Rithm Capital Corp. (RITM) Q1 2016 Earnings Report, Transcript and Summary

Good morning. My name is Hope and I will be your conference operator today. At this time I would like to welcome everyone to the New Residential First Quarter 2016 Earnings Conference 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. Miss Mandy Cheuk with Investor Relations, you may begin your conference.

Thank you Hope, and good morning everyone. I would like to welcome you today to New Residential's first quarter of 2016 earnings call. Joining me here today are Michael Nierenberg our CEO; Nick Santoro, our CFO; and Jonathan Brown, our CAO. Throughout the call we are going to reference to the earning supplement that was posted to the New Residential website this morning. If you have not already done so, I would suggest that you download it now. Before I turn the call over to Michael, 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 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 would like to turn the call over to Michael.

Thanks, Mandy. Good morning everyone and thanks for joining us. You know, for us in the quarter quite frankly, it was a relatively uneventful quarter despite the fact that the markets were extremely volatile. You know, during the first quarter we saw huge swings in oil prices, the equity markets gyrated and had very large moves. Bonds markets rallied and then sold off, and then we saw the commodity markets move around pretty broadly as well. So as we thought about this and, you know, quite frankly doing this for many, many years, we are extremely cautious around our capital deployment versus what we initially thought we would do when we came into the beginning of the quarter. So throughout the quarter we maintained a greater level of liquidity as we were watching to see what the markets would do. We have seen markets like this before and quite frankly usually you are rewarded to be patient. So most of our capital deployment came towards the end of the first quarter versus early on when we thought we would deploy a fair amount of capital in the beginning of the year. It is important to note that while we waited towards the end of the quarter to deploy a bunch of capital the underlying core business lines have been performing extremely well. In a way, as I pointed out our quarter was fairly eventful, away from the acquisition of the remaining spring capital equity position which was an add-on to an existing investment that we had in our portfolio. When you think about this and the fact that the cash flow generated from our business generates terrific earnings, it is something worth noting as we have yet to deploy as much capital again as we thought we would have in the beginning of the year. With our existing liquidity and more volatility environment we are extremely excited about what we think the next couple of quarters will, you know, will present to us from a capital deployment standpoint. I will now refer to our supplement which has been posted online. So I will begin with page two. Page two is, again, our summary of our Company. Our three core investment strategies continue to be excess MSRs, servicer advantage, and our non-Agency business with associated call rights. Our Company currently trades at a 15% dividend yield. We continue to try to maintain stable dividends and increase them when we can. Our year-over-year growth in Q1 core earnings is 11%. We have maintained through Q1 excess liquidity of approximately $1 billion. We have $175 billion in Call Rights. That is down, just purely due to amortization and some of the activity we have done around our calls. To date we have paid out lifetime dividends of $805 million and our excess MSR portfolio is $388 billion. Again, that is lower just as a result of purely amortization. For the quarter we had core earnings of $112 million or $0.49 per diluted share. We had GAAP net income of $111.7 million or $0.48 per diluted share, and our common dividend that we paid we maintained at $0.46 or $106 million. As you compare that to Q4 of 2015, one of the big things just to note on the difference in our core earnings has to do with our servicer advantage accounting, which we get incentive payments on some of our servicer advance financings that we do and based on the move in rates and in forward LIBOR that cost us unfortunately roughly $0.07. So if you think about it that way realistically if rates were unchanged, we would have had a core number of something in the mid $0.50s. The rise our GAAP net income was due to the monetization, or really the mark to market of our, not monetization of our mark to market of our string capital equity position, and that was a result of the again the