Good morning and welcome to the New Residential Third Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. Please note this event is being recorded. I would now like to turn the conference over to Kaitlyn Mauritz, Head of Investor Relations. Please go ahead..

Great. Thank you, Elisa and good morning everyone. I would like to welcome you today to New Residential’s third quarter 2020 earnings and thank you all for joining us. Joining me here today are Michael Nierenberg, our Chairman, CEO and President and Nick Santoro, our Chief Financial Officer.

In addition, we have members from the NewRez management team including Bruce Williams, CEO of NewRez; Baron Silverstein, President of NewRez; Cathy Dondzila, CFO of NewRez; and Jack Navarro, President and CEO of the Servicing division of NewRez.

Throughout the call this morning, we are going to reference the earnings supplement that was posted to the New Residential website this morning. If you have not already done so, I would encourage you to download the presentation now.

Before I turn the call over to Michael, 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 would encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non-GAAP financial measures during today’s call.

A reconciliation of these measures to the most directly comparable GAAP measures can also be found in our earnings supplement. And with that, I will turn the call over to Michael..

Thanks, Kate. Good morning, everyone and thanks for joining our Q3 earnings call today.

As we look at the uncertainty in the worlds and the overall investing environment, our focus continues to be to fortify our balance sheet, lower our cost of funds and all of our financings and take advantage of the great opportunities we are seeing in our operating business.

We do not see great opportunities on the portfolio side today and we will maintain higher levels of cash and liquidity while being patient and being opportunistic. The earnings power of our company today between the investment portfolio and the operating business is extremely powerful.

To illustrate, core earnings before amortization for the quarter, are $1.52 per diluted share. Of course, you can’t look at this in isolation. However, a slowdown in amortization and a pickup in market share in certain origination channels should lead to higher core earnings.

The quarter was a good one on many fronts as we did eight securitizations, lowering our cost of funds on advances in loans, and refinance a term loan we did in May, lowering our cost of funds by 475 basis points as we issued our first unsecured debt deal.

These financings will add $50 million of savings per year or if you think of it this way, an incremental $50 million of earnings per year. With interest rates and mortgage rates at historically low levels, you couldn’t ask for a better origination market and our operating business continues to get better by the day.

Our focus on helping borrowers through hard times is one of the core values of our company. And I am proud to say that our team does great work there..

Thank you. The first question today comes from Doug Harter of Credit Suisse. Please go ahead..

Thanks.

Can you just talk a little bit about your expectations kind of as you head into ‘21 for the origination business? I think that while the profitability was great, it looked like the direct-to-consumer volume was a little lower than what you had talked about last quarter and just kind of how you are seeing the attractiveness of the various channels?.

Yes, why don’t I let Baron answer that one?.

Right. Good morning. So, our volumes were down from what we talked about last quarter in terms of funded balances. We have been able to pick up our lock volume and you can see that on one of the slides in the context that we did $4.9 billion in locks and only $3.4 billion in fundings.

Part of that is just really due to the landscape for trying to hire new staff. We have actually improved our hiring by bringing in approximately 500 people for the last 2 months in a row.

To continue to try to build out our fulfillment framework, we think we are going to continue to grow out our funding capacity as we continue to bring in new employees, I would also say and Michael talked a lot about it is our view on growth in the context of how we believe each of our channels will perform in different interest rate environments, we do believe that our JV retail channels will continue to be somewhat sticky and then not be as sensitive to the interest rate environment.

Our direct-to-consumer channel has a lot of headroom in it just given the size of our MSR portfolio. We did pause and we – and Michael talked about that in the second quarter, our TPO business as well as our correspondent business would able to continue to grow and take market shares in both of those channels.

So we are very, very much optimistic about what our 2021 would look like. And we are seeing that momentum for the fourth quarter as well..

Doug, one other thing to add, when you think about percentages, as the – as all of the channels grow, it’s harder to obviously the correspondence side is a little bit easier to grow than the direct-to-consumer side.

So, the overall percentage, while it maybe constant quarter-over-quarter, you are seeing higher lock volumes today in our direct-to-consumer channel.

