 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. Ms. Mandy Cheuk, from Investor Relations, you may begin.

Thank you, Jake, and good morning, everyone. I’d like to welcome you today to New Residential's second quarter 2015 earnings call. Joining me here today are Michael Nierenberg, our CEO; and Jonathan Brown, our interim CFO and CAO. Throughout the call, we’re going to reference earnings supplement that was posted to the New Residential Web site this morning. If you have not done so, I’d suggest that you download it now. Before I turn the call over to Michael, I’d 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 press release and investor presentation regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. And now I’d like to turn the call over to Michael.

Thanks, Mandy. Good morning, everyone, and thank you for joining our Q2 earnings call. We had a terrific quarter and a very busy one. We announced the acquisition of HLSS, which gives us critical mass in our three core areas of our Company; MSRs, Servicing Advances, and Call Rights. During the quarter, away from the HLSS acquisition, we also acquired or agreed to acquire 59 billion of legacy MSRs, again which is separate from the HLSS acquisition, further growing our MSR investments in the company. In the quarter, our non-agency business took on a bigger role as a result of the acquisition of more Call Rights in the non-agency mortgage space. We grew our non-agency mortgage holdings by 35%. During the quarter, we announced record earnings, raised our dividend, and we put the Company on the path for future growth as we seek to grow our core earnings. We are now one of the largest capital providers to the mortgage servicing industry. As we look forward, we’re very excited as the second quarter’s activity puts the company in a great position for continued success. Within MSR portfolio of over $400 billion and the potential for the Federal Reserve to raise rates, we own one of the few asset classes that will likely go up in value as rates increase. Our Call Rights also put us in a very unique position in the marketplace, with the ability to call over $200 billion of non-agency mortgage security. Before I refer you to the supplement, which has been posted online, I want to spend a second and talk about the timing of our earnings release. Corporate acquisitions are not always easy. The closing and integration of HLSS was more challenging than expected. And quite frankly we needed a couple of extra days to…

Operator, are you there?

Yes, sorry about that. [Operator Instructions] And your first question is going to come from Doug Harter from Crédit Suisse. Your line is open.

Thanks. I’m hoping you could talk a little bit more about the pipelines for the Call Rights? The $100 billion would seem to be quite an acceleration from kind of the pacing that you’ve been going at in terms of Call Rights. And when should we expect to see that pace increase?

Doug, if you look at -- I think it's Page 11 in the deck, we actually show when each one of these or when we think the balances will be callable. Currently today there is $31 billion of securities that are callable. The way that these securities will effect -- eventually be called is when advance balances come down as a result of delinquencies coming down, that could be one way. Two is, we acquire more non-agency securities at a discount, and as you look quarter-over-quarter, I think we increased our non-agency exposure by about 35%, and those are really the two ways that we’re kind of thinking about it. I do think that mortgage market itself at some point will undergo a transformation around the servicing side as there is a lot of new initiatives to have as you look forward for example, we believe that there will be changes on the servicing side working with bondholders and the large non-bank servicers to get to a place where mortgages will be serviced, and there is a little bit more detail on an as collected basis rather than where the servicers are obligated to advance principal and interest. So I think it's going to take time. We currently have call notices in today for another, I believe, 8 or 10 deals. For this month, we have more call notices into the trustee. So I do think it's going to be something that will be more -- you should see the results more in ’16, ’17, and ’18, then I think you will see more so this year.

Great. Thank you.

Okay. And your next question is going to come from Paul Miller from FBR Capital Markets. Your line is open.

Hi, guys. It’s Jessica for Paul. How are you?

Hi, Jess.

One question regarding the non-agency MSRs that you guys are looking at. What kind of timing can we expect with that, and can you comment at all on the negotiations?

Yes, I think this would likely be in conjunction with us and Nationstar. We do believe something will happen, and we’re hopeful that it happened this quarter. So we’ve had some very good productive conversations, I think it’s -- and we’ve gone through the portfolios. We have NDA signed and it’s -- we’re going through different pricing discussions.

