Rithm Capital Corp (RITM) 2013 Q4 法說會逐字稿

Good morning, my name is Stephanie and I will be your conference operator today. At this time I would like to welcome everyone to the New Residential Investment Corp. fourth-quarter and full-year 2013 earnings conference call. (Operator Instructions.) I would now like to turn the call over to Sarah Waterson.

Thank you Stephanie and good morning everyone. Welcome to New Residential's fourth-quarter and full-year earnings call.

Today we had prepared remarks from Wes Edens, the Chairman of New Residential; Michael Nierenberg, the CEO of New Residential; and Susan Givens, the CFO of New Residential. Jon Brown, the CAO, will be joining management for the question-and-answer portion of this call.

We posted an earnings supplement on the New Residential website this morning. If you have not already done so we would suggest that you download it now.

Briefly before we begin please remind you that statements made today are not historical facts and may be forward-looking statements. These statements are by their nature uncertain and differ materially from any actual results. We encourage you to read the forward-looking statement disclaimer in the presentation as well as the risk factors described in New Residential's filings made with the SEC.

I would also like to remind you that nothing on this call constitutes an offer to sell or solicitation of an offer to purchase any interest in New Residential. The webcast and audio cast is cooperated material of New Residential and may not be duplicated, reproduced or rebroadcasted without our consent. With that I would like to turn the call over to Wes please.

Great, thanks Sarah and welcome everyone. Just a few remarks and then I'll turn it over to the management team to walk through the quarterly and annual results.

So let's start by referring to the supplement that Sarah mentioned, page 2 in the New Residential overview. Just as a bit of background, we are a publicly traded market REIT with a market capitalization of $1.7 billion. Our focus is investing across the entire spectrum of the US housing market.

It is a very large market. One of the largest debt markets in the world at $20 trillion.

We seek to generate mid-teens return primarily through investments in residential mortgage related assets and then where appropriate make opportunistic investments in other related sectors, most notably in the consumer finance sector that we made the one large investment in last year. The boxes at the bottom of the page show the main sectors that we invest in. Approximately 62% of our equity capital is in the servicing relating assets, 21% in non-agency business and about 17% and other investments again most notably the consumer loans.

Next page, just a little bit of history in our Company which has only been around in its standalone form since the middle of 2013. We actually began investing in mortgage servicing rights back in 2011 while part of Newcastle.

That investment program was a very successful one. The history of those investments that are still in the books of New Residential have performed terrifically.

And the increasing focus of our investment activities in that sector and the non-agency business is what led us to announcing in the first part of 2013, in January 2013, that we are going to seek to become a standalone public enterprise. And in fact that is exactly what happened in mid-May.

On the investment side, there is couple of notable highlights along the way. Last April we announced a strategic investment of $241 million, to acquire a portion of a consumer loan portfolio, along with another related company at Fortress, Springleaf. That has been a terrific investment and Michael will talk about that in a little bit.

Later in the year two other notable areas that we have been starting to spend time on, in November we announced that we had bought our first, made our first investment in non-performing loan sector. This an area that I think in particular is going to be an active area in the market.

And the way that we try to access these type of investments is first make a modest investment and make sure that we understand exactly what the investment characteristics and dynamics are of the market and then if it makes sense then to expand thereafter but again Mike will talk a little bit about that.

And then lastly right at the end of the year we made an investment in servicer advances, $3.2 billion in total servicing advances that we bought from Nationstar. The performance of that investment although early is a promising one and one that we think that has got some incremental investment to go.

Next page, the pipeline of opportunities which is something everybody is very focused on. Today my view on the residential market is still one of the most interesting markets in the world. There is a lot of competition, there is a lot of different participants in it but it is a very vast market and is in a real state of flux.

In particular the GSEs, there has been a lot in the news about the various bills and thoughts of people in Congress have about what they should do with the GSEs. I think that it is very likely that there will be a different role for the GSEs and housing over the next several years.

And that is notable because today they really are, all of the housing market financing in the US, over 90% of the mortgages in the US, are provided by the GSEs or HUD collectively. So any kind of a material change to their position with regards to that would have a material impact on the market.

Those kind of disruptions can lead to greater opportunities. There is a number of different things that we are focused on right now that we think has some real promise.

On the non-performing loan side, HUD has really stepped in to become the lender of choice to some of the more highly leveraged borrowers, new borrowers, new entrants in the market. As a result they have more non-performing loans. Their balance sheet today, $660 billion face amount of non-performing loans.

We anticipate sales in excess of $30 billion from NPLs by HUD and the banks over the course this year. There is a potential for real supply to increase meaningfully if the GSEs decide to sell their NPLs. So there is a lot of prospective activity and that is what really led us to make our first toe hold investment in the sector and try to determine whether it is not is something we think is interesting.

Lastly just the topic that is in the paper still virtually every day is the regulation and reputational issues of the banks continues. And I think while you are much closer to the end of it than the beginning, with respect to some of the impact of some of the litigation and whatnot, I think the banks will continue to sell MSRs albeit we think at a slower pace.

But if you go back to the chart that we used many times in the past and look at what the state of the servicing market was a couple years ago, the banks dominated the mortgage servicing rights. They had the $10 trillion in mortgage servicing, roughly 91% of it was owned and managed by the banks. That has come down to 77%.

And we think, I think, that is still going to continue to come down again at a more measured and slower pace perhaps. But the regulatory pressures, the costs of actually complying with those regulations just make this a very unattractive asset for the banks along with the capital standards and we think there is going to continue to be opportunities there.

Page 5, if you just look this is just a little bit of a disaggregation and a snapshot of what the portfolio looks like. Then you can see how much we have in assets and net investments and then the target of investment yields ranging from 15% on the low side, to 35% or even higher actually in the case of consumer loans. But a blended average of about 19%.

The highlight page on page 6, last thing I will talk about just to go through it is first and foremost we had a very good year from an earnings standpoint. Total return on capital, 29%. Well above our targeted mid-teens return.

One thing I would like to say about that is although I know people are very focused on core, and they are focused on it for the right reasons because they are looking for the repeatability of the cash flows, but our core earnings have been very stable and in addition to that, though, of course we look to make money. And a 29% return on capital last year is something I think represents a terrific accomplishment by the team on behalf of shareholders. We feel great about that going into this year.

On the servicing related assets, we had a very good year in terms of investing in additional MSRs and in the advanced assets that we bought at the end of the year which I think will be a very stable source of investments. Also they are a longer duration investment which I think is great in terms of fulfilling the mission of having long-term stable earnings to build off of.

On the residential side we made some important decisions to diversify or at least look to diversify booking the NTL side. And then on the non-agency markets, something that Michael is expert at, we talk about we actually had a very good year. We made some very good decisions in terms of what we bought and sold and the financial results were terrific.

And then lastly the consumer portfolio which again I said a number of times is an idiosyncratic portfolio. We don't necessarily expect to find one that's repeatable, but of course we are very interest and look for it but the returns on it have been terrific.

So in conclusion, really a very, very good year, very good financial results. And with that let me turn it over to Michael.

Thanks Wes. Good morning everyone. Some of the things I'm going to say, I will probably repeat a little bit of what Wes said, I'm going to start in our flipbook at page 6 and just give you a little bit of a summary.

Our first year as a public company as Wes mentioned was a fantastic one. We paid $0.495 in quarterly and special dividends and our annualized return in equity since the spinoff was approximately 30%. So great numbers.

In our core servicing related business, most of our acquisition activity occurred in the beginning and the end of the year. In January while still part of Newcastle, we agreed to acquire approximately $200 billion of excess MSRs from Bank of America. These MSRs were boarded throughout the remainder of the year and so far their performance has been great.

Speeds have been slower, returns have been higher and we are thrilled with some of our early investments there. Our first service or advanced investment which we did in December marked our entrance into that asset class. We invested alongside with three other third-party investors to purchase approximately $3.2 billion of servicing advances.

We believe our returns in this sector will be primarily driven by our ability to obtain attractive financing through term structures as well as shrink the existing advanced balances as a percentage of the unpaid principal balance of the outstanding mortgage loans. After a little over one month of performance, we feel very confident that both of these drivers are on the right track and so far performance has been a little bit better than what we expected.

In my first quarter at New Residential we were very focused on diversifying our platform and minimizing any potential market-related or interest rate risk. Although I believe there will be many more servicing traits that will happen throughout this year, New Residential has the ability to invest broadly across a broad range of opportunities we think which will generate 15%-plus returns at any given time.

In November, we purchased as Wes mentioned, we purchased our first pool in non-performing loans. With the market of approximately $600 billion-plus of non-performing loans out there and we think coming to market will be $30 billion-plus of NPLs, we plan on being active participants in this sector. And I will talk a little bit about our investment a little bit later.

One of the things I wanted to mention and this goes back and Susan will talk about this later, and Wes mentioned a little bit about core, in December with the Dutch government announcing their intention to sell ING's mortgage portfolio which was approximately $11 billion of non-agency mortgages, we were little bit concerned about spreads as we got into yearend. And not necessarily in 2014 but more as we got through December, so we thought it'd be prudent to sell some assets, raise some cash, to put us in a better position to invest at lower price points. So we sold assets on an average of about $0.69 and we reinvested in other securities at $0.62 realizing gains of approximately $41 million for that portfolio.

So now I'm going to take you through some of our investments. Talk a little bit about that and then after that I will turn it over to Susan. So in our flipbook, I am on page 7.

So far we have invested approximately, and this as of 2013, $683 million in pools of approximately $300 billion of MSRs. Our mix is approximately 55% agency and approximately 45% non-agency with about 10% of that HARP eligible.

And the HARP programs are scheduled to end at the end of this year although we don't know but we believe they will likely end at the end of this year. We believe approximately 85% of our portfolio is credit impaired which should continue to lead to great performance, slow speeds and really we are not expecting any surprises there as far as the portfolio.

To date the investment has already returned 28% of the initial investment. It is generated $187 million of total cash flows including $41 million in Q4. And the lifetime return to date is approximately 17%.

We continue to focus on opportunities in the sector. There is a lot of noise around the regulatory front. Coming from a bank I do believe that these assets are truly non-core to many other of the banks out there and while the regulatory pressures are high, we do believe that the banks will continue to sell MSRs throughout the course of this year and into 2015.

And today we see a pipeline of approximately $300 billion. And I will talk a little bit later about a couple of, some of our activities that we did recently in Q1 of 2014.

On servicer advances, I am now on page 8, in December we mentioned earlier we agreed to buy $3.2 billion of servicer advances along with three other co-investors that related to the $54 billion of mortgage loans. At the time we cite the investment to be kind of a mid-teens type of return as I mentioned earlier. So far early performances has been terrific and we believe that we are going to achieve those returns and hopefully do a little bit better.

The keys there again are around the financing structures and the ability of Nationstar as our partner to recover previously made advances and lower the amount of advances versus the outstanding versus the unpaid principal balance in mortgage loans. So far they have done terrific and our returns have been pretty much spot on.

We also like this investment as we think the tenor is really more of a longer duration asset. We believe the tenor to be in the three to four year rage.

So far advanced balances have come down as a percentage of UPB by approximately 1% which is a little bit ahead of our projections. Not only is that good for NRZ this is also very good for Nationstar as they lower their interest cost as well.

We recently announced that we were exercising our option to call $2.8 billion of servicing advances. We call that investment number two of which $1.1 billion has been funded.

Today NRZ owns about 33% of the entity that owns transaction one and transaction two. But after it all said and done we expect NRZ to own roughly 40% to 45% of that entity.

And one other point I want to mention is that this week we closed on a $2.1 billion servicing advanced deal which lowers the cost of funds for us from 3% to 2.4%. So all good news there.

If you flip to page 9, I will talk a little bit more about the non-performing loan business and kind of our approach to it. As Wes pointed out, we made a couple of small investments in the NPL market. Part of it is to diversify our investment portfolio, staying with our core mission around servicing and servicing-related assets with the banks and HUD and other institutions holding $650 billion of NPLs approximately and our expectation of $30 billion to come to market this year.

We are really excited about our opportunities in this space and we think we're going to be able to achieve returns again in that space in the mid-teens. Our early investments in this sector have yielded returns of north of 20%. It is early and your early results tend to be able to better; however, we will continue to be very detailed around that.

Just to give you a little bit of color how we think about that, every time we look at a pool of loans, every single loan that we purchase is assigned a resolution strategy at the time of purchase. We get loan bevel weekly updates from our servicers. On every loan we compare liquidation timelines to our original projections and our original underwriting to see what they currently look like.

Our desire is to increase borrower contact day one, do more re-performing loans and the keys to increasing returns are again re-performance, short sales and payoffs. We are currently working with three servicers at this point on our portfolios. And we expect to again make that a larger part of our business going forward as we think the pipelines will continue to afford us opportunities to invest capital in the mid-teens in the future.

If you flip to page 10 on our non-agency business, the non-agency business has been very core to our investment thesis and we'll continue to invest in the asset class going forward. Again assuming returns are there, the asset class has very good performance in the first quarter of this year with different assets up anywhere from 1 to 3 points.

As I mentioned earlier we took some gains or really raised cash in the fourth quarter to protect ourselves against any spread widening that may have occurred as a result of the $11 billion portfolio hitting the market in December. Since then we have reinvested a bunch of capital into the sector at mid-teens type returns.

So we are comfortable where we are. Going forward depending on what the asset class does, we will have to monitor how we think about that sector.

I mentioned our sales in December. We sold our assets at $0.69, we reinvested at $0.62.

The other thing I want to point out is that almost our entire portfolio is floating rate. And when you think about the market today and especially in light of yesterday's market reaction from the Fed, we do believe that we are well positioned in any rate environment and really should benefit should rates rise from here.

So we are very comfortable with where we are. The other thing I want to point out is part of our servicer advance transaction, what we did is we acquired the call rates in 800 different mortgage deals approximately which is about $95 billion to $100 billion of balances on mortgage loans. So we expect that to be in the future we expect to affect the ability to call some of these mortgage deals and do some securitizations down the road, so we are very excited about that, returns there should be terrific.

On our agency portfolios, I think the one thing the way that we think about the agency arm business or our agency portfolio is we try to keep them as short duration as possible. Our effective duration is approximately 0.8 years. We are not making any duration bets in this sector.

One of the things we did subsequent to the end of Q4 with the expectation that rates would rise, we actually shortened the amount of time from months to the next reset from approximately 15 months down to approximately 11 or 12 months. Again should rates rise we feel very comfortable with where we are there.

We're not making duration bets as I pointed out. We are about 0.8 from a duration standpoint.

Speeds continue to be on our side. Speeds are slowing down. It is a very seasoned portfolio of agency arms.

Finally before I turn it over to Susan, I want to spend a minute and just talk about our consumer loan portfolio which is on page 12. The initial investment was approximately $241 million. That was to purchase an interest in $3.9 billion of a consumer loan portfolio from HSBC.

Since that purchase we own approximately 30% along with two other partners. Since that purchase we received cash back of approximately $109 million reducing our equity investment to approximately $132 million.

One of the things that is interesting about this, when these assets were purchased in April, there was a term securitization done in May and one of the things we are evaluating today is the ability to refinance that securitization. And we believe that in refinancing that securitization, not only are we going to be able to take out the remaining part of our basis but we believe that we are going to be able to take out our basis plus some and then cash flows in the future we expect to be approximately another $200 million-plus.

So our targeted return on that as we say in the presentation is approximately 35%. It is a great investment.

As Wes pointed out, we would love to do more of those investments. They are not always there.

We will continue to look for them but for now it is something that we are extremely happy with. So with that, I'm going to turn it over to Susan.

Thanks Michael. I know we have touched on the financial results on some of the previous pages but I'll provide a quick overview and give a little more detail behind our results for the quarter and for the full year.

All in all we had a really strong quarter and a really terrific year. On page 13 we summarized the financial results for Q4 and for the 12 months ended 12/31. We've also shown the results from the time of the spinoff on May 15 to December 31 to provide some additional clarity.

When looking at the results you should keep in mind that we announced the servicer advances transaction in late December. So our 2013 results really don't include any significant contribution from that investment. But you'll obviously start to see those results running through our financials when we report Q1 results.

In the fourth quarter of 2013, we generated GAAP income of $81 million or $0.31 per share up pretty significantly versus the last quarter when we reported GAAP income of $63 million or $0.24 per diluted share. The increase was primarily the result of $41 million of gains realized on sales of non-agency securities.

As Michael mentioned earlier, we made the strategic decision to sell some of our non-agency securities at the end of the year. Our view was that it was prudent to sell some of those assets going into the yearend and we were able to successively sell securities at an average price of 69% of par.

