New Residential Investment Corp

LSE:0K76

Earnings Call Transcript 2019-Q4

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the New Residential Fourth Quarter and Full Year 2019 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] Thank you.

I would now like to hand the conference over to your speaker today, Kaitlyn Mauritz, Investor Relations. Please go ahead.

[Kaitlyn Mauritz, executive]

Thank you, Jack, and good morning, everyone. I'd like to welcome you today to New Residential's Fourth Quarter and Full Year 2019 Earnings Call, and thank you for joining us. Joining me here today are Michael Nierenberg, our Chairman, CEO and President; and Nick Santoro, our Chief Financial Officer. Throughout the call this morning, we are going to reference the earnings supplement that was posted to the New Residential website this morning. If you've not already done so, I'd encourage you to download the presentation now.

Before I turn the call over to Michael, I'd like to point out that certain statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and 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 with that, I'd like to turn the call over to Michael.

[Michael Nierenberg, executive]

Thanks, Kait. Good morning, everyone, and thanks for joining our fourth quarter earnings call. I'm proud to say that our company had a very good year, providing our shareholders with excellent results despite the extreme levels of volatility we saw in the markets last year.

During the year, 10-year treasury rates began 2019 at 2.68%, fell to lows of 1.35% and ended the year at approximately 1.92%. Mortgage rates began the year at 4.55%, fell to a low of almost 3.5% and ended the year at 3.75%. As treasury yields plummeted, we saw mortgage spreads widen to levels we had not seen since the financial crisis. I mentioned this as our risk models and our team managed our book value to be essentially flat on the year. Our dividend remained unchanged despite the volatility we saw in the markets, highlighting the earnings power of our franchise. One of the goals was to stabilize book value, pay our dividend and mitigate any and all risks we could control. We did that, and I'm really proud of our team.

Our investment portfolio, the foundation for everything we do, performed well throughout the year. With return to new investments in the single digits, we maintained our discipline, targeting certain asset classes for investments, while deploying less capital in areas where we felt we could not generate enough output for shareholders.

Our MSR business, loan business and bond business continue to be the -- our core assets, and we also continue to work with market participants to clean up the legacy mortgage market through our call strategy. The growth of non-QM and the potential to see Fannie Mae and Freddie Mac reenter the public markets should only provide more opportunity for us over time.

In 2019, we did $11 billion of securitizations, locking in long-term funding and lowering our cost of funds. Our cost of funding dropped from the beginning of the year at 3.58% to 2.71% due to the drop in LIBOR as well as the improved efficiency in the capital markets. Our mortgage company, NewRez, had its first full year under New Residential -- under the New Residential umbrella. We saw earnings grow from $34 million in 2018 to $225 million in 2019. We have been very vocal around our need to capture the whole pie and provide long-term book value growth for our shareholders.

During the year, we acquired Guardian, which is a property preservation business; we made an investment in Covius, an ancillary services business; and we acquired the assets of Ditech along with a talented group of mortgage professionals, which enabled us to expand our footprint to the West Coast, building a great team in Arizona. Quite frankly, we have just begun, and I'm really excited to see us [ through ] measured growth continuing down this path of growing book value earnings [ while ] we captured business for our MSR portfolio and our other operating business lines. As we look forward, we are very optimistic on our business model and look forward to providing further value for our shareholders.

With that, we'll pause, and we're going to begin on the supplement, which has been posted online, and I'll start on Page 3. Our company today is a very much diversified -- what I would think a financial services investment company. Our portfolios are balanced. We have a very robust mortgage platform. And since the company was created in 2013, from a highlight perspective, we paid $3.3 billion in dividends, our book value per common share growth since inception is 65%, our shareholder returns have been 170% and we continue to look for opportunistic investments to continue to broaden the scope of what we do.

On Page 4, our earnings and financial results. GAAP net income of $211.8 million or $0.51 per diluted share. Our core earnings of $255.4 million or $0.61 per diluted share. Fourth quarter common dividend remained the same as it did all throughout the course of 2019 at $0.50 per common share. Book value $16.21, that was down from $16.26 at the end of September 2019. On the year, it declined a total of $0.05. So overall, again, our mission is to stabilize book value, and the team did a great job. Total economic return of 12.1% and that comprised of a $0.04 decrease in book value per common share and $2 in dividends that we paid. Total assets today, $45 billion. Market cap at the end of 12/31, $6.7 billion. Total shareholder returns for 2019, 27.4%. And again, economic return at 12.1%.

Page 5 is really our highlight reel of some of the corporate activities and some of the things that we did that are a little bit different, I think, other than the securitizations and the excellent performance we had. During the year, as everybody knows, we acquired the assets and the high-quality people of Ditech. These are the forward assets, we acquired origination and servicing platforms, mortgage servicing rights and some other assets. We made a strategic investment in Covius, which is a technology-enabled solutions company for the financial services sector, which we hope to see that grow over time, so very excited about that. And it provides support services to the mortgage industry. Guardian, a property preservation business, was acquired in August of 2019.