And when you think about the profitability in those channels, that’s really where we are focused and again, it parts about the profitability, but the other part is slowing down the amortization that we are seeing in our MSR portfolio..

And then Michael, you mentioned kind of doing anything to kind of increase book value and the stock price, just can you give us your updated thoughts on attractiveness of share repurchase?.

We think our shares are cheap. I mean, the one thing is if we think that we could make a difference in buying back stock, would we consider it? The answer is yes, I think the opportunity to grow, because once you get back to capital, sometimes it’s harder to get it back.

The opportunity to grow, I think in thinking about being opportunistic during these uncertain times, makes us feel like we want to continue to have more cash today than we have in the past. And I think we are going to continue down that path. I am not – we are not ruling that out at this point.

Really, our focus is how do we unlock value when we think about really what we believe our true book value is, how do we unlock value for shareholders. And that’s really what we are focused on..

Right, thank you..

Thank you..

The next question comes from Kevin Barker of Piper Sandler. Please go ahead..

Hi, good morning..

Hey, Kevin..

Hi, my reference to Page 5, where the valuation of originating servicer, you have $5.58 to $7.66, which was an increase from little over $4 per share last quarter.

And I believe most of that was due to an increase in the multiple 5x to 6x earnings from roughly 3x earnings, can you explain why you think that valuation makes sense and you expect this level of earnings in 2020 to be sustainable into 2021 and 2022?.

So, as it relates to the multiple and how we derived it, there has been I think 5 to 7 mortgage companies that have gone public in the past 4 weeks or so.

When we look at where those are trading, I am not going to compare us to Rocket, which trades at anywhere from 12x to 16x EBITDA, but when we look at where we, if I think about where this company could trade as a standalone company in the public markets, you know the comps are anywhere from 5x to 6x. So, that’s why we put that number in there.

If you go back to last quarter, there weren’t really a lot of new mortgage companies coming public. Today, if we put ourselves from a comp perspective at 5x to 6x, that’s how you get that number.

As it relates to, Cathy maybe you want to talk a little bit about how we how we think about 2021 earnings and what we are kind of projecting on the mortgage company side..

Yes. So for 2021 look, we still believe, like I mentioned, we are a newly sort of growing organization and we think the market has fragmented enough that we still have runway to take market share. We take that across the four channels, even in an upgrade environment, we still got runway in terms of volume.

And we also I think, while we believe that margins will come down over the course of and get back to sort of more normalized levels, we are expecting margins to stay higher, certainly through the fourth quarter and into the beginning of next year. So look, in certain upgrade environments, we do think that our overall profitability will trend down.

But we take the MSR is going to offset that the MSR value because we will see the prepayments flow, and we have got a lot of upside there. So again, that natural hedge is going to sort of kick in as we move into 2021..

Okay. So when you look at the earnings base, you are basing it on 2020. And I believe a lot of comps at five or six times earnings were based on 2021 earnings not 2020. And so I guess what you are saying is that there is market share gains that can continue within that channel in order to sustain earnings.

Am I right in thinking that or would you expect some contraction into ‘21 just given increase in competition in various channels?.

Alright.

Kevin, I think what you are going to see is us pick up market share, we do think that you are going to see contraction in origination gains and when you think about the overall company the combination of contraction in what you are going to see in the origination market as you have lower volumes you are going to see higher valuations in our MSR portfolio in increased values in that – on that side.

But overall whether we do, I mean, in the mortgage business very hard to gauge, so whether you do 850 or 900 in pre-tax versus 700 or 750 or whatever that number ends up being, we wanted to use this as an illustrative purposes as we think about unlocking value in our company, in our investment vehicle.

If you think about our company, it’s an investment vehicle that makes investments, we have a good investment portfolio and then we have the operating business. Now where we go with the operating business in unlocking value whether you trade it at 6x 21 and if 21 was 500, for example, that would give you a $3 billion number.

So whether you are $5, $7, $10 or $3, the one thing we know what we believe is that the sum of our products is greater than the whole. And we think that the value of the operating business is not captured in our equity price..

Yes, if that was realized it would be a tremendous amount of upside to the value?.

