Earnings Call Transcript
Rithm Capital Corp. (RITM)
Earnings Call Transcript - RITM Q1 2020
Operator, Operator
Good day and welcome to the New Residential First Quarter 2020 Earnings Call. All participants will be in listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to Kaitlyn Mauritz with Investor Relations. Please go ahead, ma’am.
Kaitlyn Mauritz, Investor Relations
Thank you, Rocco, and good morning everyone. I would like to welcome you today to New Residential’s first quarter 2020 earnings call and thank you for joining us. Joining me here today are Michael Nierenberg, our Chairman, CEO and President; Nick Santoro, our Chief Financial Officer; and Jack Navarro, President and CEO of the Servicing division of NewRez.
Michael Nierenberg, Chairman and CEO
Thanks, Kate. Thanks everyone for joining us this morning. Our earnings today are truly a tale of two quarters. As we entered March, we were on target for a great quarter. Core earnings were slated to be $0.65. Book value was modestly lower despite the fall we saw in rates and overall liquidity for the company was in very good shape. Then came COVID-19. The past 6 to 8 weeks have been some of the toughest markets many of us have seen in our careers. It has been very challenging as everybody knows. For our own portfolio, just to give you a little bit of a refresher, we were always long MSRs. We owned MSRs, we had non-agency bonds and loans against that as the hedge as well as some agency securities. What happened was that the correlated hedging strategies after the world shutdown broke down on everything. We saw all asset classes fall in price and what happened is this created liquidity issues, not only for mortgage REITs quite frankly, but even long-only investors as falling prices caused redemptions, which put extreme pressure on the system. So what do we do? We went out and said, okay, we got to take action. We sold $27.9 billion of assets, we raised liquidity, we paid down debt and we extended our lending facilities, while reducing our overall short-term repo agreements. Overall leverage got reduced to 1.5x to 1.7x. We reduced our bond positions by 85%, we reduced our loan positions by 45%, and today, our loan and bond positions are at the lowest levels we have had in years. From a balance sheet perspective, we reduced our overall balance sheet by over 60% since the end of 2019. We increased liquidity. And today, our cash position is significantly higher, while our balance sheet is a fraction of what it was. Our cash position as of 4/30 was $517 million with unencumbered assets just under $400 million. Our mortgage company, which continued and still continues to support homeowners through this difficult period, works with borrowers on forbearance programs and agreements to help alleviate the hardship caused by COVID-19. We are really proud of the hard work that the company has done in light of these difficult circumstances.
Operator, Operator
Thank you. Today’s first question comes from Tim Hayes with B. Riley FBR. Please go ahead.
Tim Hayes, Analyst
Hey, good morning Mike. Thanks for taking my questions and hope you are doing well. My first question, before the pandemic hit, you were already in the process of transitioning to more of an operating company versus a REIT portfolio and you highlighted the ancillary services on Page 21 there. Most of them are performing better in this type of environment. Just given the disruption in the portfolio transformation you went through in the first quarter, does this maybe accelerate your timeline or increase your interest to maybe internalize some of these companies and further bolster the operating platform at NRZ?
Michael Nierenberg, Chairman and CEO
Yes, we have been pretty vocal the past couple quarters about how important the operating business is to our company, not only to grow the operating business but really to support that portfolio retention part of our portfolio. This is something that is very important to us when you think about the mortgage servicing and origination business. If you recall, when we first acquired Shellpoint New Penn back last year, that was a pretty strategic acquisition for a number of reasons. One is obviously to grow earnings but two is to make sure that we continue to increase our portfolio retention capabilities. Additionally, the operating business will trade higher than just a typical asset value. So I think I don't know if it's going to accelerate. Clearly, the two weeks in March were absolutely horrific for us, and we needed to act fast; the team did a good job. I hate to lose money; we hate to lose money, but we thought it was something that we needed to do at that point to create more liquidity for our company. So I think the go-forward plan is going to be a continued focus on the operating business. There will be opportunistic investments, but I don't know what the next 6 or 12 months are going to bring for us. I will tell you that we will have more liquidity, maintain a smaller investment portfolio, and again, I do think we're going to have some good results in our operating business. A long-winded answer is probably, yes.
Tim Hayes, Analyst
Got it, okay. And then just kind of piggybacking on that, you have done a lot clearly to de-leverage at this point and have a lot more liquidity on hand relative to the size of your portfolio than you generally do. I am just curious how you prioritize maintaining liquidity here versus putting capital to work or further de-leveraging and/or buybacks at current levels?
Michael Nierenberg, Chairman and CEO
I would say buybacks I can’t really comment; that’s kind of a Board decision just like the dividend stuff will be Board decisions as we go forward. I think having more capital today is essential. We are not just going to go out and reinvest in a ton of non-agency bonds. Even though our leverage, as we pointed out, was extremely modest, you can see what happens when the markets get into this freefall, and it just crushed us. So, we are going to have more liquidity than we probably ever had before. We want to navigate through this. We do think – again there will be opportunities. I think our history has demonstrated our ability to be opportunistic in nature. We are going to grow and get back to where we belong and hopefully grow book value and create great returns for shareholders.
