Rithm Capital Corp

NYSE:RITM

Earnings Call Transcript 2021-Q4

[Operator]

Good day, and welcome to the New Residential Fourth Quarter and Full Year 2021 Earnings Call. [Operator Instructions]

Please note, this event is being recorded.

I would now like to turn the conference over to [ Bohe Yu ]. Please go ahead.

[Unknown Executive]

Thank you, Jason, and good morning, everyone. I would like to thank you for joining us today for New Residential's Fourth Quarter 2021 Earnings Call. Joining me today are Michael Nierenberg, Chairman, CEO and President of New Residential; and Nicola Santoro, Chief Financial Officer of New Residential. Also with us today are Baron Silverstein, President and Jordan Licht, Chief Operating Officer of Newrez and Caliber. Throughout the call, we are going to reference the earnings supplement posted to the New Residential website this morning. If you have not already done so, I'd encourage you to download the presentation now.

I would 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. I encourage you to 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 will 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, executive]

Thanks, [ Bohe ]. Good morning, everyone, and thanks for dialing in. 2021 was a very good year for our shareholders and our company as we continued our strategy of building and acquiring world-class operating companies with the ability to manufacture assets for our own balance sheet as well as an investment portfolio that's very hard to replicate. The positioning of our company today as well as the investment experience of our team, should enable us to drive strong returns for shareholders as we go forward.

With interest rates rising, our MSR portfolios will see much slower amortization, keeping our customers through our retention efforts should drive book value higher and offset any decrease in origination earnings. We have one of the largest MSR portfolios today and MSRs do rise in value as interest rates increase. Today, -- only 16% of our borrowers have the incentive to refinance as compared to 2020 when that number was a little bit south of 50% and in the upper 40s. To put this into context, the 10-year treasury, which has risen approximately 45 basis points since year-end, coupled with rising mortgage rates, helped increase our book value where we stand today to between $11.75 and $12 per share.

Our mortgage company Newrez had a very good year, and the addition of Caliber, which closed in August has created one of the best nonbank mortgage companies anywhere. Our goal is to be the best, not the biggest. We will continue to focus on efforts working with our government partners on affordable housing initiatives as well as taking care of our 3.2 million customers offering better solutions for homeownership.

The past 2 years in the mortgage origination business have been very good. They will not be repeated. Gain on sale margins will come under pressure as rates rise. Many customers who wanted to refinance have done so in lower rate environments. As it relates to our origination business, we have many origination channels and different levers we can pull, which will enable us to adapt quickly to whatever the gain on sale climate looks like. A great example of this is our growth in the non-QM channel. Our year-over-year production numbers are up over 100% and in the fourth quarter, we originated $700 million. We expect that number to something close to $1 billion in the first quarter of 2022.

As you think about market share and gain on sale, we will not get into a price war with anyone. We are not about market share. We will focus on areas where we can make money, improve our retention rates on our existing portfolios. I would also like to acknowledge a strong retail purchase franchise we have as a result of the Caliber acquisition. As we go forward, the purchase market will be a much larger percentage of the origination market and we are well-positioned for what's going to come ahead. The integration of the 2 organizations, and Jordan will speak to this shortly, has been coming along extremely well. Our new hire of [indiscernible] as Chief Digital Officer, coupled with our existing leadership team, will help us continue down the path of providing our customers with a great digital experience. We are starting to see the synergies as a result of the combination of the 2 companies with significant expense saves. Again, Jordan will speak to that shortly.

In the fourth quarter, we closed on the acquisition of Genesis Capital, and we're very excited to work with Robert Wasmund and his team to help grow that business. Just to refresh your memory, that's a fix-and-flip lender. When we acquired the company, we acquired $1.4 billion of approximately 8% coupon short duration assets for our balance sheet. On the investment portfolio side, we'll stay the course, focus on MSRs, call rights, growing our SFR business and looking at other asset classes in the financial services space, as higher yields in the bond market, coupled with additional volatility should create better investment opportunities for us.

I'll now refer to the supplement, which has been posted online. I'm going to begin on Page 3. This is the New Residential corporate overview. Just rolling back in time, since inception, we paid $3.9 billion in dividends. Our book equity is $6.6 billion in net equity, market cap roughly $5 billion. We have a balance sheet of approximately $40 billion in assets. We're the largest non-bank owner of MSRs, top 5 non-bank mortgage originator and servicer. And then if you think about our business over the past 3 years, we've acquired a number of what I would call complementary businesses to the mortgage space that includes title, appraisal, field services and other businesses, which helped drive our earnings higher.