Yes..

Yes. And then just a quick follow-up on the on the MSR in your point, you have also been increasing your portfolio at the same time, which traditionally was hedging as the MSR.

How do you think about the play between the value of the agency securities portfolio against the value of the MSR if multiples were to change or the rates were to backup?.

So, great question. I think on the, my own personal belief is that loan rates will rise over time. The mortgage basis on the other side has been pretty resilient. You are seeing lower prices in mortgages.

We have a total, I believe of $9 billion of specified pools against our MSR portfolio as well as that we need to have 440 compliance, we want to be nimble here.

And for example, I think we are going to maintain a shorter bias in the long run than a longer bias and we had some interest rate swaps for example that were offsetting where we were receiving on interest rate swaps. We have some on the other side payers, which means you are either long or short.

So, we are getting shorter there as well and we are using that to essentially hedge out what we think the interest rate risk will be against the agency side. So, we want to be able to capture the upside in the MSR portfolio when rates rise.

We are not here to – I don’t want to get to a place where we are long $20 billion of agency mortgages and we have no rate risk hedge on the other side other than the MSR.

So, point noted, but for us, we are still extremely under hedged as it relates to our MSR portfolio and the amount of pass-through that we think we would need to be fully hedged in this environment..

Okay. Thank you very much..

Thank you..

Next question comes from Stephen Laws with Raymond James. Please go ahead..

Hi, good morning..

Good morning..

Michael, I just has a number of moving parts, the adverse market refinance fee that goes into December 1, given you are blocking loans now that I assume you sell after they are funded, which would be after that goes into effect, did we change prices on loans or people leaving it where it is to unlock loans and you will take expression on the gain-on-sale and as you think about the impacts of that business, how much of your origination volume currently refi versus purchase? And then how do we think about the impact on MSRs as well as the mark-to-market from a different mortgage rate possibly on refis for agency MBS you just purchased?.

Why don’t I let Baron or Cathy take the first question as you think about the delivery of?.

Right. So, the market fee doesn’t go into effect until 12/01, but from the time we are locking to the time we are otherwise delivering them to securities, there is that period of time is really kind of when that market fee would come into effect for us.

At this time, we have completely put in the market fee in our daily pricing and our understanding is the market as well has put in the adverse fee into their pricing. It’s hard to tell how people are otherwise incorporating it in as a cost to the borrower or if they are squeezing it for margins.

My gut tells me that it’s somewhere around middle – in the middle of the pack there partially being passed down to the borrower and partially being from squeezing to the consumer, but with capacity continuing to be constrained in the ability and just the amount of demand for consumers looking to refinance.

My – I do think that margins will remain elevated as long as the dynamics in our industry are there and to the extent that even rates continue to rise, I think that you will see rates follow suit..

And Stephen, your second question was about refi and MSRs, is that what that was?.

Yes, I mean, if that – if partial of that fee is passed on to the bar, you have a higher mortgage rates and certainly I would think that slows prepayments and would be a benefit to your MSR valuation, but maybe a headwind to the agency book values, because they would be marked down and am I thinking about that right, as I try and flow all of this through the different business segments when that fee goes into effect?.

You are, but the fee is 50 basis points. So, approximately it would be a little over 12.5 basis points in rate or even 15 basis points in rate. So, and my assumption is if it’s going to be 50-50, you would be talking about maybe 7, 8 basis points on either side.

So from an impact perspective, given where interest rates, it’s the aggregate amount of the absolute amount of where interest rates are, we don’t really think it has any material impact in today’s market for the amount of refinance volume..

And Stephen to that point, when you think about our ability to recapture on the MSR side with our servicer, on all refinances, we are capturing – we recapturing approximately 20% to 25%, 20% to 30% of all borrowers that are refinancing and this is on the NewRez side, to give you a framework, every 2% increase in recapture rate adds about $0.33 per share to our overall earnings or $135 million.

So, real – when we harp on the direct-to-consumer side and recapture, while you have this increase and theoretically you are going to see that whether it be it’s passed to the borrower or it’s eaten by one of the mortgage companies, that’s going to lead at some point we believe to higher rates as we do better on the recapture side that 2% is going to be $135 million per – in earnings or $0.33 per share.

