Rithm Capital Corp

NYSE:RITM

Earnings Call Transcript 2022-Q3

[Operator]

Good day, and welcome to the Rithm Capital Third Quarter 2022 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, today’s event is being recorded.

I would now like to turn the conference over to Phil Sivin, Chief Legal Officer. Please go ahead.

[Phil Sivin, Chief Legal Officer]

Thank you, operator, and good morning, everyone. I’d like to thank you all for joining us today for Rithm Capital’s third quarter 2022 earnings call. Joining me today are Michael Nierenberg, Chairman, CEO and President of Rithm; and Nick Santoro, Chief Financial Officer of Rithm.

Throughout the call, we are going to reference the earnings supplement that was posted to the Rithm Capital website, www.rithmcap.com this morning. If you’ve not already done so, I’d encourage you to download the presentation now.

I’d like to point out that certain statements today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. Please review the disclaimers in our press release and earnings supplement regarding forward-looking statements and 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. Reconciliations of these measures to the most directly comparable GAAP measures can be found in our earnings supplement.

And with that, I will turn the call over to Michael.

[Michael Nierenberg, Chief Executive Officer and President]

Thanks, Phil. Good morning, everyone. Thanks for joining us today. As we are all aware, the investing environment remains challenging. Our messaging and approach in prior quarters has been to not fight the Fed. We remain biased to a higher rate environment with wider credit spreads. We will continue with this view until we feel like the Fed signals. They will stop raising rates and/or we see the economic data softening. Our goal is to protect our balance sheet, maintain book value, maintain higher levels of liquidity and reduce expenses in our operating business lines while we drive consistent earnings and dividends for our shareholders.

I’m proud to say today that with all the volatility that we’ve seen in the markets, our team and our company have done that. As we look at our company, we’ve been clear that we’ll be looking to expand our investment strategies into other areas and we’re happy to announce the acquisition of 50% of Senlac Ridge Partners. Senlac is led by David Welsh, who is one of the founders of Normandy Partners, a vertically integrated commercial real estate investment company.

David and his team of 20 investment professionals have a great track record, and we will be focusing on all areas of commercial real estate, including debt, equity as well as transitional lending opportunities. Working together with the Rithm team, we will now have all the expertise and manpower we need to compete against anyone.

We’re also happy to announce the formation of a third-party fund business. This will enable us to raise callable capital in the private markets, investing capital opportunistically, creating value for both our shareholders and the LPs that we manage money for. As we look back at our quarter, our servicing book and our other lending business lines created consistent, sustainable earnings.

Our Originations segment was mixed as we took onetime charges related to severance, rightsizing the organization, leases and some other items. As we look forward, we will continue to focus on efficiency in the mortgage company, marketing to our three million customers through our retail and DTC channels. We must be ready when the time comes that the future rate and spread environment create an opportunity to offer our customers savings and innovative solutions.

Our Genesis business originated $600 million of loans in the quarter, mostly floating rate, high coupon loans. Genesis makes business purpose loans. The portfolio is 90% floating rate and the average coupon is approximately 8.5% heading towards 10%. The loan portfolio today is 99-point something current. Any fixed rate exposure we have in that organization is hedged with interest rate swaps.

As we think about the housing market, with home prices likely to continue a slight decline, we have lowered our LTVs and tightened our underwriting guidelines. On the single-family rental business, Adoor, we stopped acquiring units with the belief that we will be able to deploy capital at higher cap rates as we go forward. There will be an opportunity for us to increase and acquire units as home prices decline and cap rates increase.

There are more conversations that we’re having today with builders and others than we’ve seen in quite some time. In summary, we’re very excited for our future while the environment remains difficult and will continue to be difficult. Our experienced team has the tools and resources to continue driving shareholder value. Our entry into the third-party managed fund business is something that we’re very excited about as we believe we’ll be able to create additional value for our shareholders through fee streams and the partners that we manage capital for.