Page 4 financial highlights for the fourth quarter. GAAP net income, $160 million or $0.33 per diluted share, core earnings, $191.9 million or $0.40 per diluted share; common stock dividend, $0.25 or 9.3% dividend yield. Cash and liquidity at the end of the year was $1.4 billion. Today, it sits at about $1.3 billion, just to give you a placeholder. Book value, $11.44 at the end of December, that was up from $11.35. I quoted in my opening remarks, remarks book value of approximately $11.75 to $12. And then again, in the fourth quarter, we closed the acquisition of Genesis Capital.

2021 highlights. The acquisition of Caliber was a game changer for our mortgage business. That deal closed in August of 2021. I pointed out Genesis. During the year, we did a little under $4 billion in securitization. Shareholder returned 17%, full year core earnings, $1.48, did a little bit around the capital formation side with a common stock offering as well as a preferred stock offering -- and then on our mortgage company, when you think about the origination and servicing business, we originated $178 billion in loans, and we have a servicing portfolio between NRZ and the mortgage company of $630 billion, which includes loan service, both at our own mortgage company as well as Mr. Cooper, LoanCare and Ocwen.

Page 6, our strategic evolution. This company was formed in 2013 to really be an MSR asset owner. We got good REIT status, we were the first one to make that happen with the IRS. Over time, we grew. We grew into what I would say, from a small asset manager focused on MSRs and advances to where we are today, which is a great investment portfolio with really good complementary operating companies. We're really proud of the growth and where we sit today.

Page 7 business highlights, again, $630 billion MSR portfolio. As I pointed out earlier, MSRs go up in value as interest rates rise. With the 1.94% 10-year note this morning, 1.95% 10-year note this morning, we should see further gains in market value on our MSR portfolio. Dividend $0.25, closed the acquisition of Genesis. Another thing to point out, 99% of our portfolio away from the agency business is non-daily mark-to-market. Cash and liquidity, $1.3 billion today or $1.4 billion at the end of the year, and our call rights business remains strong.

Page 8, just to have a quick look at the left side of the page, this really just talks about our business. We have a mortgage company that we originate and service. We have Genesis Capital, which is a large provider of loans to the real estate industry around both building and fix and flip lending, our MSR portfolio, Non-Agency loans and securities. Today, our Non-Agency security portfolio is virtually 0 other than risk retention, and then we have a bunch of loans as it relates to our origination activities.

Market conditions today, our belief is that the Fed is going to go somewhere between 5x and 7x in 2022. We expect the 10-year note to continue to rise as the easing of financial conditions goes away, including the buying of mortgages and treasuries.

On the origination front, I can't be more clear. I don't care if we originate one loan or if we originate 100 loans. Our goal is to service our customers, make money. And if origination volumes go down, which we expect them to do, and Baron will talk to that in a minute, so be it. Our MSR portfolio more than offset any decrease in earnings we're going to see in the origination business.

As we look at the Non-Agency part of our business, in the origination side, I mentioned non-QM. 0 to 700 of year-over-year in the fourth quarter. This quarter, we expect to do $1 billion, and we're growing our prime jumbo origination as well, and the borrower remains healthy when you look at delinquency trends. On the asset side, this is the way that we think we could originate different pools of assets for our own balance sheet and for the marketplace. When you look at the agency origination market, it's roughly $2.5 trillion that we expect for 2022. The Non-Agency business, we expect approximately $600 billion and the business purpose lending business we see a total addressable market of about $500 billion.

Page 11, our playbook, MSRs, MSRs, MSRs as rates rise. Operating businesses, Genesis Capital, Gordian Asset Management, which is a property preservation business, we have our own title and insurance business, and we have an appraisal business. On the origination side, Newrez/Caliber again, very large mortgage company, focused on making money, not just creating size, Genesis Capital and then we speak to our ability to adapt to different interest rate environments, as well as gain on sales environments. So the growth in non-QM, jumbo prime, investor loans and business purpose loans will be a priority this year. They're also -- when you look at gain on sale margins, those 4 areas are -- have significant gain on sale margins net-net, at the end of the day.