And then -- great thanks and one follow-up to that, what's your view of more PLS product coming down the line from banks and other holders?

I think if you take a step back and you say the outstanding non-agency mortgage market is about $700 billion. We have MSRs on between $200 billion and $250 billion today, this other portfolio is $75 billion. There’s probably one or two other reasonable transactions that we can expect at some point down the road, but I can't pinpoint those now. So, I think the runway is probably between one and three more large transactions, and then I think that’s kind of it.

Okay, great. Thanks so much.

Thanks.

Okay. And your next question comes from Bose George from KBW. Your line is open.

Good morning. I shall follow-up with one more on the clean-up call. I’m curious what the impact of rising rates would be either on the callability or the economics of the transactions?

I think it’s -- the way to think about is twofold. It’s a good question in that. As rates rise, your premium collateral theoretically will be lower in price. The counter to that is as rates rise, you’d expect that these deals continue to get cleaned up from a delinquency percentage, so we’re retaining less delinquent loans that we have to market at fair market value. So I think while we -- premium collateral will likely go down in price. I think we still feel good that the delinquency profiles and advance balances will come down, so effectively your expenses are going to be less when you call these deals. The other thing I want to point out is that, once we identify a population of loans or deals to get called, we effectively hedge out that interest rate risk in the market place.

Okay. That makes sense. Actually and then just on that Chart 11, the $31 billion that’s callable today, actually what percentage of that is in the money. So is it the reason that some of that’s not going to be called as you’re waiting for it to sort of be in the money?

Yes, I think it relates more to the Servicer Advance balances that are out, because that’s really a cost that gets paid off when you call those. And that’s really -- that plus the delinquency profile of those deals. We currently have the call notices in on a little bit over $1 billion that we’re hopeful will come to fruition in this quarter.

Okay, great. And then, actually the $59 billion of UPB MSRs you mentioned. How much of that has already been funded, how of that’s on your balance sheet and how much of that is still to come?

About of the $58 billion or $59 billion, $20 billion are already funded and the rest will be funded likely late third quarter, more likely in the fourth quarter.

Okay, thanks. And then actually one more for me, in terms of the cash -- excess cash you noted this quarter, how much billion was the excess cash average?

We raised equity in June, because we needed the cash to fund part of the Ocwen downgrade. I think -- clearly [ph] average Q2 balance was $328 million.

Okay, great. Thanks.

And your next question is coming from Jason Deleeuw from Piper Jaffray. Your line is open.

Thanks and good morning. You guys did $0.45 in core EPS this quarter, it sounds like you had some one-time costs and the run rate is more like $0.47, $0.48 going forward. And then you still have, it sounds like the bulk of the $59 billion of MSRs to come onboard, not sure how much of that actually helped in the second quarter. Can we expect that, that $59 billion of MSRs, is that going to be accretive to the dividend run rate when that fully boards versus what we saw in the run rate for the respective quarter?

We believe that Jason that it will be accretive. Just to give you a sense, if you think about it we funded HLSS in early April on the 6. Each day was worth approximately $500,000 in income to the company. So if you took those six days that would have been an extra $3 million. So one of the things that was a drag on earnings is on core is really the timing of these MSR settlements. While we continue to work closely with our relationships on the non-bank servicing side, we also continue to work with our friends in Washington to try to get this stuff ordered as soon as possible.

Great. And then when we think about this potential $75 billion of UPB related to the MSRs, it sounds like you’re working with Nationstar in this, hopefully third quarter it sounds like some timing. Is that going to be accretive to the dividends since you’ve got a $1 billion in capital, you won't need to raise any more equity. So it sounds like you have plenty of funding looking for it, but should we think about it, as we see these MSR deals such as the $75 billion that we can think about, hey the dividend is going to step up from the run rate that we have been seeing?

While we can't promise a dividend increase, I think we want to be very clear to everybody that we have no intention today of raising equity. We feel that our balance sheet forwards us the ability to raise debt around our balance sheet, because we have no corporate debt really other than repo. We have a $200 million MSR note that we issued to help pay for the HLSS acquisition. But we feel today that with our current assets on our balance sheet the lack of debt any or hopefully any investment or acquisition we do will likely be accretive to the company.