During the year, we did 21 securitizations, as we pointed out earlier, for $11.1 billion in total balance. We did 3 capital raises last year, including our first [ in our ] overall fixed-to-floating preferred stock deal. And then we did a follow-on and -- we did one in July and one in August, total capital raised there about $430 million or -- $440 million. The idea there is lower our cost of funds and provide less dilution for our shareholders over time.

Page 6 is really just a breakout of our portfolio. Net equity on the left side, origination and servicing business today is about $510 million of mortgage servicing right business, $3.4 billion. Keep in mind, servicer advances, the equity in that business will continue to decrease as homeowners and the borrowers continue to have less delinquencies and pay down over time. On our residential securities and call rights, we have $2 billion of capital invested. And then on our loan business, at the end of 12/30, it was $1.2 billion. Today, it's about that $700 million or $800 million after all our securitization.

Page 7 is really just our platform. What we tried to highlight here is we are an investment manager. We have not deviated from our initial mission of focusing on mortgage servicing rights, loans, securities, our consumer portfolio and call rights. And then over time, we've added complementary operating companies. The idea around mortgage servicing and origination is to provide us with additional capacity on the servicing side as well as bringing as much of our servicing in-house and reducing our counterparty risk while making money in the origination business.

On Page 8, we talk about book value. I think this is an important slide. Today, our book value is $16.21. What we're trying to show here is, as we've made strategic investments in our operating businesses, looking at those comps to where we think market -- like-market companies are, what we want to do is show where we think our book value essentially could go over time. So today, it's $16.21. If you assume a multiple of 6.5x on some of our mortgage company activities, we believe that your book value is understated and the actual book value could be something between $18 and $20 a share.

Page 9, our focus on driving shareholder value. Dividends since -- dividends in the fourth quarter, again, $0.50. Dividend yield, 12.4%. Since inception, we paid $3.3 billion in total dividends. Returns, 12.1% total economic return in '19, 185% since inception. And overall, we believe we outperformed our peers by 20% in 2019. Our M&A calendar. We began with HLSS; we acquired a large portfolio from Citi; we acquired Shellpoint Partners; and this year, we did Ditech. Everything is strategic, everything is focused around mortgage and continuing to acquire the entire pie. Our ancillary services business, eStreet and Avenue, came with Shellpoint, Covius and Guardian. We made investments in this year.

On Page 10, book value and economic return over time. I'm not going to spend a lot of time on this. I would just have a look at the bottom part of the right side of the page. Book value since 2013, we started at $10. Now it's $16.21, and our book value performance from Q4 to Q -- of 2018 to '19 is essentially unchanged.

Now I'll spend a few minutes talking about the portfolio, and then we'll open it up for questions. Origination and servicing business, keep in mind, which we didn't have -- this was our first full year, again, made $225 million. For the fourth quarter, origination volumes $10.6 billion, that's up 85% quarter-over-quarter or 412% year-over-year. Our servicing book, $219 billion, up 19% quarter-over-quarter or 100% year-over-year.

During the quarter, we settled on $73 billion of MSRs for $668 million of equity from 9 different counterparties. Our mortgage servicing right portfolio totaled $630 billion at the end of 12/31/2019, compared to $593 billion at the end of September. We also issued 2 capital markets notes backed by servicer advances totaling $700 million with the idea of reducing our cost of funds there, which we did by about 70 or 80 basis points.

Non-agency securities. We sold $286 million of securities that were not accretive to our call rights strategy, and we purchased a little under $900 million of securities that were. We executed on our call right strategy, calling 43 deals worth about $1.2 billion in collateral, and we completed 2 securitizations through the exercise of our call rights for $1.3 billion of total collateral.

On our residential loan portfolio, we continue to improve reperforming loans pay performance resulting with our partnerships in our special servicers, including Shellpoint, [ Fay ] and other special servicers. During the quarter, we acquired $2.7 billion of loans, that includes a little under $1 billion of reperforming loans, $500 million of non-QM loans and $1.2 billion through our collapse strategy. And then again, we completed a non-secured -- a non-QM securitization for $300 million and an RPL securitization for $1.7 billion.

Post Q4, we priced a $1.2 billion deal, a reperforming loan securitization. I pointed out our equity in our loan business is now from $1.2 billion to roughly $700 million or $800 million. We completed 2 securitizations for $823 million, one non-QM and one through our call rights. And then we preliminarily agreed to acquire $40 billion of MSRs that we expect to settle in the first quarter.