acquisition of the remaining equity that we acquired from one Maine. On page four, New Residential today; this is a snapshot of our balance sheet. Excess MSR is $1.5 billion of net equity investment. That does include financing of $180 million. We did pay down $90 million of that $180 million subsequent to Q1. Our servicer advance equity is $124 million. That is down from $365 million. I will get into that in a bit, but it is purely due to advance balances coming down, and the group doing a terrific job around increasing our advance rates on our existing facilities. On a non-Agency business we increased our equity position there. We went from $447 million as of the end of 12/31 to $538 million. And we have done some additional investing subsequent to Q1. On a residential and consumer loan portfolio, the way I would think about that we have roughly a couple hundred million dollars of equity in performing and non-performing loans. We have $48 million in EBOs. This was as a result of the acquisition from HLSS and cover there, that investment was paid down already by 25%. So that has been a good one. We have a small amount in a legacy reverse position of $9 million. Cash on hand at the end of Q1 was $259 million. Page five is really just a, is a snapshot of the markets. As I pointed out on my opening remarks, the markets obviously we saw a lot of volatility in the first quarter. I think a couple things to note here. Upper right side of the page Non Agency spreads had widened quite a bit. When the markets see the turmoil that they did in the first quarter, typically spreads widened pretty good and we did see that and again, I would tell you now the Non-Agency mortgage market on the residential side is probably fairly close to where we were towards the end of 2015. So spreads have come back quite a bit. We will continue to deploy capital as we see fit there and, again, that capital deployment is consistent with our Non-Agency strategy as it relates to our Call Rights. High yield spreads, you know, there is, they got hammered early on in February. We have seen them come in quite a bit and then on the CMBS, side we have seen spreads widened quite a bit. It was very difficult for a lot of conduit deals to get done and we have seen spreads come back quite a bit there. On page six, we just talk again about our activity. As I pointed out it was a fairly uneventful quarter, which quite frankly is something I think we are pretty proud of that the portfolio stands on its own. Just to give you a sense, free cash flow from the quarter or the cash flow generated from our existing portfolio is something on a run-rate today about $140 million to $150 million. So after paying our dividend, if you think about it that way we generate something around $200 million in excess liquidity. So the portfolio continues to perform well. As it relates to our consumer loan portfolio, again we invested $56 million to acquire an interest in the spring castle equity. We did that along with another large private equity firm. We now own 54% of that JV. As a result of that we did consolidate that a, that asset class on our balance sheet and we recognized a GAAP gain of approximately $71 million. The existing position prior to that was marked at zero, as a result of our refinancing that we had done in a prior period. On the Non-Agency side we executed clean up Call Rights on 13 deals in Q1. We have not securitized that $71 million yet. In March, we completed a $261 million securitization. I will get into that in a bit, and then during the quarter we purchased about $1.1 billion of Non-Agency Securities. On a servicer advance business, again it is, the group has done a terrific job improving our advance rates. We have extended maturity dates on some of our existing facilities. We are very, very cognizant of roll dates, how we think about financing that business, and I think our next roll date on the servicer advance business is in August of 2016. On the excess MSRs I think we have been very vocal about our desire to be a fully licensed MSR owner, not necessarily an operator, in all 50 states. We currently are licensed in 46 states. We are working on the remaining four. We have applications into the different agencies in it DC to get fully, again, fully licensed with FHA, Fannie, Freddie, Ginnie; so we are working on that. We expect that to be a late first quarter if not early second quarter, you know, achievement and I think that just gives us a lot of flexibility around our Company. As far as pipeline and MSRs I think it is going to be, or I know it seems like it is going to be fairly robust. We are, I believe we are going to have opportunities to deploy a bunch of capital in the