And then as we look into '22, I've been pretty vocal about getting into the commercial space. We will do that at some point in '22 and hopefully, that's sooner rather than later. Q4 Performance MSR portfolio. I'm not going to beat a dead horse here. Just a couple of things to point out, 16% of our portfolio is in the money to refinance as compared to 29% at the end of Q3 and that's down from a little under 50% in 2020.

MSR speeds, we expect MSR speeds and amortization to truly slow down. We're starting to see that now. I think speeds that came out a couple of days ago were much slower than Street expectations. We expect that to continue as we go through the course of the year. Keep in mind, January, February, and looking back to December, typically slower months in the mortgage origination space, but we expect that to pick up as we go forward.

Page 15. Just have a look at the right side of the -- or actually look at the middle part of the page, the change in 10-year treasury rate, what that means to overall amortization as we see it in our portfolios, and what we think it's going to do to the origination P&L and just take the middle part of the left side of the page, rates up 100 basis points. We expect amortization to slow down by approximately $175 million and origination PTI to go down by $125 million. Net-net, a gain of $50 million. If you look to the right side of the page, what does that mean for shareholders? It's an increase of $0.11 in annual core earnings.

The other thing to point out on this page, if you look at our MSR multiples, at the end of 12/31 the 3.9x as we go forward and rates increase, this is what's going to drive our book value higher, up 100bps we expect multiples to go to 4.4x, up 150bps, 4.5x and potentially even higher than that.

Call rights, been talking about this for years. Our portfolios remain what I would -- as the homeowner cleans up and delinquency trends continue to go lower and advance balances come down, we will continue with our call rights strategy of calling more and more loans.

Single-family rental strategy. At the end of the year, we had approximately 2,700 homes. We did our first securitization in this quarter. Total equity in the business, just to give you a sense, is a little over $100 million, and we will -- and expect to continue to grow that business. We are going to be prudent about it. We will announce a small acquisition of some homes we acquired from Zillow over the course of the next 30 days or so, probably won't announce it publicly, but it's just to let you know, it's roughly 300 homes. So that business will continue to grow, and we're going to be smart about it as we think home prices -- or I personally think home prices could come off a little bit here from the growth that we've seen.

On the loan side, if you look at Page 18, performing and nonperforming loans. Right now, our portfolio at the end of Q4 was $1.2 billion EBOs, on the NRZ side was $500 million and non-QM was $300 million. All this stuff will either be redelivered in the case of EBOs into the Ginnie Mae market. In the case of our loan business, either securitization or outright sales on that.

On the servicer advance side, balances remain low. We have a ton of excess capacity, as I pointed out earlier, the homeowner's in great shape. And then when you look at our interest rates and our financings, and we had to at the lows our cost of capital is very, very low there.

Now I'll turn it over to Baron, who will take you through the mortgage company highlights, and him and Jordan will take you through the next section.

[Jordan Licht, executive]

Thank you, Michael. This is Jordan. As Michael mentioned, the integration of Newrez and Caliber is well underway as we continue to combine our origination platform, technology and service and leadership. If you look through the fourth quarter, we've realized approximately $90 million of our target synergies as a result of actions taken in 2021. These synergies include personnel reductions, reduced cost of funds and vendor consolidation as well as increased efficiencies due to alignment and best practices. We expect to achieve an additional $45 million to $60 million of synergies in 2022 as we complete our origination platform consolidation, removal of duplicate technology systems and finalization of our servicing strategy.

Once completed, our full year 2022 target run rate synergy is expected to be between $175 million to $200 million. As Michael mentioned, there's other exciting news, we hired a new Chief Digital Officer, and she will help us drive digital innovation, user experience, our customer experience and increase engagement across our customer production and servicing channels. We've kicked off the year with both companies aligned with a single vision of helping our customers and homeowners. I'll now turn it to Baron.

[Baron Silverstein, executive]

Thanks, Jordan, and good morning. Turning to Slide 21. The origination division ended the second quarter with $101 million of pretax income, funded volume of $38.1 billion, which is a decline of 43% and 14%, respectively, quarter-over-quarter. The biggest impact of PTI was the pressure on gain on sale margins, which had an 18 basis point drop quarter-over-quarter. And as I look at each one of the businesses. For our direct-to-consumer business, our margins increased approximately 6 basis points even with the reduction of funded volume, which was 17% reduction over that -- those two quarters. We've also seen a 14% pickup in lock volume in January and a flattening of margins when comparing December to January of 2022.