So we think there is a ton of upside in the MSR side. Origination volumes will get pinched at some point. I don’t think this is sustainable forever. But the way that our company is set up with this large MSR portfolio which will offset that a ton of cash, the growth in our operating business I think we are in a great place..

Great.

And then one last question kind of shifting on the origination side up until COVID, you guys looked at non-conforming loans so any thought of revisiting those originations or what is your outlook on the origination mix for 2021 or just simply continue to be conforming with refi, eventually, you know, running off depending on rates and what’s refi eligible or do you look at non conforming originations as something to start backup as an opportunity for next year?.

Yes, we are doing a small amount of jumbo today that gets flowed into some of the – some of our bank friends. Non-QM is we are getting ready to start non-QM.

Again, the one thing that we want to be mindful of is that we need all the capacity we can to grow our direct-to-consumer channels in the agency space, while saying that being that the credit markets have quite frankly come roaring back, we are going to be turning on our non-QM origination segment here shortly..

Right. Appreciate the comments this morning. Thank you..

The next question comes from Bose George of KBW. Please go ahead..

Hey, all. Good morning.

Actually, the first I just wanted to ask, where is the recapture rate I don’t think you guys gave that number and where do you think it could go and actually just to confirm is all the direct-to-consumer recapture or is there another piece to that as well?.

Our recapture rates are give-or-take around 20% right now, which if you think about historically even going back to the early Cooper days, we are hovering around 35%, depending upon the product type, it was between 25% and 35%. So, right now, I would assume give or take about 20% recapture rates.

We need to, I mean – when I talk about areas to improve this is, this is obviously one of the bigger things for our company growing our recapture, which will add to earnings, slowdown amortization and give us and drive core significantly higher..

And there is obviously a range of recapture rates that some companies have given and some are very high would have been the 70, I mean, what’s the sort of a reasonable way to think about where you guys could go in the next couple of years?.

I go back to, one is it depends on volumes. Obviously, the higher the volumes, it’s harder to recapture, because the industry is struggling with capacity. So, there is really the – there is the pros and the cons, right.

So if you think about higher recapture, what does that mean? That means you have slower speeds that means potentially that rates are higher, that means you may have lower origination. So, one of the reasons why we love where we sit right now is when you think about the MSR in conjunction with that origination business, it’s a fantastic place to be.

I think that we will get back to the mid-20s into on conventional products I think we will be in the 30s and we probably are in certain segments on the FHA and Ginnie Mae products. So – and again, when you think about that, in the context of every 2% is worth $135 million or $0.33 per share. That’s really what we are playing for right now..

Okay, that makes sense. Thanks.

And then just in terms of the business as a whole, what do you think about the normalized, like where should the normalized ROEs speak for you? And what do you need to get there, because you noted slower prepays will help, but at that time, originations probably slowed a little bit? And also, from a capital deployment standpoint, you have obviously a fair amount of cash, like how much is that reducing sort of the run-rate ROE at the moment?.

So, let me take the latter part. The amount of cash we have is reducing our core earnings by probably you coupled out with the term loan as probably $0.03 to $0.05 per quarter in core.

So, when you think about, we reported $0.31 sitting on cash, the term loan got refinanced in September, that’s probably a steady run-rate of $0.35ish from a core standpoint right now. As we think about ROEs and going forward, we could go out and buy non-agency securities.

I mentioned earlier in the comments that we sold $600 million in non-agency bonds, which are more credit related that have recovered from the early days of COVID.

We did that quite frankly to reduce risk and create some cash and we think a) buying an agency mortgage quite frankly on a levered basis is going to produce better results for our shareholders than having a mid single-digit levered credit piece at this point.

The world changed dramatically, obviously, 8 months ago, where do we go on a – once we get a vaccine or a cure, which we are all rooting for obviously, do I think rates normalize a little bit and head higher and you start seeing hiring etcetera? I do. And that may open up different investment possibilities.