I’ll now refer to the supplement that we posted online. So I’m going to open on Page 3. And just a couple of highlights here. Book value quarter-over-quarter, essentially unchanged after taking into account the dilution on the warrants that we issued during COVID. Cash and liquidity, $1.8 billion, again, we will maintain higher levels of cash and liquidity as we go forward until the market settled down.

On the operating company and the investment portfolio, we have 615 billion UPB of MSRs, the gross WACC is 3.7%. Most of these folks have seen the low in rates, the weighted average maturity, these about five-year season on average in our portfolio. Our MSR portfolio remains unhedged, and our positive duration assets across the company have been hedged for rate risk. We have $12 billion today of custodial deposits. And as the Fed continues to increase rates in the short end, we will continue to see more interest income as it relates to those deposits.

As we look at our – the credit, the environment or where we are with home prices, again, lowering LTVs at origination to protect from declining home prices and housing uncertainty. From a financing perspective, 100% of our portfolio away from the agency business has non-daily mark-to-market funding or financing.

During the quarter, we priced two securitizations and when you look at the experience that we have on the capital market side, we feel very good at where we are as it relates to our financing and where we’re going to go on a forward basis.

Page 4, financial highlights. GAAP net income of $125 million or $0.26 per diluted share. Again, book value unchanged quarter-over-quarter despite the huge sell-off we’ve seen in rates and the big widening we saw in credit spreads. Earnings available for distribution, $153 million or $0.32 per diluted share. Third quarter common dividend, $0.25 per common share. Cash and liquidity, as I pointed out, $1.8 billion. Total equity in the business, $7 billion.

Page 5, I’m not going to spend time on this. It’s really just a revolution started in 2013 as an owner of MSRs grew into different operating businesses. And as we go forward, you’re going to see a shift as we morph more into what I would call an old asset manager.

Page 6, Rithm 2.0, the very same theme that we want to continue to highlight. Great operating companies on the left side of the page, great investment portfolio and now our entry into third-party managed capital. This is not new to us. During the fortress days, we managed MSR funds and as we think about the volatility in the markets, having callable capital at times that you think you have opportunistic investments is something that’s very important to us as we drive more earnings for our shareholders.

The housing market, Page 7, just a graph or some charts to show about how we think about the housing market, we are bearish, just to be clear, we do think home prices will continue to come down. We do think there’s going to be a floor due to supply and the good underwriting that’s occurred over the course of the past number of years. And then finally, when you look at homeowners today that have locked in at lower mortgage rates, whether that be 2%, 2.5%, there won’t be a need for folks to turn around and sell their homes.

Page 8, how we’re positioned in the current market. Inflation continues to rear its head. So how – what we’re going to do remain defensive, $1.8 billion of cash and liquidity, make sure all of our fixed rate assets are hedged. And then at some point, we’ll pivot when the Fed signals that they’re going to either slowdown their rate increases and/or we think that the mortgage basis will tighten.

And right now, we don’t have that view even though asset prices and yields, we think, are pretty attractive here. As we look at rates, our mortgage servicing right portfolio will continue to benefit from rising rates. During the quarter, we took a modest mark as you think about it in the context of the size of our servicing book of $143 million.

Housing market I just spoke about, the way we’re going to be positioned there. We’re going to look for a good entry point into the single-family rental space at higher cap rates. We expect rental demand to be strong and we think the homeowner today continues to be strong and will remain strong.

As we look at our financing costs and we think about where we are, we are seeing higher financing costs across all asset classes. We’ve de-risked our non-daily mark-to-market as I pointed out before, with 100% of our portfolio non-daily mark-to-market away from the agency business.

And then – and from an investment team, we love our team. A lot of experience. We’ve seen that the highs and lows, the good and the bad, and we feel like we’re positioned and ready to go on any front.

As I look at the different business segments, I’ll rip through these pretty quick. One, I’m on Page 10. When you look at our business, servicing top mortgage servicer, we include 400 billion in-house of MSRs, and we have 91 billion serviced on behalf of other third parties. Clearly, we have some third-party relationships. Those include Cooper, LoanCare and a couple of others.