For our retail and JV channels, our margins decreased approximately 23 basis points with the reduction in funded volume of 14% quarter-over-quarter. While we expect further competitive pressure within our retail channels, our platforms allow us to take advantage of the expected growth in the purchase market to come.

For our third-party wholesale and correspondent channels, margins decreased 17 basis points and 13 basis points, respectively. However, while the higher interest rate environment presents headwinds for our origination business, our balanced business strategy provides us a competitive advantage over other monoline competitors.

As Michael previously mentioned, we intend on managing our business to focus on profitability, take a disciplined approach to rightsizing the cost basis. Our plans include concentrating on our higher-margin channels, retail and direct-to-consumer, which was 42% of our funded volume in the fourth quarter. We're also looking to expand our partnership business through our joint venture platform. We're going to adjust our lower-margin channels towards higher-margin products, including Non-Agency and non-QM products. We're going to remain opportunistic on MSR origination and acquisition.

And on the expense side, our overall expenses decreased approximately 13% quarter-over-quarter, a portion of which are synergies that Jordan talked about, but this also includes additional savings as we reduce our origination capacity based upon the current market environment. Our plan for the first quarter to stay focused on the efficient integration of both companies, readjusting origination volumes based upon profitability and being vigilant on reducing costs.

Turning to Slide 22. And we've said this for the past few quarters, but our extensive presence in our distributed retail and JV business plus our direct-to-consumer channel that's coupled with 3.2 million homeowners in our MSR portfolio allows us to take advantage and grow market share in the forecasted growth in purchase market in 2022. It's difficult to replicate these models and these models differentiate us from the competition.

We've also fully rolled out our Smart Series programs, which previously was referred to as non-QM even though approximately 50% of our portfolio has been to qualified self-employed consumers. Michael talked about this. We've seen our lock volume nearly triple quarter-over-quarter. And in January alone, lock volume was 50% of everything we did in the fourth quarter. We continue to see growth in our Smart Series programs as approximately 75% of these purchase have been to purchase customers.

And to date, only 10% of our sales force has participated so far. It is with our partnership with NRZ, coupled with our ability to continue to roll out new products that will continue to drive growth in our origination business. And it's with these products, can we further expand on our relationships, our existing relationships and build new relationships through our retail, wholesale and correspondent programs.

Turning to Slide 23. And Michael talked about the size of our NRZ portfolio, but I just want to talk about two different things here. And the first is, given our focus on special servicing, we increased our sub-servicing portfolio by approximately 5% quarter-over-quarter, and our expectation is that we can capture additional share as the market dynamics change in 2022. The second point is we've announced a new head of servicing for both the Caliber and Newrez servicing platforms that will allow us to finalize our servicing strategies and align on best practices. Promoting chain to run servicing will assure our core focus of helping homeowners stay in their home, third-party sub-servicing clients and continue to grow and build our servicing portfolio.

On the last slide, Slide 24, talking about recapture. On the top right, you'll see that our recapture performance remains strong quarter-over-quarter. In the bottom two charts, you see our recapture performance where we have previously originated a loan and our ability to recapture the customer is much stronger, whether through purchase recapture or refinance recapture. So as we continue to mature in our relationships with our homeowners, we'll be able to take a higher share of opportunities, whether offering additional products or services, including recapture in the future.

Even in a higher interest rate market, our ability to offer customers the ability to purchase a new home, provide cash-out refinances, business purpose loan alternatives through Genesis and other home equity solutions will provide for ongoing fuel in our direct-to-consumer channel. On that, Michael, back to you.

[Michael Nierenberg, executive]

Thanks, Baron. Thanks, Jordan. This will wrap up our supplement and then we'll go to Q&A. Page 25 just talks about our operating companies. I'm not going to read these off to you. But we are a full scale -- I would say financial services company. When you look at the complementary businesses that go along with our mortgage company.

And then on Page 26 is really just a slide how we think about ourselves. We think about ourselves first as an investment manager. And then two, when we look at our -- one is a very, very strong balance sheet with a lot of cash and liquidity. Two, the MSR portfolio in this rate environment is, quite frankly, AGM. It was hard in 2020. We did a lot of origination, but it is truly AGM today, and we expect that to provide very good returns as we go forward. With that, I'm going to turn it back to the operator. We'll open it up for Q&A. Thanks.