My point earlier is from a fiduciary perspective retaining cash, not just to deploy it to drive earnings, because we think we need to, I think is fiscally irresponsible, I think retaining cash to do opportunistic things and drive core earnings hire down the road is something that’s extremely important.

So when I – when we talk ROEs, I think our ROE, we have looked at some numbers since inception, have been in the mid-teens, something around that, including through the COVID period up to COVID, it was probably something close to 20%.

So, I like where we stand, I don’t think the investing environment is that attractive to buy non-agency bonds or loans and there are some loans that continue to come out and they are trading at kind of pre-COVID levels as well.

So, when you think about it with financing, you are in the single-digits and that just doesn’t work for our cost of capital right now..

Okay, great. That makes sense….

When they start both – when you look at MSR values and we are creating them a new production that give or take anywhere from 3x to 3.5x, 3.5x on conventional products, we think that has a lot of upside and when you think about that on a levered return or unlevered return that is going to be the best use of our capital right now, because at some point when rates do rise that they are going to go up and you are going to have a lot more income from your MSR portfolio..

Okay and that makes sense. Thanks.

And just one last one, you just going back to Slide 5, just on the valuation differential, one that – the companies that are typical mortgage banks have less of a balance sheet than you guys have and to the extent that market doesn’t sort of give you the value over time, could you think of other structures like a PennyMac debt structure where you just separate the REITs and the mortgage bank set a potential way to realize its value over time?.

Yes, what I said in – I think what I closed in my opening remarks, is we continue to evaluate a way to drive our equity price higher for our shareholders and create value. So, I would say everything is on the table..

Okay, great..

Thank you..

The next question comes from Henry Coffey of Wedbush Securities. Please go ahead..

Yes, good morning and thanks for taking my call. Now, this information is very helpful as we all kind of pick into this, but everybody on the call knows the mortgage business and probably a lot of your investors at least the institutional investors understand the business really well.

If you split the mortgage company from the investment portfolio like Bose suggested looking at the PennyMac model, what would be the role of the refi in the equation? How would that – would that be the company that held the MSRs, how would that play out in your view or haven’t you really thought about it yet?.

No. So we have started about it quite a bit and we continue to work on that all the time. Listen, we have a great investment business, we have calls for up to $70 billion of the non-agency market, our MSR portfolio currently sits at $600 billion – give or take $600 billion of MSRs today. We do have some bonds and we do have loans.

As we go down the road, one of the things if you think about the split of the two companies, how big does your operating business get, how big is your operating business from a balance sheet standpoint and what’s left on the – what I would say is think about OpCo and think about the investment portfolio. So, we are playing around with those numbers.

The investment portfolio is a very, very important part to our future as we go forward, because I do think on the investment portfolio side, there will be significant MSR holdings.

So, the idea is maybe there is a way to unlock value, you are seeing it in some of our peers that are out there going public at 5x to 6x, that’s why on Page 5, we used this as an illustration to show where how we could unlock book value how we unlock book value and hopefully drive our equity price to a higher level.

So it remains we continue to work on this night and day and hopefully we get to a good result that where our share price rises and we get closer to what we think the implied book value is that would be the huge win for us..

I mean, obviously you are holding on to cash is a smart thing right now, because it is hard to get too excited over the kind of investment opportunities you have. This is just a stupid technical question.

On Page 31, where does the add-back for the write-off of your term note discount, where is that? I am looking through the numbers, I am trying to I just can’t find it, where did you report that?.

That would come through on gain, loss on settlement of investments. There is approximately a $60 million charge in there related to these are write-off of the discount..

Thank you. Thank you very much..

Thanks, Bose..

The next question comes from Trevor Cranston of JMP Securities. Please go ahead..

Alright, thanks. Most of my questions have been answered. But I was curious, you mentioned earlier in your remarks about doing some opportunistic early buyouts in the Ginnie space.

Can you maybe comment on how much ability you have to do that in terms of, the scale of loans that are eligible for buyout right now and how attractive you see that opportunity as a place to utilize some of your capital?.

So the opportunity we think is it’s a good one. The one thing I would caution on the other side is we don’t we are not the largest Ginnie Mae MSR or servicer in the business. So we don’t have a ton, we have exposure I would cede it to Ginnie Mae or FHA, but we are not the largest there.