Tim Hayes, Analyst
And I guess just maybe as specifying that a little bit more, do you feel that you need to further de-leverage at this point or is that a top priority or do you feel that the balance sheet is in a good spot right now and you'd rather kind of just hoard cash rather than de-leverage given where your multiple is right now?
Michael Nierenberg, Chairman and CEO
Yes, I think what you will see in our kind of our short-term financing books, those books will be probably $1 billion to $1.5 billion by the end of May, maybe into early June. When you think about just real repo exposure, that is down significantly. From a de-leveraging standpoint, our portfolios continue to get smaller and the team even today and every day we are working on terming out as much of our financing as we possibly can. In doing that, obviously, you have limited to no mark-to-market exposures. So, from a leveraging standpoint, when I point out our leverage at 1.5x, I don’t know that there are any other companies or very few companies that have leverage like we do. If we can continue to generate good operating earnings, I think we will be back to where we belong in the near future.
Tim Hayes, Analyst
Got it. That’s helpful. And then my last question just if you could provide a little bit more context around the capital needs that you highlighted in your base and stress scenario of like $120 million to $390 million. Does that assume, for the advances, does that assume that you are able to securitize your agency advances or does that assume, you can’t do that and this is just based on your available capacity on facilities? Is there any implied assumption that you would be tapping the PTAP facility or that you do secure this Ginnie facility you talked about? Just any more context around that would be helpful?
Michael Nierenberg, Chairman and CEO
Yes, these are just equity numbers. As I pointed out earlier, we have $5.25 billion of total debt available to us on the advance lines. This is just an equity component to the extent that we are able to improve financing rates or do more term, which will happen over time when we get back into the capital markets. I did point out in the height of all this, we did a $450 million non-agency securitization. I would expect the advanced markets for securitization to come back over time. But these are just equity numbers in a downside scenario as we go forward. The question is, I think for all of us quite frankly, how long we stay in this state where people are not working and you see more and more jobless claims. So we are expecting the worst over time. I think the numbers, to the extent that they get better, I think it’s only going to be positive from a capital perspective from where we are.
Tim Hayes, Analyst
Okay, that’s helpful. I will leave it there, but thanks again for taking my questions and stay well.
Michael Nierenberg, Chairman and CEO
Alright. Thanks, you too, Tim.
Operator, Operator
And our next question today comes from Bose George with KBW. Please go ahead. Hello, Bose, is your line muted perhaps?
Bose George, Analyst
Hi, guys. Sorry, my line is muted.
Michael Nierenberg, Chairman and CEO
Hey, Bose. Good morning.
Bose George, Analyst
Good morning. I hope everyone is staying safe. So first let me – I wanted to just ask about the credit costs – the credit assets, would you continue to sell that if you are able to? And just can you comment on that sort of the outlook for doing that?
Nick Santoro, CFO
Yes, I think the loan and first of all on the credit book, we have a lot of investment grade securities left there. It’s relatively small. It’s – I think it’s give or take a couple of billion dollars. As we go forward, I think we feel very comfortable with where we are on that book. It’s down dramatically from where it was and keep in mind our strategy of having non-agency bonds, where we own call rights that were hedging our MSRs. Going back to my earlier remarks that broke down, in that week in March, agency mortgages got crushed, bonds got crushed, loans got crushed, MSRs got crushed. All that created liquidity needs for us and I think the broader market quite frankly. We are not going to get back into a position where we are buying a lot of bonds with repo; I just can’t do it. I think we are comfortable with the size of that book. There are some AAA securities, for example, there. I do think as I pointed out with the Fed announcing – the government announcing that they are going to issue $3 trillion of government bonds, there will be huge needs for the government to issue debt in these markets. I think we are well positioned. I think the bond book is small. On the loan side, that book will be something, give or take $2 billion-ish. I think both of those could come down over time. The one thing to point out there is our realized loss for the quarter in selling assets. I think it was $1.92. A large number away from that in that $3.86 number were truly mark-to-market. To the extent that markets recover, I do believe we can see that come back, because when you look at marks and you look at where asset yields are today, they are give or take 6% to 8% un-levered in a COVID scenario. When I think about that, the asset returns are very, very attractive. While saying that, they need to be term financed, so we don’t get into a mark-to-market issue as we go forward. So I think we are comfortable overall with the size of the portfolio.
Bose George, Analyst
Okay, great. That’s helpful. Thanks. And then actually switching to the servicer advance, the slides you showed where you showed the stress days delinquency that you could get to, does that sort of assume the forbearances or delinquencies and is that across all the three with the Fannie, Ginnie, PLS markets?
Michael Nierenberg, Chairman and CEO
Yes. Well, the second part of your question is across all of our buckets. The stress scenario, we run this out 6 plus months and I think the delinquency numbers or the forbearance numbers go to like 30 – to delinquency numbers go to like 30%, 30 days or something like that. So, the numbers go up substantially. I think in those stressed case scenarios, that’s where we wanted to illustrate the amount of potential equity that we would need to do that. Again, we feel that’s extremely manageable for our company.
Bose George, Analyst
Okay, yes, that makes sense. And actually, is there a lot of the prepayments pulling the big party as well in terms of offsetting the advance needs during those periods just given that prepays are high right now?