[Operator]

[Operator Instructions]

Our first question comes from Bose George from KBW.

[Bose George, analyst]

Actually, first question just on gain on sale margins. You guys noted that in 1Q, you've seen a flattening, but you could see more pressure in retail going forward. Can you just give us some color on how much pressure you think you could see just how you think things will play out this year?

[Baron Silverstein, executive]

Yes. So Bose, just -- all I said is in 1 month, we saw a flattening in our direct-to-consumer channel, month-over-month, we certainly continue to see pressure across the board in the context of margins for each of our channels. And that's due to overcapacity and less production in the marketplace. Michael has been very clear and on his message, and we're pivoting our origination business to focus on core profitability, right?

We continue to have attractive margins, I will tell you within our retail, JV and our direct-to-consumer channels. It's the third-party channels from our perspective that continue to see what we look at as additional pressure in those, and we'll just continue to focus on our view on profitability and then we'll be opportunistic about which assets that we're looking to basically participate in those channels to the extent that margins continue to compress.

[Michael Nierenberg, executive]

Bose, just to add further to that. When I talk about origination, whether we do 1 loan or 10 loans, it's -- if you take a step back and you look at what our business is I pointed out -- I keep pointing out our $630 billion MSR portfolio. To Baron's point earlier, the wholesale and correspondent side, you're going to see a lot more -- you'll always see more competition because United Wholesale and Rocket are huge in those -- in wholesale. The one thing I would say is if we could create MSRs, even if we don't have a huge gain on sale, we will originate that loan. So if we like where MSR multiples and values are, for example, in the Ginnie space right now, we like where multiples are. So if we could originate $100 billion, quite frankly, in the wholesale and correspondent channel, we may think about doing that.

You can't because of the market share as a result of the overall production market is smaller, but that may lead us into a potential acquisition of a Ginnie originator, for example, so we could focus on growing our Ginnie presence. So it's one of these things, gain until margins are in because you're in the winter months, I mean, you're going to have less months -- less production.

You're also seeing the highest level of 10-year rates that we've seen since December of 2019 to give you a sense. So I think once the markets settle and we come in the spring, we're going to have a good purchase market. Our retail and DTC franchises will thrive, and our origination business will be good. We just want to be prudent about how we think about making money and not just originating widgets unless we really like the value of the MSR.

[Bose George, analyst]

Okay. Great. That's very helpful. And then actually just one on the servicing -- consolidation of servicing on one platform. Is that -- what's the time line for that? And is that the plan still to move it on to Caliber's, The MSP platform?

[Baron Silverstein, executive]

Yes, we continue to evaluate it, Bose, and we have not made a final decision as to where we're headed. The change in the servicing leadership for us was the first step in the context of us evaluating, which servicing platform, we will end up operating on. And the other important fact for us is making sure that we're basically servicing the loans based on best practices to help our homeowners. That was the most -- really a critical fact for us in making sure that our leadership is aligned.

[Operator]

The next question comes from Kevin Barker from Piper Sandler.

[Kevin Barker, analyst]

I just wanted to follow up -- Michael, I just wanted to follow up on your comments around the tangible -- was it tangible book at $11.75 to $12? Or was that book value?

[Michael Nierenberg, executive]

That's book value.

[Kevin Barker, analyst]

Okay. Okay. And then does that include the dividend? And could you outline what's driving that as far as quantifying how much was MSR mark up? And then how much of that was offset by maybe portfolio marks or fair value marks?

[Nicola Santoro, executive]

Sure, Kevin. So the range of $11.75 to $12 does include an estimate for the dividend, keeping it the same as prior quarter. And the pickup is primarily due to the increase in MSR marks. And it does follow the page that we have in the deck that references the basis point change and the subsequent increase in fair value.

[Kevin Barker, analyst]

So just stick with the sensitivity that you outlined?

[Nicola Santoro, executive]

That's correct. It's in line with that sensitivity.