So, we see it as an opportunity as our MSR portfolio on the Ginnie side grows, you potentially could see a larger opportunity clearly, we are not routing for that, because we are routing for homeowners all the time.

And, it’s an opportunity today, but we will see how it plays out, we will see what happens with delinquency trends as we go forward, because if you think about it, you are buying out as a borrower that is delinquent, me giving them the mod and we want everybody to be able to perform and obviously get the lowest cost of funds around the mortgage.

So, it remains to be seen, but I think the short answer is we are not the largest Genie player there it is an opportunity for us though..

Okay, got it. And then in terms of gain on sale margin, obviously, there was some compression during the third quarter. Can you comment on sort of how that has continued to trend into 4Q, I know you have said, you expect it to remain somewhat elevated in the near term.

But, has that number continued to compress further into the fourth quarter versus what we saw in 3Q?.

So margins obviously depend upon the channel of origination, but just due to the demand, we continue to see margins remaining elevated through the fourth quarter. And I would say that would be for three of the channels on the corresponding channel, as competition continues to build up.

And then you have the embedded floor which would be the agency cash windows. But we have seen margins remain steady there as well.

And that is the expectation going into the fourth quarter, I don’t think that you are going to see meaningful change in margins, unless the amount of consumer demand changes materially, which will either be based upon capacity, or just, the aggregate level of interest rates..

Okay, got it. And then last one, can you can you say, what percentage of your total origination volume in 3Q was purchased versus refi across all the channels? Thanks..

Across all the channels, we are about in the third quarter. We are about 67% refi and 33% and 33% purchase..

Okay, great..

Thanks, Trevor..

Thank you..

The next question comes from Mike Smith of B. Riley Securities. Please go ahead..

Hey, Mike. Just a quick question for me.

Could you provide quarter to date book value performance and just give any commentary on book – on performance during the month of October?.

It’s early, Mike. I would say we are essentially give-or-take unchanged at this point. So something between, I guess our net reported number of $10.86 and $11, so probably in that range..

That’s all for me. Thanks for taking the question..

Thank you..

The next question is from Giuliano Bologna of Compass Point. Please go ahead..

Good morning. I guess kind of going back to some of the DTC discussion you obviously increase DTC volumes in the third quarter. And last quarter, there was some discussion about getting I guess third quarter to about $4.6 billion in fourth quarter to around $6 billion. I am sure there were different assumptions and about prepayment speeds in that.

But what I was trying to figure out was kind of what the runway looks like given the environment going into the fourth quarter. Obviously, you give some monthly trends last quarter.

But then beyond that, the next part of that question is really, what kind of volumes are you really trying to target on the DTC side? And what is the growth potential there, because obviously that’s a huge factor in terms of stabilizing the portfolio, because you have significant amortization expense flowing through at the moment?.

So, the biggest issue we have had is really just capacity to be able to fund loans. And that is just the market dynamic across the entire industry and the entire sector on either from a technological perspective to be able to put loans through the system as well as just having enough people to put loans through the system.

And what we realized is that we just were not able to bring in enough people fast enough, we have made moves in the third quarter to get ourselves to a better place. And I talked a little bit about that before, where we are hiring north of 500 people a month at this particular point in time.

In order to meet that capacity, we have a view as to how much we should be able to close for the month, if you look at on Slide 22, we talk about that we took in $4.9 million of locks, which we believe we should be able to catch up to that capacity going into the fourth quarter.

Given thoughts on where we think the market is going to come into 2021 just given the size of our origination business versus the size of the MSR portfolio and Michael talks about incremental changes in we can improve our recapture rates and have that continue to go up, we do believe that there is a lot of headroom given the size of our MSR portfolio to take advantage of the current opportunities, does that mean that we can get ourselves to 40% recapture, a 35% recapture, a lot is going to be driven by the amount of refinance activity on a go forward basis going into ‘21..

And really, I know this when you think about what is the amount that we want to do in that channel and quite frankly, it’s as much as we possibly can that we think that we can handle and that is that’s kind of where we want to head with this.