Michael Nierenberg, Chairman and CEO
Yes. I mean, we are running – we do think over time obviously as delinquencies tick up, I do think with the credit box tighter that you are going to see slower speeds. To the extent that you don’t, and we are good at our direct-to-consumer vertical and origination remains robust, we think that we are going to be in a very good place. Should speeds get fast, as you pointed out, that creates less needs on the advance side as you get more principal back in. It’s like a catch 22. If speeds are fast, you have more money to fund your advances; if speeds are slow, the value of our assets goes up pretty dramatically. So, that’s a good point.
Bose George, Analyst
Yes, yes. That makes sense. And then just one last one – since quarter end, has there been much change in the book value?
Michael Nierenberg, Chairman and CEO
No, no, I mean, I would argue that prices in general are much more stable. We have had a number of our REITs and other folks that got liquidated during the quarter. Today, I do think that asset prices are more stable than where they have been in a long time, if not higher, and our book value is I think something consistent with where we were.
Bose George, Analyst
Okay, great. Thanks.
Operator, Operator
And our next question today comes from Giuliano Bologna with BTIG. Please go ahead.
Giuliano Bologna, Analyst
Good morning and I guess – well, it’s unfortunate that the book value is down. So it’s great to see some performance on the operating business side. I guess expanding a little bit more on the operating side, you guys put out the $45 billion origination volume estimate. Is there a good way to think about what kind of margin you can generate? Obviously, you are at 120 bps in April, which is great. Is there any visibility kind of going forward on the margin side there?
Michael Nierenberg, Chairman and CEO
Margins today, trying to find one of my sheets, are as wide as we have seen in a long, long time. As we go forward, I do think they will compress quite frankly, but I think for right now, the gain on sale margins in all channels are extremely robust and we will continue to focus on that. I can’t – I would love to tell you where I think they are going to go. I think if we get into a normalized state and people are back at work, I think margins could come in quite a bit. But for now, the gain on sales margins are extremely attractive.
Giuliano Bologna, Analyst
That makes a lot of sense. And kind of a little bit two-part follow-up; when I was thinking about the servicing side of the business, you obviously have Shellpoint, which has an enormous opportunity going forward on the specialty sub-servicing side of the world. You also have a fair amount of loans that are serviced internally? I guess, is there any sense of what kind of operating earnings or benefit you can generate with Shellpoint? And then I guess the part two would be, is there a sense of how many or what number of loans that are in forbearance you are currently servicing and have an opportunity to generate some performance fees from modifying or doing things of that nature going forward?
Michael Nierenberg, Chairman and CEO
Well, why don’t I have, hey Jack, you want to jump in on this?
Jack Navarro, President and CEO of Servicing Division
Sure, I’d be happy to. So, a couple of different questions you asked. First of all great to be with you guys this morning. On the forbearance side, Fannie and Freddie are currently planning for a program where we get paid a $500 incentive fee for forbearances. This will certainly benefit us as we work through the long-term solutions with these forbearances, but it will also have significant increased costs. While I think it’s a positive, the jury is out on exactly how much of a positive inside our self-service platform. Today, we have done 140,000 forbearances. It’s pretty easy to do the math, although, it’s important to note that 60% of those people paid in April and so far that trend is continuing for May. Again, if you are doing the math on the potential incentive fees, you need to sort of look at the number of people that are paying. What was the other – what was the other question you asked about the servicers?
Giuliano Bologna, Analyst
The other one was more so on the specialty side with Shellpoint; is there an opportunity to expand that business in the near term? Obviously, as things are getting a little bit more volatile in the market, what you can do in terms of earnings or generated more on that basis?
Michael Nierenberg, Chairman and CEO
Yes, there definitely is. If you were to look at our margins today that are published for the first quarter and for the end of last year, you would see that our margins are higher than a typical servicer, somewhere in the 20% plus range, up to 30%. I think we will see a little downturn in that in the second quarter, just due to the nature of the increased volume and the increased costs. I think you will see us sort of return to those margins in the third and fourth and maybe even a little bit better. The issue for us right now is 100% focused on the homeowner and the existing clients. How can we help these homeowners through their difficult times? We know at the end of the day, that’s the key. When we service for the GSEs, which we do directly on the specialty servicing side, they are looking for us to take care of those homeowners, which is our first priority. In terms of the expansion of the business, there is definitely an opportunity. Our first priority is the existing portfolio. Second is, the needs of the existing clients, but we have had a lot of inquiries both from existing clients as well as new clients for how much capacity we have and how much we could do. We are going to prioritize the existing clients and be really thoughtful about the expansion of the business, but there is definitely an opportunity.
Giuliano Bologna, Analyst
That’s great. Well, thanks for taking my questions and I will jump back into the queue.
Michael Nierenberg, Chairman and CEO
Thank you.
Operator, Operator
And our next question today comes from Stephen Laws with Raymond James. Please go ahead.
Stephen Laws, Analyst
Good morning.
Michael Nierenberg, Chairman and CEO
Good morning.