[Michael Nierenberg, executive]

And Kevin, part two of your question, as we think about other potential marks, we're fully hedged across our business. We've had this bias. I think I've alluded to this maybe forever, but to higher rates in the market, and we're really starting to see that play out and the way we're positioned, whether it be in our loan portfolios, having hedges or anything else I feel like we're extremely well-protected and when you look at the increase in book value, I think that going forward, hopefully, we see more of that to the extent that we remain in this rate environment towards higher rates.

[Kevin Barker, analyst]

So if you're fully hedged, shouldn't the mark be minimal or just incremental relative to your total equity? Or do you feel like you're still quite biased to higher rates, given the composition of the portfolio today?

[Michael Nierenberg, executive]

We are very biased to higher rates. And quite frankly, if the market just rallied significantly the other way, the origination business is -- you flip the switch and you start doing a ton. So -- as of now, we are extremely biased to higher rates. MSR portfolio is fully hedged across all of our investment portfolio. So we feel like we're in good shape.

[Operator]

[Operator Instructions]

The next question comes from Eric Hagen from BTIG.

[Eric Hagen, analyst]

Can you -- can you guys discuss how the capital allocation across the business might evolve with higher interest rates? Like do you see yourself potentially reallocating from the production side to other areas of the business as origination volume slows and how the capital needs to support the MSR might evolve along with that.

[Michael Nierenberg, executive]

So answer to your first question is, yes, there will be less capital in the origination business unless -- listen, we're going to strive for higher ROEs in our business overall. So if that means that, to Baron's point and all of our points, if wholesale is not going to produce anything on the agency side, but it's going to produce more on the non-QM and jumbo side, we're going to put more capital in the wholesale side on those production channels.

I think overall, you'll likely see more capital allocated. I pointed out, if we could find a -- we do believe there's going to be opportunities to acquire some origination or smaller originators as a result of the current rate environment. So we have our eyes out on some good retail Ginnie producers, for example, Jordan, I don't know if there's anything else you want to elaborate on that front as we think about the potential acquisition in the mortgage company around some...

[Jordan Licht, executive]

No. I think in this -- I think as you mentioned in this market environment, there'll be -- and we're seeing smaller players that are looking to kind of cash in or exit out.

[Michael Nierenberg, executive]

Because gain on sale margins and folks are holding on to their MSRs, so their only out is either to sell themselves or sell the MSRs. And Eric, to your point, would we allocate more money to the MSR business? The answer is absolutely yes. So you'll likely see a shift from some capital out of the origination business into the MSR business.

And the other thing is when we look at our origination business, we haven't spoken about this, but between hiring [indiscernible] on the digital side, we just promoted [indiscernible] on the technology side who's doing a great job for us to help drive down the cost of origination.

Couple that with Bob Johnson, who's running our fulfillment and op side. As we bring down our cost of production, and we need to do that, it makes us more competitive in some of the more, what I would say, very competitive channels, which may enable us to actually get a little more aggressive there. So a lot of focus on bringing costs down, but a lot of focus on bringing costs down through the technology initiatives that we have and with the new leadership.

[Eric Hagen, analyst]

That's really helpful. I think you noted you expect the Fed to go 5 to 7x this year. Any thoughts on how that could translate into spreads at the longer end of the yield curve?

[Michael Nierenberg, executive]

We think that they are going to -- they -- whether they have reinvestment strategies around mortgages and treasuries. We had a good update call with one of our economic advisers yesterday, and we went through this. The general feeling is that they think 5 rate hikes, not 7. And then the other thing that's out in the market is 50 basis points in March. They don't -- and I don't think they go 50 basis points in March because then at every meeting, folks are going to be like whether they go in 25 or 50, and that could rock the market. I could be wrong, but it's my own personal view as well as our advisers.

I do think rates in the long end are going to go up. Charles Sorrentino, my partner, who's sitting next to me here, we were talking about 2018 where we were hedging out some of our business, and we were paying on swaps at [ 327 on 10 ]. Today 10 is at 1.95%. You have inflation at the highest levels you've seen. The Fed is going to stop buying mortgages and reduce their balance sheet. So I think rates go up a fair amount in the long end, I really do. I think the market is under pricing where the 10-year note could actually go. It's still historically -- think about it, 1.95% 10-year note so historically very, very low. We do think you'll get your bear market rallies, but I do think rates are historically low, particularly in the longer run.

[Eric Hagen, analyst]

And then one more on the portfolio construction since the end of the year, have you guys done anything with the Agency MBS portfolio as a hedge for the MSR and just where that sits today?