sector. There is an article written I think this morning by Moody's regarding servicer consolidation. You know, I can’t tell you what is going to happen, you but I do think we are un a great position to be able to acquire more MSRs whether that be from the large money center banks who will continue to have a desire to sell legacy MSRs, as well as from some of the non-bank mortgage companies and servicers. With that I will now talk a little bit about our portfolio and now I am on page eight. You know, as you look at the number of the earnings from our counterparts in the mortgage servicing sector, there has been some fairly reasonable-sized impairments. I would say on their portfolios. You know, why we are different quite frankly is that our portfolios are very much seasoned. When you look our average seasoning is about 112 months. We have a real -- I would say that our portfolio is more credit-impaired than most. Our average loan size is $156,000 versus an industry loan size of $197,000. Our FICO scores are of 662 versus an industry average of 731 and our LTVs are typically higher and that is 84% versus 78%. When you look at our portfolio as well when you think about, again the mortgage servicing counterparts, we are able to from an accounting perspective we have recapture in our marks. The mortgage -- the non-bank mortgage servicers are not able to do that so as a result of that -- you know, and I will gets into our CPRs in a bit, our overall CPRs quarter-over-quarter actually lower after including recapture. So we love this asset class. It has performed extremely well. Clearly with rates rallying we are very -- you know, we try to be as aggressive as we can with our partners at Nationstar. As it relates to their recapture and they have done a great job increasing their recapture rate. So while rates have rallied, our portfolio has continued to perform extremely well. On page nine, you can see really our net CPRs and how that compares relative to the industry. The industry average for the first quarter of March was 19%. Our net CPR -- or our gross CPR was 13% or net of 12%. As you look to the right side of the page if you look at where actual mortgage rates were and how we forecasted this. Our actual net CPR on our portfolio with recapture was 11.6% versus an estimated 11.5%. Just to give you some metrics from comparing to Q4 of 2015, our speeds on our Fannie portfolio of 2015; Fannie portfolio was 10.6% and -- I am sorry -- 2015 Q4 our speed for Q1 was 9.7%. On our Freddie portfolio was 10% -- it was 10 CPR in Q4, 9.9% in Q1. Ginnie portfolio was a little bit quicker; it was 15.9% in Q4 and it was 17.5% now. Our PLS was 12.9% in Q4 and 11.9%. So I guess the net of it is what I want to illustrate to you is that yes, we are in a period where seasonality comes into effect as you are in the winter months, but let us recapture our portfolios due to the credit -- you know, the credit impaired-nature of our portfolio continued to perform extremely well. On Page 10 our servicer advance business, again it is -- we have not really add Servicer Advances and what we are seeing is as a lot of these portfolios season you are going to see delinquencies trend lower and I think the advances to the UPB on our existing portfolio should continue to trend lower. Couple that with the increase in LTV on our advanced financing, the amount of equity was reduced to roughly $125 million in the quarter. Our life-to-date return on the portfolio has been 25%. Again, one of the reasons being this is not only good for us, but it is also good for the mortgage servicers. As they call back some of these that have been made by other servicers. The amount of capital that our counterparties have outstanding gets reduced and our capital gets reduced. So their interest cost goes down and our capital gets reduced so it is a win-win not only on our part but also for our servicer -- our servicing partners. Current advance balances $7.2 million funded with $6.9 billion of debt for 94% LTV and a 2.7% interest rate. And, again, that is a business that we like. Over time that will be -- the amount of equity will continue to trend lower is our belief. Page 11, we talk about our Non-Agency Securities and Call Rights. Again, this is our slide that we try to put in quarter after quarter. This is a deal that, we called a bunch of deals in December. We pointed out before the $261 million deal in March. This breaks it down a little bit. So again, just to frame it we buy discount bonds or we buy Non-Agency agency mortgage bonds at a discount. We then call the deals at par. When we call the deals at par, we pay par plus expenses plus you have to pay for the advances. We then do a securitization, which