Stephen Laws, Analyst
Good morning, Mike. A couple of follow-ups and a couple of other questions. So first, I want to follow up on the balance sheet. I think down 61% end of April versus year-end that puts in about $6.5 billion to $7 billion of sales or decrease in April. Do you think that is where it needs to be? Do you expect more of a decline in May? Where do you expect the trough or bottom to be from a portfolio size? Or do you feel comfortable at the current size?
Michael Nierenberg, Chairman and CEO
Our goal, and what I tried to convey earlier, is to make sure that we term or extend maturities on our financing lines as much as possible. While you may pay a little bit more from a term financing perspective, it eliminates or reduces your mark-to-market exposure. Our overall leverage, again, is 1.5x to 1.7x. If you include the mortgage company, we will continue to run a very, very low leverage business. I think we are comfortable with our portfolio size now. I did point out that we had a realized loss of $1.92 per diluted share. I think our ability to get back some of the money that we lost in mark-to-market could be pretty significant. If we lost around $4 per diluted share, and half of that, let’s say, was from actual sales, if we term out our assets in their yielding 6% to 8% in a COVID scenario, I could see recovery of $2. But 8 weeks ago, that $2 was in book value. So overall, we are comfortable with term financing, which continues with the hard work that’s going on with our team and our counterparties, whether it be the banks or insurance companies we are working with.
Stephen Laws, Analyst
Great. To touch on the origination of $45 billion was mentioned as the new goal. I think the layout at page 13 has changed slightly. Have you looked at the queue yet? I apologize, but agency is in government. Can you reference that government category? I think in the new deck, you talked about continuing to do agencies but not non-QM and non-agency government loans. Which side does that fall into? Does that fall into the agency bucket, or how do we think about that looking at your historical origination by product over time charts?
Michael Nierenberg, Chairman and CEO
Yes, we are a Fannie, Freddie, Ginnie originator right now. As a result of the downward pressure on asset prices, we saw non-QM loans go down 10 to 15 points, and you can’t originate a loan at par and sell it at 90. That math doesn't work. So, we have added that space at this point. You will see Fannie, Freddie, and Ginnie origination. As Jack pointed out, we will focus on our existing portfolios; we will focus on recapture, and that's where we are going to get some lift, as a great service provider to customers. Hopefully, if origination margins remain where they are, we should have a good quarter and see further growth in our operating business.
Stephen Laws, Analyst
Yes. And a follow-up on that, I don’t need specifics, but maybe general commentary on the assumptions behind that forecast. I know some entities, the MBA for one, their forecast includes unemployment staying in single digits and the treasury mortgage, mortgage treasury spread back to February levels by the third quarter, which certainly could be optimistic. What type of assumptions are underlying the $45 billion? I was a little surprised that guidance wasn't down from $50 billion by more than it was. I know you mentioned a range, I think, 40 to 50, so 45 is a midpoint. Can you give us a little bit of assumptions you have for the agency mortgage market that underlies that forecast?
Michael Nierenberg, Chairman and CEO
I think as we turn back on certain channels wholesale, we grow our direct to consumer and possibly doing a little bit more in correspondence, as long as margins are there. That's why we feel pretty confident in our ability to do 45. It's a projection though. To be honest, it could be $60 billion, could it be $35 billion or $40 billion? To me, it's not about the number; it's about making money for shareholders and supporting the homeowner. So I do feel pretty good about the 45, but again, it is a projection. That projection comes from our mortgage company, which currently has around 4,200 people. As I pointed out earlier, we are hiring another 500 people right now. We feel good about it, but again, it's purely a projection.
Stephen Laws, Analyst
Sure. And along with that, can you talk about approval times? I mean, one from hearing a lot of commentary. I know we saw some extensions in loans during the COVID, but going forward, a lot of agency applications, especially refis, are largely automated. Can you talk about what the pipeline or what’s going to link them? If a borrower that used to be kind of instant auto-approval, now had to go on unemployment for 6 weeks due to COVID or have some COVID impact that was very unique and short-term and they go back, but now they have got a blip in their credit history. Does that get kicked out of your system? If so, how will those types of applications be handled and what type of lengthening should we expect to see in the closing of a loan?
Michael Nierenberg, Chairman and CEO
Bruce Williams is on as well. First, I don’t know if you have an answer to that or if we want to come back to that?
Bruce Williams, Executive
No, Michael, thank you. Good morning, everyone. Yes, basically, there has been a whole set of what I’ll call a redo of all the process. So, really what we are originating now, very close to closing, we have a process in place where people attest that they are not thinking about going into forbearance. So, the quality, as Michael indicated, of the loan origination process has improved dramatically, and you are right that basically if we are multi-channel, each of the channels are different. But effectively, with kind of the online ability, retention, and all of that, we don’t expect timelines to increase dramatically. Things are turning. It’s surprising, but things are turning over relatively quickly.
Stephen Laws, Analyst
Great. I appreciate that color. And lastly for me, Michael, the operating businesses, it’s a lot of different ancillary services that are provided across your suite of investment companies I guess or across your platform. Which of those currently are the most impacted? I mean, have you been able to move inspections and things of that to virtual? Do you have issues with title verification or any type of access to government buildings or employees that still may not be back at work? How do we think about the different pieces of those – sort of the different services that are being dramatically impacted and kind of what the timeline of when those may get back to normal, which branded maybe a county by county situation?
