Good morning. My name is Lausanne and I will be your conference operator today. At this time, I would like to welcome everyone to the New Residential First Quarter and 2019 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers' remarks, there will be a question-and-answer session. Thank you. I would now like to turn the conference over to Ms. Kaitlyn Mauritz of Investor Relations. You may begin.

Thank you, Lausanne, and good morning everyone. I’d like welcome you today to New Residential’s first quarter 2019 earnings call. Joining me here today are Michael Nierenberg, our Chairman, Chief Executive Officer and President; Nick Santoro, our Chief Financial Officer. Throughout the call this morning we are going to reference the earnings supplement that posted to the New Residential website this morning, if you are not already done so, I’d encourage you to download this presentation now.

Thanks, Kate. Good morning, everyone and thanks for joining our call. Before I begin, I want to welcome Kate. Kate recently joined us and will be heading up our IR efforts for the company. We’re thrilled to have here. So when you see some the changes to the supplements that are posted online, we could thank Kate for those. For the quarter, what I’d like to start is really talking about the earnings power of our company. We've always tried to show how our portfolios perform in different interest rate scenarios and this quarter truly showed how the diversified nature of our business continues to work well in all rate scenarios. During the quarter we saw 10 year treasury yields fall by 25 to 30 basis points. Fixed income assets rallies spreads tightened. What does all this mean? Our bond portfolios, loan portfolios, consumer portfolios and our origination business lines performed extremely well, offsetting the slight decline we saw in our MSR business. On the MSR business we've added hedges against our MSR asset where appropriate. Keep in mind, not only do we have hedges, all of our MSRs have recaptured agreements with our servicing partners. We've also seen an increase in production at our originator, which will lead - which should lead to more earnings in the future and a greater sourcing of assets for our balance sheet. On the sub servicing side, we've taken steps to minimize our counterparty risk. We now have sub servicing agreements with loan care, which is a new counterparty to us which is owned by Fidelity. We have renegotiated some of our sub servicing agreements, lowering fees and increasing our ancillary revenue. During the quarter, we raised capital based on our pipeline of investments. Unfortunately deals and investments take time to minimize the drag on earnings which we estimate at some add, something close to $0.03 per share we paid down debt. Our liquidity position today is terrific and I see no reason that we will need capital anytime soon based on our current pipelines of deals and investments.

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

Yeah. Good morning. So just first with the Covius acquisition, can you just talk a little bit about how much ancillary revenue you could potentially bring back sort of in-house through this? And is there also kind of a third-party opportunity here as well?

Yeah. Good question, Bose. Thanks. The - first of all when we think about our earnings and we look at our earnings projections going forward there is no credit for the Covius investment in our earnings going forward. Two, we look at Covius as a third-party provider to the industry. This is an equity investment in them where we hope that their earnings will continue to grow. Again, we're big believers in the - in the leadership of that business with Rob and John. And just to give you a couple of quick things. We invested $20 million of equity and we have a little bit of debt in the company. The 20 million of equity and the debt gives us about a 20% ownership in the company. Keep in mind, Aquiline owns a bigger share than we do. Over time we have the opportunity to grow - to grow our presence in the company, grow our ownership. But the way that we look at this is it's an investment in Covius and it's an investment in the management team as a third-party business and we hope that they can grow it and we could - you know, the value of our equity ownership will go up over time.

But just in terms of the revenue and sort of sizing or timing of stuff coming over, so its somewhat more gradual in terms of you know the benefits to your earnings from the increase in ancillary revenue?

Yeah, I think there's a couple of points there. One is the earnings will stay in that company. Two is, if you think about Shellpoint and New Res, we already have an appraisal business. We already have a title business. We already have an ancillary services business. This kind of adds to the overall suite of products that we can capture within our origination business. But those numbers you know, to the extent that the revenue growth in the company, obviously our equity or our equity valuation will go up. So we're excited. We think it's going to get going you know, sooner rather than later. But I do want to make sure that you understand, we have some of these products in our existing business. And when you know, on some of our renegotiation on our sub servicing contracts and getting more ancillary revenue from our sub servicing partners, we are already seeing the fruits of some of that come back today.

Okay. That's helpful. Thanks. And then just wanted to ask about, just updated thoughts on hedging the MSR potentially, I mean, this quarter obviously you guys did well, I mean, spreads tightened on credit which helped, but you know, just generally how are you thinking about protecting against falling rents?