could trade something between 105 and 106 depending upon market conditions. So for example, as the bonds market rallies we are going to achieve higher proceeds and then we retain the non-performing loans at a discount. We work that out over time. In this example we are slowing that we made approximately 2 point on a $300-and-change million deal, of $7 million. Page 12 again this is a slide that we put in; what we want to illustrate here our pipeline is now what we believe it is approximately $175 billion in Call Rights. That is down again due to purely due to amortization, and some of the prior call activities. On the bottom right side we show how we are going to be able to accelerate that. I think we have grand plan to try to change the legacy mortgage market quite frankly over time. That will take a lot of work. That will be extremely fruitful for our shareholders and that is something that we are very much focused on. Today we have roughly $30 billion of deals that are callable; as delinquencies and advances come down, we should be able to call a significant amount more of those deals and that will happen over time. On a consumer loan portfolio, again, just to point out taking into real quickly in 2013 NRZ invested $241 million. We purchased at that time a 30% interest in a spring cash flow JV, which related to a portfolio of consumer loans which was $3.9 billion. In March what we invested an additional $56 million along with another firm to acquire the remaining interest from One Main. It has helped them de consolidate. We consolidated this on our balance sheet and generated GAAP gain of $71 million during the quarter. The return on this investment has been fantastic. Life to date IRR of 88% and we believe this investment should continue to be a good one. On page 14 we just put in a slide just to talk a little bit about more of our liquidity, and how we kind of think about some of the funding stuff that we are doing. We currently have north of $3 billion of additional funding capacity. We have north of 15 different financing counterparties. We continue to increase that number, in a meaningful way. Our range of funding sources can be either bank lines, repo facilities; we have variable funding notes on our servicer advance. We also have the ability to do term debt. One of the things we did subsequent to Q1, which we had thought we were going to do early in Q1, was we did a $225 million financing on our agency excess MSRs. We did that, again, it is kind of working capital and deploying that capital into the market and are in an accretive way for our shareholders. The cost of funds on that is give or take around 5%. So if we can invest capital give or take at 15% in that range, obviously it is a guideline for, for our Company. On the servicer advance side we have at least an additional $700 million of additional financing capacity and as I pointed out earlier we extended the maturity date on over $1 billion of our servicer advance financing. Page 15 talks a little bit about our license, or about where we are from a licensing prospective. Again, this is something that will give us the ability to own MSRs, not necessarily operate a servicing company. This will give us a lot more flexibility, for example, if Company X decides they want to sell $20 billion of MSRs, one of our servicing partners does not want to acquire those with us, we are able to acquire those in our name and then we can sub service those at a number of different counterparties. So again, it is more strategic to give us much more flexibility in our business and, again, that should be completed towards the end of Q2 if not into early Q1. Page 16, we talk a little bit about prior achievements, but really what I would say to wrap up kind of this part of our presentation, from a liquidity standpoint we still have plenty of liquidity. We have not tapped into all of our liquidity, just because, again, market turmoil and the desire to preserve capital for other potential opportunities. We still have all of our, you know the Call Rights is going to be a good one. We want to accelerate that. We get asked that question all the time. We are working on different strategies to do that. I think overall what you can see from our portfolio we are well-positioned in all kind of interest rate cycles. If rates ever do go up or MSRs we will do better. If they do not go up we have the recapture provision with our servicing partners and that is really like insurance and then, again, we will be licensed in all 50 states. So with that I think I will, you know, already some additional portfolio updates. I think I will turn it back to the Operator now and we could open it up for any questions.