Mortgage origination platform, you’ve heard Baron talk about all the different channels we have, we’re very, very focused on efficiency in each and every channel as the origination market is challenging and will continue to be challenging. Our big focus is how do we become more efficient while growing our business.

On the MSR front, there’s nothing new there. On real estate securities, as we think about it, we have some very high coupon loans on our balance sheet. Our bond portfolio was modest as we think back to the way that we used to run the business and buying bonds for our call strategy. Right now, our bond business is limited mostly to retained interest that we have from securitizations that we’ve done over the course of the past number of years, and those are all term funded with either our banks or in the capital markets.

Single-family rental business, again, we will grow that business. We currently have about 3,700 homes. Its north of 90% occupied. So it’s up and running, but we are going to be extremely prudent on how we approach that business. We have been prudent and we’re looking for better entry points to deploy capital at higher cap rates.

And then as we think about our business purpose loan business, which is the Genesis business, again, tightening LTVs, tightening credit standards, you’re probably going to see less growth as we go forward until the housing market settles out. All of those loans have what I would call corporate guarantees from the sponsors. So it’s not like we’re making loans to every single mom and pop. Right now, that portfolio, for the most part, is all current. And as I pointed out earlier, coupons are going to migrate towards 10%.

Mortgage company overview, $209.8 million of pre-tax income that includes $131 million in the MSR mark. It also includes some severance, some lease termination fees and some write-offs. That’s the stickiness or I shouldn’t say the stickiness that relates to some of the onetime charges we saw in the origination business.

Servicing $267 million of pre-tax income, the origination business, $57 million of a pre-tax loss. And in that pre-tax loss, there’s probably about $20 million to $25 million of onetime charges. As we go forward, continued focus on efficiency. Here’s an important point to note. When you look at the time that we acquired Caliber, which was in – it closed in August of 2021, we had approximately $2 billion of capital in the origination business.

One of the things we’re proud of is the ability to be portable with our capital today that number is down to $493 million. And I bring that up because if the opportunity is there, we’ll grow it. If the opportunity is not there, we’ll allocate capital to, what we’ll call, other higher-yielding strategies. Just on the Caliber transaction to give everybody a sense closed August of 2021, the return on equity to date, including all the origination gains, losses and MSRs where we booked that is a 29% IRR. Just to give you a metric to point out.

GAAP pre-tax income, when you look to the bottom left part of the page, nine months of 2021, $587 million, with Caliber $1.5 billion through 2022. And I’ve hit a bunch of the metrics on the right side of the page. Clearly, G&A on the bottom right is something that we continue to be focused on.

To give you another sense from a headcount perspective, at the time of the closing of Caliber in 2021, there were 13,500 employees in the system. Today, unfortunately, due to the current market environment, that number is down to about 6,000 people. And as I pointed out earlier, we will be growing certain origination segments, including our retail divisions. We’re going to look for opportunities to acquire platforms that we think could be accretive to our company.

Page 12, our mortgage company activity. Again, there’s no real secret in anything, higher rates, declining origination volumes, servicing portfolio continues to perform extremely well, focused on gain on sale margins. The one thing I would say is if you look at our MSR mark for the quarter ; two, our MSR mark was 4.8% in aggregate. Today, it’s 4.88. So just a nominal increase. And I know when we get into Q&A, we’re going to talk a little bit about that, but I just wanted to point that out.

I’m going to skip the MSR portfolio. And then as we look at values, one of the questions that we always talk about is can MSR values go up and the answer is they can, our approach to this quarter with wider credit spreads seen everywhere in the fixed income markets, including agency mortgages, we made a conscious decision to be prudent about our increase in our MSR multiple to widen our unlevered yields towards 9%.

When we look at our MSR portfolio, again, five-year season 3.7% gross WAC, we will be ready for recapture to the extent that mortgage spreads tighten and/or rates stopped going up, amortization will continue to come down.

Page 15, servicer advances, not a lot to discuss there. The consumer performs extremely well. Advances were down 3% from June. Plenty of financing available, it’s all term. And then finally, I’ll just hit the last two pages, and then we’ll open up for Q&A.