So with the Fed on hold, I mean, you know, if you go back over the course of the past couple of years everybody thought the Fed would keep raising rates and we'd see a much higher rate environment, obviously in the MSR business, that's great for MSRs. During the quarter, you know, even coming out of year end our loan books were longer from a duration standpoint, so we use that as a hedge versus our MSR book. Our bond book is long. And we also have credit spreads there, so that was used as a hedge against our MSR book. We actually and our recapture agreements kind of help with the MSR. Now that Powell and the Fed came out and basically said they're on hold. We've actually put out on a bunch of hedges against the MSR in the mortgage space. One thing I want to point out, as we put on more mortgage hedge against our MSR, the core earnings will go up, because you're buying mortgage assets against your MSR. So I think to the extent that – and we believe we'll remain in this kind of low vol environment, at least for now, to the extent we remain in this low vol environment and we add more mortgage hedges which we are and will be doing down the road that will lead to higher core earnings.

Okay. And just the mortgage hedges are the agencies or just any color there?

You know, I would assume they're agencies. You know, some of our - the duration in some of our offsetting businesses could be longer in nature, which would offset some of that. But in general the hedges against the MSR book is going to be in agencies, it could be in swaps, it could be in derivatives, but for the most part I would take it that as a mortgage product.

Okay, great. Thanks.

Thanks, Bose.

Your next question comes from line of Tim Hayes with B. Riley FBR.

Hey. Good morning, Mike.

Good morning.

Hey. Can you touch on your outlook for the mortgage banking industry in general and the opportunities you could see there? You highlighted your expectations for lower vol ahead and the tailwind from lower rates. But for the past several quarters you’ve been talking about how you expect volatility in that universe could present opportunities for you to invest which is largely why you’ve been raising capital. So just wondering if you still expect overcapacity issues to present opportunities or if you expect fewer opportunities ahead?

I think there'll be more opportunities. I think the original – listen the mortgage business is really hard. We all know that. I mean, you look at the industry there is few men standing at this point. I think the way that we see it, we have capital to the extent that we can increase our origination business, we're going to do that. That will help us not only with providing more assets for our balance sheet, but it would also provide us with more hopefully income around that part of the business. The servicing side, you know, Jack Navarro and I’ve been pretty vocal on this. You know, that business has grown tremendously. They're at $142 billion. That will likely grow to something, I think over time and give or take about $200 billion. We are evaluating our sub servicing partners on the other side to try to increase the roster of sub servicing partners, so its not all captive to one. But I think there'll be more opportunities. Obviously, the origination business will benefit from lower rates, and you know, we're seeing that. We're also seeing that in income in our overall earnings, as a result of the acquisition of Shellpoint. So net-net, we're optimistic. I do think you'll see more consolidation though.

Okay. That's helpful. And then you kind of touched on this, but what is your appetite like for M&A and additional strategic investments following this Covius deal? Are you still actively looking for ways to play in the ancillary business space or does Covius going to check the box here and any additional investment or acquisition will be more tailored around recapture?

Yeah. I think that the biggest thing I would say is, if we think it's accretive for shareholders, we're going to acquire things. You know, a big thing - a big part of where we sit now, liquidity is good, asset prices are reasonably full. I think they'll probably still do a little bit better from a spread perspective and a price perspective, but to the extent that opportunities rear their head and we look at a lot of M&A, we have a team of four that are actually focused on M&A. We're going to try to execute a run . It's hard to do deals though so, I mean, you know we raised capital with the intention of deploying the capital sooner because we're in the middle of certain things, it's hard to get things done. But we're confident that we will.

Understood. Okay. And then on the Ditech sub servicing, can you just maybe touch on how much of that has been moved this point. And if you've been able to recognize the amount of cost savings that you anticipated and kind of mentioned on your last conference calls as you've renegotiate or negotiated some of these contracts?

Sure. On Ditech as of May 1, 345,000 loans at a 550,000 loans have been transferred. There is 205,000 loans remaining. By July alone there'll be a small handful of loans remaining there. You know, the big thing for us is first and foremost and this is not about NRZ or quite frankly Ditech, it's really about the homeowner. We want to make sure that anything we do around servicing, transfers is not disruptive to a homeowner. We have transferred MSR from Ditech to LoanCare, as well as Shellpoint.

So just to be clear those are the only two counter-parties to speak that you've moved the MSRs to?

At this point, yes.