Michael Nierenberg, Chairman and CEO
Here is the way I would think about it. Covius is, as I pointed out earlier, we have an investment in Covius. They are truly a third-party to us and everybody else. Everybody has limitations on their business right now as everybody is still working from home or wherever everyone is. When you think about title and appraisal, I don’t think there are issues around title. The appraisal stuff is something when intuitively, if you take a step back, people going into other folks’ homes to appraise something, I think the answer is probably not. So, I think all of these businesses are impacted. I think you will see until we get back to a quasi-normal state, I think all these business lines will be impacted. One thing I do want to emphasize is the actual contribution from these businesses to our overall earnings is very small at this point. Covius is a seal box. Those earnings stay in that system. So it’s really the value of that asset title and appraisal as we do loans. It’s good to have a captive title and appraisal company. On the field services side, the preservation of properties and keeping people in their homes, I think that business will continue to grow, and the folks at Guardian do a great job there.
Stephen Laws, Analyst
Great. Well, thank you very much for the color, and I appreciate the disclosure you guys provide in your investor deck and the work you put into that. Thanks for the detail.
Michael Nierenberg, Chairman and CEO
Thanks, Stephen.
Operator, Operator
And our next question comes from Trevor Cranston with JMP Securities. Please go ahead.
Trevor Cranston, Analyst
Thanks. Good morning. Hope you are well.
Michael Nierenberg, Chairman and CEO
You too.
Trevor Cranston, Analyst
A couple of more questions on the servicer advances. The first one, can you help us think about how you guys are performing your expectations around what the timeline is going to be in terms of when you might ultimately recover advances after the forbearance period ends? The second question on the financing you have in place. I was curious particularly like on the capacity you have added since the end of March. Are there any material differences in terms of the terms of the financing you have been able to add in the sense of LTV or the cost of the financing? Thanks.
Michael Nierenberg, Chairman and CEO
Sure. Andrew, you want to take this one?
Andrew Sloves, Executive
Sure. This is Andrew. Nice to speak with you. So, the first question regarding when we are able to recover the servicing advances after the deferment. We have been in dialogue with the GSEs, and there is some discussion about putting into place a deferment program, which would enable us to recover our advances shortly or immediately after the forbearance program ends. Our expectation is that across the vast majority of our portfolio, we should be able to pretty quickly recover the outstanding advances and normalize that balance as borrowers come off the forbearance programs. In terms of the costs of the servicing advance financing, yes, there has been an incremental increase in the cost of the servicing advance financing, but we feel that it is prudent and a worthwhile expense to put that in place, so you have more than sufficient advance capacity across a range of scenarios.
Michael Nierenberg, Chairman and CEO
And then I guess just a follow up on that advance. Rates are around 90% to 95%, and the cost of funds is I believe about LIBOR plus 275, is that right, Andrew?
Andrew Sloves, Executive
Yes, that’s correct.
Trevor Cranston, Analyst
Okay, great. That's helpful. And then in terms of servicing expense, I think you mentioned that it’s reasonable to expect that the costs are going to go up to service near term in light of everything you're dealing with in the MSR portfolio. Can you just help us think about what to expect in terms of servicing expense? What might increase versus the first quarter?
Jack Navarro, President and CEO of Servicing Division
Yes, the easiest way to think about servicing expenses really in two ways. One is mix, so how many more delinquent loans do we have, and those are obviously more expensive to service. We think, as a result of the forbearances, a natural increase in delinquency is going to change the mix. We had a really terrific track record of reducing costs by about 37% year-over-year in the first quarter of this year, so we're down to direct cost to service on a current loan below $6, which is really a feat of technology and people. Thanks to the team. The other factor is how much cost goes into servicing each loan, and the mix is an issue. The cost of servicing each loan is about the fact that on the performing side, we've got to talk to more borrowers. We've got to interact with more borrowers on the delinquent side. We've got to talk to more borrowers and interact with more borrowers. For certainly the first two to four weeks of this whole event was a very difficult time for the servicer and the call centers. That was partly driven by the fact that many of these forbearance situations were from new borrowers to the delinquent process. Borrowers who had been current all of their lives and expected to be current all their lives were faced with this crisis. We had people who wanted to write us, email us, call us. Any kind of overwhelming the call centers in the short term, we have mostly corrected that. We still have some high call rates on the loss side, but most of the customer services side is back to normal. Those are simply going to increase costs, so that's really what's going to happen in the second quarter. We'll still be profitable; we'll still have decent margins, but we'll see both mix increase a little bit and cost to service in each category increase a little bit. We may also just make one last comment on this and then happy to answer any other questions. We've also been really good at being able to bring our proprietary default technology to bear, so we within 24 hours had a system to allow the borrowers to identify that they were COVID affected, and about another 24 hours we had a way that their forbearance could be finalized online in cooperation with the GSEs. We expect to use the same approach when we get to resolving those forbearances through the deferment program that we hope Fannie and Freddie offer. We're hoping to do a lot through automation rather than a normal interactive modification approach. We’ll still have borrowers who have to deal with them, but that technology will definitely save us significantly, and I think that's sort of the cost of service picture.