Genesis, I pointed out $600 million of origination in the quarter. That business will likely slowdown as we tighten up credit, 99.9% performing coupons gravitating towards 10%. And then finally, the single-family rental space, which I mentioned before.

With that, we’ll turn it back to the operator for questions. And operator?

[Operator]

Yes, sir. Thank you. We’ll now begin the question-and-answer session. [Operator Instructions] Today’s first question comes from Bose George with KBW. Please go ahead.

[Mike Smyth, KBW]

Hey Mike, this is actually Mike Smyth on for Bose. Maybe just a few quick ones on the origination business. It sounds like you’ve been pretty aggressive rightsizing the business, but just kind of wondering in terms of the overall industry, what inning do you think we’re in, in terms of just the overall head count reduction?

[Michael Nierenberg, Chief Executive Officer and President]

I think for us, we’re probably in the seventh or eighth inning, quite frankly, we’re towards the end. I think we’ve been very aggressive on reducing where we feel it’s appropriate. I will say that as we look at and we think about our business, we have a large servicing portfolio. So as we look forward, at some point, the Fed will stop raising rates, we think that the terminal rate will continue to increase over the near term – but let’s assume that you get into a Q2, the Fed’s pause on raising rates, mortgage spreads start coming in.

We think the origination businesses could be pretty robust, particularly if home prices come off, another 10% or so. So we’re going to be ready. We want to maintain a presence with all of our customers. I think we have 3 million-plus customers that have mortgages with us. And the overall business, you have to look at the origination business as a hedge today to our servicing. We just have to make sure we don’t believe too much as we go forward.

[Mike Smyth, KBW]

No that makes sense. And you kind of mentioned that as the opportunities there, you’ll look to grow the origination business. Kind of wanted to get your thoughts on the overall outlook for consolidation, just given the sell-off in some of the public equities. Do you think that sellers are reluctant to sell or buyers are reluctant to buy or just any kind of color there would be helpful?

[Michael Nierenberg, Chief Executive Officer and President]

So on the mortgage origination side or the mortgage company side, you’re going to see some folks, I think, throw in the towel just because a lot of privately held mortgage companies have had a good run – you will likely see some MSR sales as we go forward. We haven’t seen a ton of those yet. I also think when we look at our retail business, for example, there’s been some what I would call poaching of some of the folks on our side. We made a conscious decision. We’ve spoken to our retail folks.

We’re going to be coming out strong looking for opportunities to grow that organization in a prudent way. And create what we think are going to be real good revenue streams as we go forward. But we haven’t seen a lot of folks throw in the towel. You will see that happen as we go forward. I will say the origination environment is extremely challenging, and the folks that could right size quickly and take expenses out or become more efficient are going to be the winners there. And hopefully, that’s us.

[Mike Smyth, KBW]

Great. And then just one more for me. Have you decided on a technology platform for the servicing portfolio?

[Michael Nierenberg, Chief Executive Officer and President]

Right now, our plan is to bring all of our servicing in-house, our current software-as-a-service director, and that’s the path that we believe we’re going to use.

[Mike Smyth, KBW]

Great. Thanks a lot for taking the questions.

[Michael Nierenberg, Chief Executive Officer and President]

Thank you.

[Operator]

Thank you. And our next question today comes from Eric Hagen of BTIG. Please go ahead.

[Eric Hagen, BTIG]

Hey. Thanks. Good morning. Hope you guys are good. First one is just on the financing for non-agency assets, including the warehousing for loans at Genesis. Can you guys talk through that? Like what’s the balance of funding that you currently have there? And the outlook for financing costs on the non-agency side of the portfolio?

[Michael Nierenberg, Chief Executive Officer and President]

I’ll take the latter part. Financing costs are high everywhere. If you look where SOFR is and you look at margins, typically, whether it’s SOFR plus 250 or something like that. I think that financing costs are going to remain high as we go forward. When you look at the way that we finance the business, we have some assets in the capital markets, and we have other stuff that’s term funded with some of our lenders.

I will say on the capital markets front, when you look at our team, Sanjeev Khanna, for example, who’s been with us for a number of years and have been in the business for a number of years, has done a great job opening up new channels of financing with insurance companies and other, what I would call, regional banks.

So everything we’re trying to do is really term funded non-mark-to-market. Some facilities are a little bit shorter. Others are longer. But I think our general view for – as we go forward is that the cost of funding is going to stay high as a result, that could create some opportunities down the road. But right now, it’s high.

[Eric Hagen, BTIG]

Got you. What is the balance for the non-agency funding that you currently have on the balance sheet?

[Michael Nierenberg, Chief Executive Officer and President]

We have term facilities and all of our retained interest. The loans are financed either with insurance companies and/or banks in term structures. As you look at the so-called Genesis business, it’s probably 75% or 80% term funded with some of our bank partners. So that’s the way we’re set out.

[Eric Hagen, BTIG]

Got it. That’s helpful. So how are we thinking about the super seasoned loans in the MSR portfolio? And maybe just kind of what it says about their credit profile that they weren’t able to refinance over the last couple of years. Like I guess what I’m asking is like, how would you describe the value that shareholders are getting for that seasoned MSR relative to like a newer or cleaner servicing portfolio?

[Michael Nierenberg, Chief Executive Officer and President]

Well, clearly, the cash flow is longer, because they’re out of the money. So if you look – if our portfolio is, call it five to six-year seasoned, the old seasoned – even in that, there are some higher WACC loans that were originated in 2007 or 2008 or something like that. But the lower coupon seasoned MSRs or the – what I would call some of the credit-impaired MSRs that we have on our balance sheet will remain sticky as we go forward. Keep in mind, most of these folks have seen 2% or 2.5% mortgage rates. So if they wanted a refinance then, they would have done that.

So we like the stickiness of it. I did point out that our MSR mark for the quarter is pretty modest because we wanted to widen what I would call yields relative to the way that we look at the broader fixed income markets as we think about the marks. When you look at new production MSRs, here’s in their area. I looked at production this morning from yesterday in our business, I think we produced $200-plus million of loans. Our Ginnie Mae multiple on that had a three handle. So it’s low. And one of the things that we discuss every day are our assumptions around some of the MSR multiples on new production too low.

For example, if we raise our MSR multiples, obviously, we’re going to create more earnings or revenue for the company, number one. But number two, are we going to drive more revenue through the pipe. So that’s more volume through the pipe. So that’s another thing that we continue to weigh and look at it on a daily basis. But everything we do, we try to put in the context of the broader markets as we have a, what I would call is a more macro view on whether it’d be fixed income, corporate credit and these other areas that we could deploy capital, not just in the mortgage market.

[Eric Hagen, BTIG]

Got you. Thank you guys very much.

[Michael Nierenberg, Chief Executive Officer and President]

Thank you.

[Operator]

And our next question today comes from Doug Harter at Credit Suisse. Please go ahead.

[Doug Harter, Credit Suisse]

Thanks. Can you talk a little bit more about your plans for third-party capital? What products, asset classes would you look to target? And kind of what might be the time line for starting to raise some of this third-party capital?

[Michael Nierenberg, Chief Executive Officer and President]

So the time line is now. If you take a step back, we’ve always managed third-party capital, whether in our lives as we go back to our so-called fortress days. As you think about the world today, our equity, our book value is 12% and change. Our stock trades $8 and change today.

So a big discount to book. And one of the things that we take a step back and look at what are the opportunities for us to deploy capital and how do we think about that capital deployment? So we are going to leverage our expertise, I would say, in financial services. If you look at the team, there’s – and I mentioned this earlier in the call, there’s a ton of experience that we have in-house. We just announced the Senlac deal with David Welsh and his team, and we go back a long way with David and quite frankly, his brother Aaron, who we worked together with years ago.

So we’re going to stay true to the asset classes that we know things that we don’t have on our balance sheet. We don’t have a big commercial real estate presence in Rithm on our balance sheet. You could see some co-investment opportunities. But the short answer is, we’re talking to LPs now, as well as other, what I would say, alt asset managers that may want to – that will potentially work together to seed new businesses.

And then as it relates to the volatility going back to book value, we want to have callable capital that we think we could deploy when the world is upside down, which we’re currently in that period when our equity is trading at an extreme discount to book value. And I think that’s really the MO around that plus the fees from the third-party capital are going to flow to Rithm shareholders, so that’s just going to be an added benefit.

[Doug Harter, Credit Suisse]

Great. Thank you.

[Michael Nierenberg, Chief Executive Officer and President]

Thank you.

[Operator]

And our next question today comes from Kevin Barker at Piper Sandler. Please go ahead.

[Kevin Barker, Piper Sandler]

Good morning. Thanks for taking my questions. I just wanted to follow up on – it looks like you repositioned the portfolio a bit, probably mostly in the agency mortgage-backed side. Can you talk about some of the repositioning you did there that caused a large realized loss, but you also had like a very large fair value offset to it. Could you describe some of the movement within that portfolio and gains and losses associated with it?

[Michael Nierenberg, Chief Executive Officer and President]

Sure. So on our agency book, we carry agency mortgages for Fortia compliance to maintain good REIT status. All we did really in the quarter as we went up in coupon. Early on, if you go back to – I guess it’s probably Q1 or something like that, we had 2.5s and we went up to 4s. This quarter, we went up from 4s to 5s and it’s likely, as we go forward, as rates continue to increase, should they continue to increase, will likely go from 5s to 6s or something like that. It’s just more to stay current coupon to make sure you’re not bleeding a lot of negative carry.

[Kevin Barker, Piper Sandler]

Okay. Great. And then you mentioned looking at buying a retail originator earlier in your prepared comments. Could you expand upon that and why you see that as an opportunity? Is this something you’re looking at like publicly or some of the private ones that are out there? I know you made some comments about folks throwing in the tail that had a good run and so forth.

[Michael Nierenberg, Chief Executive Officer and President]

Yes. So here’s what I would say. When we did the Caliber deal, one of the attractive features of the Caliber deal was the retail presence that they have. It’s a hard business to run. I’m not – we’re not going to say that I would say today, we’re not the best at running that clearly. What I would say though, we do think there’s going to be opportunities to bolt-on, could be other retail platforms, could be public, could be private. Most likely it will be private, probably some of the smaller folks.

And as we run it more efficiently, and you look at the gain on sale numbers and the customer retention that we want to achieve through that business as well as you think about the purchase market, and then finally, the Genesis business in the builder space. We think all of those things add up to us trying to grow this business in a prudent way with real good producers.

I mean we – I mentioned earlier, we lost some folks to one or two people. And obviously, with people not originating a lot of loans, you can’t blame people. But as we look going forward, we want to make sure that we maintain a good presence. The Caliber name in the retail space is a very good one, and we want to grow it prudently, while driving more revenue and taking expenses out. But we have a lot of work to do on that front.

[Kevin Barker, Piper Sandler]

So just to clarify, you’re talking about a distributed retail franchise, not a call center-based one?

[Michael Nierenberg, Chief Executive Officer and President]

No, distributed retail, just like we currently run.

[Kevin Barker, Piper Sandler]

Okay. And then just a follow-up on that. Is there any other adjustments that you may be looking to do in the origination channel, just given your focus more on distributed retail? Would you look to maybe streamline operations even further, whether to exit certain channels and so forth?

[Michael Nierenberg, Chief Executive Officer and President]

Yes. On the – we have five channels. I think what you’re going to see is the JV business that we currently have will be merged with the retail business. So that will make that more simplistic. We have wholesale. The wholesale stuff, I think, we made a lot of good headway on the expense side. Overall, it’s really how do you think about becoming more efficient, taking expenses out and then obviously, on the other side, growing revenue.

But I think you’ll see the JV business merge with the retail business. We’ll take expenses out. The title business, the title and appraisal business is going to go to our Guardian subsidiary. They’re going to run that business as a third-party business. Obviously, right now, there’s not a ton of production, but that’s what will happen there. So everything that we do when we look at our operating companies, a lot of them are linked in many different areas of different lines of business, we’re trying to explore efficiencies and how to take costs out.

[Kevin Barker, Piper Sandler]

Thank you, Michael.

[Michael Nierenberg, Chief Executive Officer and President]

Thanks, Kevin.

[Operator]

[Operator Instructions] Our next question comes from Jay McCanless with Wedbush. Please go ahead.

[Jay McCanless, Wedbush]

Thanks for taking my questions. Just wanted to ask on the SFR business. You said you said cap rates up there and slowed down on buying homes. Is it a function just at the higher prices? Or is there a lack of inventory out there to grow the business?

[Michael Nierenberg, Chief Executive Officer and President]

It’s probably a little bit of both. When we started in the SFR business, we’ve been really slow and methodical on how we grow them or how we started acquiring homes. Our average cap rate, I think, is north of 5% on the homes that we acquired. And again, I think this relates back to our capital markets expertise and the seasonality or the seasoned group that we have, we look at how do we fund it? How do we think about cap markets?

If you’re upside down on that and you think home prices are going to go down, why buy a home. So on our own portfolio, our focus is making sure that everything is leased up, your rent rolls continue, homes continue to get leased up. We’ve added some staff around the house, who are doing a great job in the field, making sure that one, the homes are maintained. We do own Guardian, which is a property preservation business.

They’re doing more work around the house now. So you’re going to see more increased revenues stay in-house versus go to third-parties. But we want to see cap rates higher, quite frankly and home price is stable. We do think home prices are going to go down, as I pointed out earlier, there will be a lid on how low they go, but there’s going to be opportunity to deploy capital at higher cap rates at a better entry point.

[Jay McCanless, Wedbush]

Got it. And then on Genesis and just BPL in general. Could you talk – it sounds great that you’re at 99% current. But I guess…

[Michael Nierenberg, Chief Executive Officer and President]

99.9%.

[Jay McCanless, Wedbush]

Sorry, 99.9%. I guess, when do you see the problems that there are going to be some developing? Is it going to be later this year as they try to finish and sell these homes? Or just kind of how are you thinking about the credit quality of that book as we go into the winter and spring?

[Michael Nierenberg, Chief Executive Officer and President]

Again, all of our loans are essentially to what I would – what we would call sponsors and there’s guarantees or corporate guarantees with those individuals and/or organizations. I was out in on the West Coast visiting with Genesis a couple weeks back with our Head of Credit, Paul, and we did a bunch of site tours. Essentially, it comes down to what you think the finished LTV is on these products. And with the low 60s on most of the homes that or to most of these building projects that we’ve lent on, we feel really good about that. I think really what it’s going to come down to for us, if we’re going to grant extensions, it’s going to be with higher rates. So I think you could see on our existing portfolio more net income than where we would’ve been if these loans just rolled off and paid off.

So we like one, we like the weighted finished LTVs on these projects. Two, we think we’re going to see higher rates for us or more net interest income and if we have to grant extensions, there’ll be points and everything like that. So we feel good about where we are. We like our LTVs just on new loans we’re going to be tighter and tighter.

[Jay McCanless, Wedbush]

And then one more, if I could. I thought that was interesting that you were talking about tiny and some of the origination business into what you’re going to do with Genesis. I mean, is that going from construction to perm and then putting the finished mortgage on the house or maybe get a little more depth on that please?

[Michael Nierenberg, Chief Executive Officer and President]

So the – if you think about it, going back to Kevin’s question, we have the distributed retail system. And there’s a lot of folks in that and they do focus on whether it be real estate companies or real estate agents, you think about what Genesis does making loans to more kind of corporate builders in nature. Bringing all those things together and then thinking about the Genesis side of the – I mean, the guardian side of the business, we think all of these things. We have a lot more work to do internally and to be able to extract value and bring these synergies together in all three areas. But if you think about it, if the retail system on the Newrez/Caliber side has this ability to offer product to from the Genesis side or we get leads that way. We think it’s going to be, we need to be better there. And I think it could be accretive from a revenue and an income standpoint.

[Jay McCanless, Wedbush]

Got it. That sounds great. Thanks for the time.

[Michael Nierenberg, Chief Executive Officer and President]

Thank you.

[Operator]

And our next question today comes from Trevor Cranston at JMP Securities. Please go ahead.

[Trevor Cranston, JMP Securities]

Great, thanks. Just one question on the servicing portfolio. Obviously, speeds have come down a lot there. But with so many loans out there, having deeply out of the money, interest rates and housing turnover slowing, I guess how low do you guys see the turnover speeds getting in the MSR portfolio compared to kind of what you would normally expect turnover speeds to be historically?

[Michael Nierenberg, Chief Executive Officer and President]

I think that you’re going to see, I think our portfolio now is somewhere is between seven and eight CPR. Most of that obviously is due to housing turnover of people moving. I think you’ll see it go down to somewhere between four and six CPR in the near term. If you go back to 21, keep in mind, our origination business was we did 180 billion or 185 billion of production, killed it on the origination side, and you saw speeds extremely quick.

I think what you’re going to see now, and what we’re trying to do is moderate the origination business, stay in it, grow it prudently, and make sure that we are ready for recapture when we come out of this rate environment. And it could be, again, I don’t – we don’t see it in the fourth quarter, but as quick as we got here, we think you could see something happening in Q2. And it doesn’t necessarily mean that interest rates need to drop a ton. I think the mortgage basis where we are now is historically wide for many reasons, and that’s liquidity and where the banks are et cetera. But we do think we’re going to moderate here something between four and six CPR on our existing portfolios.

[Trevor Cranston, JMP Securities]

Okay. Got it. And then you mentioned the possibility that we could start seeing some bulk MSRs come up for sale. To the extent that happens, I guess, do you guys have appetite for continuing to add more low [ph] MSR or would you be more interested in adding current coupons to the portfolio?

[Michael Nierenberg, Chief Executive Officer and President]

It’s all about price. It’s all about yield. If you think about our capital and not just being a mortgage company or quite frankly, not just being a REIT. If we think there’s a better opportunity to deploy a $100 million or $500 million at a 20% or 25% return, and the MSR asset is going to yield on a levered basis 12 or something like that, we’ll do the 20% to 25% return. Everything we look at is how do we assess what is a good risk adjusted return for each dollar of capital that we want to invest. So that’s why when we talk about our new third-party business that we’re going to be raising capital for, that’s one.

Number two is how do we think about the announcement with Senlac and David Welsh and his team and what the returns there? So it doesn’t have to be specific that we need to grow MSRs. We have a lot. We have taken, I think, a more cautious approach than others in growing our origination business from an MSR multiple standpoint. And as I mentioned earlier, if we tweak our multiples and change those a little bit, we’re going to make more money as an organization. We just want to assess the risk return and how we think about it.

As it relates to new MSRs, clearly folks are out there, they want to originate new MSRs and get ready for the recapture opportunity, and then new gain on sale when the market rallies or mortgage spreads tighten. We want to be in a position to do both. But we do like the sticky nature of the low coupon MSR that we have in our portfolios. You’ll have less volatility.

The one thing I think that we have shown through, and these are really, really hard markets, is that our book value’s actually gone up. Book value’s gone up. And I think the way that we run our business and being extremely disciplined around hedging and our more macro view of the markets puts us in a – I think a pretty unique place. So it’s all about risk adjusted returns and return on equity for shareholders.

[Trevor Cranston, JMP Securities]

Okay. Makes sense. Thank you.

[Michael Nierenberg, Chief Executive Officer and President]

Thank you.

[Operator]

And ladies and gentlemen, this concludes our question-and-answer session. I’d like to turn the conference back over to Michael Nierenberg for any closing remarks.

[Michael Nierenberg, Chief Executive Officer and President]

I think that’s it for us. We appreciate everybody’s questions and dialing in this morning. Look forward to our continued growth and diversified – the diversification of our company as we go forward. And if you have any follow-up, we’re here. If not everybody stay well and look forward to speaking soon. Thank you.

[Operator]

Thank you, sir. This concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.