Page 13, our origination business. I pointed out our origination volumes are up 85% quarter-over-quarter, 400% year-over-year in volumes, 38% in purchase, 62% refinance. Recapture volume is up 67% quarter-over-quarter. We have record lock volume for the fourth quarter of $13.4 billion, and our fourth quarter pretax net income of $86 million is up 138%.

On our servicing business, Page 14, again, $219 billion in total servicing. Third-party business is up 34%, that's in our Shellpoint business quarter-over-quarter, or 57% year-over-year. Delinquency rates remain low, 5% or 60-plus days, and we continue to demonstrate improved efficiency and profitability, lowering our cost to service by 9% quarter-over-quarter and 57% year-over-year. Our fourth quarter segment pretax income of $27 million is up 26% quarter-over-quarter.

In our MSR business, again, $630 billion UPB. We settled on $73 billion in the fourth quarter. We added $62 billion of assets from Ditech during the fourth quarter. We lowered our cost of funds on our financing facilities. And in 2019, we settled on a total of $200 billion of MSRs for $2.2 billion of equity from 16 different counterparties.

Page 16, we like to show on this why we believe our MSR portfolios are a little different than the industry. Take a look at the right side of the page. We believe 21% of our portfolio is refinanceable at the end of Q4, based on where mortgage rates were versus an industry of 41%. Our FICO is a little bit lower. We have a much more seasoned portfolio and our loan balances are smaller. All of this should lead to slower speeds. What we saw at the end of the fourth quarter is that our speeds are about [ 4 to 5 CPRs ] slower than the industry from a recapture perspective that also helps with our slower fleet.

Call rights, page 17. We called 140 deals during 2019 for $4.5 billion. Keep in mind, these are all these legacy deals that were issued in the mid-2000s -- or early 2000s, I should say. As I pointed out on this call and in earlier calls, we continue to work with other market participants to figure out the best way to clean up these legacy deals. And we hope to have a big year and make a lot more progress around our call strategies.

Current call population is about $40 billion to $45 billion based on factors, and we believe we control about $100 billion of collateral, which is very different than anybody else in the marketplace. Non-Agencies, quite frankly, less supply, tighter spreads for us. When I pointed out our ability to generate output for shareholders, we're less likely to add a ton of non-agency securities here because levered returns are something between 5% and 6%. So overall, we'll continue to focus on adding bonds where they're accretive to our call strategy. Year-over-year, our bond -- our market value of our bond book is down about $1 billion.

Page 19, our loan business. I think on the last call, somebody asked why we're acquiring reperforming loans. During the quarter, we acquired $2.7 billion of loans, and that includes I believe something around $1 billion of reperforming loans. The idea there is we're able to improve performance on the reperforming loans, give the borrowers a better experience, keep them in their homes, see better pay histories. And as a result, we're seeing higher pricing in that sector. So that's been a great return for us.

On the loan front, again, very, very competitive. We'll continue to focus on where we think we can create output for shareholders, but continue to focus, more importantly, on our legacy business around the call strategy and having homeowners have a better experience around their pay histories.

Page 20 is just a snapshot. I'm not going to go through this whole thing. It just talks about our strategy on our loans. The right -- the bottom right side of the page, a couple tombstones to the 4 deals that we did in the late 2019 and the deals we did in January 2020.

Securitization. Again, we did $11 billion of different securitizations, 21 different deals that -- those include servicer advances, mortgage servicing right financing, call deals, reperforming loan deals. So overall -- and then we refinanced our SpringCastle deal. A very, very active year in our securitization business. Idea there is, again, improving capital structure, locking in long-term financing and lowering our cost of funds.

Page 22, the last page, and then we'll open up for questions. Our focus. Creating value for shareholders. We want to generate attractive risk-adjusted returns across all interest rate environment. I think we showed that last year. Again, I pointed out 10-year rates started the year at 2.68%, plummeted to 1.35%, 1.40%, ended the year at 1.92%. And we maintained book value while continuing to pay our $2 in dividend and generating very good returns for our shareholders.

Opportunistic investing; growing our recapture origination and servicing business; protecting the value of our assets; and then overall risk management, which I think is very key and important to where we are today in the marketplace as risk-adjusted returns continue to drop.

With that, I'll turn it over to the operator, and we'll open up for questions.

[Operator]

[Operator Instructions] Doug Harter with Crédit Suisse.

[Douglas Harter, analyst]

Mike, can you talk -- Michael, can you talk about kind of where you see relative returns across MSRs, loans, non-agencies and kind of how you're thinking about deploying capital as it comes back to you?

[Michael Nierenberg, executive]

Sure. So on the -- let's go through each sector real quick. On the legacy non-agency securities market, which continues to pay down, we see levered returns there as something around 5% to 6%, depending upon the type of asset class. And that's on the legacy side. In some of the new deals, you may see it a tad higher, but in general, you're talking about, again, 5% to 6%. The loan business on reperforming loans in our call strategies, we believe we continue to see in the double digits around that part of our business. Our results have been very good. I do think there's going to be a scarcity of assets for sale as banks and our friends in D.C. continue to clean up their balance sheets.