Trevor Cranston, Analyst
Okay, I appreciate all the color on that. Thank you.
Michael Nierenberg, Chairman and CEO
Yes. Anyone else? I am sorry.
Unidentified Analyst, Analyst
Thanks. I was just hoping you could give us any update or color on kind of how the early days of May have gone in terms of forbearance and whether we have seen the daily count of forbearances increase as the next payments do?
Michael Nierenberg, Chairman and CEO
Jack, you probably want that one. I think it does – the actual press have gone down, I believe, right, Jack?
Jack Navarro, President and CEO of Servicing Division
Yes. The trends have been pretty clear with forbearances. In the early days, we were at as many as 5,000 to 10,000 forbearance requests a day in the late days of March and early days of April. We are down inside our servicing business at around 2,000 additions a day, and for the entire enterprise, we are probably double that. The trend of forbearance requests has been a steady decline.
Unidentified Analyst, Analyst
If you could just sort of contrast that with kind of the base case and the stress case scenarios you laid out on that slide, what you are assuming and how you would say things are trending versus those expectations?
Jack Navarro, President and CEO of Servicing Division
Mike, you want me to answer that?
Michael Nierenberg, Chairman and CEO
Yes, sure. You are referring to advances right?
Jack Navarro, President and CEO of Servicing Division
Yes. From an overall delinquency standpoint, maybe I will comment on that and Andrew can comment on advances, but we are basically where we had sort of planned to be from an overall forbearance request standpoint. The thing that’s changing that is the number of people that are on forbearances and are paying. It’s very clear that a certain number of borrowers are using this program as more of an insurance policy and so the percentage of borrowers that are on forbearances but paying is coloring the data a little bit. While forbearance requests are consistent with what we had forecasted, the number of people who are paying is more than forecasted. So the overall impact is less.
Unidentified Analyst, Analyst
Great, thank you.
Michael Nierenberg, Chairman and CEO
Anyone else guys? Any other questions? Operator? Hello.
Operator, Operator
Apologies. Our next question today comes from Kevin Barker with Piper Sandler. Please go ahead.
Kevin Barker, Analyst
Thank you. Good morning, Michael.
Michael Nierenberg, Chairman and CEO
Hey, Kevin. How are you doing?
Kevin Barker, Analyst
I don’t know what happened there, but so on tangible book value; we saw significant spreads, I think in April. I know you made some comments about not realized versus realized, but could you estimate where tangible book value is today off of what you have seen in the market?
Michael Nierenberg, Chairman and CEO
Yes. I think we think, I think someone else has asked this question earlier, we believe it’s pretty close to where we were at the end of Q1.
Kevin Barker, Analyst
Okay, sorry I missed that. And then…
Michael Nierenberg, Chairman and CEO
Yes, that’s okay.
Kevin Barker, Analyst
And then given the destruction that we have seen in the origination market there in late March with the Fed buying assets and then where you see it going forward, can you help us think about where the margins are on correspondent versus retail and what the major drivers are of the increase in margins on originations thus far in April?
Michael Nierenberg, Chairman and CEO
Yes. I think the latter part of your question is due to quite frankly the markets being – people working from home, limited capacity, and the ability to get things through the pipes that banks pulling back in general right when you think and if you really think about the credit box. All of those contribute to the margins. When you look at the correspondent, we haven’t done a lot of corresponding quite frankly yet. In a normalized market, the gross numbers could be anywhere from 50 basis points to 60 basis points. Today, I think that margins could be double that, but it remains to be seen as we really turn on our origination machine. I do think the gain on sale margins are very attractive right now.
Kevin Barker, Analyst
So are you assuming that correspondent remains subdued for a foreseeable future?
Michael Nierenberg, Chairman and CEO
No, we’re actually going to start doing more. As I pointed out earlier, our main focus is really the direct-to-consumer channels because that’s where we feel like we're going to get the most lift out of our existing customers in our existing portfolio. Again, gain on sale there is very good because it's a retention tool for us. The correspondent stuff wholesale third-party origination is returning. In the middle of March, we pulled back on everything as we were seeing the markets were extremely difficult, and that’s just quite frankly the non-agency market. The agency mortgage market, until the Fed came in, was trading in a 5-range; I mean it was crazy. As we go forward, I think you'll see these different channels turn on and we will evaluate the profitability of each one.
Kevin Barker, Analyst
I'm assuming that turning on the correspondent channels is a big portion of the guidance for $40 billion to $50 billion origination this year?
Michael Nierenberg, Chairman and CEO
Yes, I think it's a mix of everything, but yes, it's wholesale. Again, growing DTC, I put a slide showing from the third quarter in 19 which was $1 billion and change to the third quarter, I think in 20 where we had that going up 3 times. All these are going to contribute, and again, for me it’s not about the sheer volume, the 40 to 45 to 50 or whatever number it is; it’s about how do we create value for customers and make money for shareholders obviously.