Core earnings for the quarter were basically flat to last quarter at $37 million or $0.14 per diluted share. It is worth noting that our average uninvested cash balance during the quarter was a little north of $150 million. So if we invested that cash on October 1 we would have expected our core earnings to be about $0.02 per share higher or $0.16 per diluted share.

On December 17, we declared a common dividend of $0.25 per share or $63 million which included a regular dividend of $0.175 per share and a special cash dividend of $0.075 per common share. For the seven and half months since the time of spin off we have generated GAAP income of $228 million or $0.89 per diluted share. Core earnings for that same period were $95 million or $0.37 per share.

In total in 2013 we declared common dividend of $0.495 per share or $125 million. And as we have noted earlier since the spinoff our annualized return on equity has been about 30%.

We have a lot of exciting things happening in the business and we look forward to updating you on our progress in the coming quarters. And with that I will turn it over to the operator for Q&A.

(Operator Instructions). Bose George, KBW.

This is Chas Dyson in for Bose today. Just had a question first on the consumer loan portfolio. I think we saw the core earnings come through a little bit lower than we had seen in 3Q and 2Q.

I just wanted to ask maybe what the driver was there, whether the portfolio is running off a little faster than anticipated or is it just the lower yield as compared to 3Q. What is going on there?

There really wasn't any change in the core earnings on the consumer portfolio. The only difference in the core earnings is really as we talked about we sold some of the non-agency securities so our interest income was a little bit lower as a result of that. And then obviously the unvested cash that we talked about.

Okay, that is helpful. And then just a question for you on that Springleaf deal if you could just provide a little more color there on exactly the structure whether it is in securities or whole loans? And then what the returns might look like there, both levered and unlevered?

The existing deal, there is a existing securitization in the marketplace so it is a debt structure that is in the marketplace today, we have the ability to, there is a call date May, we have the ability to call the transaction to the extent that we feel it is obviously it is a good investment for us and our partners. So that is something that we are very much focused on.

And the likelihood would be we would call the transaction and then issue a new securitization or a new financing into the marketplace. Our target returns are still in the 35%-ish-plus area. And that is the way that we are thinking about that.

Okay. And then just lastly, in terms of capital right now and looking forward to investments you are trying to make going forward, can you give us an idea of the excess capital you might have right now and if you need to raise capital going forward to fund investments like the Springleaf deal and other investments you are thinking about making?

I think as we show in the presentation at the end of the quarter we had about $157 million of available cash. I think we feel very good about our cash position and feel like given kind of the composition of our balance sheet, we have many opportunities and options with respect to raising debt or doing other things to kind of finance acquisitions as we look forward.

Okay, thanks.

Paul Miller, FBR.

Thank you very much. Can you touch base a little bit because I think, I know I am confused about when you clean-up calls which you talked about can add a lot of value and then when do you decide just to sell the assets like you did in the fourth quarter?

Sure, to the first question Paul on the cleanup call, many of these deals were issued in 2003, 2004, 2005 through 2007. Part of the servicing advance transaction we acquire the right to call approximately 800 mortgage deals.

The unpaid principal balance on those 800 mortgage deals is approximately $95 billion to $100 billion. As these deals factor down and you get closer to the clean-up call to the extent that we feel the collateral from an investment standpoint is attractive to New Residential will likely affect the option to call those transactions and either hold the loans on balance sheet or do a term securitization.

So that is way that we are thinking about that. And a lot of those deals were done with higher coupon collateral. So if you think about it logically, you are able to buy 5.5% or 6% coupon collateral at par and then either do securitization finance it. The returns should be terrific for us.

As it relates to the non-agency securities, going through the fourth quarter, thinking about dealer balance sheets coming from, you know again, coming from a bank and thinking about pressures on how big you could actually carry from a balance sheet standpoint and then couple that with the Dutch government selling ING's $11 billion portfolio, we just thought it would be prudent to sell some assets, raise a little bit of cash potentially to reinvest in lower dollar priced assets and as result we were able to take gains of approximately $41 million. Today when you look at our portfolio, our portfolio is higher from a market value standpoint than where it was at the end of Q4. We actually have done a fair amount of purchasing of non-agency mortgage securities.

One of the investment theories in this and you have talked about it was doing is the clean-up calls. When can you start doing some of those clean up calls?

Do we have to wait another year? Or have you been doing them slowly now?

We are currently evaluating a number of deals so I think you could expect we will be doing some of this activity likely in the second quarter. You know beginning in the second quarter.

Okay. And then for Springleaf, because I don't understand the Springleaf relationship as much as I should.

Does Springleaf do non-residential? I thought Springleaf was just a consumer servicer. Do they do both residential and consumer loans?

Part of their legacy portfolio, they have a large or they have a mortgage portfolio as part of their legacy portfolio which is approximately $9 billion. And subsequent to Q4, one of the activities that we participated in, they sold a little bit under $1 billion of an existing mortgage securitization that we purchased along with another party.

So reduced their footings by approximately $1 billion. They do service mortgage loans but they're really primarily a consumer company.

Okay. With NRZ, I know what a lot of people would like to see is the diversified servicing base, not just with Nationstar and Springleaf.

Can you add any updates to that? Are you still working on that very hard?

We are. I would tell you that Nationstar is still our primary partner. One of the things that we haven't announced yet but we got confirmation yesterday, New Residential actually purchased a pool of $4 billion of a private label servicing.

We are going with a different party as the servicer. However, Solutionstar which is part of Nationstar will be doing all the REO around their portfolio because they do a great job there and it's beneficial to them here.

We have another servicer that we are actually working with and it should be a terrific transaction for New Residential. So we are (multiple speakers).

So would this put the servicers you're working with at three or four now?

This is I would say this is part of the servicer as one of our non-performing loan pools. Right now I would say we are at three. And we currently evaluate other servicers as well.

Do you have a set goal to be at four, five or six by the end the year or are you just going to have to reevaluate that as we move through the year?

I don't think we have a set goal. I think our job in kind of running the Company with Susan and our colleagues is obviously to try to put up terrific returns.

If we can put up terrific returns with Nationstar as our primary partner, great. To the extent that we need to diversify we will and we've started to do that.

So I think what you can expect from us as we go forward and I do believe the pipeline, despite the fact on MSR, the regulatory environment is extremely hot just to use a word. I do think that we are going to see a number of servicing transactions. I think I'm more optimistic today than I was probably at the end of the third and fourth quarter because we really didn't see a lot of servicing transactions other than two.

So what that means to us to the extent that we need to have a different servicing partner, we will evaluate that. Our primary partner is still Nationstar and this deal that we are currently doing, I like the fact that Solutionstar which is part of Nationstar will be on the backend and our primary servicer will be somebody else.

Hey guys, thank you very much.

Matt Howlett, UBS.

Hi guys, thanks for taking my question. I guess just a bigger picture question here, you are about a year old as a public company here and I think the genesis of this spend in the first place was to acquire or at least get a yield, that dividend yield that was supposed to commence with the risk that you were taking particularly with the service, access servicing rights and now advances.

If you look at it now you are still sort of trading with a lot of the agency, high delevered agency mortgage rates out there. You look at it a year back, do you feel like -- I guess what direction are you going to take the Company?

Is there things that could you do to potentially get a better valuation with the stock price here and a lower cost of capital? I mean at the end of the day that is what we are all striving for.

I think some of the things as Wes pointed out earlier in the call, we are a pretty new company. I am pretty new, Susan is pretty new. We have done a lot of marketing to kind of tell our story over the course of the past few months and participated in a number of different conferences, Sterne Agree, CS conference as well as at a Goldman conference doing a lot of one-on-one.

So I think part of it is that we are new and we are out there telling our story. I think we have to put up results. I think if we put up results and we have so far and we need to continue to do that and then I think the stock price will probably take care of itself.

Do you think that effectively, so you are just going to show up a better book value performance, better interest income performance, when all these other guys could be cutting their dividends and rising rates you guys should be sort of the outlier. Do you think that is the way you think the market will reward you with a lower cost of capital ultimately it's just that it would be performance or just going to be track record?

I think it is all of the above. The one thing about our Company which I think we all really love, and again I do think at some point the Fed is going to be in play, are non-agency portfolio is almost entirely a floating rate. So rates back up, we should do well there.

Our agency arm portfolio has an effective duration of 0.8 or the months to roll or approximately 12 or 13 months to roll. Our excess MSR portfolio should do better and better; as REITs continue to backup, speeds continue to slow down. So we love that.

We announced obviously the servicing advance transactions and we continue to look for other opportunity. If you think about the mortgage market it is a $10 trillion market.

There is always something happening in the marketplace. You have to be patient around capital but I think we're pretty optimistic that were going to be able to grow the Company prudently and hopefully continue to grow our core earnings and grow earnings over all.

The track record so far has been great. Do you think the NPL strategy, these are very attractive strategies considering how big that market could be when the GSEs if they do begin selling.

Is there any risk though, but the servicing and the advances those are real steady reliable cash flows that go out years, is there any risk of diluting those cash flows with some non-agencies that the market may perceive as a little bit more volatile and use a little bit more leverage on. Is there any risk of blending those two together?

I think and one of the things we try to do in our supplement and in these calls is be as clear as we can on our asset mix. So I personally do not think as long as we are clear on what our investment thesis is, I do not think there is a risk of diluting them.

I will say with non-agency prices up a lot, over the course of the past year we continue to evaluate what assets are attractive from an investment standpoint. So to the extent that the returns are not there for shareholders, there is a strong likelihood that we won't invest a lot of capital in that type of asset.

Right, and is nice to have that flexibility with the model. And last question. Can you take kind of stab at how you see this whole non-bank servicing landscape shaking out be it Washington, Loskey in New York, any guess on how it has all settled out and how the servicing landscape ends up looking here down next few years?

I think if you look at it, listen I can't and we can't comment on Loskey or any of the other things that go on around the regulatory front. I do know coming from a bank that the banks want to continue to sell MSRs.

You are likely not going to see MSR transactions that are $100 billion or $200 billion; however, you will continue to see banks sell MSRs that are non-core to their business. When you look at the non-bank servicers and you look at performance and if you think about the taxpayer, the non-bank servicers typically to a much better job than the banks do around delinquent servicing.

So I think the trend will continue. It is going to be -- the transaction sizes will be smaller. But again in the past month or two months we've actually acquired roughly $5 billion of PLS which is something that we didn't do quite frankly in the fourth quarter in New Residential.

So I think we are reasonably optimistic. I think there is a lot of obviously headline risk, transaction sizes will be smaller but we think we are pretty excited about the opportunity to continue to do focus on the non-core assets from the banks.

And just to be clear, and I guess as it relates to Nationstar, Nationstar does a better job with keeping borrowers in their home and mitigating losses than Aurora and some of the other banks did. Is that performance clear that you have seen?

Yes, we believe that to be the case. And I do think that is something that when those statistics continue to focus through the folks, through the regulatory bodies and they think about the taxpayer, we are hoping that the dust will settle a little bit and you will start to see more of these transactions occur.

Great, great thanks Mike.

(Operator Instructions). Michael Kaye, Citigroup.

Can you talk about your interest in purchasing additional mortgage loans from Springleaf? Maybe they have about $8 billion left like you said and also I'm not sure if you mentioned, can you talk about the expected returns you expect to achieve on what you have bought so far?

Sure. We are obviously very interested in purchasing additional loans from Springleaf or quite frankly any other counter-party assuming that the investment returns meet our hurdles. We think that, I can't tell you what the returns are because we don't know what the markets are going to bear over the course of the next few months.

We did purchase an existing mortgage securitization in a pool of approximately a little bit under $1 billion in mortgage loans. We do believe the returns are going to be I think something north of 20% all said and done, when we are done with what our strategy is around those securities.

So we are excited about obviously other opportunities I think when you think about the loan markets. The credit boxes from the banks have really, really tightened up. The banks are only going to make for the most part QM loans or they're going to make non-QM loans to folks that are whether it be in their high net worth groups, etc.

So we do think there will be a lot of opportunities for folks like New Residential to go out and set up loan programs and either acquire from existing holders of mortgage loans or actually work with others to buy mortgage loans. So I think we are excited about the opportunities in the low market.

Again I pointed out earlier that the mortgage market is roughly $10 trillion. So there is always something that is happening that I think is going to afford us the ability to deploy capital along with our investment thesis of 15%-plus returns.

Great, thank you.

At this time there are no further questions. I would like to turn the conference back over to Michael Nierenberg for closing remarks.

Well, thanks everybody. We appreciate your participation. Have a great day.

Thank you. This concludes today's conference.

You may now disconnect. Speakers please hold the line.