[Operator Instructions]. Your first question comes from the line of Jessica Levi-Ribner with RSB Capital Markets.

Just a quick question surrounding the Call Rights, can you get into any detail about surrounding maybe how you are going to accelerate that or what kind of strategies you are working on?

Yes I think it is a much bigger thing than, than NRZ, quite frankly. I think it is more of a market thing. These are some of the grand aspirations I think we had as a Company to kind of fix the legacy mortgage market. So when you think about it there are really two factors which would enable us to call more deals. One is delinquencies getting reduced and the other would be advance balances getting reduced. Between Ocwen and Nationstar they service approximately, or we have Call Rights on approximately a third of the legacy mortgage market. A lot of these advances were made by prior servicers. So to the extent that we could get folks together to say okay, these advances excludes not be outstanding because they have been made, they have been outstanding for a long period of time and then couple that with delinquency pipelines coming down or a way to reduce the delinquency pipelines, that will accelerate the pace of collapse or ability to call this. It is a bigger thing quite frankly than just NRZ. My sense is there would be broad support for market participants to do this as well as our mortgage servicing partners and it is something that will take a lot of work but quite frankly I am pretty optimistic that something like this can get done, but it will take a lot of work and it is going to take a little bit of time. The other things is lot of these loans, if you think about it were originated between 2003 and 2007, so from a delinquency perspective they have been sitting in these pipelines or in these Non-Agency mortgage trusts for quite some time. So as a bond holder you would think that most bond holders would like these delinquent loans liquidated and as a result you have a much cleaner legacy mortgage market. So I am very optimistic but we have a lot of work to do on that.

All right. Thank you. And then just one more on the -- on your commentary around the MSR acquisition pipeline. Is there anything you are seeing in the market now or do you have any indication of where these will trade on a price basis? Are they still as attractive as they were two to three years ago? Or has something changed given all the market volatility?

I think they are as attractive if not more. We have not seen a ton quite frankly recently. I do think there is -- you know, there is -- and I think we are stating kind of the obvious. We are starting with the market rally you are seeing write-downs from the large money center banks you are seeing some of the non-bank servicers take impairment charges. So in general, I think some of the more smaller mortgage companies, some of the large banks and quite frankly I think you will see -- I think we are going to see plenty of supply come to market and I think we will be in a very good position to work with the various counterparties to acquire those MSRs.

And that would all be legacy product?

I think so.

Your next question comes from the line of Jeremy Campbell with Barclays.

So I just wanted to take a quick setback. So you economically own the old HLSS Ocwen MSRs but what is your license in all 50 states? Does the old purchase agreement with Ocwen allow you to transfer those over the legal ownership over to you guys onto your own balance sheet while still maintaining Ocwen as a servicer of record?

In April of 2017 it does. It is not today.

Okay. So you cannot transfer -- so April 2017 means you cannot transfer it even over to yourself while still maintaining that relationship with Ocwen?

Yes. That is right. I mean we cannot transfer it into our name until April of 2017.

Okay.

Based on the underlying agreements.

Got it. And then I want to clarify, how much dry powder do you guys have here?

We ended the quarter with approximately $250 million of cash. We made some investments subsequent to that. Our current investable cash today is little bit north of $100 million and we are working on some other additional financing around some of our existing portfolio; which we believe will create an additional -- could create additional capital of between $500 million and $750 million.

Got it. And as far as timing of the licenses, I know it is usually easier for the states to get done. You know, I think you mentioned sometime maybe end of Q2 bleeding into Q3 a little bit was that more on the state side, or is that for Fannie/Freddie/Ginnie as well?

What I would say is, we think on the state side we should be done by Q2. We do have applications into FHA right now. As soon as that gets turned we believe that will be kind of the lynch pin to get us licensed in the remaining states, particularly California; and then from there Fannie, Freddie, and Ginnie should follow. So I think the whole thing we are hopeful gets done I do not know if it is going to happen by the end of Q2. That is our target, but if not Q2 it should be early Q3.

Your next question comes from the line of Douglas Harter with Credit Suisse.

Thanks. I guess you have talked about the potential for a large pipeline of MSR activity for a while. I guess what makes -- what gives you confidence that -- that kind of the stale mate or the logjam kind of gets broken in the near-term and actual transfers will happen again?

You know, I think part of it is -- I am not sure how much of it is transfers as it relates to just willing participants coming to market and saying, I want to sell MSRs. I do think with some of the impairment charges you are seeing in the marketplace, that could be the impetus to see whether it be from the banks and/or some of the -- whether it be mortgage companies or servicers, come to market with some portfolios. You know, I think it is something that -- I believe it is something that will happen. I really do. We are a better owner of the MSR than, quite frankly than I think most other folks because we are -- you know, if you think of as a real asset manager and having $1 billion-7ish of equity invested in that asset class I think it makes more sense for us to deploy capital and then whether you have servicing partners or have the banks on the other side I think it makes a ton of sense. So I do think it is going to happen.

And then just wanted to ask on the comment you made on the servicer advance side about the -- you know, the $0.07 or so that -- that the decline in rates costs you. Is that something that -- that could reverse itself if rate stay steady or do rates need to up for that to kind of reverse itself?

Keep in mind the way this works is from an accounting perspective is we get incentive payments based on advance balances from Ocwen, and the way that works is those incentive payments are based on LIBOR plus 275. That is based on forward LIBOR, so the way it works is on the asset side is forward LIBOR goes lower. What ends up is happening is your incentive payments get reduced. The flip side of that is your liability side from a financing perspective, you are not able to capture that on the other side. So it is really, it is a non cash thing, but your incentive payments get reduced but you are not able to capture the lower cost your liability on the other side should forward LIBOR come down. If rates go higher, we are going to get back some of that money. If rates stay where we are, it is probably something comparable. You are not going volunteer a hit but it is going to be something comparable but it is going to be somewhere around the numbers where we currently are on that asset class.

Your next question comes from the line of Bose George with KBW.

Hey. Good morning. I just wanted to follow up on the servicing advance. So the reduction and the value that we saw in the income statement this quarter, was that driven by the decline in LIBOR that you just referenced?

That is all it was. The asset class itself performed extremely well, but it is purely due to the decline in forward rates.

Okay. Great. Thanks. And then just one more on the foot value. What assets go through OCI that are not going through the P&L?

Hang on, Nick is here.

What goes through OCI is the unrealized gain or loss on [indiscernible] securities or Non-Agency Securities.

Okay. Okay. Great. Actually just switching over to the pipeline again, there have been a couple actually one of the big servicers, Walter, yesterday noted that there might be selling a lot of MSRs. There is been chatter in the market about PHA potentially doing it. Are these the kind of counterparties where you think could be some good opportunities?

We are hopeful. You know, I think all of us quite frankly whether it be NRZ or the mortgage market itself, want the health of the market servicing industry to be in a very, very good place. You know the mark to market movements, whether it be for somebody like Walter or Nationstar or Ocwen or even the large money center banks are not great for any of the, you know, for any of us quite frankly. So to the extent that there is some selling, we hope that we will be a good position to work with different servicer counterparties and be the acquirer of the MSR. So that is the way I would think about it.

Okay. Great actually just one last one. On the, the servicing license and the potential to move the legal servicing ownership to the servicing after April 2017 I mean is that something that would, could be worth doing just from a, the standpoint of being more legally protected in terms of that asset in case something does happen to Ocwen down the road as opposed to want to go move servicing away from them.

Yes. I think we feel we are extremely well-protected now and based on our existing agreements I think it is not something that is specific to Ocwen quite frankly. In 2017, it is more relative to how we think about our business and expanding our servicer counterparties and giving us quite frankly more flexibility. That is how we are thinking about it. Yes. If this helps from an overall legal perspective, yes, that is fine, but I think currently the way that our contracts are set up whether we are fully licensed or not we feel like we are in a very, very good place.

Your next question line of Jason Deleeuw with Piper Jaffray.

Thanks and good morning. On the MSR pipeline, if you take on some of these MSRs and sub-service them out, how are you guys thinking about managing the volatility of the MSRs with your balance sheet? Because that is been a strong positive for the portfolio right now is the volatility on the MSRs has been pretty minimal, so how are you guys thinking about if you were to take on some of those MSRs how that would impact the book value and the market?

I think we think about it the same way. I mean it depends obviously on where you acquire them. I think we are very comfortable in our existing valuation of our portfolio. You know from a volatility standpoint recapture is a very, very important thing for us. I think we have demonstrated that in our existing portfolio. The folks at Nationstar have done a very, very good job increasing their recapture percentages that not only helps us, but it also helps them. You know, for example on the agency portfolios one out of every three loans that are prepaying have been getting recaptured. I mean, that is on the conventional side. The Ginnies are in the 20s. So recapture is something. We are not out there quite frankly just to go out and buy a portfolio of MSRs and take a bet, so any MRS acquisition would be in conjunction with a recapture provision with, depending no matter who the counter party is. So that is kind of the way that we are thinking about it.

Okay. Thanks for that. And then when we think about the MSR pipeline and, are you looking to acquire the MSRs and then the seller of the MSRs would be the sub servicer or are some of the parties in the pipeline looking to just sell the MSRs and then you would have to go find another sub servicer for the MSRs?

I think it go either way. You know, our existing agreements and the way that we have done it so far has been where we bought excess MSRs from -- you know, from Nationstar and our acquisition of HLSS is the same. As we think about it going forward being licensed gives us more flexibility. We could go either way on that. I do think over time we will have more servicer counterparties depending upon which that counterparty wants to go and if it works for us it works for that company, that is what we will likely do.

And then when I just think about the portfolio at a high level, can we expect the Servicer Advances to continue to decline in terms of your investment there? And then the MSR investments and the Call Right securitization will continue to increase. Is that kind of a high level way -- is that a good way to think about how the portfolio is going to progress?

I think that is right. As -- you know, as these loans get more seasoned you have to think that servicer advance balances will continue to come down. That is a big focus of ours because that will lead to more call strategies. You know, current capital of $125 million of equity in that asset class. You know, there is two ways to think about it. One is advance balances come down, that number will get reduced; but from a financing standpoint I think we are probably at the place where we have maximized our LTVs in the way that we think about financing the asset. So I do not think they are going to come down a ton unless advance balances come down or -- they could go up if we acquire large portfolios of advances -- of MSRs where we have to put advance capital to work. That would be the flip side to that. But MSRs, Non-Agencies again we will be -- the same core strategy as we have done for the past couple years.

Got it and then just the last one. Thank you very much for slide nine on the CPRs. I think that is very helpful and can you update us on the voluntary versus involuntary CPR rates and at a high level if we just think about the trends over time, you know, with the delinquencies coming down, is not there natural downward pressure on the CPRs just with the involuntary CPRs coming lower?

Yes. You know, I think as these -- as they season more, Jason, I think -- if you think about the borrowers they have been in these homes for 100 and call it 10-plus years give or take. These folks have seen lows in rates; we saw 10 year notes at 140, I guess it was 141 or something last year during the first quarter. We saw 10 year notes touch 150-something intraday when we saw the market move pretty wildly. So I think you are going to see CPRs very, very stable to trend lower over time on the -- on these different MSRs. I think as it relates to voluntary and involuntary I need to kind of get back to you on that because I will get the -- you know, the folks in the group to put something together on that one.

Your next question comes from the line of that Matthew Holland with UBS.

The first one on the funding for the excess MSR is $225 million. Is that just a gain bigger bandwidth that you could buy portfolio, sub-service it out, or do you look for it as put some -- some financing on excess MSR maybe some of the agency stuff over time so you can hit a mid-teens hurdle how do we think about that long-term impossible your capital structure?

You know, it is really working capital for investment. If you think about it we have roughly $1.7 billion of equity, you know, in the asset class. I mentioned earlier we paid down half of our existing PLS MSR note that we issued a year ago. So our total financing on our MSR portfolio is about $300 million. We need capital obviously to run our business. We have not done any additional financing on our legacy PLS. We are working we are currently working on that so we have capital for deployment. You know, and again just take a step back. We did not deploy a lot of capital early on in the first quarter, as we should not have because the markets were all over the place. So when we think about earnings, most of our capital is deployed towards the end of Q1, and we had anticipated coming into the year of doing it financing on both Agency and Non-Agency MSRs and when we talk about our liquidity buckets, that number was something about $750 million. I pointed out that we did, you know, to your point, Matt, we financed about $225 million; so we still have existing capacity from a financing perspective or a capital generation of about $500 million to $750 million is the way that we think about it. And again it is really purely for investment. It is not -- that is all it is.