Okay. Understood. Okay. And then just one more on Covius. Can you just maybe talk about the - you know, I know that your - it's an equity stake, you're not getting any earnings necessarily as they you know - from moving some or as they grow. But do you expect, I'm just looking for the value add from day one, maybe you know, is there - are there any dividends that you expect to be paid from that agreement? And then also are your counter parties that you're working with currently already partnering with Covius and outsourcing some functions to them?

The answer to the second question is some of the counter parties that we have currently work with Covius at this point. You know, it's a real company. These guys - you know again Rob and John are very real people and do a great job. The way to think about the investment, we have some equity in it, which is again it's $20 million not to – but a little $20 million and then there's some debt. To debt, you know, the coupon on the debt is going to earn 11% and then that will drop after a couple years. So really the way that we thought about this is you know, we want to capture as much of the mortgage or the homeowner as we possibly can. We can't only do it in Shellpoint and New Res regs because they're not our only servicer. We buy MSRs from other people and we have servicing relationships with a number of people. So the idea is let's capture as much of this stuff as we can of the ancillary revenue. It's a true third-party business. We are not running that company. We will have you know, board seats, but you know, they're going to do their thing. We're going to hopefully help them grow that company. And services businesses, when you think about the way they trade versus you know, a financial services company, what I would say, is they traded a higher multiple of PE. So the idea is you put some capital in. Hopefully Rob and John do a great job growing it. We earn some coupon on our debt and then over time the equity valuation that we have grows substantially because we could one day increase our equity ownership, one, and then two is, if we don't that the $20 million could grow as they continue to grow the business.

Got it. It makes sense. Okay, Mike. Appreciate that. I'll jump back in the queue.

All right. Thanks, Tim.

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

Morning, Doug.

Michael. Hey, good morning. I understand you can't go into the exact specifics, but if you could just help us characterize some of the deals that you're looking at you know are they on the kind of the MSR side large - larger deals, smaller deals. Just help us kind of think about the capital deployment?

Well Doug, the one thing I can tell you is what we're working on. You know, I would think - I would think about anything for the most part that we're working on is consistent with our prior investment strategy. So it's nothing, it's not like a joke sometimes that you know, when you look at the value of assets they sell everything and go buy Breyers Ice Cream. That's not - that's not what we're doing here, we're focused on financial services assets and/or companies that are consistent with what we have been doing over the course of the past six years since the company was founded.

All right. I appreciate it. Thanks, Michael.

Sorry, Doug.

Your next question comes from the line of Matthew Howlett with Nomura.

Hey, Michael. How are you doing?

Hey, Matt, welcome back.

Thanks a lot. Michael you've always been vocal in the past of credit spreads cut really tough, now the market was inflated and it sounds like this summer and you have ways around it. First just want to hear your overall view when credit spread get - get this rich. And then I'll follow up with other question.

Yeah, I think on the credit spread side, we have room to get tighter. I mean, we're not at the types of what we've seen, in the market we're a regular issue of debt, you know in the term markets based on our assets that we securitize. I actually think stuff will go tighter. I think you're in a low vol market. There's - you know, the markets are flushed with cash, if prepayments continue to pick up, particularly around a lot of the credit side you'll see more mortgages produced. But those are agency mortgages, typically longer duration. So the need for short duration assets will continue to be extremely high. And I just don't think there's enough of them out there. So I think spreads will likely go tighter. For us you know, if you think about it unfortunately a dividend yield is between 11% and 12%. If our dividend yield was 6% or 8% obviously we'd buy a lot more than we currently invest in today. But we don't want to be dilutive to our shareholders and we don't want to just buy assets to buy assets. So I think stuff's going to do better. But again when I pointed out early - in our earlier comments, the risk reward is in our opinion tilted to the downside, but that doesn't mean stuff's going to do - not going to do better.

Right. If MSRs cheapened a little bit with the rates. Is that why you're active post quarter?

MSR have cheapened a little bit. That's why we bought you know that $25 billion last week. You know, we have relationships with certain mortgage originators and there's certain agreements we have on prepayment protections and things like that. You know, quite frankly I think where you are on a levered yield basis in the MSR space is actually fairly attractive right here. And to my earlier comment, if we put – as we buy more - more what I would say in the money MSRs and we hedge them with mortgages, you're going to - you're likely going to see a bigger bang for the buck over time in our earnings stream.

Great. And then just the second one is, as energy evolves to what it looks like more of an operating business. What's the risk of awards, I'm just talk a little bit about that evolution. Is it about putting, hiring just good people to run these businesses or using your fortress you know, SoftBank as an ability. Just talk a little bit about as you evolve into these operating companies what are the challenges or the rewards for doing that?