So if you look -- like last year, for example, I think supply was down probably something between 30% and 40% from the prior year overall in the reperforming and nonperforming loan business. So that caused prices to go up. On a relative basis, if you look at the mortgage market and compare it to [ IT ] and high-yield, we are -- and I think you've seen some research out there, the mortgage market itself, I think, on a relative value basis is cheap to those sectors. So I think we'll continue to see better performance. There's a lot of capital chasing the same assets. So risk-adjusted returns are going to continue to tighten as long as we have a normalized kind of geopolitical world and economy.

On the MSR front, we've been pretty active. I mean, obviously, we did the Ditech deal. Our MSR team has been active working with different third-party originators to acquire MSRs at what we think levered returns are kind of mid-teens at this point. The discipline around hedging and protecting book value there is something that is extremely important, but overall returns have been terrific in that sector.

So I think as we go forward, our continued growth will be around our MSR business, our loan business, our call business, and growing our operating businesses. All of these continue to be pretty much the same mission that we had since we began the company in 2013. So we really haven't deviated from there. On the opportunistic side, if things come our way, we look at a lot of deals, we look at a lot of different companies. We'll continue to deploy capital as we see fit. But overall, I think we're happy working on our call strategy, investing in MSRs, investing in loans where we think the returns are good, probably less on the bond side, and then see where we go from there.

[Operator]

Bose George with KBW.

[Bose George, analyst]

So let me just ask about the mortgage banking business. Just -- obviously, the results there have been very impressive. Just curious how you're thinking about that business going forward? Do you want to sort of think about replacing a certain percentage of your runoff with origination? Or is it more sort of opportunistic as you look at different ways to grow that?

[Michael Nierenberg, executive]

We'll grow it opportunistically. I think where we are now -- I mean, again, going back when we did the deal in 2018, in July of 2018, I think origination volumes at that point were about $3 billion-ish. Last year, we did $22 billion of origination. This year, we project $50-plus billion. I want to just be clear, this is not about volume, this is about making money for shareholders. So when you look at our results of -- in that segment of $225 million for the year, I personally believe, when you look at some of our peers out there that, I think, do a great job in that business, we've only scratched the surface. I actually -- I'm really excited about it. And I think we can truly grow earnings. I think the big thing to point out there, Doug, as well is -- I'm sorry, Bose, is that one is we have a lot of room to grow in our recapture business. I pointed out that our recapture numbers quarter-over-quarter are up a lot. We have a $630 billion portfolio. So being good at recapture is only going to add earnings for our company. So that's one.

Two, growing our origination volumes from a profitability standpoint, if you look at what Cooper and some of the other folks are doing on the origination side, they do a great job and make a lot of money. We made, I think, $130 odd million in our origination sector, that will grow. So part of our whole thing is it's really core to our business to grow or recapture, replace our MSRs where we see fit as long as we think we can achieve double-digit risk-adjusted returns. And most importantly, when you look at the way that we are trading, grow our book value. We put it in that slide to give everybody an illustration about how we think about book value. But by all means, we're not going to invest capital -- and I think going back to Doug's question, at a 5% levered return just to do that, what we're going to do is be smart about how we invest capital, grow our operating businesses that trade at multiples of where a financial services asset trades. And I think our book value should continue to grow. And that's really our goal.

[Bose George, analyst]

Okay. That makes sense. And then actually, just in terms of the growth there also, is it more sort of organic? Or do you feel like there's some acquisition opportunities that you're -- out there as well?

[Michael Nierenberg, executive]

We always look at -- like I pointed out earlier, we look at everything that comes across the transom for us. Whatever -- any -- all kinds of financial services companies. As we all know, it's very difficult to do deals that are accretive for shareholders. So we typically don't do a lot of deals, but we see a lot. I think right now, we're in a good place to continue with our organic growth and work on our organization.

The Ditech acquisition, away from acquiring pools of assets, has been a really good one. Because when we look at where we are in our footprint, we got to the West Coast. So we have a large presence in Tempe, a real good group of talented folks there that came, for the most part, from the Ditech acquisition. So there's still a lot of work to do on that, and we have a lot of room to get better on origination and recapture and -- as well as on the technology side. And I think if we do that, there's plenty of stuff for us to do at this point.

[Operator]

Matthew Howlett with Nomura.

[Matthew Howlett, analyst]

Mike, just to follow-on, on the 2020 outlook. In terms of prioritizing the operational outlook, anything that stands out? Do you want to kind of integrate, do you want to cut costs? Anything that just stands out from first to second to last?

[Michael Nierenberg, executive]

How about -- Matt, how about A and B? We want to integrate more and we want to cut costs. And we want to grow earnings. So the integration stuff has been really good. I mean, we've worked very closely with the Ditech team from the day we started this and I think the integration at this point, for the most part, is done. We always need to get better, quite frankly. We have facilities in a number of locations. We continue to evaluate that and what is best for our company. And how to continue with -- going back to both questions with organic growth, which we think we can do. Around cost, I think we're going to get saves on the technology side. And I know every financial services company talks about technology initiatives. It's hard. We all know that. The mortgage market itself is still pretty antiquated. There's a couple of folks out there that we think do a pretty good job there, but we got a lot of room to grow around probably those 3 areas.

[Matthew Howlett, analyst]

Got it. Okay. And then just on these -- on the core numbers, strong, up a lot sequentially. You had strong gain on sales, prepayment speeds look like they've come down a little bit. And anything that could swing that? I mean, going forward, it's obviously well above the dividend. Looks like speeds were down in the first quarter. The volumes we know were seasonally going to be low 1Q, but it looks like it'll be over a $2 billion market -- $2 trillion market this year. Just, I guess, how volatile could that core number be going forward based on just the various macro variables?

[Michael Nierenberg, executive]

It could be volatile, but I think a couple of things. Why I think we're different? And this is one of the things I tried to lead with, we're an investment company. So when you think about our portfolio, we have a $45 billion balance sheet, we have a $630 billion MSR portfolio. So if you think about the $630 billion MSR portfolio, let's say rates went up 100 basis points. The value of that MSR portfolio would go up quite a bit, which would help in our core earnings relative to the offset that you'd likely lose on the origination side.

The idea of getting into the origination and servicing business was, one, again, to stabilize our counterparty risk and give us a little bit more scale and capacity. Two is, on the origination side, to work harder on recapture. So even if rates are up, we think our recapture business should continue to do better because we have a lot of room to grow there. But the overall investment portfolio in a higher rate environment should do really, really well. And I think we demonstrated that before we even owned NewRez. So there's a lot of things in our business. When I look at our portfolio, whether it be loans that are going to do better or worse, bonds that will do better or worse, our origination business will do better or worse depending upon where we are in the rate environment, but the bottom line is the sum of all those parts should continue to provide very good returns for shareholders.

[Operator]

Henry Coffey with Wedbush.

[Henry Coffey, analyst]

Congrats on a great quarter, everyone. You talked extensively on the last call about the importance of stabilizing book value and the numbers showed that you did a great job. There was even some concern, like where do you put the dividend as a priority in that discussion, but with GAAP numbers where they are, looks pretty good. Thinking about where the environment is today versus where it was in December, is that -- is it easier to hold books stable today versus December? Are conditions more challenging? What is your thought kind of on the overall tone of the market as it applies to book value?

[Michael Nierenberg, executive]

A couple of things. One is 40 basis point rally in 10-year rate in 30 days or whatever it was as a result of the virus, is not easy to -- for any one of us that has been doing this a long time to hedge. So overall, as you think about that, that creates a little bit of a challenge. Theoretically, it could create a little bit of an opportunity. But as I pointed out in some of my earlier remarks, there's a lot of capital being invested, not only in the mortgage market and fixed income assets. So when you look at the high-yield index which closed with -- I mean, the investment-grade index closed last week at 45 basis points. At the end of December, it was 45 basis points. So you've had a whole round-trip from a spread standpoint, where we were at the end of December to where we are now.

So assets continue to remain well bid. We've been pretty strategic in the month in acquiring some more mortgage servicing rights. But I think overall, we feel pretty good about our discipline around hedging our book. When you look at the balance sheet growth year-over-year, a lot of our agency growth is due to our need to hedge our mortgage servicing right portfolio.

So overall, we feel good about protecting book value where we are now. But it's not -- listen, we have a dedicated risk team. We have a lot of folks that are part of our company today that are just focused 100% on risk. So -- and they do a great job.

[Henry Coffey, analyst]

And then on the tech side, you -- tell us as much as you can or you want in terms of how that plays out as both an investment opportunity and what it's doing for you? And I don't know if you'll comment on this or not, but give us some insight into who you think is really doing a good job in terms of developing products for companies like yourself?

[Michael Nierenberg, executive]

Good question. On the tech side, we have a lot of room to grow on our mortgage company. We have a really good team leading that effort. We will not skimp on budget as it relates to our development there and becoming as efficient as we possibly can. I don't know that there's much more I can say about that. But when I think about some of the folks out there, there's always different names that are thrown out there that are really good or not really good. For us, I can't -- I don't think it's truly my expertise to tell you that somebody is the best technology company in the world, just to be honest. But I will tell you this, from where I think the mortgage market was, is and where it's going to go, it's going to change a lot. So to the extent we have the opportunity to make investments in mortgage technology businesses that are at appropriate valuations, and I use that word carefully because we see -- as I pointed out, we see a lot of deals, we'll make those investments. Some of our peers that have been doing this longer -- I used a couple of names, have done a great job around some of that stuff, I believe. But the industry itself is still probably 20 years behind or 10 years behind from a technology standpoint. So I think there's a lot of room to grow.

[Henry Coffey, analyst]

And just indulge me on this one. GSE reform, big gigantic, maybe never, maybe question mark. What sort of opportunities has that created for you? And what kind of opportunities do you think it will create in the future?

[Michael Nierenberg, executive]

Everybody keeps talking about the patch, and I pointed out in my earlier remarks about Fannie and Freddie, they hired Houlihan to look at, I guess -- or FHFA did, hired Houlihan to work with them on -- I would gather them coming back to the private markets at some point. I do think there's going to be an opportunity. I think it's very hard for any of us to sit here and handicap what that's going to look like. We're in the middle of an election year. Whether they stay as part of the government or not I think depends upon who gets elected. But I do think there's going to be some opportunities for us. Over time, I think it's very hard for any of us to handicap. If the patch goes away, we think that could create roughly an extra $200 billion of origination in the private market. So I think the growth of non-QM, assuming that everybody does it prudently, the patch going away, I think all of that stuff will lead to more capital investment from the private sector.

[Henry Coffey, analyst]

Great. And congrats on a great quarter.

[Michael Nierenberg, executive]

Thanks, Henry.

[Operator]

Trevor Cranston with JMP Securities.

[Trevor Cranston, analyst]

One more question on the operating businesses and then the growth you're hoping to achieve in 2020. When you look at those platforms, can you talk about how much operating leverage you think you have there versus how much spending you might need to do on the expense side in order to achieve your growth targets going forward?

[Michael Nierenberg, executive]

I think from an operating leverage standpoint, we stand in a pretty good place. When we think about spending, I don't see us having to spend a lot. I do think we're going to be able to -- we'll become more efficient. I mean, you're taking a couple of different companies, you're putting it together, you're seeing extreme growth. The one thing that we will 100% be careful of is to make sure, whether it be on the servicing side and/or on the origination side, that we continue to offer the best possible customer service to the mortgage [indiscernible] or homeowners that we continue to touch. I think efficiencies will lead to higher earnings. I do believe -- and this goes back to Henry's question about the environment, if the 10-year treasury and mortgage rates remain in this range, and call it something between 1.5% and 2.5% or 1% and 2%, I do think you're going to continue to have a very robust origination market as the homeowner has plenty of equity in their homes at this point, assuming the economy is fine.

So I don't see a huge capital spend. We'll spend money on technology. We'll make strategic investments around that, if that's going to make our business better. But we don't anticipate a large spend there.

[Trevor Cranston, analyst]

Okay. Great. And then second question, I was just curious. There's a headline a few days ago about JPMorgan considering getting back into FHA lending in a more significant way. Just curious if you had any thoughts around how that might impact the market, if some players who have been avoiding FHA lending start to make a push back into there?

[Michael Nierenberg, executive]

You would think if JP or some of the other large banks really make a big push to get back into that space -- and I don't know what's real or what's not, it will drive -- it will lead to compression on the origination side from a gain standpoint. While saying that, it's a pretty big market. And coming from one of the large money center banks, I think the idea of lending money is very key to a bank, but it's also core to make sure it's their so-called core customers. So when you think about it, it's really more of a retail-type product than it is some of this traffic in other areas of the origination spectrum. So I think it will lead to tighter spreads to the extent that they're back in a big way. But keep in mind, the banks want to focus on their core customers. So I still think there's plenty of opportunity for everybody else.

[Operator]

Tim Hayes with B. Riley.

[Timothy Hayes, analyst]

Mike, my first one, I just wanted to follow-up on Matthew's question earlier around earnings. So we understand that core earnings backed out onetime, Ditech related expenses and fair value adjustments on those assets, and there's going to be some volatility and seasonality that moves earnings around. But all else equal, how do you think about the $0.61 as a run rate going forward, maybe understanding that some of the assets you're putting on today might be at lower yield than what's rolling off? And what you're doing on the expense side to lower funding costs? I'm just trying to check if there's anything else that we should be thinking about, is [ somewhat ] onetime in nature this quarter? Or any other adjustments that should be made?

[Michael Nierenberg, executive]

I don't -- Tim, I don't think so. I think from an earnings perspective, we pay $0.50 in dividends. Where we've focused on not just next quarter but multiple quarters out from a core perspective and how to achieve those targets, I think we've been doing all we can to make sure that we cover our dividend and pay that $0.50 quarter after quarter. And knock wood, we've done a pretty good job there. I do think the growth in our mortgage company stuff will continue to provide excellent support for our core earnings and our run rate. We were looking at some numbers around our earnings, and I will say when -- from a diversification standpoint, whether it be on the mortgage company standpoint or mortgage servicing right portfolio or non-agency and agency businesses and on the loan side, is very, very -- each one of those sectors contributes pretty significantly to our core earnings. So to the extent that one part of our business falls off, whether it be for rate or any other reason, there's another part of our business that will continue to contribute to earnings. I wouldn't -- I'm not going to sit here on the call and tell you we're going to do $0.60 or $0.70 or $0.50 every quarter because, quite frankly, it's very hard. But I do think as we look forward, we feel pretty good about -- at this point anyway, about being able to cover our dividend.

[Timothy Hayes, analyst]

Okay. That's helpful. I appreciate the commentary there. And then Slide 8, the book value, some of the parts slide. I know you've talked about it before, but I appreciate seeing it on paper. The sensitivity is based around expected earnings this year for those companies that you've made strategic investments in. Just wondering what -- if you can disclose what fiscal year, I guess, '19 earnings were for those companies? You're using a range of $250 million to $450 million for this year. What did that look like last year?

[Michael Nierenberg, executive]

These numbers are -- for the most part, everything that we've done, whether it be Covius, whether we've done Guardian, whether it be the NewRez, Ditech acquisition, these numbers are really predicated around the mortgage company stuff, not Covius, which is carried at book. The NewRez stuff is definitely carried at book. Those businesses -- we think that the mortgage company stuff will do -- and I don't want to just give forward guidance, but we think the $250 million-plus number is something that's very achievable after doing $200 million in a quarter last year, just to give you a sense.

So what we try to illustrate here is, if that company does this, based on where we are from an acquisition perspective where we acquired the company and the assets and where we think we're going, we think the implied book value of our company is significantly higher. When we look at the ancillary services business in Covius, and I think the success there will be driven not only by NRZ, quite frankly, by doing -- by taking Covius and working with other third parties on an ancillary services business. So it's not specific to NewRez, the mortgage company. Those type of companies trade at a significant multiple, not at 6 or 7x. If you think about like a black knight or one of those type of companies, they could trade at 15 or 20x. So the idea about building book value around the core assets that we have, working with other industry participants to try to get them involved in that and have ownership there too, quite frankly, I think it can provide a significant lift to our book value. So really, this slide is specific around the mortgage company itself, not necessarily the Covius, Guardian and some of the other things that we're contemplating.

[Timothy Hayes, analyst]

Right. Yes, that's helpful. And then, I guess, another thing that I don't think is baked in here is the call right strategy. Just wondering if you were to add that to this slide, how much more value you think that could bring.

[Michael Nierenberg, executive]

100 billion times a couple of points is $2 billion divided by 400 million shares at $5 a share. But I don't want to -- that's not -- we didn't put that in here. I think it's -- all this stuff moves around a fair amount. It depends on the market, how quickly these loans get cleaned up, how much they amortize and just other [ notes ] around that strategy.

[Timothy Hayes, analyst]

Of course. Yes. No, but it's still helpful to just get some framework there. So I appreciate it. And then, Mike, just my last question, the core earnings contribution from call rights this quarter?

[Nicola Santoro, executive]

It was $0.02 a share. It was $9 million.

[Operator]

Giuliano Bologna with BTIG.

[Giuliano Anderes-Bologna, analyst]

Congratulations on a great quarter. Just digging in a little bit further on the operating company earnings side. Is there a sense of how much of your services you've already transitioned over to a lot of those companies, whether it be Guardian, Covius or Avenue 365? And what the opportunity is to continue expanding that?

[Michael Nierenberg, executive]

So on Avenue 365 and eStreet, it's -- for the most part, that is captive to our own origination business at this point. 100% of it doesn't go there just because you can't. So there's been nothing -- away from that, there's still some portion of our origination services that flow to other third parties there. As we think about Guardian, Guardian is just growing. They have contracts not only with us, quite frankly, they have contracts with HUD and other third parties. There's still a lot of work to do to transfer services from -- into our company. The one thing I want to be clear is we want to work with other third parties as well. So it's not only about the specific companies that we have. But there's still a fair amount of work to do around this stuff.

[Giuliano Anderes-Bologna, analyst]

That sounds good. And it looks like, on the origination side, you guys are looking at $50 billion-plus of volume. Obviously, all of that will be unseasoned and probably marked at a higher number on a dollar basis, but you probably have the ability to replenish divestment -- the majority of your runoff in the book going forward. Is there any thought process around mix? Would you sell any of those originated MSRs? Or would you just allow that to kind of continue to mix in and -- mix into or have more government product?