Kevin Barker, Analyst
Right. And then according to your balance, you have $10.8 billion of repurchase agreements remaining on the balance sheet or liabilities against your asset base which is equal to a little over 70% of your investment portfolio of $15.2 billion investment portfolio. This is slightly lower than what it was in the third quarter. Where do you see that the repurchase amount versus your total asset base? As we look out the next one or two quarters as you start to reposition what that balance sheet looks like and the financing structure?
Michael Nierenberg, Chairman and CEO
I think you will see total repo on bonds and loans. That will be, I pointed that out earlier; that’d be around $1.5 billion depending upon what we do in agencies and things like that. I think from that, everything will be either termed or limited mark-to-market around our exposure on repo today. When you look at the bond and loan books, they are around $2 billion each; or actually, the bond book might even be smaller than that, but by the end of May and no later than June, I think most of the portfolios, both bonds and loans will be termed out.
Kevin Barker, Analyst
Okay. So when you envision that scenario, you see the term which is obviously a little bit more expensive than repo or what it was in the past; anything about the pro forma balance sheet as we make these restructurings? Where do you think your return on equity could be or where the normalized return on equity could be just given the disruption in the market?
Michael Nierenberg, Chairman and CEO
I think it will be significant because as the operating companies continue to do better, the return on equity in those businesses, as capital turnover quicker will be – I am hopeful, well north of 20%.
Kevin Barker, Analyst
So you are saying that you think you can get 20% return on equity on a pro forma basis following the whole restructure? Looking at?
Michael Nierenberg, Chairman and CEO
The portfolio was going to be small, right? The way that we think about it is, as I pointed out, we had realized losses of whatever $1.92 per share. Think about the marks we took, which were significant, those come back in a reasonable period of time. But that return on equity or that gain really comes out to a very large return on equity when you think about the actual size of that portfolio. It's going to be much smaller on the bond and loan size; it’s not going to be that material. I think the operating businesses are where you are going to get lift, and if gain on sale margins stay where they are, return on equity is going to be great.
Kevin Barker, Analyst
Now, do you see that as normal or is that something that says near term?
Michael Nierenberg, Chairman and CEO
The United States, the world is shutdown; that’s not normal. So I can’t tell you what’s normal anymore. Right? The course, but I do think in the near term, I think our operating businesses are going to hopefully make a lot of money. Whether that continues through the third quarter, I’m not sure what those margins are going to look like because I can’t predict that until we know what’s going to happen with labor and people going back to work. As I pointed out, we are hiring 500 people right now. It’s hard to tell. But I do think overall, our return on equity should be good and our track record has been very good. Every one of us at the company takes our stock price to heart and what’s happened. Unfortunately, we couldn’t control those 1 or 2 weeks as much as we would have liked to. But we did what we needed to do to get to the other side, and now we are back in a place where liquidity is terrific, the operating businesses are continuing to do extremely well, and the portfolio is much smaller. Our repo and mark-to-market exposure is very low, and that will continue to get smaller. I am looking forward to actually growing book value back to where we get to have $14, $15, $16 a share.
Kevin Barker, Analyst
And then one last one; the RMBS portfolio was a major portion of your hedging for the MSR portfolio. You had to sell that down significantly. How are you hedging the MSR now given that the agency RMBS portfolio is a small fraction of what it was previously?
Michael Nierenberg, Chairman and CEO
Right now, we are a little bit biased, I think, to the short side, because when I think about the state of where we are, at some point we will add agency mortgages if and when they cheapen up. We did add some swaps, and we got longer that way through the crisis or through those last couple of weeks in March, and we will continue to evaluate all hedges whether it be in swaps, swaptions, options, as well as agency MBS. We continue to monitor that. Agency MBS is where it is because the Fed bought a ton of them. Early this week, they came out and said they will buy as needed. You should see that soften up a little bit. I think with $3 trillion of issuance, I think you could see rates go up and the value of our MSRs go up.
Kevin Barker, Analyst
Thank you for taking my question.
Michael Nierenberg, Chairman and CEO
Thanks, Kevin.
Operator, Operator
Thank you. Our next question today comes from Matthew Howlett with Nomura. Please go ahead.
Matthew Howlett, Analyst
It takes like a long call, but I appreciate taking the question and certainly appreciate all the hard work of the team during late March.
Michael Nierenberg, Chairman and CEO
Hey, Matt.
Matthew Howlett, Analyst
Mike, just a big picture question; we are hearing a lot of reports of the speed of the non-banking industry origination, servicing. The FHFA has been vocal about pulling servicing from people. Can you just give us top-down view? What are your conversations like with regulators? Where do you see the industry headed?
Michael Nierenberg, Chairman and CEO
I think the team has a lot of dialogue, whether it be with FHFA, Ginnie, Fannie, and Freddie. We have wonderful relationships with everybody. The Ginnie Mae program will help servicers. The FHFA announcement recently about the 4-month limitation on P&I advances on loans in forbearance should help. I think overall – I pointed out we have more liquidity today than we have had in a long time. Maintaining higher levels of liquidity is essential right now. I do think the non-banks, when you think about the amount of whether it be origination and servicing that non-banks do, it’s greater than 50% of the overall market, and are really, really important to the overall housing market and the system and the homeowner community. Our hope, as we go forward, is there is continued support of the non-banks. For us personally, we will continue to maintain whatever levels of liquidity that we need to in this environment as we go forward to take care of our customers and make money in the origination and servicing business. I think if there is good constructive dialogue, a lot depends on what happens as you go forward and think about the state of the economy and people getting back to work and what happens with forbearance claims. Everybody has models and things that delinquencies are going to do this. So our forbearance numbers are going to do that. Until we actually see the real numbers, that’s why we are going to continue to build liquidity when we think we need to. Hopefully, the support – I think the folks at the agencies get it.
