Good morning. My name is Beth and I will be your conference operator today. At this time, I would like to welcome everyone to the New Residential Second Quarter 2018 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. Mandy Cheuk, you may begin your conference.

Thank you, Beth, and good morning, everyone. I would like to welcome you today to New Residential’s second quarter 2018 earnings call. Joining me here today are Michael Nierenberg, our CEO; and Nick Santoro, our CFO. Throughout the call we’re going to reference earnings 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 earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we’ll be discussing some non-GAAP financial measures during today’s call. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings supplement. And now, I would like to turn the call over to Michael.

Thanks Mandy. Good morning, everyone and thank to joining our Q2 earnings call. I'd say on the quarter our portfolios performed as expected, which I think is great as there were really no surprises during the quarter. Overall investment activity for us was fairly low similar to Q1, with a little bit more capital deployed in the loan business. As we think about the investing environment, we continue to be cautious as the amount of capital in the market remains plentiful, and coupled with tightness in spread; we continue to be prudent as we deploy capital across the different financial services sectors that we invest in. Our investment portfolios and rate use remained the same. And we believe the current portfolio is fantastic for the current rate environment that we are in, and should continue to create great value for our shareholders. On the financing front, I wanted to highlight the MSR financing market. At this time, 90 plus percent of our financing around our MSR business is financing the capital market which takes REIT term financing. For example, this week were priced to $560 million MSR note at a 460 cost to fund at an average life of about six years. Our call businesses where we own a $140 billion of call rights remain very strong. During the quarter, we collapsed 32 different mortgage trust for $1.1 billion of mortgage loans. Our capital and access to liquidity remains very strong and puts us in a wonderful position to take advantage of any opportunities we see. I'll now refer to the supplement which has been posted online. And I am going to begin on Page 2. Page 2 is really just our new residential overview. Looking at the right side of the page, a couple things to highlight here. Again,…

[Operator Instructions] Your first question comes from the line of Tim Hayes, B. Riley. Your line is open.

Hey, good morning, Mike. Thanks for taking my questions. The first one, it just looks like the MSRs you acquired this quarter were marked above a 120 basis points, which is a bit higher than historical levels. And just wondering if you can talk about the characteristics of those and strategy more generally? Are the returns on MSRs still more attractive than other assets with valuations that high?

Yes. What I would say valuations and MSRs are high. There are quite frankly overall investments in what I would call flow MSRs are probably not that interesting for us right now, while saying that we see multiples on what I would call conventional MSR is anywhere from 4.5 to 5.5 type multiples. Our overall MSR portfolio is marked today at a 3.7 multiple. So we'll deploy capital what we think strategically over time. The other thing I would say in a rising rate environment, you're going to see multiples go up and the MSR portfolios do provide a great hedge for our call business. So net -net, there is some strategy there, but I think going forward you're not going to see a ton of capital deployed in the MSR market unless we think we can create good value there. The other thing to point out is MSR financing has become a lot more efficient. You're seeing higher advance rates, more term financing. So, look, I think you'll continue to see MSR values likely increase as a result of the financing market elaborate returns still look very good to us.

Right, okay. And then you mentioned the expected new penn volumes for the year. Just wondering if those are in line with where you thought they'd be at the time of agreeing to the acquisition, or if the mortgage banking backdrop has been more challenging than you expected?

We spend a lot of time with our new penn partners who do a great job. The origination volumes last year I think they did something around between $6 billion and $6.5 billion. We believe this year or I think they're on target to do something around $8 billion. I would tell you gain on sale when you look at the mortgage banking origination business is very, very difficult. The amount of money to be made in the origination business is very low in our opinion right now. And it's a hard business. There's no doubt about it. We have rolled out some other kind of prime non-agency products that have created some reasonable P&L for the new penn segment of our origination business. But overall I wouldn't expect a ton there. The other thing it does is it provides some clean MSRs for our balance sheet. So I would anticipate over time that we continue to grow a holistic creation of MSRs as a result of our mortgage banking activities, but net-net gain on sale is very low and very hard in that business.

Got it, okay. And you'd previously mentioned that you expected to potentially be in the market with a non-QM securitization this upcoming quarter or this current quarter. Is that still your expectation or do you see that you may be getting pushed out at all?

Yes. I think we're going to try to do one this quarter, third quarter. It's not huge. I think we have a give or take a couple hundred million of collateral. And whether we do it at the end of this quarter which I think is likely, if now they'll probably be early fourth quarter, again as we acquire more collateral.

Got it, okay. And then one more question around Shellpoint, just now that the deal is closed do you expect to get kind of more aggressive in building that platform or around that platform? Would you be focusing on the origination or the servicing side or both? And then how would you gauge your appetite to execute on additional M&A just around this business?

We as I pointed out earlier Bruce Williams who leads that business along with Jack Navarro and Kevin Harrigan do a great job. I said --we will continue to --we've dedicated a lot of resources there, a lot of brain power. We're going to continue to try to grow it collectively together only if it makes sense. I mean we're in the money making business, and we want to create value for shareholders. So I would expect that business to continue to grow. As it relates to M&A, if there are things that fit what we're trying to do in our portfolios or with our partners we will continue to acquire whether it be companies and/or assets that we think makes sense for shareholders.

Got it, okay. And then what one just last one for me just the profitability on the call right this quarter.

I think our execution was give or take around 1.5 overall, and then we also have hedges that we put on against some of our fixed-rate collateral. So net -net it was a very good quarter for the call business.

Your next question comes from the line of Bose George, KBW. Your line is open.

Hey, Mike. Can you talk about it the drivers of the change in the valuation of the MSR this quarter? It looked like there was a negative mark.

Yes. I'll turn it over to Nick. There's --some of this has to do with some of our legacy around the HLSS and Ocwen transactions. The net number around access and our MSRs away from what I would call some of the accounting adjustments was about positive $25 million on the quarter. Essentially rates weren't changed. We made some tweaks to the model where we saw speeds up a little bit, a little bit higher I think than expected, but overall gain was about $25 million. And then as it relates there was an up and down adjustment that Nick will just talked to on some of the GAAP accounting stuff.

Sure. It relates to the Ocwen transaction and in summary it has to do with the amortization of the fair value. So as the fair value gets pulled down, as we begin to create the asset into income, we flipped from unrealized to realized, so that has to do -- and you'll see the negative come through on the unrealized MSR line.

Okay. So I mean just conceptually it's not a fair value markets really sort of the-- it's more of an amortization mark is that --

That's correct.

Okay and then in terms of the contract with Altisource. Has that been finalized?

Not yet. We extended an LOI with them, and we hope to get that wrapped up this quarter.

Okay. Are there any changes there that could impact the MSR valuation going forward?

No, not that we're aware of.

Nothing material, okay. And then just in terms of the pipeline for MSR acquisitions, you noted earlier just on the pricing being somewhat steep, but can you just talk about the pipeline out there. Is there a stuff that could be compelling?

We have $30 billion that we have LOIs on right now that I think are likely to get executed on this quarter. I think the pipelines themselves are -- mortgage banking-- Tim asked a good question about the mortgage banking industry and gain on sale. It's very hard. So I think what you're going to continue to see is the need for capital with some of the mortgage bankers as they're not able to quite frankly make money in the origination business. If the 10 year treasury continues to back up, I think its 296 and 297 this morning, you're going to see less production, there's going to be a little bit of pressure on the system there. Overall that could create some opportunity, but in general as I pointed out at current pricing on slow it's just not that interesting to us. When you look at the portfolio, I think quarter-over-quarter it's down about $20 billion. We could buy more and more of MSRs but the pricing has to be right for the way that we're thinking about it.

Your next question comes from online of Henry Coffey, Wedbush. Your line is open.

Good morning. It's good to hear the story again. There are some nice tax advantages associated with direct origination and MSRs. Is that what new penn is going to create and is that some real nice value or is it possible that it kind of grows into a mortgage banking gain on sale component of the quarterly earnings?

Yes, Henry, it's less relevant for us as we are REIT right. So when you think about it from a tax perspective, it's just there's really nothing there. The strategy around new --about Shellpoint is really that for us grow the third-party business, grow origination, so we create assets for our own balance sheet that we think are at the right levels. And truly create what I think is a very good profitable mortgage company. I think the tax stuff-- there's really nothing to do there because we all REIT. There is some tax we have to pay because it's an operating business, and not a good REIT asset, but it's just not that the tax stuff doesn't weigh in our decision here.

And then and looking at your residential loan portfolio that that's a business that seems to be taking on real legs. We even had a one of the regional banks we all follow did a nice non-QM securitization. Does that business grow into a meaningful couple of billion dollars a year for a long time? Do you get into areas like single family rental lending that could also have a non-QM component to it? What's the sort of the growth prospects for that side of the equation?

Couple things. One is on the asset side as I pointed out; $37 billion came out for the bid in the quarter. Assets extremely well bid by whether it be the number of the banks and/ or a lot some of the total return players in the marketplace. And obviously we will participate a little bit if in fact we think we could create what I would call good returns for shareholders. The overall landscape of the residential housing market which is give or takes a $20 trillion market is interesting. Now we don't want -- you don't want to be the last person to the party, so when you think about single family rental, yes, we'll look at that, we'll look at lending against it. We will look at potential acquisitions in that market. We do create our own what I would call housing stock as a result of our call strategy. And there's a bunch of REO that typically comes when you collapse these deals, but I think somebody asked about acquisitions before. We'll continue to look at everything. There's nothing that I can point to right now that's that interesting, but we're looking at a lot of different things right now.

And then this is just kind of a general question because I'm getting new to the story again. When you survey the business what's --what does pop out is compelling?

Good question. I think our existing portfolio is great. I pointed --

Yes, it's a given, yes, it's obvious.

Yes, when you look at --I look back to work to our Q1 remarks, I look to Q2 remarks which I just gave. The story is pretty much the same. We're not deploying a ton of capital there. So the investment environment and the risk return is just not great. While saying that we got to be diligent and be on it every single day which our team. There will be things that come our way. Right now, we'll continue to focus on pretty much the same thing. If we acquired non-agency assets that are accretive for our call business we'll do that. We'll be sporadic around the MSR stuff, if it makes sense for us. We are spending time looking at different things away from just the asset side, and I think our growth could be any number of ways. We're in the financial services sector. We've made some good strategic investments on the consumer side. So we continue to look at everything. But net-net, based on capital deployment, we have plenty of liquidity right now. There's not a lot that's really, really interesting right now.

I will now turn the call back to Michael Nierenberg, CEO for closing remarks.

Thanks everyone for joining our call. Appreciate the support. Enjoy the rest of the summer. And look forward to updating on Q3 results and Q4. Now there is time, but have a great summer. Thanks.

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