[Michael Nierenberg, executive]

Yes. When -- on the agency MSR side, on the -- when we acquired Caliber, there was some hedge against the MSR there. We've taken that off. So there -- at this point, there's no hedge against the MSR.

[Operator]

The next question comes from Douglas Harter from Credit Suisse.

[Douglas Harter, analyst]

Just hoping to clarify the comments around the expense synergies -- does that include -- the updated synergies, does that include any further actions you're taking? Or would those further actions be on top of those synergies?

[Baron Silverstein, executive]

Yes, the further actions are going to be on top of those synergies. We looked at synergies as specific to the eventual merger of both operating businesses. And we looked at further adjustments due to market conditions, it's just BAU expense cost reductions.

[Douglas Harter, analyst]

So I guess when all is said and done and kind of those expense reductions are done and obviously, it does take time, I guess, how would you expect your costs per unit of production to compare to kind of where they were last year?

[Baron Silverstein, executive]

I mean, as Michael just talked about as well with our initiatives in the context of the technology side, we believe our costs are going to be materially lower than where they are today. And the other really great vantage point that we had with the acquisition of Caliber was we were able to look at two different operating businesses and the mousetraps that they each had to effectively close mortgage loans. And then you saw the differences between the costs. And we've been able to take advantage of best practices within our fulfillment strategy to effectively have a plan to reduce costs. Obviously, that also takes some technology initiatives for us to basically ensure that we meet those objectives and goals, but that is what we're basically working towards.

[Operator]

The next question comes from Trevor Cranston from JMP Securities.

[Trevor Cranston, analyst]

Question on the non-QM side. You mentioned that you're expecting the quarterly volume to reach up to about $1 billion this quarter. As that number grows to potentially $1 billion plus per quarter, is the anticipation that you guys will have the appetite and capital availability to bring that on to NRZ's balance sheet? Or is there going to be some mix expected between selling loans to third parties and keeping some for NRZ?

[Michael Nierenberg, executive]

The mortgage company is about making money. NRZ is obviously about making money as well. Currently, we don't expect to be selling non-QM loans into the marketplace. The NRZ team works extremely close with the mortgage company. And I think that the beauty of our corporate structure and capital structure, makes us very different than anybody else.

So as we look where we are today, if we could grow this to a multibillion dollar a year origination business, one of the things that we have a lot of experience in here over at fortress NRZ and the mortgage company, whether it be Baron, Jordan, Charles or everybody else, is we've been in the securitization markets for -- I have been for 30 years, 30-plus years. So I expect no change other than growth. And for the mortgage company to work very closely with our -- with the NRZ team.

[Trevor Cranston, analyst]

Okay. Got it. That's helpful. And you mentioned briefly in the prepared comments that you guys were exploring the commercial space and could get involved there in 2022. Can you elaborate any -- on sort of what segment of the commercial market would be the most likely place for NRZ to potentially become involved?

[Michael Nierenberg, executive]

We have some small investments now. I would say in the commercial space, we have some secured term loans and the like. We won't -- we're exploring -- there's a terrific group of what I would call conduit originators that we've been in discussions with for a while. We're looking at some redevelopment stuff with some proven operators. And this is not, quite frankly, to hire somebody to come in and just look at CMBS, this is to be something a little bit more strategic. So as you think about the growth in our business, where we went from being an MSR owner to where we are today with having operating companies that support our overall business.

An example of that is the Newrez/Caliber side, which is focused on recapture. Recapture rates on the refi side on Caliber in the 60s on Newrez, they're in the mid-40s. That's a big, big deal to support our overall MSR franchise. So as we look at the commercial space, it's going to be something that's more strategic and more growth oriented as we go forward. And we're hopeful that we'll get something done there in probably over the next quarter or during this quarter.

[Operator]

[Operator Instructions] our next question comes from Giuliano Bologna from Compass Point.

[Giuliano Anderes-Bologna, analyst]

I just wanted to touch on some of the sensitivities that you guys put out there on Slide 15. When I look at that table, one of the things I just want to kind of make sure I was thinking about correctly there was that as the amortization goes down, you're obviously increasing reeligible pretax income. But on the origination side, you're reducing taxable income. Am I right to think about it from that perspective because there's roughly a 20-ish or 21% tax rate on the origination side, so the impact should actually be slightly greater than just the pretax income numbers that you have on the slide?

[Michael Nierenberg, executive]

Yes, I think that's correct. I mean, obviously, there's a portion of the MSR, if you're not in the operating business, the MSR becomes a good REIT asset. So the answer is yes to your question.

[Giuliano Anderes-Bologna, analyst]

That sounds good. Then thinking about -- a follow-up on a question that came up earlier about capital allocation. You guys originated $17 billion more MSRs or more of MSR UPB than you ran off in the quarter. And you're up, you obviously have some growth plans of some of the other assets. I'm just trying to think about how you think about capital allocation and capital needs to fund some of the growth in the balance sheet versus dialing up the dividend?

[Michael Nierenberg, executive]

So first on the MSR side and the capital allocated, if you think about -- there's a lot of capital that sits in the mortgage company today. So there's plenty of capital to shift from the origination business over to if we want to acquire MSRs there, whether it be in the mortgage company and/or on the NRZ side. With $1.3 billion of cash and liquidity, we feel like we're in a good position today. I've been pretty clear over the past number of earnings calls that we are going to run with a lot more capital and it's not to take every last dollar and invest it in some assets. So we drive an extra $0.01 a share. We're not going to live our life that way.

As we look forward and think about the dividend, it's really a Board decision, quite frankly. I think the run rate of the company is going to be from all of our perspective. I think it's going to be interesting to see what happens in the spring as we come out of the winter months and what happens to the origination business, meaning gain on sale or really what the demand is for mortgages. I think that will help drive a little bit of our dividend strategy as we go forward.

The one thing to be clear is you look at some of our peers out there, our book value, we continue to see increase in book value because of our positioning in the market and our macro view as we as we go forward over time until that kind of changes. So I think the net of it is, we're hopeful that we continue to drive book value higher. The result of that should hopefully drive our stock price higher. And with rates still at 1.95% on 10s or 2% wherever they are after this call, it's my belief that our equity is extremely cheap. Whether you trade at an 8% dividend yield, a 10% dividend yield, a 6% dividend yield, I feel like we're in a great place as it relates to our capital, our earnings projections and our book value projections as we go forward. The dividend discussion is a Board thing, and we'll continue to evaluate as a group, but there's nothing I can say to that now.

[Giuliano Anderes-Bologna, analyst]

That makes sense. And then just a quicker -- kind of 2-part question. I noticed there's a segment shift. You guys dropped off the consumer loan segment from a reporting perspective in the segment side, and you've added mortgage loans receivable. I'm assuming the addition is moving consumer loans into other and the mortgage loan receivables is [indiscernible] Genesis. I just want to make sure that's correct. And then when you think about Genesis, is there a sense of how much you can originate on the Genesis platform? And what kind of assets? And if the assets should resemble the portfolio that came over on the $1.5 billion?

[Michael Nierenberg, executive]

So Nick, why don't you take the balance sheet, the income statement stuff, and then I'll take the Genesis side.

[Nicola Santoro, executive]

Correct, Giuliano. So the Genesis business is shown in the separate segment, and we did move the consumer segment given its size.

[Michael Nierenberg, executive]

And then on the Genesis side, we're in the first inning. We're getting up to the plate together as partners. I think the growth opportunities there are going to be pretty significant as we go forward. Keep in mind, they were owned by Goldman Sachs, a little bit different of a corporate structure than us. Clearly we're going to be in the market with the securitization on the Genesis side probably in the next 2 weeks. We acquired $1.4 billion. We'll probably be out with, I think, $500 million-ish on our first securitization. So we think there's a lot of growth there, and we look forward to bringing -- to creating more products for either the home building industry or the fix and flip industry. And as a result, that business should grow pretty significantly over time.

[Operator]

There are no more questions in the queue. This concludes our question-and-answer session. I would like to turn the conference back over to Michael Nierenberg for any closing remarks.

[Michael Nierenberg, executive]

Thanks for joining us this morning. Very excited for what -- for where we are today with our -- whether it be on the investment portfolio side, the leadership team on the mortgage company side and look forward to updating you during the quarter and next quarter. Stay well, and have a great day. Thank you.

[Operator]

Conference has now concluded. Thank you for attending today's presentation. You may now disconnect.