Matthew Howlett, Analyst
Is there an appetite to take on sub-servicing, let’s say, if there are transfers that GSEs do? Is there appetite for a big bulk MSR package if it comes out?
Michael Nierenberg, Chairman and CEO
Listen, everything is about balance right now. Just to be clear, we are not going to go out and step up and do something unless we think it makes tremendous sense for shareholders. The cost of capital right now, as we pointed out, even on certain things is a little bit higher. Retaining that capital is important unless you think your return on equity, to some of Kevin’s questions, are going to be 15%, 20%, 25%.
Matthew Howlett, Analyst
Got it. And then just two quick questions; the securitization, you said you see an NPL negotiation, what’s the state of that? And then the call rights, are you still retaining the – what’s your outlook on that as $80 billion? You didn’t sell away all your call option, that would be right? Just two of those questions.
Michael Nierenberg, Chairman and CEO
No, the securitization we did was a seasoned ARM deal that we had. Clearly, the overall proceeds were lower than where we would have been in a normalized state. Those markets will come back at some point. We have to be prudent about how we think about our call business as we go forward. Another example is we don’t have enough balances now to do securitizations on advances. As we go forward and those balances build, if they do, then we will look to do securitizations in the advanced market. As we go forward on the call business, we retained $80 billion of call rights that we currently own. In the large sale that we did, the $6.1 billion that we did in March, we gave up $17 billion of call rights, but we will work with our partners there on potentially executing those call rights. We still control a lot of collateral. We are going to be smart about how we deploy capital and how we add to our balance sheet here.
Matthew Howlett, Analyst
And the securitization advance, would that be cheaper than what you are getting on the bank line?
Michael Nierenberg, Chairman and CEO
It depends where you are going to execute and where rating agencies come out. That market has been extremely efficient over the years when you think about advance rates and the AAA nature of those assets. So I would expect us to get back in a more normalized state, and I think that will happen at some point.
Matthew Howlett, Analyst
Great. Thanks, Mike.
Michael Nierenberg, Chairman and CEO
Thanks, Matt.
Operator, Operator
And our next question is a follow-up from Bose George of KBW. Please go ahead.
Bose George, Analyst
Hey, guys. Thanks for taking all the questions. So why don’t you go back to the comment that someone made, I think it was Kevin, about the $500 forbearance that the GSEs might start offering? I was just curious what the timing for that was and also are they contemplating any other changes in terms of their modification programs, any other fees that could help as this process continues?
Jack Navarro, President and CEO of Servicing Division
Yes, I was going to mention it; it’s a $500 deferment fee. They have basically put a draft out to the various advisory boards we participate in that we have been able to review. It’s not supposed to be up and running until July 1, but again, let’s just be clear, it has not been announced yet. We thought we might hear about it last week; they are now saying maybe this week. They have got to get it through their final approval traps. Both Fannie and Freddie are working on it together, and I don’t know exactly where it stands between them and FHFA. But that is the program. Basically, the idea would be to allow borrowers to very quickly go from the forbearance process to a current loan with payments deferred to the end of the mortgage, minimize disruption, maximize the speed to process, and so that’s the idea of the program. They are also acknowledging that a certain amount of borrowers are going to need full modifications where they can’t pay the existing payment. In that scenario, they would be brought current and the payments would be rolled to the end of the mortgage, and there would be no impact in terms of the loan remaining the same payments income. There are certain borrowers that are going to need a full modification. They are also talking about what they might do or facilitate in that process, but without any specific direction. So that’s where we stand today.
Bose George, Analyst
Okay, great. That’s helpful. And then actually I wanted to also, the comment you made about a percentage of borrowers who are going to the forbearance is continuing to pay, are they making partial payments and keeping that as kind of optionality if they need it, and how big is that percentage?
Jack Navarro, President and CEO of Servicing Division
Yes, there is a statement in the document that for the enterprise as of April 30 – I am sorry, as of the end of the first quarter, the percentage was 60%. I just want to get a copy of that. Those were the numbers as of most recently, as of April 30; it was 60% had paid their payment. So far in the month of May, we have a continuation of borrowers paying their payment. It’s certainly not 60% yet. We are very early in the month. It’s hard to predict exactly where that’s going to go, and I would be reluctant to assume that there was a guarantee there. There are some partial payments being made. We are encouraging borrowers to pay any payment amount as well as their full payment amount. But I think it’s a very fluid situation. The trends are what exist today; it’s hard to predict what exactly is going to happen going forward.
Michael Nierenberg, Chairman and CEO
Thanks, Bose.
Operator, Operator
And thank you, sir. Today’s conference has now concluded. We thank you all for attending today’s presentation. You may now disconnect your lines and have a wonderful day.