[Michael Nierenberg, executive]

I think as long as we continue with our thought of providing our shareholders with our dividend; covering our dividend; and from a capital perspective, make sure we're running the company with the right mix of products and an ample amount of capital; I don't anticipate us selling any assets around the MSRs now. One thing we did in Q4 is we did sell some non-agency bonds that were not core to our strategy. But in general, I think we'll continue to see these assets remain on our balance sheet because we need them for earnings.

[Giuliano Anderes-Bologna, analyst]

That sounds good. Then kind of a 2-part question. Obviously, you have a big integration expense this quarter for Ditech. And then going forward, is there any more related to Ditech that should flow through because that -- relieving that has a huge lift, at least from kind of a cash earnings perspective? And then do you expect any costs related with the $40 billion potential acquisition of MSRs in the first quarter?

[Nicola Santoro, executive]

So the -- in the fourth quarter, we incurred approximately $20 million of transition/acquisition expenses. Going forward, from 2020 forward, the expectation is the number will probably be in the $15 million to $20 million range that will span across a couple of years.

[Operator]

Stephen Laws with Raymond James.

[Stephen Laws, analyst]

A follow-up on the macro question. I think you hit on [ GSC QM ] patch, some commentary to earlier question. But earlier this week, saw some news about potentially the FHLB network financing opening back up. I didn't cover you guys in '13 to '15, so I'm not sure if you have a captive insurer in place or would love to see -- to get your thoughts on that opportunity, if it did open back up and whether that's something you guys would pursue?

[Michael Nierenberg, executive]

We did have a captive insurer. We went down the path of becoming part of the system, and then it went away. So at that point, we got rid of our captive insurer just because it's an expense. If it's there, we'll -- by all means, we would like to be part of it because we think it's something that's important from a funding perspective. And I will say, from a funding perspective, we probably do funding transactions with about 40 different counterparties at this point. I don't know that it's going to happen, quite frankly. If you think about what's happening today in our world, the government's talking about taking Fannie and Freddie out of conservatorship and making them private companies. So I would find it hard to believe that, all of a sudden, they're going to be financing all of us. However, if they do, we'd love to be part of it.

[Stephen Laws, analyst]

Great. I appreciate the color there. I wanted to touch base, I guess, on earnings and distribution. So can you provide a mix? And I haven't had a chance this morning to go through all the filings and information there out, but a mix of taxable REIT income versus income from the operating businesses that may be in a taxable REIT subsidiary. So just trying to think about what the mix is of that? And obviously, what flexibility that could give you if you decided it would be more attractive to retain some earnings to enhance book value growth or kind of your thoughts around dividend distribution obligations versus total income?

[Nicola Santoro, executive]

So for 2019, we satisfied our obligation in terms of paying out our taxable earnings. We had approximately 90% of our earnings were paid out with respect to the core earnings that we reported for the year. We expect that mix to remain about the same going into 2020.

[Stephen Laws, analyst]

Great. And then lastly, I appreciate the color and build out on the book value pro forma. How do you think about -- how does that come into play, Michael, when you think about stock repurchases? Are you really looking primarily at GAAP book? Is there some other value, one of these columns, for example, that you think about more relative to repurchasing stock? Maybe some comments on your thoughts around stock buyback and what you look at as book value.

[Michael Nierenberg, executive]

Yes, I think -- good question. If -- and we've been pretty vocal about this. When our stock takes a hit, we typically have conversations with our board and when we're trading well below book value to say, how should we think about this and try to put a stock buyback in place. A lot of times, these -- we'll put a stock buyback in place, and they don't -- the stock will rebound. If the investing environment got to a place where you couldn't deploy capital at what we thought were attractive risk-adjusted returns, by all means, I think we buy back some stock because it would be more accretive for shareholders than investing in assets that -- where we think the risk-adjusted returns don't make sense. So we're always open to that. The flip side of that is, there's always -- we believe there's always things to do. We just got to maintain that proper discipline around it. And I think now that we're in the operating business, if, in fact, you thought yields are going to remain around these kind of levels, the amount of capital that we'll put into our origination and servicing business will likely grow over time because we think the return on equity there and the gains for it and the earnings for the company will far outpace anything we could do if we went out to repurchase our stock.

[Operator]

We have time for one final question. Bose George with KBW.

[Eric Hagen, analyst]

It's Eric on for Bose. Did you guys take a mark on the Ditech MSR after the acquisition closed?

[Nicola Santoro, executive]

The -- we actually took a slight positive mark on the Ditech MSR. It wasn't material. [indiscernible]

[Operator]

I would now like to turn it back over to Michael Nierenberg for closing remarks.

[Michael Nierenberg, executive]

So thanks for everybody's support and all of your questions. If you have any follow-ups, give us a buzz. We look forward to continuing down this mission and path to try to provide good returns for our shareholders.

Have a great day and a great weekend. Thanks.

[Operator]

This concludes the New Residential's Fourth Quarter and Full Year 2019 Earnings Call.

We thank you for your participation. You may now disconnect.