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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. My name is Beth, and I will be your conference operator today. At this time, I would like to welcome everyone to the New Residential First Quarter 2018 Earnings Call. [Operator Instructions]
Mandy Cheuk, Investor Relations, you may begin your conference.
Thank you, Beth, and good morning, everyone. I would like to welcome you today to New Residential's First Quarter 2018 Earnings Call. Joining me here today are Michael Nierenberg, our CEO; Nick Santoro, our CFO; and Jonathan Brown, our CAO.
Throughout the call, 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 suggest that you download it now.
Before I turn the call over to Michael, I would like to point out that certain statements made 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 to review the risk factors contained in our annual and quarterly reports filed with the SEC.
In addition, we'll be discussing some non-GAAP financial measures during today's call. A reconciliation of these measures to the most directly comparable GAAP measures can be found in our earnings supplement.
And now I would like to turn the call over to Michael.
Thanks, Mandy. Good morning, everyone, and thanks for joining our earnings call.
As I was getting ready for this earnings call, I was looking back to our Q4 earnings call and the comments, and we did that call in February. And quite frankly, from February to where we are today, there's really not a lot that has changed despite some of the geopolitical events, I think, that have occurred in the world.
For the quarter, we had a really good quarter. The business performed very well, quite frankly, like it should. Our portfolio performance was excellent, and our investment thesis continues to create terrific value for our shareholders. Where we are and based on our view of the current interest rate environment, I feel like we're in great shape.
Activity levels overall during Q1 were fairly muted as the investment opportunities, quite frankly, are just not that abundant. As I mentioned on our prior earnings call, the abundance of capital continues to create an environment where most asset classes are fully priced and do not offer a ton of great value for our shareholders.
Our $540 billion MSR portfolio and $140 billion call right portfolio make us a very, very unique company. Quite frankly, you just -- you can't replicate this company. As we move forward, we continue to have plenty of liquidity and access to the capital markets. Should we have something that we need to be investing in, we will do so.
As we move to the supplement, we've tried to simplify our business a little bit, and we've put some glossary of terms in there. So as I walk through the supplement, hopefully, this makes it a little bit more self-explanatory.
I'll now refer to the supplement, which has been posted online, and I'm going to begin on Page 2. Currently, NRZ, we're obviously a mortgage REIT, and we have a market cap of $5.7 billion. As you look to the right side of the page, it's a little bit of a highlight reel from '17.
But our '17 numbers, we had a 24% return on equity. Our total return was 26%. And again, I still want to highlight the 2 large asset classes that we have. One is the $540 billion MSR portfolio and then our call right portfolio of $140 billion. The other thing I want to point out, our book value, which we reported at the end of Q4 as $15.26, is now $16.85. So, again, very good performance.
On Page 3, for the quarter, our GAAP net income number, $604 million or $1.81 per diluted share; our core earnings, $195 million or $0.58 per diluted share; and our dividend, $168 million or $0.50 per diluted share. So, again, very good performance. And as I pointed out earlier, the portfolio continues to perform like we think it should in this kind of interest rate environment.
On Page 4, a couple of things to point out here. One is we are a leading capital provider to the U.S. mortgage industry. If you think about the amount of, one, homeowners that we touch through the servicing business; two, the counterparties that we have in the servicing business, I believe we play a very important role in the U.S. housing market.
The asset classes, again, and trying to simplify our business: mortgage servicing rights with advances, Non-Agency mortgage securities that we purchase where we have the associated call rights and then we make opportunistic investments. As you could see on this page, we tried to define the different terms that we use when we speak about our business.
On the right side of the page, from an opportunistic standpoint, in November, we announced the acquisition of Shellpoint Partners. That is a full-scale mortgage origination and servicing business, and we think we're going to have a lot of optionality. And that business continues to perform well, and I'll talk to that in a little bit.
On Page 5, again, a little bit more of a highlight reel. Things for -- the most important thing I want to continue to point out: different type of company, set up extremely well for the current interest rate environment, growth in book value, stable core earnings, and then we try to take our capital and be as opportunistic in nature as possible.
And on the bottom part of the page, you could see, 2015, HLSS was a transformational deal for our company. 2016, we became fully licensed. We're able to acquire MSRs independently from our different servicing partners. 2017, we made some large bulk acquisitions from a number of different counterparties, including Citi Mortgage. 2017, we joined a 4-member consortium with Jefferies, Third Point and Soros and agreed to buy up
[Audio Gap]
consumer loans as well as get equity in the company of about 6% to 7%. And then in 2017, we acquired Shellpoint.
On Page 6, Shellpoint today. Shellpoint is, again, a full-scale mortgage servicer and originator and has got an ancillary business with title and an appraisal business. On the mortgage servicing side, Shellpoint today services a little over $50 billion in mortgages, of which $35-plus billion are third-party servicing. As we look forward, Shellpoint will continue to focus on its third-party business. It will not become, for example, the size of a Nationstar. We think it's very important for Shellpoint to maintain its independence and focus on its third-party business, which has been very fruitful for both the third party as well as for Shellpoint.
On the origination side, last year, Shellpoint did $6 billion. We expect that to do something between $8 billion and $10 billion this year and turn the business into a profitable business. And then it's rated by S&P, Moody's and Fitch. It's fully approved by Fannie, Freddie. And once the acquisition closes between NRZ and Shellpoint, we expect to be fully licensed by Ginnie as well.
Page 7 is just really a slide on how we see the markets. And just based on a bunch of Fed speak, we think the Fed is going to go at least another 2 times, maybe as many as 3 times this year. What does that mean for us? If you flip to Page 8, I could talk to each asset class, what that means, what that means for you as a shareholder and how we think about our business.
MSRs are one of the few fixed income assets that should -- that will actually increase in value as rates rise. So when you look at the quarter, we had some large GAAP numbers that we could talk to in a little bit. Some of that's due to MSR. Some of that's due to some of the conversions from excess MSRs to full MSRs. But in general, in a high rate -- interest rate environment, having a $540 billion portfolio of MSRs should pay extreme -- should do extremely well for our shareholders.
Servicer advances, as you look to -- and we'll talk to the -- each bucket shortly. As you look to the servicer advance portfolio, the amount of equity we have in that business today is $146 million. The team at NRZ has done a fantastic job financing that asset in the capital markets, along with our bank partners. So it's really a less important part of our business today. And when you think about it, as homeowners continue to clean up and delinquencies continue to trend lower, the amount of servicer advances outstanding will likely decrease.
On our Non-Agency securities and call rights, 94% of our business are floating rate. So as the Fed raises rates, we're going to achieve higher net interest income. And on the other portions of our business that have fixed-rate components for the underlying assets, we use interest rate hedges to hedge out that interest rate risk.
On our loan and -- consumer loan business, on the loan side, most of our loans are higher-coupon, very short-duration assets; for example, 5.5% or 6% coupons. So even in the current interest rate environment, where you have Fed funds around 1.75% or you have LIBOR of 190, the amount of net interest income on that portfolio continues to be extremely high. And then where we have situations where our fixed-rate assets have lower coupons, we have interest rate hedges on our balance sheet to protect us against higher rates. Overall, we think we're in a great position for the current interest rate environment.
Now if you flip to Page 10. I'll just take you through the different asset classes, the amount of equity we currently have in our business and then wrap up on Page 11. And then open it up for questions.
On our MSRs, which are both excess and full, our net investment amount is $3 billion. Our gross investment amount is a little bit over $5 billion. Servicer advances, I just pointed out, on net investment is $146 million. When you look at our residential securities and call rights, we have approximately $1.5 billion of net equity there, which has been pretty consistent with where we'd been in prior quarters.
On our residential loan portfolio, you'll see our net equity is $725 million. While that's up a little bit, the reason that's up a little bit is because we paid down a little bit of our debt there with some of our excess cash on our balance sheet. And then our consumer loan portfolio, you'll see, is $112 million. Finally, our cash amount at the end of Q1 was $233 million. Now on Page 11, talking about Q1 and then some of the recent activity levels we had. In general, we were -- I think our investment activities, as I pointed out earlier, were fairly muted. There wasn't a lot to do in the markets that we thought would add a lot of value for our shareholders. We did acquire $38 billion of MSRs during the quarter. And then we've also agreed in principle to acquire up to another $30 billion subsequent to the end of Q1.
In January, we paid off on a restructuring fee of $280 million to obtain the remaining rights to the MSRs on our legacy Non-Agency portfolio that Ocwen services. That total is $87 billion. And then we also priced 2 fixed-rate MSR notes in January and February totaling $930 million at a weighted average cost of funds of 3.6%.
I think this is very important to note. As you think about the size of our MSR portfolio, one of the things that we've been very, very focused on is converting our floating-rate financing to fixed-rate financing. If you recall, going back to 2016 and 2017, we did that in our servicing advance portfolio. And as the MSR markets continue to mature, we're seeing a much more receptive investor base to be able to issue debt backed by our MSRs. So that -- we think that's a very good trend for our business and going forward.
We executed 32 seasoned non-agent -- cleanup calls on 32 seasoned Non-Agency deals. That was about $500 million during the quarter. We completed a $700 million securitization in January. And during the quarter, we purchased a little under $700 million of Non-Agency RMBS, bringing our net equity again to 1 point -- give or take, $1.5 billion.
Our servicer advance business totals about $4 billion. As I pointed out in prior earnings calls, at the peak, I think it was a little over $8 billion. Really, that's just indicative of: one, the seasoning of the portfolio; two is the homeowner continues to heal; and three is delinquent loans continue to work their way through the pipeline.
On the consumer side, it's really just executing on our current portfolio, Prosper. The amount of equity that we have invested in that business is fairly low. We expect lifetime IRRs to be about 20%. The SpringCastle deal is a legacy deal, again 90% IRR, and that continues to perform extremely well.
And then our loan portfolios continue to perform well, and for the most part, our loan portfolios will grow over time and contract over time as it relates to our call activities. We did buy a pool of loans from Fannie Mae in -- subsequent to the end of Q1. That was about $686 million.
And then finally, we raised $482 million of equity in January to help fund some of our different acquisitions as well as to have a little bit more cash on the balance sheet in -- based on what we felt were going to be choppy markets.
Rather than go through the entire portfolio review, I'm going to turn it back to the operator and open it up for questions. Operator?
[Operator Instructions] Our first question comes from the line of Bose George, KBW.
First, just a question about book value. Can you just talk about the drivers of the increase? Is it just rates? Or are there more idiosyncratic things in terms of assumptions? Or any marks on the ancillary fees from the Ocwen portfolio you guys acquired?
Sure. So it's driven by a couple of things. Clearly, with a large MSR portfolio in a rising rate environment, the mark on our existing portfolio, away from what I would call Ocwen -- the adjustments from the Ocwen acquisition, were about $150 million. As you look to the Ocwen transaction, one is our -- the referral fees we get on REO were not accounted for in our business, and that was about $175 million. And then the conversion from excess to full was about another $125 million. So the bulk of the growth in our -- call it, our GAAP earnings was related to our MSR business, and that's really -- and that was really it.
Okay, great. That's helpful. And then as you -- just when you think about the move in rates we've had since the end of the quarter, how should we think about the impact? It kind of halved that $150 million maybe in terms of the increase?
You mean going forward?
Yes. Just the 25 basis points-or-so move we've had in 2Q so far.
So here's what I would say on our MSR portfolios. Currently, I believe there's more room regarding further GAAP earnings as we go forward as it relates to rates. The one thing to think about and -- you will see increases in our book value as we go forward. But the one thing to keep in mind on MSR assets and really other fixed-income assets, at some point, you're going to reach -- get to a point where there's negative convexity, and the valuations of your assets will only go up so much. While saying that, when you look at where multiples are right now on the MSR portfolios, where things are trading in the marketplace, we feel like there's a fair amount of room to go to the upside.
Okay, great. That's helpful. And then just, actually, one more. Once you guys have the Ginnie Mae license, is that kind of an area where we could see sort of meaningful capital deployment or just kind of incremental?
I think as long as we feel there's value in the asset class, and we do, I think you could see some meaningful deployment. The bigger picture around, I think, MSRs and the overall mortgage banking community, in a higher rate environment, based on the competitive nature of that business, and when you look at real margins on the origination side, which are -- which, quite frankly, are fairly compressed right now, I think what you're going to see overall is the mortgage banking community continue to contract. There'll be needs for more capital to be deployed on these MSR portfolios as well as on the originators who are going to need capital to, quite frankly, function in their business. And I think when you look at Shellpoint and the acquisition of Shellpoint and the ability of us to bolt on either further origination platforms or acquire other portfolios of MSRs, I feel like we're in great shape and a great position to do that. And then you couple that with our other servicing relationships, we're very excited about the future. I think mortgage banking is going to be really hard, but the ability to deploy more capital around these asset classes, assuming that they don't go crazy through the roof, I think, again, we're very excited about that.
Your next question comes from the line of Ken Bruce, Bank of America Merrill Lynch.
I've got a couple of different questions. And the first one is a little bit -- I have a feeling may be a little bit technical in nature, but I'm hoping you could square a circle for me. So if you look back really over the last several -- I mean, I didn't want to go back too far in history, but if you look at the last several dividends, there's a certain amount of ordinary dividend and then you've got a significant amount of paid in capital -- paid out of capital -- or I should say return on capital. And for those of us who've been around mortgage rates for a long time, we've always kind of been schooled in the thought of if somebody's paying out of, effectively, capital, that, that's, in a sense, drinking their own blood and is not sustainable situation. In the case of New Residential, your GAAP earnings had been well through your dividends. Your core earnings had been well through your dividends as well. So can you just maybe help me understand kind of what creates that backdrop for your dividend to have such a high percentage of return of capital in it?
It's -- this is Nick. It's really driven by our capital taxable income that generates the capital piece and the ordinary income piece. So to date, for tax purposes, we have had -- our taxable income has been relatively low with respect to our dividends.
And is this timing issues? Or what -- I guess I'm still not quite clear as to what creates that.
It's timing.
Okay. So at some point, I guess, that should reverse over a longer window?
That's correct.
Okay. All right. And I guess, recently, there's -- just the other day, there was an announcement of acquisition of a mortgage REIT in the agency space, and it is -- kind of underscores what many of us have thought about consolidation in the space. You guys have been active in terms of acquiring different types of portfolios and companies and the like. And when you look at a transaction like that -- I know you're not necessarily interested in agency MBS investing, but you do have the experience in that nature, and frankly, you've got one of the better currencies to work with for effectively acquiring capital cheap. Is there anything that you can kind of discuss as to kind of what your interest might be in terms of participating in consolidation across the sector?
Sure. So, obviously, we see most of the deals that are getting done in the marketplace, particularly around a consolidation in the REIT space. The one thing, and we've been very, very clear about this, is we don't want to just issue equity for the sake of issuing equity -- or we don't want to just raise capital for the sake of raising capital. When you look at some of these deals, what we -- the way that we looked at this particular deal, quite frankly, is: one, first and foremost, we need to put our shareholder first. And we say, okay, if we're going to try to do something like this and raise capital -- and everybody always wants more capital, although I would say the investing environment for generic assets is really not that good. But if you're going to go out and raise capital, really, what is your cost of raising capital? And typically, we could raise capital in the equity capital markets at, I'm going to say, a discount of something between 3% and 5%, if we needed to raise capital. When we look at an acquisition like this and breakage costs and the premium you have to pay after everything is all said and done, you're paying -- and the way that we saw it is you're paying 5-plus points of premium and then we're taking market risk, which could effectively be dilutive for shareholders, and then we're also taking more market risk where we might create goodwill on our balance sheet. So overall, this works for certain folks. And quite frankly, for -- in looking at some of these deals, I think -- not to say that we'll never do this, and we want to look at everything. Unless we think it's meaningful for our shareholders and we need the capital, we're not going to do it, if that's helpful.
It is. And I don't know, maybe just lastly, I guess I'm always intrigued with the Shellpoint strategy. And if I understood your talking points there, I guess, you see that as another area where there's going to be some structural change in terms of the operator landscape and that Shellpoint should be able to gain share in that market, both from an origination and servicing standpoint. Am I my understanding that properly?
Yes. So here's the way to think about Shellpoint. Shellpoint has a number of different third-party clients that they service for. That business needs to stay that way, and the person that runs that, Jack Navarro, does a fantastic job. And he is looking to -- and he and we are looking to grow that and, quite frankly, keep it independent from NRZ. So it's not going to be a captive servicer to NRZ. So if we acquire a large portfolio of mortgage servicing, there is a strong likelihood that it would not go there. We announced subsequent to the end of Q1 that we're acquiring -- that we're in agreement to acquire a number of different portfolios. And the likelihood is we would use our existing servicing partners, for example, Mr. Cooper, i.e., Nationstar, who we would continue to work with on some of our different subservicing. Shellpoint is a terrific third-party servicer. It's also a very good special servicer. So that business will likely grow there around that. On the origination side, we'd like to continue to grow origination. And we feel that the origination business, while it is a very, very hard business for those that have been around the mortgage industry for many years, we think the growth in origination could actually be a feeder for our balance sheet around the MSR portfolios. Gain on sale in mortgage origination is very, very tight and very low right now, and it's a very hard business. And as you think about rates backing up, you're going to see volumes come down, and hedging those portfolios is very, very hard. So I think Shellpoint third-party special servicing will continue. Growth of that independent of NRZ, won't be the size of a so-called Nationstar. We continue to have our relationships with Ditechs and Ocwens and the like and PHH, obviously. And on the origination side, we want to grow that and actually use that as a feeder of MSRs for our business. Then away from that, as we look at the ancillary business -- the ancillary landscape, I think we're very focused on seeing if there's any opportunities to offer, for example, our customers, the mortgagors, different types of products that could be meaningful for our company.
Your next question comes from the line of Tim Hayes, B. Riley FBR.
Your next question comes from the line of Kevin Parker (sic) [ Kevin Barker ], Piper Jaffray.
With regards to the call rights and the movement in interest rates, can you just give us your view on the movement in the value of these call rights when rates move higher and how that opportunity looks given where 30-year rates stand now and what the secondary market looks like?
Sure. So first of all, higher interest rates in fixed income, as we all know, will lead to overall lower dollar prices on the issuance of the debt. That's one. So when you think about whether we make 1 point, 2 points, 3 points or whatever we do on these different call transactions, that's something that we keep an eye on. I think the flip side of that is, based on the current economy and what we're seeing in the housing markets, as delinquencies come down, we'll have to buy -- we'll have to fund less -- fewer delinquent loans when we call these deals. And as a result, when we buy a nonperforming loan, for example, and pay par for it and then market down to whatever that number is, $0.80 or something like that, we'll have to do less of that. So the overall profitability should still be very good. On the capital markets front, the -- there's a fair amount of issuance that has been done not only by us but a number of our peers in the marketplace and that -- whether that be on reperforming loan, whether that be on non-QM, whether that be on prime collateral. And the markets are very receptive, and you're seeing spreads on overall assets continue to tighten relative to their benchmark index. What all of that means is that our activity should continue to be robust as we sit in this market. If interest rates really go up a fair amount, yes, I think that you're going to see activity slow down. The flip side to a lot of this is, when we identify a pool of collateral, we'll typically put interest rate hedges on that protect us in a higher rate environment. So overall, I would expect that business to continue to do well. I think the bigger picture for the call business has got to be the solution to the legacy Non-Agency mortgage market when you clean out these pipelines of delinquent loans. If you look at the -- all these legacy deals, give or take 2% or 3% of our call rights on those deals, fit in REO. So, 2% on, just using round numbers, $150 billion is $3 billion of REO. There's no reason that those loans should sit in these mortgage trusts. And quite frankly, if we work together as an industry, I would think that we should be able to liquidate those loans. So that's something we're focused on. I've had some conversations with different folks around that, and it's something that we'll continue to try to push ahead to try to clean up this business.
Okay. And then if I heard you correctly, in prior comments, you mentioned there was a markup in the REO or there are fees associated with REO. Can you just detail that a little bit?
Yes. There's no -- there was no markup, but when we did the full MSR transaction with Ocwen -- keep in mind, Altisource provides REO services for Ocwen on the underlying assets that Ocwen services for us. We were not accounting for the referral fees that we would get from that business, and part of the Q1 GAAP earnings reflects that REO business and the referral fees that we'll get as a result of that transaction.
Correct me if I'm wrong, that's about, what, 0.5 point on those fees. Or has that changed with the negotiation?
I would tell you that the total amount was about $175 million for the quarter.
The markup or the total amount that you expect over -- on a heightened value basis in the value of those assets?
It's the -- well, keep in mind, it wasn't being accounted for, so it's just a result of now accounting for those referral fees that we'll get as a result of that portfolio.
Okay. And then in regards to the acquisition you just made, the MSRs, the $38 billion, obviously, some of those were Walter and it was a mix of portfolios. But the valuation seemed relatively high compared to past acquisitions. Can you just detail a little bit about that portfolio and the reasoning behind going after portfolios that tend to be closer to 100 basis points in value and why you find it attractive, purchasing that portfolio today?
3% 10-year notes, slower speeds and kind of where the market is. Overall, if you go back in time, when we first entered the MSR business, we didn't have any leverage on our balance sheet. Now with the efficiency of the financing markets around MSRs, we feel these acquisitions and financing them will return -- give us return on investment of about probably lower double digits. So that's really the reason why we did it.
Your next question comes from the line of Tim Hayes, B. Riley FBR.
Mike, can you hear me?
Tim, we could hear you.
Great. Sorry about that. I had some technical difficulties before, so I apologize if any questions I ask have already been asked and answered. But -- so upon the closing of Shellpoint and receiving license, what do you think your appetite to acquire Ginnies will be like just given the risk-adjusted returns and access to financing you're seeing there versus with agencies today?
I think it will be good. I -- it depends on valuations. I pointed out in my earlier comments, we didn't deploy a lot of capital for the reasons being that things were just not that interesting from an investment perspective. As it relates to the MSR portfolio, our investment thesis continues to be the same. We believe the Fed is going to raise rates another 2 to 3 times this year and then likely go into '19 and raise rates. As a result, we think yields on treasuries will be higher. Mortgage rates will be higher. And the asset class itself will continue to be a very good asset class for us to invest in on behalf of shareholders. While saying that, we need to be mindful of the overall values where things trade. Multiples are up a fair amount, and they should be because of the absolute level of interest rates. So, for us, we'll -- if we find the investment attractive, we'll deploy more capital there. We haven't deployed really any capital in Ginnies. We haven't been licensed. Shellpoint is licensed. Upon the settlement in the closing of the Shellpoint deal, if it's an attractive investment, we'll likely acquire that investment. But as I pointed out earlier, it does not necessarily mean that we're going to grow our MSR portfolio a ton on the Shellpoint side versus doing some servicing with our -- some of our other subservicing counterparties.
Makes sense. And then did you happen to give just the core earnings impact from the call rights this quarter?
It's $0.02 for the quarter.
$0.02, okay. Okay. And then can you just give a little bit of color around the profitability from this quarter's securitization? And are seeing any change in fundamentals that are driving kind of better or worse economics?
It's been -- I think it's been averaging something around 1.5 points. As I -- the other thing I mentioned is, when we identify a pool of collateral, we'll typically put some interest rate hedges on to protect us against higher rates. You've seen spread compression on the issuance, meaning where our assets are actually trading are tighter and tighter spread. So that's helped our overall arbitrage. You've seen loan prices up. That's helped our arbitrage. And then the counter to that is interest rates are higher, so that's hurt our arbitrage. So overall, you're seeing something in the vicinity of, I guess, about 1.5 points. And each deal is different, to be honest. I mean, for the quarter, it was only $0.02 per share so...
$0.02 per share, got it. Okay. And then one last for me. What kind of discount were you able to acquire the Non-Agencies at this quarter? And then how much of that -- of the Non-Agencies you acquired were pulled out of collapsed deals?
The Non-Agencies are really bought in the market. Again, they were associated with deals where we own call rights. And I believe the average price was something around $0.68 or a little bit south of $0.70.
Your next question comes from the line of Bose George, KBW.
I just had a quick follow-up on the MSR mark. The -- I mean, you gave -- the $175 million was from the REO referral fees. What was the $125 million that you mentioned?
That was the conversion of excess that we had on. Because, if you recall the initial transaction with HLSS and Ocwen, we only owned excess. And then when we made the payment to Ocwen in January, we converted the excess to full MSR. So that difference was approximately $125 million.
Okay. I'm just trying to figure out the driver of the mark since you -- because you contributed whatever the fee to -- sort of to purchase that strip. So is it kind of -- essentially kind of the discount that you got on that? Or like how should we think about that mark?
It's a couple of things, Bose. I'm going to let [ Andrew Miller ] who's sitting here with me, just explain it to you.
So the biggest component of it is just improved liquidity as you move from an excess MSR to a full MSR. There's also a slight difference in the accounting treatment for the associated advances. So those are the 2 biggest drivers of that $125 million.
Okay. No, that makes sense. And then, actually, just an accounting question. The mark that you guys show on the MSR financing receivables, is that related to the answer you just gave? Or is there something else that's driving that?
That is related to the answer we just gave.
Your next question comes from the line of Trevor Cranston, JMP Securities.
Just one question on Shellpoint. You mentioned hopefully using it as a feeder for NRZ's balance sheet on the MSR side. I was wondering if you could comment on whether or not Shellpoint currently has much in the way of Non-Agency origination capabilities and if you guys foresee like prime jumbo or non-QM-type originations as something that could be of interest from NRZ's balance sheet also in the future.
They are -- Shellpoint is currently originating some non-QM products. They're also originating some prime jumbos. So that business should increase. The volumes are not large right now. I think there is a strong chance we'll be in the market with a non-QM deal in Q3 based on the origination volumes from the company. We also have -- quite frankly, we've had talks with a number of different originators. And I think, over time, we could actually be a capital provider to them as well. But you are seeing more activity around jumbo and non-QM from Shellpoint, and I think you're going to see it from other originators as well.
Your next question comes from the line of Kevin Parker (sic) [ Kevin Barker ], Piper Jaffray.
Michael, on regards to the Shellpoint comments you made about $6 billion to $8 billion this year, could you give us an idea of -- is that the entire year? Or is that just when after the deal closes?
No, it's an entire year. So last year, Shellpoint did about $6.2 billion in origination. This year, I would expect it to do -- it's hard to tell, right? But I'm going to say something between the $8 billion and $10 billion of production on a full year basis. And again, the way we think about it, the MSR -- Shellpoint is truly a third-party business. So we're going to use the best x model, just like Jack running his servicing business will focus on third-party clients. And on the origination side, if they originate volumes and somebody's got a much better MSR bid, I think you'll see that could actually trade away. So it's going to be operated as a third-party business. But the short answer is it's roughly between $8 billion and $10 billion of production.
Could you give us an update on your expectations for the difference between agency, non-agency? How much is retail? And how much is refi versus purchase in that mix of $8 billion to $10 billion?
Kevin, I'd have to get back to you. I'm going to guess -- refi markets, you're going to see less, I think, going forward as home prices are up. But I'd have to get back to you with the mix. I think it would be consistent with what you're seeing from other mortgage bankers. But let me get some better numbers, and I'll get back to you shortly.
Okay. And then you're reiterating, by the end of the second quarter, the deal will close, right?
Yes. We -- again, I don't want to short a date, but we're hopeful it closes by -- absolutely, by the end of the second quarter.
Okay. And then one more follow-up on the PHH, Ocwen deal. Do you expect any disruptions or any changes associated with how those loans are serviced given they're a pretty big counterparty as they transition from a new servicing platform and the integration between PHH and Ocwen?
No, I -- we don't. I think, whether it be Ron or now Glenn is in as taking over the operations, I would think both organizations have been on the servicing world for a long time. So we expect it to be fairly seamless.
There are no further questions. I will now turn the call back to Michael Nierenberg for closing remarks.
So thanks for joining our call this quarter. Hopefully -- a lot of questions, and, hopefully, we gave you what I think is a very good runway.
We're excited about the future. I think our comments are going to be consistent in the near -- as we look forward. Love the way that we're set up in our portfolios. The overall investing environment is just not that interesting. And our growth in our business will likely be through some opportunistic and strategic acquisitions.
With that, happy Friday. Have a great weekend and thanks for all your support. Bye-bye.
This concludes today's conference call. You may now disconnect.