Sure. I think, good question, Doug. The Shellpoint acquisition in July was made for a couple of reasons. One is it's an insurance - again that company itself is an insurance policy for you know, all of our servicing partners out there. So the idea about acquiring them to the extent that MSRs have to move and you're seeing this now in a Ditech situation that’s proved to be a good thought process. We don't want to run a - you know, a very levered mortgage company and we won't do that. You know, most of our financing is typically around asset level. When you look at the earnings from that company they've been terrific. We haven't broken down segment returns yet, but you know I think earnings year-over-year will at least double from where they were in 2018. The management team there, I know I know Bruce Williams for a long time. He's a wonderful person and they do a great job and they have a ton of experience, operating companies are hard though. You know, I'm not going to say they're not, you know, we have plenty of people there, who are very, very focused on it. You have - you know, we have a very robust compliance group. We have - you know there's a bunch of people doing different functions there. On the Covius thing, again is it's really an investment in others, so we're not running that company. And that's really our only operating business I think. So overall we're still an investment company. We’re still going to try to put up returns around our core business. The Shellpoint acquisition gave us scale and protection, as well as you know, now contributing to earnings. So we're thrilled about that, but as you know you've got to be all over this stuff from an operating standpoint and we are.

Great. Thanks, Michael.

Thanks, Matt.

Your next question comes from the line of Kevin Barker with Piper Jaffray.

Good morning, Michael. Hi.

Hi.

In regards to some the comments around dry powder and your ability to continue and utilize some of the cash you have in your balance sheet to continue some of the investments. How do you view leverage at this point? I think with the balance sheet where it is, is that what 3.7 times debt to equity. Can you just quantify where you're comfortable putting that and you know, quantify how much dry powder you have today.

We reported cash of a little bit south of $350 million. We paid down debts. So our leverage ratios are below 3 at the end of - at the end of the quarter. Those leverage ratios will go up as we add more agency mortgages to our business to hedge out our MSRs. So that's you know, on the leverage side. That's how where I think we'll end up seeing more leverage. Again, we continue to do more term financing around as many of our assets as we possibly can, including - almost our entire MSR business. The three areas where you'll see leverage are one agency mortgages, which there's a ton of capital there, our non-agency bond book and in the loan book until you actually do securitizations and work out some of those loans. On the dry powder front you know, being that we pay down debt and we have capital on our balance sheet, I don't - as I look at our runway and think about the deals that we're working on, something different comes up that we just - that we're not seeing nor we're anticipating, we have no need for equity right now and we have plenty. So even on all the deals that we're currently working on they will be funded with our dry powder, with the liquidity facilities we have. So you know, the net of all that should be - continued strong earnings, I would say. So on a powder play you know and leverage will run moderate leverage, leverage will go up as a result of the increase in our agency mortgages against our MSRs.

And then had pretty well, I'm sorry if I missed it earlier, but was there a change in the fair value of the mortgage servicing rights actually going up versus what happened last quarter and the move in mortgage rates this time around?

Yeah. The servicing rights, they actually went down and part of it has to do then when you think about the valuation there's a large escrow component as you look at - as you look at forward rates. So the asset itself was lower in value. You know, Andrew and his team did a great job renegotiating some of the sub servicing fees. So the net-net on the quarter in the MSR business was actually up and that helped contribute to our book value increase, the bond book helped contribute to our book value increase and our loan book helped to contribute to our book value increase.

Just a follow up there, could you add a little more color on the negotiation of the servicing fees and what that entails and maybe quantify that?

Sure. I mean, what we're seeing, if you think about it, you agree on a contract at a set fee for one of our counterparties to service one of the mortgage loans. And what happened as we've extended certain contracts and lowered sub servicing fees and actually in doing that we've also acquired or captured some of the ancillary revenue that we weren’t acquiring in the past. The part of the key evolution of the business and our business and our portfolios and us working with our counter parties, that's really what it is.

Okay. Thank you, Michael.

Thanks, Kevin.

There are no additional questions at this time. Michael, I would turn it back over to you for closing remarks.

Super. So thanks, everybody for participating. You know, we look forward to continuing to do what we do as a business, which is be in the Investor's business and providing stable earnings for our shareholders. We thank you for all your support and have a wonderful day. Thanks.

Ladies and gentlemen, this does conclude today's conference. You may now all disconnect.