Thanks. And then the last question is on, the Ocwen funding issues, and it sounds like Ocwen maybe trying to resolve some of these themselves without you guys putting them or trying in that, resolve it in a way where they do not have to make the payment to you guys. Can you update us on what exactly is going on there and how you think this issue is going to be addressed following the downgrade on the Servicer rating? Thank you.

Sure. So, when we acquired HLSS, we entered into an agreement with Ocwen. In the agreement it’s stipulated that should Ocwen get downgraded it was our guesstimation that the time that the amount of money that new residential would have to come out of pocket would be approximately $150 million for that Servicer downgrade. In negotiating we set a return in equity similar to what we’re currently earnings in the market of approximately $20% which would have correlated to a number of about $3 million. We agreed with Ocwen that we would receive up to $3 million per month for 12 months or no more than $36 million. We’re currently in discussion with Ocwen on getting that issue resolved.

But to be clear, there is a way for Ocwen to potentially address the issue without actually making the payment to you guys that is one of the options out there?

Not that we’re aware of or not that I’m aware of, and I have our accounts all here now.

Okay. Thank you very much.

Okay. [Operator Instructions] And your next question is going to come from Michael Kaye from Citi. Your line is open.

Hi, good morning. I recall you were working on getting a private letter ruling from the IRS to get the servicing advances to be considered a good REIT asset. Just wondering if there’s any update where that stands?

I can't give you an update right now, Michael. Obviously we do all we can to make sure every asset we have is a good REIT asset, but its really, at this point there’s nothing I can tell you on this call right now.

Okay. How about the Blue Mountain allegations, I believe there was a stand still -- I think a modest [ph] ended last month. Is there any update on where that stands the processing?

Yes, currently just to give you a frame of reference, we have $72 million that’s sitting in escrow. We believe based on our discussions with council, that the Blue Mountain allegations are unsupported by the facts and expect a very favorable outcome in the short-term. The stand still is currently still in place and we continue to work on that. So it’s something that we hope to get resolved shortly. It’s not resolved but we currently have escrow in $72 million. So the way to think about this is, once this gets resolved assuming that we are successful won't get our $72 million back and that would just give us more cash to be able to -- to be used for investment.

Great. Thanks very much.

And your next question is going to come from Matthew Howlett form UBS. Your line is open.

Mike thanks for taking my question. Mike, just address [ph] and give me back that cost of capital, I know long-term you’d like to see that go lower, and now with over half your earnings from HLSS and you pointed out earlier that traded at a significantly lower cost of capital what was independent [ph]. Can you just give us maybe a scenario that where you’d have to raise capital. I think the market, when we look at these when I look at these, the strongly managed structure that sometimes feel like, the manager is in control and these vehicles are just capital raising entities for them. Can you just kind of address that point and give us -- you’ve got a lot of dry powder but any scenario where you’d have to raise capital and maybe could you just talk about how you look at accretion going forward if you do have to raise money?

Sure. Just to be clear and I stated this I think early on in the discussion. We have no intention of raising equity anytime soon. We do believe we have the ability to raise debt around our balance sheet which would make effectively almost any investment that we would consider accretive to our earnings. The only way I could -- I think we believe that we would raise equity or need to raise equity if there was some outsized acquisitions or something that we couldn’t fund or for existing liquidity the way that we see it on our balance sheet. So if you think about it we have 200 plus million dollars of cash right now. We are going to run more -- we are going to have more cash on our balance sheet as the company has grown pretty substantially over the course of the -- since it was fund at Newcastle [ph] in 2013. You take that $200 million, we feel that we could excess over $1 billion or up to $1 billion of liquidity or for own balance sheet, and again we have no corporate debt. So I think the likelihood of us coming to market to issue equity is very, very low. And I think again, any investment that we do will hopefully be accretive to our earnings. So to dispel that notion, we are not a serial equity issuer. We are here to do the best we can for our shareholders and grow our core earnings and grow our dividends.

And Mike that includes, if this $75 billion PLS still does go through the company, will you need to raise external capital to fund it?

That’s correct, Matt.

Great.

We have no intention of raising equity unless there is some outsized acquisition that we couldn’t fund with our $1 billion and change of liquidity.

Got you. And then just maybe long-term, Mike can you just address sort of what, how you see NRZ and you have a big UPB portfolio, it could take a long time running out. You said that there could be some bigger deals closing, but we know the private label market is sort of shrinking. Going for it you see NRZ becoming more into new issue MSR, could get its own licenses. Do you feel like you still have to maintain IRRs down the road? Just sort of long-term, how do you see NRZ shaping up with the state of the MSR market today and whether the non-banks currently fit?

Good question. I think first of all, we are -- and I’ve stated this and we’ve stated this in prior quarters. We will get licensed at some point hopefully here in the near future and I want to say getting license means we’re not running an operation. It just gives us the ability to work not only with Nationstar, not only with Ocwen, potentially with other kind of non-bank servicers. And the reason that we feel its important to us, is as Nationstar has grown their servicing portfolio, we just need to maintain a little bit more flexibility to the extent that we want to acquire a pool of mortgage servicing rights and just have more flexibility to have them sub-serviced potentially somewhere else. So that would address the desire to get license. While saying that, Nationstar is still our primary partner. As we think about the company going forward, we feel there is enough runway in a 400 plus billion dollar MSR book, 200 plus billion dollars of call options and then in our Servicer Advance portfolio as those balances come down, I think we’ll always try to figure out a way to grow another part of our core business. There are some interesting things that we continue to look at today and I do believe they’re in a great place with our liquidity profile and with some of the uncertainty in the market to continue to grow our company for the benefit of shareholders.

Okay. We look forward to that. Thanks Mike.

Thanks Matt.

And your next question comes from Jason Deleeuw from Piper Jaffray. Your line is open.

Hi, thanks for taking the follow-up. A question on the CPRs and the MSRs, did you guys have a lot of credit impaired MSRs and part of the story here is, the involuntary delinquency related CPR rate should decline over time given how mortgage credit is trending. Can you kind of give us a sense for where your CPRs are right now and the MSRs? And what time is the voluntary, involuntary breakout between those two?

On our CPRs, just to give us a sense, our three month gross CPR for the entire portfolio was 16.7% versus a 12 months average of 14.8%. Our three month net CPR as a result of our recapture was 14.3% versus a 12 months average of 12.5% and our three month recapture was in line with the 12 month average of approximately 22%. On the voluntary prepayment, it looks like our voluntary prepayments were approximately 8.7% CRP on a three months basis versus 7.6% projected. So overall we think our MSR portfolio is performing inline. As I pointed out, just to give you guys a familiar reference, the 10 year note at the end of March was 192. At the end of June it was 235. Today it sits roughly at 220. Mortgage rates at the end of March were 3.69% and today they sit roughly at 4%. So we think we’ve seen some of the recent lows in mortgage rates and obviously we don’t really, and if the Fed rates is raised we think the 10-year note could gravitate to higher yields, which would lead to slower prepayments.

Great. Thank you for that. And then the last question is on the dividend and how you guys think about setting it. You did $0.45 core EPS this quarter, your dividend is also $0.45. Can we expect that, your core EPS almost would be 100% paid out or would there be some discount. Kind of help us think from a modeling perspective there. Thank you.

We will typically try to pay out between 90% and 100% of our core earnings, is kind of the way to think about it. This quarter obviously there was a little bit of noise as it relates to the acquisition, in the run rate we should have been give or take $0.47 to $0.48 in core. And as we look forward again we hope to grow core and raise our dividend, but obviously I can't promise that.

Okay. Thanks Michael.

Thanks.

Okay. And this time I’d like to turn the call back over to Michael Nierenberg.

Well, thank you everybody for dialing in. We really appreciate your support. We’re extremely excited about where we are as a company and I think what the future brings. So I look forward to updating you on the next earnings call. Have a great day. Thanks.

This concludes today's conference call. You may now disconnect.