Rithm Capital Corp

NYSE:RITM

Earnings Call Transcript 2018-Q3

[Operator]

Good morning. My name is Corina, and I will be your conference operator today. At this time, I would like to welcome everyone to the New Residential Third Quarter Earnings Conference Call. [Operator Instructions]

Mr. Alan Andreini, please go ahead and begin your conference.

[Alan Andreini, executive]

Thank you, operator. I would like to welcome you to New Residential's Third Quarter 2018 Earnings Call. Joining me here today are Michael Nierenberg, our Chief Executive Officer; and Nick Santoro, our Chief Financial Officer. We have posted an investor presentation on our website, which we encourage you to download if you have not already done so.

Certain statements made today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results.

In addition, we will be discussing some non-GAAP financial measures. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the investor presentation. We encourage you to review the disclaimers in our press release and investor presentation and to review the risk factors contained in our annual and quarterly reports filed with the SEC.

Now I would like to turn the call over to Michael.

[Michael Nierenberg, executive]

Thanks, Alan. Good morning, everyone, and thanks for joining our call this morning.

For the quarter, the company had a great quarter, similar to prior quarters where our portfolios performed extremely well, and this is pretty consistent with our market views and our investment thesis. Investment activity for the quarter picked up a bit, with capital deployment focused on more MSR acquisitions and more acquisition of Non-Agency mortgage securities where we own call rights.

We have grown our MSR investments, and the growth in our bond portfolio this quarter around legacy Non-Agency RMBS will help us with our call strategy.

On our call strategy, our execution has been very good. Our current callable population based on factor, meaning the cleanup call, is approximately $46 billion. To the extent that we could reduce delinquencies and advances fall further, we would expect our activity levels to increase and be able to call more of this $46 billion, which is currently callable.

Another possible way to increase activity would be a broader industry solution, which we are currently working on as well. On the investing environment, we remain very cautious. However, we believe the current market volatility we're seeing today should create some opportunities in the near term. We continue to believe rates will hit higher and our portfolio should perform extremely well for our shareholders.

We closed on Shellpoint in early July, and the management team at Shellpoint has been doing a great job. Their third-party visits continues to grow as they onboard more loans from their existing clients. And over the course of the past 6 months, they've added approximately another 10 new clients. The servicing business at Shellpoint has grown from $50 billion at the end of 2017, and we project the -- at the end of 2018 to have a servicing portfolio of $100 billion. Before we move on to the supplement which has been posted online, I'd like to mention that our capital and our access to liquidity puts us in a position to continue with our investment strategy while taking advantage of any opportunities we face.

Now let's flip to the supplement. I'm going to begin on Page 2. This is our page which gives just an overview of New Residential. Focuses -- focusing on the right side of the page. Our MSR portfolio today is $541 billion. Our dividend yield, based on where our stock trades, is approximately 11%. On the year, we've acquired $95 billion of new MSRs. Our call rights continues to be in and around $130 billion.

For the year, our book values increased by 13%. Year-over-year, our total return is up 8%. Now these numbers are as of 9/30. In our MSR business, we continue to issue fixed-rate term notes. So a lot more of our financing around our MSR book is more term in nature rather than short-term financing.

On Page 3, our results. Our GAAP net income for the quarter was $185 million or $0.54 per diluted share, core earnings of $215 million or $0.63 per diluted share. And we continue to pay a dividend of $0.50 per common share.

Page 4. What we try to do here is just simplify our company: $541 billion UPB of MSRs, servicing advances; $130 billion of calls, residential securities and loans. And then we have our opportunistic investment section. And I'll talk through these as we go into our portfolio reviews.

For Q3, when you think about our investment amounts, on mortgage servicing rights, as of the end of 9/30, we have a net equity investment of $2.9 billion. That is lower than 6/30 not because we acquired less but we simply have increased our advance rates a little bit on the asset class.

On our residential securities and call rights, we currently have $2 billion of net equity and securities; on our loan book, $500 million of net equity. Our consumer loan portfolio continues to be stable at about $120 million, and we have cash in our balance sheet as of the end of 3 -- 9/30 of $330 million.

When you look back to the beginning of time, since 2013, when our book value was $10, we closed the quarter at $16.87. And what we wanted to just illustrate here is that we continue to do anything and all we can to continue to generate good returns for our shareholders while maintaining our dividend of $0.50.

The next 2 slides are really just to discuss -- to point out a little bit about interest rates and expectations from whether it be different economists or the Fed. We put in a quote from John Ryding. The general view, and I think we continue to agree with that view unless our president changes this, is that interest rates will continue to climb. The way that our portfolio is just set up with our mortgage servicing rights, high-coupon mortgages on our loan book and our call rights, we think our portfolio should continue to do extremely well in an up rate environment.

Page 8, we just wanted to highlight a couple of things. One is, at current mortgage rates, only 5% of the entire mortgage universe is refinanceable. During October, the 30-year mortgage rate increased to 4.9%. That is the highest level we've seen since 2011.

Our prepayment speeds on our own portfolio continue to decline and we believe will slow further as we go through the rest of the year. What does that mean? Slowdown in CPR is better for our portfolios, better for our mortgage servicing rights and overall, should continue to generate good returns for shareholders.

Page 9. Again, what does all this mean for our company? The economy remains strong. Rates are expected to rise. Housing is fairly stable, although we're starting to see some signs of weakness. And we think increased market volatility will continue to -- should create some good opportunities for investment.

And then what we lay out here on the rest of the page, MSRs. Obviously, rising rates are good for the value of the MSR, will continue to provide more cash flow for our company. Servicer advances will continue to decline. Keep in mind, as servicer advances decline further, our call population becomes more callable. Our Non-Agency securities on our legacy portfolio, 96% of our legacy Non-Agency securities portfolio is floating rate. What that means is higher interest rates will continue to lead to higher net income.

On assets where we have fixed-rate exposure, we put additional hedges on to manage our overall interest rate exposure for the company. And then on our loan book, when we acquire new loans, we try to acquire, again, higher-coupon loans. And then anywhere where we have fixed-rate exposure, we have interest rate hedges to manage our overall exposure.

Now I'll just flip through our portfolio update, and then we'll open up the line for questions. Page 11 is our MSR portfolio. Again, year-to-date, we've acquired $95 billion from 10 different counterparties, including $43 billion in the third quarter. Keep in mind the lag time on this -- or the lead time on this is a little bit longer. So typically, the way it works is we'll get into discussion with the seller today and the likelihood of that closing -- or the timing of that closing would likely be in the first quarter of 2019, for example.

We do believe that we're going to see more MSRs come to market as interest rates continue to rise. Mortgage bankers need to raise capital. So we think the way that we're currently set up, it should be a great opportunity for our company.

On Page 12, I mentioned earlier in my remarks our MSR activity or financing around our MSR business has been very robust through 2018. We've issued $2.1 billion of fixed-rate notes, and we intend to issue some more deals probably through -- either towards the end of this year or early in the first quarter. Our goal ultimately is to have term financing on our entire MSR portfolio.

Page 13 talks about our Non-Agency securities and our call rights. Again, $130 billion of call rights. Our execution around our calls has been very, very good. We expect that to continue. Keep in mind, we have a lot of high-coupon collateral. The other thing is we're starting to see loan prices, particularly on nonperforming loans and reperforming loans, they continue to trade extremely well, with prices in nonperforming loans currently in the low 90s and reperforming loans in the upper 90s.

Now just to frame that for you. If you roll back the clock a few years ago, nonperforming loan pricing was probably in the -- I would guess, somewhere in the low 70s. So you've seen a dramatic increase in loan pricing. Again, this should help our overall call strategy as well.

Page 14, just a little bit of an overview on our call rights. $130 billion of call rights today. $46 billion, if delinquencies were low and advances were lower, could be called today. Delinquencies have declined over the past 2 years from 20% to 16%. And during the quarter, we issued a $658 million Non-Agency loan securitization. And subsequent to quarter end, we did our first non-QM securitization of $300 million with collateral originated by Shellpoint.

Page 15. $1.7 billion of net equity in our legacy bond portfolio is up by -- up from $1.4 billion in the prior year. We continue to acquire legacy Non-Agency securities that will help with our call business. And during the quarter, we also acquired some AAA senior fixed-rate securities, and we put the appropriate interest rate hedges on to protect that as we believe rates are going to increase.

Servicer advances, a smaller and smaller part of our business. I'd like to go back to when we first got into servicing advance business. We had approximately $8 billion of servicer advances that we financed. Today, that number is down to $3.7 billion.

What does that mean? It's really a cleanup of the legacy portfolios, one. Two, the homeowner is healthier, two. And we expect those percentages to continue to decline. The $3.7 billion is financed with $3.2 billion of debt. And all of that debt is currently fixed rate at this point with a 3.2% interest rate and an 87% LTV.

On our loan portfolio, currently, $2.8 billion is $500 million of equity. Just to break that out. If you look to the bottom part of the page, we have an NPL book of $699 million. Most of our loans are acquired through our call strategy. Based on where loan prices are currently in the marketplace, we're very rarely acquiring loans off the auctions. What I would say also is I think we've seen approximately $60 billion of loans come to market this year. And we expect the calendar for the rest of the fourth quarter to be fairly robust.

On our consumer loan portfolio, on the SpringCastle investment, we just like to point out the returns on this, almost 90% IRR. I'd say that's pretty much every call. We'd love to do more of these. We can't really find them. To the extent that we can, obviously, we'll try to do that.

Page 19 is just our Prosper investment, just to get you up to speed on that. We agreed, along with the consortium of Soros, Third Point and Jefferies to acquire, up to $5 billion of consumer loans in exchange for warrants and 35% of the company. The warrants should fully fund in February of 2019. To date, we've acquired $3.25 billion of loans. And what we do is we then issue securitizations along with our partners. Returns have been something in the 15% to 20% range. So overall, returns have been very good.

Just to wrap up and before we turn it over to questions, overall, I think the way that we're positioned is extremely well. We love our MSR assets. MSR is one of the few fixed-income assets that will continue to rise in value as rates go up. We have key hedges in place to protect us on our fixed-rate exposure or some of our funding exposure.

With a $26 trillion housing market, we believe, with increased market volatility, we'll see more and more opportunities come our way. We continue to work on additional MSR purchases. And overall, liquidity and capital, we're in a very good place.

So with that, I'll turn it back to the operator, and then we could take some questions.

[Operator]

[Operator Instructions] Your first question is from the line of Bose George with KBW.

[Bose George, analyst]

So the first question, just in terms of where we are in the market in terms of prepayability and loans that are in the money, as rates trend up further, how much room do you think is there for improved valuations on the MSR?

[Michael Nierenberg, executive]

Good question. Our overall mark on our portfolios is a little bit south of a 4 multiple or 3.8 multiple. I think that you could see 6 and 7 turns -- or 6 and 7 multiples on the asset. And what that means effectively, just to break it down, if you have a mortgage servicing strip that's 25 basis points, it'll trade at some multiple of that 25 basis points. So when I quote, just to keep the math simple for us, 25 basis points at a 4 multiple is equal to 1 point. If you thought about that 25 basis points at a 6 multiple, that would be 1.5 points. You are seeing some prints up in -- towards those numbers. Quite frankly, we have taken a step back a little bit from some of those high prints just to see where the market goes. But you could see these go in with a 6 handle. The one thing that we are extremely conscious of, to the extent that we believe the Fed is done or rates are going to rise, we have -- we haven't put them in place yet, but we have a strategy that we will hedge out our newer production MSRs. That's why we protect the market value of the company.

[Bose George, analyst]

Okay, great. And then actually, just switching over to mortgage origination. Do you guys have an appetite for acquiring more origination capacity?

[Michael Nierenberg, executive]

No. I think any strategy around acquiring more mortgage origination, which could happen, by the way, is really -- would really be geared towards the growth of our MSR book. Mortgage origination is a very difficult business. The folks at Shellpoint, they do a very good job. They're not huge. They'll do, give or take, about $7 billion this year, so that creates $7 billion of new MSRs for our portfolio. But in general, hard business. Any mortgage origination acquisitions will be geared around either MSRs associated with that or the production of new MSRs.

[Bose George, analyst]

Okay. And then, actually, just last one on the Altisource contract. Can you remind me, has that been finalized? And is there any change or benefit that comes from that?

[Michael Nierenberg, executive]

It hasn't been finalized. We have been extending it as we continue in discussion with Bill Shepro and his group, and we hope to have that wrapped up by year-end.

[Bose George, analyst]

Okay. And is there some benefit we should look forward to, as -- once that's finalized, for the P&L?

[Michael Nierenberg, executive]

It's hard to tell at this point.

[Operator]

Your next question is from the line of Doug Harter with Crédit Suisse.

[Douglas Harter, analyst]

I'm just wondering if you can talk about the -- sizing the opportunities you see in the MSRs as there is some potential challenges for the mortgage banking community and then how you see kind of larger MSR opportunities sort of in the context of what you were saying about the valuations.

[Michael Nierenberg, executive]

I think that the mortgage banking industry is going to continue to be challenged, with a lot of these smaller mortgage banks having to do something around either capital, partnership or just figuring out a different path. The one slide that we point out that I like that we put in, 5% of the entire mortgage universe is refinanceable today based on a 490 current coupon rate. So if you think about that, where's production going to come from? How does -- how do folks stay in business? How do folks manage their expenses? It's a very, very hard business. When it's good, it's very good. When it's hard, it's very, very hard. So I would expect more opportunities to come our way. We're well capitalized, whether it be through the origination side, as Bose pointed out, or just outright purchases of MSRs. The other point is MSRs can't go up forever. So if rates -- as rates continue to rise, they'll go up. But at some point, they'll stop going up.

[Douglas Harter, analyst]

Got it. And then on the non-QM securitization, can you talk about kind of what your return on equity looks like there and kind of what's the magnitude of originations and kind of how often we should -- we could expect to see securitization or financing out of you?

[Michael Nierenberg, executive]

So the deal we just did was a good deal. What I would say around the non-QM business, we'd like to get to a place where we're issuing a deal a quarter. We're in discussions with a number of other mortgage bankers about providing pricing to them to acquire loans to be able to issue more volume. We -- our business, not just the NRZ business, the mortgage business has been talking about non-QM for 4 years or so. We are starting to see a little bit more production, and we're seeing plenty more issuance in the overall mortgage market. But quite frankly, Doug, it remains to be seen how much we're going to see out of this business. And the other -- and the key thing is performance. We believe speeds are going to be quicker on this product and performance should be good, but it's something that we all have to keep our eyes on down the road.

[Operator]

Your next question is from Stephen Laws with Raymond James.

[Stephen Laws, analyst]

It looks like -- could you talk a little bit about the cleanup call strategy? A little bit less active on executing cleanup calls this quarter versus last, but a very sizable amount of that portfolio is callable, as you touched on in your prepared remarks. Can you maybe talk a little bit behind -- about the decision behind when to call those and when to execute that strategy and how we should think about that business as we move forward?

[Michael Nierenberg, executive]

Sure. So on the cleanup calls, we have been averaging, from a P&L perspective, anywhere from, I'll call it, something about 1 to 2 points, is kind of the math on this. The time to call it, whenever we think we could make money and create value for shareholders, we're going to do it, obviously. On the $46 billion that I pointed out, the reason I point -- I brought that up, it's such a sizable population. The legacy mortgage market is kind of stuck around delinquencies and advances. If you take a step back, if advances went away or they got reduced and delinquencies got reduced, the whole system would be healthier. Bondholders -- senior bondholders would make more money because we'd call more deals. The servicers would be in a much better place because their capital outlay for advances and servicing delinquent loans would put them in a better place. And then overall, for our company, it would be good. So our push is to really try to figure out -- to crack the code, work with bondholders, work with trustees, work with the rating agencies, work with legal folks to figure out a way to accelerate that. But that $46 billion is there. We'll call a bunch of that as delinquencies and advances come down. A portion of that, we'll call this quarter, quite frankly. And then the go forward and one of our goals would be to really clean up that market. You can only imagine, if you took $130 billion of collateral, called all that collateral, issued new deals, you'd have -- the bondholders -- have plenty of supply. Everybody is really a net winner in that scenario. So that's what we're focused on.

[Stephen Laws, analyst]

And then on the flip side of that, it looks like you acquired $900 million of face value legacy Non-Agency RMBS, an increase sequentially. Can you talk about the opportunities there and what you're seeing to continue to grow that investment portfolio?

[Michael Nierenberg, executive]

Sure. So I've been pretty vocal the past couple of quarters that the investing environment is not great. However, to the extent that we see opportunities to acquire these assets where we have a strategic purpose and that strategic purpose is related to our call strategy, we'll do so. So for example, the 7 -- the $900 million, our weighted average dollar price for the quarter was $0.88 on those securities in the quarter. So when you think about it, our weighted average price, I think, on our legacy Non-Agency floating-rate portfolio is, give or take, something around $0.80, which is accretive, obviously, for our call strategy. But overall, I don't see prices softening yet there. To the extent market volatility creates a softening in pricing, that would be great for us. So investment opportunities, they're there. We're starting to see them rear their head a little bit, but they're still not great at this point.

[Stephen Laws, analyst]

Great. And then can you update us on the opportunity with Ginnie, what you're seeing there? And if we're looking at -- if the market does head into a recession, is that a good place to continue putting capital? What other places might you look to deploy capital if we do see the economy turn?

[Michael Nierenberg, executive]

As it relates to Ginnie, Shellpoint is the licensed acquirer of Ginnie Mae MSRs. Quite frankly, we're not -- there's a pretty robust pipeline, I would say. I think the dollar prices where the Ginnie MSRs are today, that is not as attractive to us, let's say, as a conventional MSR because you are taking on more risk related to either on the servicing side or the overall asset class. So I think we're going to see plenty of MSRs. We are seeing plenty of MSRs. We'd like to see pricing get a little cheaper. We'll deploy capital. If we think the return targets on the Ginnie Mae side work for Shellpoint, well, we'll work with them and deploy capital there. But I think right now, they're probably not cheap enough overall.

[Stephen Laws, analyst]

Okay, great. And then one final question just on the G&A expense line. What shall we think about as a normalized number for that going forward? Are there any onetime expenses that impacted that line in the third quarter?

[Nicola Santoro, executive]

No, there were no onetime expenses in the quarter. What you're seeing is the increase is primarily driven by the Shellpoint acquisition.

[Operator]

Your next question is from Kevin Barker with Piper Jaffray.

[Kevin Barker, analyst]

In regards to Shellpoint, could you lay out how many originations you did this quarter on a UPB and then what the gain-on-sale margin was?

[Michael Nierenberg, executive]

Shellpoint's overall origination volume for the year is going to be something around $7 billion. So if we divide that up in quarters, quite frankly, it's not that much. The gain on sale is -- has been coming more so from the non-QM product than it -- and some of the Non-Agency products than it has been from the agency side. So I would say, overall, gain on sale on the agency side is very, very low, quite frankly. And on the -- kind of the -- I'm not going to call them specialty products, but non-QM and kind of prime jumbos, that's where we're seeing the gain. But overall, it's not huge. It's not a meaningful thing.

[Kevin Barker, analyst]

Okay. Is the -- on the $7 billion on a year, assuming seasonality, the third quarter was higher than what you're going to see in the first and fourth quarter, obviously. How much did you do in the -- how much would the third quarter represent as a percentage of the total for the year?

[Michael Nierenberg, executive]

I'd have to get back to you. My guess is it'll probably be around something like 30%. But let me get back to you with an actual number.

[Kevin Barker, analyst]

Okay. And then how much of servicing revenue was coming directly out of Shellpoint? So when -- you had the increase in servicing revenue and the increase in gain on sale. So how much of that was directly allocated to Shellpoint?

[Nicola Santoro, executive]

In terms of servicing revenue, it was approximately $40 million coming out of Shellpoint.

[Kevin Barker, analyst]

Okay. And so when you think about the P&L from Shellpoint, given the increase in G&A expense, what was the actual net income contribution from Shellpoint this quarter? Given there is a lot of pressure on gain on sale across the industry, obviously, we're near trough margins. But just can you give us an idea of what the P&L is at Shellpoint?

[Michael Nierenberg, executive]

Yes. It's about $12 million for the quarter. But Kevin, most of it's coming from the servicing side. There's a little bit coming from the origination side. We'd expect, as we look -- as we do more non-QM and more jumbo, the origination P&L should grow. But keep in mind, we only -- we actually closed on the acquisition, I think, July 3 or early July. So going forward, it would be a more telling story as we -- as the company gets fully integrated and we work together on different strategies in a way to grow the business.

[Kevin Barker, analyst]

Would you expect that to be near current levels into the fourth and first quarter just because of the seasonality effect within the mortgage origination market and then potentially increase significantly from there into 2000 -- middle of 2019?

[Michael Nierenberg, executive]

Yes. Here's a way to think about Shellpoint. I think the origination business at $6 billion or $7 billion or even $8 billion of origination is not going to be that meaningful, quite frankly, from an overall P&L perspective. I think our numbers budgeted for '19 are -- could be -- I think it's something around a $20-ish million P&L around the origination business depending upon what volumes are. The real business that Bruce and his team have done a great job is building the third-party servicing business for others, and they're going to continue down the path with that. I think I pointed out earlier the servicing business has grown from $50 billion. At year-end, we project that to be $100 billion. It's not only -- and by the way, it's third-party clients. And we, in the NRZ side, are a third-party client as well. We get the same pricing as does anybody, quite frankly. What you're going to see is, hopefully, a growth in that business. And Bruce and Jack and Kevin and their team will continue to grow that, put more third-party clients in the business, and that's what we're going to see growth, revenue growth. The other part of that is they do have an ancillary business where they have title and appraisal and other services, and we do think there's opportunities for that to grow as well. So while we're new into the relationship, and Bruce and I know each other for 100 years, going forward, we expect there'll be some changes at the company where we think the revenue model and, from a growth perspective, they should be able to do more. And then, I think, down the road, we'll be able to give you more clarity into what that will be. But overall, we're thrilled with the investment. It's a profitable company, and we expect it to truly grow.

[Kevin Barker, analyst]

Okay. And then when you think about Shellpoint, right, obviously, part of utilizing that platform is refinancing your existing servicing portfolio. So how much of your existing servicing portfolio that you own or the UPB can you refinance using Shellpoint as the originator?

[Michael Nierenberg, executive]

We have agreements with some of our other third-party servicers who will and are working with Shellpoint or the origination arm, which is called New Penn Financial. Currently, we don't have -- there's a bunch of newer production MSRs on there. The other thing I want to highlight is, recapture today, with a 490 mortgage rate or wherever we are this morning, is going to become less meaningful as we go forward, to the extent the rates rise. So the origination business, I think, will be challenged in and around it. I think the opportunities for us on the origination side could be on some of the legacy portfolios that are serviced at some of our other servicing partners. But that is a little bit of a lift right now as MSRs get transferred into our name, and we continue to work on doing that with the trustees and the rating agencies.

[Kevin Barker, analyst]

So out of the portfolios that you have, right, the largest ones, including Ocwen, Citi, Nationstar, which is more of excess servicing, but when you look at the largest portfolios, which ones can you refi that are not under the Shellpoint umbrella right now? Are there any? Or are they all surely Shellpoint?

[Michael Nierenberg, executive]

No, I think -- I mean, use Ocwen for example. Ocwen services, give or take, a little under $100 billion of loans for us, and PHH has a portion as well. Under that, we -- Ocwen and PHH and New Penn or Shellpoint are working together on a refinancing strategy. That is ongoing today. Have we seen a lot of fruit from that? The answer is no because, again, we just closed on Shellpoint in early July and Ocwen obviously just closed on PHH and there's some integration stuff that collectively all of us need to do around that. Around the other stuff, quite frankly, Shellpoint does a good job on recapture to the extent it's there. Mr. Cooper does a good job around recapture to the extent that rates provide for it. And the Ditech folks have done a decent job around recapture. So we'll try to maximize our recapture, assuming that rates cooperate in a way that we think is fruitful.

[Operator]

Your next question is from Tim Hayes with B. Riley FBR, .

[Timothy Hayes, analyst]

A quick follow-up on the call right strategies. What was the earnings contribution this quarter?

[Nicola Santoro, executive]

It was $0.02 for the quarter.

[Timothy Hayes, analyst]

$0.02, okay. And your outlook for DQs and the pace of call rights seems pretty optimistic, but you also mentioned you're seeing some signs of weakness in resi credit. Can you just touch on those signs and if that dampens your outlook for this business at all?

[Michael Nierenberg, executive]

Yes. I think on the resi credit side, we're really not seeing signs of weakness. I brought up -- the housing market seems like it's slowing down, obviously, as a result of higher rates. Some of the recent housing prints have not been great. I think credit overall, if you believe you have a healthy economy and a healthy consumer credit, should be fine as we go forward. The real thing for us on call rights, we'll continue to execute like we have been, I believe, on our call strategy. I think the big lift for our company and for our shareholders is us working with the industry to try to figure out a way to clean up the legacy mortgage market. If we can do that, it's a home run for everybody.

[Timothy Hayes, analyst]

Got it, okay. And then I know you briefly touched on M&A earlier, but what would you say your appetite to execute on M&A is at this point? And just given the challenges you highlighted in the mortgage banking business, are you seeing more opportunities from those needing greater scale than maybe 2 or 3 years ago?

[Michael Nierenberg, executive]

I think the answer is yes and yes. Our appetite for acquisition, assuming that it's accretive for shareholders, is always there. And we're seeing a lot more opportunity today or a lot more incoming, I would say, today around the mortgage banking folks as it's just a very challenging time, quite frankly, for mortgage bankers.

[Timothy Hayes, analyst]

Got it, okay. And with that said, would you say you feel comfortable with your ability to sustain core earnings power with the in-place portfolio?

[Michael Nierenberg, executive]

As much as we possibly can, we're going to do the best we can to continue to do so. So it's hard to give forward-looking statements, but in general, we love the way that we're set up. We love our portfolios. We think that they're very, very difficult to replicate. And for us, it's stay the course and continue to add where we can to continue to drive home core earnings and pay our $0.50.

[Operator]

[Operator Instructions] Your next question is from Trevor Cranston with JMP Securities.

[Trevor Cranston, analyst]

A follow-up on the non-QM business. Most of my questions on that have been discussed already, but can you give a little bit more detail around exactly what types of loans you guys are focused on within the non-QM space? And then as a secondary question, maybe if you can discuss if there's any other loan products that you guys find as an interesting opportunity such as like a fix to flip or single-family rental?

[Michael Nierenberg, executive]

I would -- first of all, on the -- being someone that's been through kind of the best of times in the mortgage world and been through the worst of times in the mortgage world, on the origination side, we are extremely careful on the product that we roll out. So when we think about who's the non-QM borrower, a lot of times, it could be the self-employed borrower with a 700-plus FICO. And I'd have to get back to you on all the specific details around what bank statements or verification of deposits, et cetera, that we're asking for. But in general, that's going to be the type of borrower that we see. On the fix and flip, REO to rental and other types of products, we look at them all. And I'll just break it down for a second. Fix and flip to me is actually pretty interesting. If you can make loans at a 50% LTV with reasonable coupons, I'd like that business. We're not there yet, to be honest. And I'd like to see us get there. Going back to some of Kevin's questions, we just closed on the acquisition in July. And I think working with Bruce and his team, I think, we'll explore some of those opportunities. On the REO to rental business, we're late, quite frankly. We are -- if you think housing is rolling over a little bit here or just slowing down, let's say. We've seen different portfolios, but we just haven't gone there, and I'm not sure we will at this point in the cycle. We have a small amount of REO that we create from our own call business. If you take a step back, each pool of loans that we call -- if we called 10 deals in last quarter for $250-odd million, you're going to pick up -- Xpercent of that $250 million is going to be in REO. We could play around with the REO to rental stuff, but I don't -- I just think we're late. This is not that interesting right now unless something cracks and we think the returns could be far better than what we truly believe they are.

[Operator]

There are no further questions at this time. I'll turn the call back to the presenters.

[Michael Nierenberg, executive]

Well, thanks for joining us this morning. A lot of good questions. Look forward to -- again, just to summarize, I think we're in a great position. Our capital base is very good. Earnings power of our existing portfolio continues to be very strong. Our interest rate views, I think, are consistent with the way that we're positioned.

And we look forward to updating you on the next earning call and continue to put out, hopefully, good numbers for our shareholders. So thanks for dialing in. Have a great day.

[Operator]

This concludes today's call. You may now disconnect.