Just with everything around the cash and all the financing, you would define the excess capital of the Company today to -- now granted, you put some stuff to work at the end of the quarter that you did not get the full credit for but is it somewhere north of a $500 million and $750 million? I mean is that --

It is. You know, again, it is somewhere between $500 million and $750 million.

And of course you said the capital deployment in the quarter was weighted towards the quarter end so we did not get the faculty panel impact of that. I guess we are just trying to figure out what the core earnings run-rate of the Company is and appears to be significantly higher than the $0.49 that you reported. And on that notion I mean we have seen some -- some consolidation in the mortgage rate space you have talked about it for a long time some of these smaller public companies. Does that interest you anything out there that a Board may decide to sell below NAV? Might get you to a different business?

You know, I think if we could do, you know, if there is an acquisition that is accretive for shareholders and we think it makes sense from a strategy standpoint for, you know, for what we are doing we will consider it obviously but you it is got to be something that makes sense for shareholders quite frankly. I do think you will see more consolidation some of the consolidation you have seen have been within existing kind of sponsors I would say or, or affiliates, right? You saw, you saw a couple of those get done. Obviously the other one that got done, you know, we were not part of and when you think about from a dividend yield standpoint it probably did not make a lot of sense for us relative to where we are currently trading so it is got to make sense.

In general just to go back to your early comments article in Bloomberg about consolidation happening on a non-bank lenders some of the billing guys like freedom, quick in buy some of these smaller guys. I mean, what do you see, I mean you obviously have deep experience in the mortgage market. You know, going into next year out, are you just going to be massive consolidation with some of the top guys just buying these little guys? How do you look at it nest year out and how do you, how do you position yourself for it?

Listen, I think it is a pretty interesting time. I think rates are going to dictate a lot for some of the smaller mortgage bankers. You know, if rates stay where we are or rally a little bit I think you could see some fairly decent mortgage origination. If rates back up a bunch I think it is going to be much, much harder for some of these smaller folks to be able to compete. As it relates to the large bank servicers I mean obviously it is been a very difficult ride for them. You know, the past whatever. The past couple weeks. And we are close to everyone so we will see what happens, but we are rooting for everybody is what I would tell you.

Your next question comes from the line of Michael Kaye with Citigroup.

Hello?

Michael, your line is open. If you are on mute please unmute your line. There is no response from that line. We will go to the next question from Trevor Branston with JMP Securities.

Hey. Thanks. Most of my questions have already been asked, but just one detail I missed. You said that you had continued to acquire additional Non Agency Securities since the end of the quarter. Could you tell us roughly how much have you bought and kind of roughly what the, the yields you are booking those at?

We have been able to acquire securities at something close to kind of mid-teens, you know, in a base case. Keep in mind all the, almost every Non Agency security we buy is correlated to our, or associated with Call Rights that we own on the existing underlying deals, so it is a bigger strategy. Your IRRs, or your returns, will go up significantly at the time that we call these transactions. So it is consistent with what we are doing around our call strategy. Subsequent to Q2, I am sorry to Q1, we deployed equity of about $129 million, you know, and that is been since 3/31. So we have been fairly active acquiring assets in that space.

And there are no further questions at this time. I would now like to turn the floor back over to Mr. Nierenberg for any closing remarks.

Well, thank you for all of your support. We will continue to do, obviously, everything we can to drive shareholder value and maintain dividends, and grow dividends. We look forward to updating you on the next call. Have a great day, thank you.

Thank you. This does conclude today's conference call. You may disconnect.