And again, the growth of the company has been tremendous the amount of resources we have continues to grow, the equity investments we are making in branding and marketing and technology is something that will continue as we build this company for the long run..

That makes a lot of sense. And what I was trying to get in the sense was also thinking about the kind of forward interplay between DGC and originations and amortization.

I am curious as the first part of this question, if you have any sense of how amortization is shaping up early in the fourth quarter? And then the second part of that is kind of getting back to those two questions, I think was brought up many different times and answering that you have, let’s say addressed in a few different ways on the call, but you keep referring to unlocking value from the operating businesses where I think is really interesting.

What I am kind of curious about is like, what would you consider there if you can’t get the value in the shares, would you consider spending the businesses and then the question that kind of width that it goes along with that was would be, would you keep the servicing and originations in the sense of keep the actual assets of the MSRs with the originations platform and that type of a transition of the business or how would you think about that where the pieces would fall?.

We – I think I have pointed out either to Kevin or somebody, we are working on all kinds of different iterations on how we think about the operating business versus the investment portfolio and the interplay between both and that will continue until I think we get to the right results for our shareholders, which is a higher stock price..

That makes a lot of sense. Well, thanks for answering my questions and I will jump back into queue..

Thank you..

The next question is from Jason Stewart with JonesTrading. Please go ahead..

Hey, good morning. Thanks. Obviously, we had a lot – a large population of customers that took forbearance back in April, May and we are hitting the 6-month mark. You have given us some good disclosure 50% roughly of ended forbearance.

Does that mean that population is current? Can you give us some more color around that? And then active loss mit, does that mean you are in contact, just looking for some more context around those two buckets? Thanks..

Sure.

Jack, do you want to take that?.

Sure, Michael. Good morning, everybody. Happy to take that. I would refer you to chart – the chart on Page 24 I think the most interesting statistic is one that Michael already stated. And I just would like to repeat and that’s the fact that only 18,000 new forbearance requests in the third quarter versus 174,000 in the second quarter, pretty dramatic.

So, in addition to that, we have seen a transition between those people who have requested forbearance into active forbearances. So, that’s that number that you see, it’s about 75,000ish in the second set of bars, the act of forbearances.

Of those forbearances, a higher percentage of those are delinquent than from the original number and a good portion of the people who have transitioned into resolution have transitioned because they were paying current customers and now have just said they no longer need the forbearance protection.

And so a high percentage of those about 80% of those active forbearances are in fact delinquent. And then in terms of active loss mitigation, that just means that we are in discussions with them to either defer or modify or in some cases reinstate and so those people are in active discussions today..

Okay, thanks for the color. Appreciate it..

Yes..

Thanks..

The next question is a follow-up from Kevin Barker of Piper Sandler. Please go ahead..

Thanks.

I just wanted to follow-up on the comments about correspondent margins, have the correspondent margins come down to pre-COVID levels in the third quarter and hence your comments about steady margins in the fourth quarter or are they still elevated from where you saw that elevated compared to pre-COVID levels?.

Right. They are definitely elevated versus pre-COVID levels.

I would say that there are a few different ways to purchase correspondent, so really depending upon what the mix is, in correspondent whether you are buying Ginnie Mae’s whether you are buying agencies and then also whether or not you are buying mandatory or best efforts locks or even non-delegated locks.

So that impacts what margins are across the board that we are still seeing correspondent margins elevated versus pre-COVID and we are around 50 basis points all-in on a pre-tax basis on correspondent margins..

So their competition still is not as strong as some others have said or you are just saying there are certain channels that can continue to….

I think there are certain – there are certain channels within correspondent that can continue to elevate margins. There is no cash window for example on Ginnie Mae. So to the extent that you are able to continue – or you are having an interest in continuing to buy Ginnie Mae that can help out your margins.

It really depends on the channel mix within that – with the product mix within that channel..

Okay. Thank you very much..

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Nierenberg for any closing remarks..

Well, thanks for the call this morning and your support. We look forward to updating you throughout the quarter and in Q4. Have a great day and a great week. Thank you..

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect..