Logo of jester cap with thought bubble.

Image source: The Motley Fool.

New Residential Investment Corp (NYSE:NRZ)
Q1 2020 Earnings Call
May 5, 2020, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day and welcome to the New Residential First Quarter 2020 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note 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

Thank you, Rocco and good morning everyone. I'd 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.

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've not already done so, I'd encourage you to download the presentation now.

Before I turn the call over to Michael, I'd like to point out that certain statements today will be forward-looking statements. These statements, by their nature, are uncertain and may differ material from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review those 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 with that, I'll turn the call over to Michael.

Michael Nierenberg

Thanks, Kate. Thanks. Thanks everyone for joining us this morning. Our earnings today are truly a tale of two quarters. As we entered March we are 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. I mean, it's 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 a hedge, as well as some agency securities. What happened was 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 to mortgage rates, quite frankly. But even long only investors as falling prices cause redemptions, which put extreme pressure on the system. So what do we do? We went out and said, OK, 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.

Over our leverage got reduced to 1.5 to 1.7 times. We reduced our bond positions by 85%. We reduced our loan positions by 45% and today our blown and bond positions are at the lowest levels we've 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. Today our cash position is significantly higher. While our balance sheet is a fraction of what it was.

Our cash position as of April, 30 was $517 million with unencumbered assets just under $400 million. Our mortgage company which continue, and which continued and still continues to support homeowners through this difficult period work with borrowers and forbearance programs and agreements to help alleviate the hardship caused by COVID-19. We're really proud of the hard work that the company has done in light of these difficult circumstances. In our origination business as prices fell on non-QM and prime jumbo loans, we stopped originating all non-agency products.

Our focus today and going forward in the near-term will be on Fannie Mae, Freddie Mac and Ginnie Mae loans. We will continue to provide credit to homeowners and focus on supporting our customers while folks -- while increasing our borrower retention efforts.

On the ancillary business side Covius, Avenue 365, E eStreet and Guardian continue to support our origination and servicing business. We expect to see growth in those divisions as we -- as we enter into a more normalized state as we go forward.

Our advance business. We've increased our advanced capacity and commitments by $1.8 billion raising our total financing lines. The $5.25 billion, which we believe gives us plenty of capacity to fund advances as we go forward.

Keep in mind in 2015, we had over $11 billion of advanced capacity and at that time we were funding $8 billion of advances. Our team has a ton of experience in this business and we're highly confident in our ability to deal with higher advances.

In some of the government programs that have been rolled out, the Ginnie Mae PTAP program, helps to support the mortgage servicing community by providing financing up to 100% for principal and interest. That is a good thing for mortgage servicers, to the extent that you wanted to use it.

FHFA, recently announced that servicer obligations will be capped at four months during the forbearance period for P&I, again another positive developments. As we go forward, we will maintain disciplined focus on assets which are low leveraged, term financed as well as service by our NewRez and Shellpoint Partners. We'll maintain higher levels of liquidity than you've seen in the past, while focused on our operating business and opportunistic investments that we look forward to growing our book value once again and providing terrific and investment returns for our shareholders.

Finally, I want to wish everybody well and a big thanks to our team for all their hard work during these difficult times, because I will tell you that we've been working 24/7 to do all we can to get back to where we believe we should be.

With that I'm going to refer to the supplement, which has been posted online and I will begin with page, page four actually, we're going to go right to our company 2Q -- Q1 company and financial highlights.

For the quarter, we had a GAAP net loss of $1.6 billion or $3.86 per diluted share. This includes mark to market an impairment of $2.24 and realized losses of $1.92.

Our core earnings were $198.4 million or $0.48 per diluted share. First quarter common stock dividend of $0.05 per common share which correlated to a 4% dividend yield as of March 31, 2020.

Cash on hand as of March, 31 was $360 million, I just alluded to the fact that today or as of April, 30 we had $517 million of cash again building up our -- our liquidity position. Unencumbered assets were $390 million.

Our net equity as of March, 31 is $5.2 billion, book value per common share as of March, 31 was $10 and $0.71. Our book value during the quarter decreased by about 34% from $16.21 to again $10.71 from December to the end of March.

Page five, going back to my earlier comments, this really was a tale of two quarters for us. Prior to the 13 of March we were on track for a great quarter. Core earnings were slated to be $0.65. Our book value is between $15.72 and $15.89.

Our mortgage company was going to make between $125 million and $150 million. The origination volumes $12 billion and our overall leverage was 3.5 times. As we fast forward and you can see the impact what -- as a result of COVID, we lost $0.17 in core earnings. Our book value went down by $5 as we had some large sales of assets. Our origination and servicing income went down by $67 million and our origination volumes tailed off a drop as we pulled in the rates. Overall reduction in leverage 1.7 times as a total company through March, 31.

Page six, we put this slide in last time, and I just want to illustrate what we think a theoretical book value could be for us as we think about the growth in our operating business and if you go to the left side of the page. If our operating businesses make and let's take the low end, $300 million so we say, those companies traded a 5 PE that would create enterprise value of $1.5 billion.

Our current book equity on our operating businesses are about $400 million, off balance sheet value of $1.1 billion, which would create an extra $2.73 per diluted share or an implied book value of $13.44.

So if you looked at the right side of the page, you could see on balance books-- on balance sheet value $4.5 billion and the total would be something around as give or take $6 billion. So again, I just want to illustrate what we think the value of our operating companies could be as we go forward.

Page seven, as we adapted to COVID and the macro environment. We sold $27.9 billion of assets through the end of April, reducing our investment portfolio to $12.7 billion. We reduced our mark-to-market exposure dramatically. We reduced our total leverage in our investment portfolio to 1.5 times and that's down from 3.5 times.

When you look to the right side of this slide, we executed on our liquidity plan. Cash on hand now again $517 million and as we pointed out earlier, we added financing capacity of $1.8 billion in our advanced business.

Page eight, as we reposition the company today and we think about the go forward. Again, we sold $27.9 billion of securities that includes non-agency securities, agency securities and loans are mark-to-market once again has been decreased dramatically. We reduced our repo exposure and even in the height of the crisis, we priced $450 million season non-agency deal.

If you look to the right side of the page, our go-forward, we expect by the end of May that 75% of our non-agency loans and securities will be more term financed with limited or no mark-to-market exposure. Our investment strategy is going forward will be driven by term financing solutions and focus on assets which are truly complementary to origination and servicing businesses and 85% today, 85% of our loans and securities that currently serviced by either NewRez or Shellpoint.

Page nine, is our typical call right slide. I'm not going to spend a lot of time on this. Today we continue to control $80 billion of call rights. If you recall, we announced during Q1 then we made a large sale of non-agency securities included in that words were roughly $17 billion of call rights and we'll continue to work with our partners on not only the $80 billion, but also the $17 billion that was sold during the quarter.

Servicer advances, page 10. Our team has an unparalleled experience in managing large -- large portfolios of advance balances. Advances are one of the highest quality assets you can get in the mortgage markets. The top of the waterfall since 2015, we have recovered 100% of the advances on our portfolio.

Following the acquisition of HLSS in 2015, we had peak advanced balances of $8.7 billion and that was funded with over $11 billion of debt. Since then we have successfully managed these balances down through servicing and term financing. We've completed 15 advance securitizations for $6.1 billion and we believe by working with our servicers not only Shellpoint in NewRez, but other services Cooper and Ocwen and others we'll continue to manage these balances down. And as you can see on the bottom part of the slide, you can see the $8.7 billion going to $3.5 billion today.

Page 11, we've brought the slide back out. Servicer advance balances today are $3.5 billion. That's down from $3.8 billion in 2000 at the end of 2019, that's finance with $3 billion of debt, $1. 9 of which is in the capital markets. The LTV of 86% includes a no advancing on or no advance facilities on Ginnie Mae's at this time and we expect that to come online, and I'll talk to that in a little bit. Our advance balances as of March 2020 are 11%. Fannie and Freddie 3% Ginnie and 86% PLS again the Ginnie advances are not financed on any lines. After March 31, I pointed out earlier, we increased our advanced capacity by $1.8 billion and we've extended some of our maturities there.

Page 12, total advance capacity $5.25 billion. Couple of things to point out on this slide, where we are currently working with Ginnie Mae on some advance financing, which will result in an extra $75 million to $100 million of additional liquidity and in the stress case that would create an extra $300 to $350 million. We expect this advance financing to come online, hopefully in the next 30 days to 60 days. Today based on the new Ginnie programs, as I pointed out earlier, Ginnie provides a 100% financing on P&I for loans in forbearance and on FHA they announced last week that they're going to limit service or obligations to advance P&I to four months while the loans during the forbearance. Couple of things to point out here that I think are very important. In a base case scenario, we project that we will only need an extra $120 million in equity to fund servicer advances. In a stress case scenario that goes out many, many months we believe that the amount could increase to $390 million.

Page 13, our MSR business. MSR is one of the few fixed -- few fixed-income assets that will rise in value when interest rates rise. To talk to that, when you look at -- when you, when you think about yesterday's announcement from the Fed and Treasury that they're going to issue $3 trillion of debt this quarter. We do believe with rates at historical lows that it's probably -- it is a great time to think about MSR investments. We have obviously, we have a large portfolio there. We took a reasonable -- reasonably large-size mark down in the quarter as a result of our faster long-term speed projections and wider discount rates as well as some higher delinquencies.

On the right when you think about our MSR strategy, we continue to work on recapture that is a very, very big thing. We're working on recapture with Cooper. We're working on recapture with NewRez and we have some subservicing agreements where we are the -- where we are going to be lead generators and work on recapture with them. We have a lot of upside there from current levels. As you think about the current market, roughly 70% of the market today is a refi market, our recapture percentages on refi should be significantly higher than that on a new purchase loan in the market.

Page 14. Why are we different? On the left side of the page a couple things to point out. One, on our MSR financing. 50% of our MSR financing it's in capital markets term notes, limited mark to market exposure. The other 47% is on bank with banks and variable funding notes with again limited mark to market exposure. So, really nice term structure as we continue to work with our banks on extending some of the -- some of those facilities.

The bottom part of the page I think really what differentiates our MSRs from the industry. Our average loan size is 140,000 versus an industry of 212. We are very seasoned loans and more credit impaired loans to the industry. 81-month season versus 39. Our FICOs are 719 versus 748, and the refinancing population we think is, give or take about 30%.One other thing to point out today is when you think about the credit box with virtually no non-QM production origination today, the jumbo market pulling bad banks. A couple of the large money center banks, announcing that they're getting out of the origination business around HELOC [Phonetic]. I do think that credit box is tightening. What does that mean? Obviously, we'll be there to provide credit for our customers. But -- what I do believe it's going to mean a slower speeds as we go forward.

Page 15. Our mortgage origination and servicing business that is under the brand of NewRez, as well as Shellpoint. The origination business today is well capitalized and the margins in the origination business are some of the widest margins we've seen in years. As I pointed out, we shifted our production to just Fannie, Freddie, and Ginnie loans. We've exited non-agency and non-QM and our multi-channel approach provides flexibility so we could take advantage of various rate environments.

Most importantly, we continue to focus on helping homeowners navigate through this crisis. We are experiencing special servicing, I believe is second to none. We continue to work with homeowners. We continue to implement new forbearance programs and we continue to work on creating digital funds functionality in our online portals to educate and to help homeowners.

Finally during the quarter, we had a very good profit as I pointed of $90 million that is down from $150million. We think that the run rate there will be significantly higher. Today 95% of our employees are working from home and doing a great job and we're currently in the process of adding another 500 jobs as we navigate through this crisis.

Page 16, just a couple of quick things here. One is we estimate production to be something between $40 and $50 billion for 2020 and as I pointed out earlier, a gain on sale margins are at some of the recent vibes [Phonetic] that we've seen in a long time.

Page 17, when we think about the direct to consumer origination business. This is where we're going to be spending a lot of time and continue to add resources. We need to be better at recapture. We think we will be better at recapture. This channel is going to help us do that. And we're very excited to see the growth here. If you look at the end of Q3, we had $1.2 billion of quarterly funding we expect by the end of Q3 we're going to be at $4.6 billion, a lot of that is going to be around our recapture business.

Page 18. I do think we have a best-in-class servicing operation. We have Jack Navarro who runs that business, who is on the phone. Him and his team do a fabulous job. Keep in mind, again 95% of our employees are working from home and is very difficult in the environment and doing a great job working with homeowners to provide comfort and get them through these difficult times.

Our pre-tax net income for the quarter was $30 million and we estimate our servicing portfolio to be something between $300 billion at year-end. On the special servicing side, this is something we're very proud of. We have 40 different -- over 40 different institutional clients. This includes the GSEs, this includes the money center banks, this includes whole loan investors. Jack and his team are very well regarded in the industry. Again, they do a great job, as delinquencies rise SMS is well-positioned to work with customers through its special servicing expertise. We work closely with FHFA, Ginnie Mae and other regulators to provide positive outcomes for borrowers that have been affected by COVID-19 and quite frankly even before COVID-19.

We've implemented online digital tools to support our forbearance request and we continue to expand capacity as we manage post forbearance solutions.

A couple more slides. On page 20, just a quick update on COVID and how we think about forbearance. As of April 30, 2020, 200,000 borrowers in our portfolios have been granted forbearance. Over those 200,000 borrowers, 60% that recurring in March had made their April payment are still current and of other loans 7% of all the borrowers in our portfolio were granted forbearance through April 2020.

On the ancillary service business, I alluded to this before. I'm not going to spend a lot of time on it as, as you may recall from prior earnings calls, we have an investment in Covius that's run by Rob Clements and John Surface.And basically it's an origination and servicing solution company that provides all kinds of different services to our mortgage company as well as third-party mortgage companies.We have a title in appraisal business and then we own a company called Guardian which does field services and provides property press and REO Management Services, the banks and servicers.Finally, page 22. Our focus, I think the one thing to take out of this is we want to get back to where we were before. We want to grow, get our book value back to our $16 or $17. I gave you an illustration, before, why we think that our book value is understated. We'll continue to do anything and all we can to protect and grow book value, couple of other things, the bond portfolio. The loan portfolio in this environment will remain much smaller. We're going to be opportunistic where we can and risk management remains job number one.

With that, I will turn it back to the operator and we could open up the line for questions.

Questions and Answers:

Operator

Thank you, sir. We will now begin the question-and-answer session. [Operator Instructions] Today's first question comes from Tim Hayes with B. Riley FBR. Please go ahead.

Timothy P. Hayes -- B. Riley FBR

Hey, good morning, Mike. Thanks for taking my question.

Michael Nierenberg

Good morning, Tim.

Timothy P. Hayes -- B. Riley FBR

I hope you're doing well. My first question, you know, before the pandemic hit you were already in the process of transitioning to more of an operating company versus a reportfolio and you highlighted ancillary services on page 21 there and in most of them are performing better in this type of environment. Just given the disruption and the portfolio transformation 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 kind of the operating platform at NRZ?

Michael Nierenberg

Yeah, you know. We've been pretty vocal the past couple of quarters of how important the operating business is to our company. Not only to grow the operating business, but really to support the portfolio. The retention part of our portfolio is something that's very important to us. When you think about the mortgage servicing and origination business and if you recall, when we first acquired Shellpoint or New Penn back in -- 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. Then the other thing, quite frankly 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. 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 is going to be continued focus on operating our business, it will be opportunistic investments. I don't know you know what the next 6 months to 12 months are going to bring for us. I will tell you that 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 businesses.

Timothy P. Hayes -- B. Riley FBR

That's help.

Michael Nierenberg

The long-winded answer is probably, yes.

Timothy P. Hayes -- B. Riley FBR

Got it. Okay. And then just kind of piggybacking on that, you've done a lot clearly to deleverage at this point and have a lot more liquidity on hand relative to the size of your portfolio. Then you generally do, so just curious how you prioritize maintaining liquidity here versus putting capital to work or further deleveraging and or buybacks at current levels?

Michael Nierenberg

I would say buybacks I -- I can't really comment, that's kind of a board discussion, just like the dividend stuff will be Board decisions as we go forward. I think having more capital today is essential. We're not just going to go out and go back and reinvest in -- in a kind 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, there's free fall and it has crushed us.

So we're going to have more liquidity than we probably ever had before. We want to navigate through this. We do think again, there'll be opportunities. Well, I think our history has demonstrated our ability to be opportunistic in nature and and we're going to grow and get back to where we belong and hopefully grow book value and create great returns for shareholders.

Timothy P. Hayes -- B. Riley FBR

And I guess just maybe specifying that a little bit more. Do you feel that you need to further deleverage 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 deleverage, given where your multiples right now?

Michael Nierenberg

Yeah, I think -- I think what you'll see in our kind of our short-term financing books those books will be probably give or take $1 billion to $1.5 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're 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 1.5 times. I don't know that there is any other companies or very few companies that have leverage like we do. And if we can continue to generate good operating earnings, I think we'll be back to where we belong in in the near future.

Timothy P. Hayes -- B. Riley FBR

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 a $120 million to $390 million, does that for the advances, does that assume that or does that have any implied assumption that you're 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 and is there any implied assumption that you'd be tapping the PTAP facility or that you do secure this -- this Ginnie [Phonetic] facility you talked about just any more context on that would be helpful?

Michael Nierenberg

Yeah. These are just equity numbers as I pointed out earlier, we have five in a quarter $1 billion of total debt available to us on the advance lines. This is just an equity component to the extent that we're able to improve financing rates or and do more term, which will happen over time, right. When we get back into the capital markets. I did point out and the high default, this we did $450 million non-agency securitization. So 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. And the question is, I think for all of us, quite frankly, how long we stay in this, in this state, where people are not working. And you see more and more jobless claims. So we are expecting the worst over time and I think the numbers to the extent that they get better, I think, it's only going to be a positive from a capital perspective, from where we are.

Timothy P. Hayes -- B. Riley FBR

Okay, that's helpful. I'll leave it there, but thanks again for taking my questions and stay well.

Michael Nierenberg

All right. Thanks. You too, Tim.

Operator

And our next question today comes from Bose George with KBW. Please go ahead.

Hello, Bose. Is your line muted, perhaps?

Bose George -- KBW

Hey guys. Sorry, Mike. Sorry, my line is muted.

Michael Nierenberg

Hey Bose, good morning.

Bose George -- KBW

Good morning. Hope everyone staying safe. Actually, first, I mean, I wanted to just ask about the credit cards, the credit assets. Would you continue to sell that portfolio and if you're able to in this year, can you comment on that. So the outlook for doing that?

Michael Nierenberg

Yeah, 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 was hedging our MSRs, again going back to my earlier remarks that broke down in that week in March, agency mortgages got crush. Bonds got crushed, loans got crushed. MSRs got crushed. All of that created liquidity needs for us and I think the broader market quite frankly, we're not going to get back into a position where we're buying a lot of bonds with repo and just can't do it. I think we're comfortable with the size of that book. There is some AAA IOS for example there. I do think, as I pointed out with the Fed announcing, the government announcing that they're going to issue 3 trillion of government bonds, there'll be huge needs for -- for the government to issue debt in these markets. And I think for us as a result, I'd like the way that we're positioned. I think the bond book is small. On the loan side, again that book will be something, give or take 2 billion-ish. And 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. There is a bunch of -- a large number away from that in that $3.86 number were truly mark to market. To the extent of markets recover, I do -- 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 give or take 6% to 8% unlevered in a covert scenario when I think about that, the risk the asset returns are very, very attractive while saying that they need to be term finance, so we don't get into a mark to market issue as we go forward. So I think we're comfortable overall with the size of the portfolio.

Bose George -- KBW

Okay, great, that's helpful. Thanks. When that you're switching to the servicer advance, the slide you showed where you showed the stress case delinquency that you could get to. Is that sort of assume either forbearances or delinquencies, and is that the cross, all the three, you know, that the Fannie, Ginnie, PLS buckets?

Michael Nierenberg

Yeah, well. The second part of your question is across all of our buckets, distressed scenario. We run this out 6-plus months. And I think the -- the delinquency numbers, sort of [Phonetic] forbearance numbers go to like 30 --the delinquency numbers go to like 30%, 30 days or something like that. So the numbers go up substantially. And I think in those stress case scenarios, that's why we wanted to illustrate the amount of potential equity that we would need to do that. And again we feel that's extremely manageable for our company.

Bose George -- KBW

Okay. Yeah, that makes sense. And actually is a lot of the -- our prepayments playing a big part as well in terms of offsetting the advance needs during those periods, just given the prepays a high right now?

Michael Nierenberg

Yeah, I mean we are running, we do think over time. And obviously as delinquencies tick up. I do think with the credit box tighter that you're going to see slower speeds, and I think our REIT and to the extent that you don't and we're good at our direct-to-consumer vertical and originations remains robust. We think that we're going to be in a very good place. Should speeds get fast as you pointed out Bose that creates less needs on the advanced side as you get more principal back in. So we'll have it's like a -- 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 go up pretty dramatically. So, that's a good point.

Bose George -- KBW

Yeah, yeah. That will make sense. And then just one last one. This quarter and has there been much change in the -- in the book value?

Michael Nierenberg

No, no. I mean, I would argue that prices in general are much more stable. We've had a number of our REIT -- REITs and other folks that got liquidated during the quarter. Today, I do think that asset prices are more stable than where they've been in -- in a long time, if not higher and our book value is, I think it's something consistent where we were.

Bose George -- KBW

Okay, great. Thanks.

Operator

And our next question today comes from Giuliano Bologna with BTIG. Please go ahead.

Giuliano Bologna -- BTIG

Good morning. And I guess, well, it's unfortunate that book value is down. It's great to see some performance on the operating business side. I guess, extending 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 we're at 120 bps in April, which is great. Is there any visibility kind of going forward on the margin side there?

Michael Nierenberg

Margins today, trying to find one of my sheets, are as wide as -- as wide as we've seen in a long, long time. And I think as we, as we go forward, I do think they'll compress quite frankly. But I think for right now, the gain on sale margins in all channels are extremely robust, and we'll continue to focus on that. I can't -- I'd love to tell you where I think they're 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 sale margins are extremely attractive.

Giuliano Bologna -- BTIG

That makes a lot of sense. And kind of a little bit of a two part follow-up. When I look, think about the servicing side of the business, you obviously have Shellpoint which has probably has an enormous opportunity going forward on the specialty sub-servicing side of the world and you also have a fair amount of loans or service 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 -- is there a sense of how many or what number of loans that are in forbearance you're currently servicing and have an opportunity to generate some performance fees from modifying or doing things of that nature going forward?

Michael Nierenberg

Well, why don't they have. Hey, Jack, you want to jump in on this.

Jack Navarro -- President, CEO of the Servicing division, NewRez

Sure. 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 $500 incentive fee for forbearances. So that will certainly benefit us as we work through the long-term solutions with these forbearances, but it will also have significant increased costs. So, while I think it's a positive. It's -- the jury is out on exactly, exactly how much of a positive on our -- inside our self-service platform today. We've done 140,000 forbearances. So it's pretty easy to do the math, although it's important to note that 60% of those people paid in April and about so far that trends continuing for May. So, again, if you're 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 servicer.

Giuliano Bologna -- BTIG

The other one is more so on the specialty side which 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 and there is an area where you can do in terms of earnings are generated more cash [Indecipherable]?

Jack Navarro -- President, CEO of the Servicing division, NewRez

Yeah, 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 percent range up to 30%. I think we'll see a little downturn in that in the second quarter. Just as a nature -- the nature of the increased volume and the increased costs and I think you'll see a sort of return to those margins in the third and fourth and maybe even a little bit better. I think the issue for us right now is 100% focused on the homeowner and the existing clients and how can we help these homeowners through their sort difficult times. We know at the end of the day, that's the key. So when we service for the GSEs, which we do directly on the special servicing side, they are looking for us to make sure we 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 existing portfolio. Second is the needs of the existing clients, but we've had a lot of inquiries both from the existing clients as well as new clients for how much capacity do we have and how much we could do. We're going to be really, again, we're going to prioritize the existing clients and we're going to be really thoughtful about the expansion of the business, but there is definitely an opportunity, definitely an opportunity to expand.

Giuliano Bologna -- BTIG

That's great. Well, thanks for taking my questions and I will jump back in the queue.

Michael Nierenberg

Thank you.

Operator

And our next question today comes from Stephen Laws with Raymond James. Please go ahead.

Michael Nierenberg

Good morning.

Stephen Laws -- Raymond James

Good morning, Mike. 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 it at about $6.5 billion to $7 billion of sales or decrease in April. Do you think that's where it needs to be? Do you expect more of a decline in May, kind of where do you expect the trough or bottom to be from a portfolio size or maybe the other way is just. Do you feel comfortable with the current size or you feel like you need to keep getting smaller?

Michael Nierenberg

Yeah. 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. So 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 1.5 times, 1.5 times to 7 times if you include the mortgage company. We will continue to run a very, very low levered business. I think we're comfortable with our portfolio size now. I did point out that we did have a realized loss of a $1.92. I think the number was per diluted share. And I think our ability to get back some of the money that we lost and mark to market could be pretty significant stuff, you think about it if we lost, give or take, you know, I'll use around number $4 per diluted share and half of that let's say was from actual sales. If we term out our assets and they are yielding 6% to 8% in a COVID scenario, I could see based on a zero percent interest rate, which is kind of where we are in the marketplace that we could see a recovery of, I don't know if we're going to see recovery of $2, but weeks ago you know that $2 was in book value. So overall portfolio size we're comfortable with. Term financing continues with the hard work that's going on with our team and our counterparties, whether it be the banks or insurance companies we're working with. So, we're comfortable where we are.

Stephen Laws -- Raymond James

Great. To touch on the origination of $45 billion was mentioned the new goal. And I think the layout of page 13 has changed slightly. So the -- and I had a look for the Q and I apologize, but agency and 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 in, 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

Yeah, we are a Fannie, Freddie, Ginnie originator right now. What we saw in the as a result of the downward pressure and answer prices we saw non-QM loans go down 10 points to 15 points. And you can originate a loan at par and sell it at 90, that's, that math doesn't work. So we are added that space at this point. So you'll see Fannie, Freddie, and Ginnie origination as Jack pointed out will focus on our existing portfolios. We'll focus on recapture, and that's where we're going to and the direct to consumer channels, and that's where we think we're going to get some lift, be a great service provider to customers and hopefully if origination margins remain where they are. We should have a good -- a good quarter and see further growth in our operating business.

Stephen Laws -- Raymond James

Yeah. To follow-up on that and I don't need specifics, but maybe general commentary only assumption behind that forecast. I know some entities, the MBA for one is 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 or underlying this $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, of $40 billion to $50 billion, so $45 billion as a midpoint. But can you give us a little bit of the assumptions you have for the agency mortgage market that underlie that, that forecast?

Michael Nierenberg

I think as we turn back on certain channels, wholesale, we grow our direct-to-consumer possibly will be doing a little bit more in corresponding as long as margins are there. That's why we feel pretty confident and our ability to do $45 billion. It's a projection, you know. I mean that just to be honest, I mean, could it be $60 billion. Could it be $35 billion or $40 billion. It's to me it's not about the number. It's not about the absolute number, it's about making money for shareholders and supporting the homeowner. So I do feel pretty good about the $45 billion. But again, it is a projection that projection comes from our mortgage company. Our mortgage company currently has give or take 4,200 people, as I pointed out earlier. We are hiring another 500 people right now. So we feel good about it, but again it's and Stephen, it's just purely a projection.

Stephen Laws -- Raymond James

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 COIVD. But going forward, a lot of agency applications especially refi are largely automated, can you talk about what the pipeline or how much it's going to link if a borrower they used to be kind of instant auto approval now had to go unemployment for six weeks due to COVID or has some COVID impact, that was very unique and short-term and they go back. But now, they've got a blip in their credit history. Does that get kicked out of your system if so, how will those type of applications be handled. And what type of lengthening should we expect to see in closing of a loan?

Michael Nierenberg

Bruce. Bruce Williams is on as well. Bruce, I don't know if you have an answer to that or if we want to come back to that.

Bruce Williams -- Bruce Williams, Chief Executive Officer, NewRez

No. Michael, thank you. Good morning, everyone. Yeah. And basically, there have been a whole set of what I'll, call redo of all the process. So really what we're originating now very close, close to closing we have a process in place. Basically people test to that they are not thinking about going to go into forbearance, so the quality as Michael indicated of the loan origination process has improved dramatically and you're right that basically, if we were multi-channel each of the channels are different, but effectively and with kind of the online ability retention and all of that, we don't expect timelines to, to increased dramatically. Things are turning, it's surprising, but things are turning, turning over relatively quickly.

Stephen Laws -- Raymond James

Great. I appreciate that color. And lastly for me, Michael, that 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, if you've been able to move inspections and things of that to virtual, do you have issues with idle [Phonetic] verification or any type of access to government buildings where employees still may not be back at work? Yeah. How do we, how do we think about the different pieces of those, so, the different services that are being dramatically impacted and kind of how the timeline of when those may get back to normal, which granted may be a county by county situation?

Michael Nierenberg

Is sort of the way I would think about it Covius is, you know, as I pointed out earlier, we have an investment in Covius. They are truly a third party to us and everybody else? Yeah. Everybody has limitations on their business right now as everybody is still working from home or where everybody is. We think about title in appraisal I don't think there is issues around title. I think the appraisal stuff is something when intuitively, if you take a step back are people going into other folks homes to appraise something and I think the answer is probably not. So I think all these businesses are impacted. I think as a result, you will see until we get back to a quasinormal state. I think all these business lines will be impacted. The one thing I do want to emphasize is the actual contribution from these business is to our overall earnings is very, very small at this point. Covius is a seal box those earning stay in that system, so it's just really the value of that asset title and appraisal as we do loans. It's good to have a captive, a captive title and appraisal company on the field services side. The preservation of properties, 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 -- Raymond James

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 work that you [Indecipherable]?

Michael Nierenberg

Thanks, Stephens.

Operator

Your next question today comes from Trevor Cranston with JMP Securities. Please go ahead.

Michael Nierenberg

Good morning, Trevor.

Trevor Cranston -- JMP Securities

Hey, thanks. Good morning. Hope you're well?

Michael Nierenberg

You too.

Trevor Cranston -- JMP Securities

A couple of more questions on the -- the servicer advances. The first one, can you help us think about how you guys are sort of forming your expectations around what the timeline is going to be in terms of when you might ultimately recover advances after the forbearance period ends? And then the second question on the financing, you have in place. So, I was just curious, particularly like on the capacity you've added since the end of March. Are there any material differences in terms of the, the terms of the financing you've been able to add in the sense of LTV or the, the cost of the financing? Thanks.

Michael Nierenberg

Sure. Andrew, you want to, you want to take this one.

Unidentified Speaker

Sure. This is Andrew [Indecipherable] Nice to speak with you. So the first question regarding, when we're able to recover the servicing advances after the deferment. We've been in dialog with the GSEs, and there is some discussion about putting into place. Deferment program, which will enable us to recover our advances shortly or immediately after the forbearance. So our expectation is that across the vast majority of our portfolio, we should be able to pretty quickly recover the outstanding advances and how that balance normalize as borrowers come off the forbearance programs. In terms of the cost of the servicing advance financing. Yes, there has been an incremental increase in the cost of the servicing, this additional servicing advance financing, but we think that it's prudent and worthwhile expense to put that in place and sort of we have more than sufficient advance capacity across a range of scenarios.

Trevor Cranston -- JMP Securities

Okay.

Michael Nierenberg

And then I guess just a follow-up on that advance rates or give or take 90% to 95% and the cost of funds is I believe it's about LIBOR plus 2.75%, is that right Andrew?

Unidentified Speaker

Yeah, that's correct.

Michael Nierenberg

Yeah.

Trevor Cranston -- JMP Securities

Okay, great. That's helpful. And then, in terms of servicing expense, I think you mentioned it's reasonable to expect that the costs are going to go up to service near term in light of everything you're dealing within the MSR portfolio. Can you just help us think about what to expect in terms of the servicing expense line item for the next couple of quarters and how much it might increase versus the first quarter?

Michael Nierenberg

Yeah. The easiest way to think about servicing expenses is really in two ways. One is mix. So how many more delinquent loans do we have and those are obviously more expensive to service and so we think just as a result of forbearances and natural increases in delinquency. We're going to see the mix change, we had a really terrific track record inside this the own servicing business and reducing costs by about 37% year-over-year as of the first quarter of this year. So, we're down to direct cost of service on a current loan below $6, which is, is really has been a feat of technology and people are really thanks -- 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 really all about the fact that on the performing side, we've got to talk to more borrowers, we got to interact with more borrowers. And on the delinquent side, we've got to talk to more borrowers and interact with more borrowers. Certainly, the first two weeks to four weeks of this whole event was a very difficult time for the servicer and the call centers and that was partially driven by the fact that many of these forbearance situations where from new borrowers to the delinquent process. So borrowers who had been current all of their lives and expected to be current all their lives were faced with this crisis, and we really had people who wanted to write us, email us, call us and it kind of overwhelmed the call centers in the short term. We mostly corrected that we still have some high call rates in the loss mid side, but most of the customer service side is sort of back to normal. And so those are simply going to increased costs, so that's really what's going to happen in the second quarter will still be profitable, will still have decent margins. But we'll see -- we'll see both mix increase a little bit and cost of service in each category increased a little bit. We may -- I'll just make one last comment on this. And then, happy to answer any other questions. But we --we've also been really good at being able to bring our proprietary default technology to bear. So within 24 hours, had a system to allow the borrowers to identify that they were COVID affected in about another 24 hours. We had a way that they could the forbearance could be finalized online in cooperation with the GSEs, and we expect to use the same approach when we get to resolving those forbearance just through the deferment program that we hope Fannie and Freddie will offer and we're hoping to do a lot through automation rather than a normal sort of a long-term, a very interactive modification sort of approach. We'll still have borrowers have to deal with that on, but the technology will definitely help save us significantly, and I think that's sort of the cost of service picture.

Trevor Cranston -- JMP Securities

Okay. I appreciate all the color on that. Thank you.

Michael Nierenberg

Yeah. Anyone else?

Operator

[Indecipherable]

Michael Nierenberg

I'm sorry.

Unidentified Participant

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've seen the daily count to forbearance increase as the next payments due?

Michael Nierenberg

Jack, you probably want that one. I think that those, the actually request have gone down, I believe right, Jack.

Jack Navarro -- President, CEO of the Servicing division, NewRez

Yes, yes. The trends have been pretty clear with forbearances in the early days, we were at as many as 5 to 10,000 forbearance request a day in the late days of March and early days of April. We're down inside own servicing business at around 2,000 additions a day and for the entire enterprise, you know, we're probably double that, but definitely the trend of forbearance requests had been a steady decline.

Unidentified Participant

And if you could just sort of contrast that with you know kind of the base case and the stress case scenarios you laid out on the, on that slide and kind of what, what you're assuming. And how--how would you would say things are trending versus those expectations?

Jack Navarro -- President, CEO of the Servicing division, NewRez

Mike, do you want me to answer that?

Michael Nierenberg

Yes, yes. You're referring to our advances, right?

Unidentified Participant

Yes.

Michael Nierenberg

Yeah, OK. Yeah. From an overall -- from an overall delinquency standpoint, maybe I'll comment on that. And Andrew can comment on advances, but we're -- we are basically where we had sort of plan to be from an overall forbearance request standpoint. The thing that's, 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, is coloring the data a little bit in terms of while forbearance requests are consistent with what we had forecasted the number of people who are paying is more than forecast. So the overall impact is less.

Unidentified Participant

Great. Thank you.

Michael Nierenberg

Anyone else, guys. Any other questions? Operator? Hello.

Operator

Apologies. Our next question today comes from Kevin Barker of Piper Sandler. Please go ahead.

Kevin Barker -- Piper Sandler

Thank you. Good morning, Michael.

Michael Nierenberg

Hey, Kevin [Indecipherable] technology from your house?

Kevin Barker -- Piper Sandler

I don't know what happened there but. So on tangible book value, we saw significant spread tightening in April. I know you made some comments about unrealized versus realized. But could you estimate where tangible book value is today off of what you've seen in the market?

Michael Nierenberg

Yeah, I think, we think -- it's I think someone else asked that question earlier. We believe it's pretty close to where we, where we were at the end of Q1.

Kevin Barker -- Piper Sandler

Okay. Sorry, I missed that.

Michael Nierenberg

Yeah, that's OK.

Kevin Barker -- Piper Sandler

And then given the disruption that we've seen in the origination market there in late March with the Fed buying assets, and then where you see it going forward. Could 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

Yeah, I think, I think the latter part of your question I think is due to quite frankly, the market has been people working from home, more limited capacity, ability to get things through the pipes, the banks pulling back. In general, right when you think and if you really think about the credit box. So I think 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 I think the gross numbers could be anywhere from 50 to 60 basis points. Today, I think the margins could be double that, but it remains to be seen as we, as we really turn on our origination machine. But I do think the gain on sale margins are actually very attractive right now.

Kevin Barker -- Piper Sandler

So are you assuming that correspond remains subdued for the foreseeable future?

Michael Nierenberg

No, I think we're actually going to start doing more as I pointed out earlier. Our main focus is really the direct-to-consumer channel, because that's where we feel like we're going to get the most lift out of our out of our existing customers and our existing portfolio and the gain on sale there is, is obviously very good because it's, it's a retention tool for us. The corresponding stuff wholesale, third party origination we're turning that on more and more, quite frankly, in the middle March we pulled back on everything as we were seeing as the markets were extremely difficult and not just quite frankly the non-agency market, I mean the agency mortgage market until the Fed came in was trading in a 5 point range. I mean it was crazy. So as we go forward. I think you'll see these different channels turn on and we'll evaluate the profitability of each one.

Kevin Barker -- Piper Sandler

So I'm assuming that turning on the correspondent channel is a big portion of the guidance for $40 billion to $50 billion originations this year?

Michael Nierenberg

Yeah, I think it's a mix of everything, but yeah, it's that it's wholesale again growing DTC. I put it, we put a slide showing from the third quarter in 2019, which was a $1 billion and change to the third quarter I think in 2020, where we had that going up three times. So I think all of these are going to contribute. And again it's to me it's not about this year volume. The 40 to 45 and 50 or whatever number it is, it's about how do we create value for customers and make money for shareholders obviously.

Kevin Barker -- Piper Sandler

And then according to your balance sheet 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 [Phonetic] $15.2 billion investment portfolio, which 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 the balance sheet looks like and the financing structure?

Michael Nierenberg

I think you'll see total repo on bonds and loans that will be I pointed that out earlier about it, give or take, about $1.5 billion. Depending upon what we do in agencies and things like that. I think away 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, their give or take about $2 billion each, or actually the bond book it 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 -- Piper Sandler

Okay. So when you envision that scenario. And you see the term, which is obviously a little bit more expensive than repo or what it was in the past. And you think about the pro forma balance sheet as you 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

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'm hopeful well north of 20%.

Kevin Barker -- Piper Sandler

So you're saying that you think you can get 20% return on equity on a pro forma basis following the whole restructure and looking at?

Michael Nierenberg

Yeah, that's important. The portfolio is going to be small, right. I mean, the way -- the way that we think about it as I pointed out, we took we've had realized losses of whatever $1.92 per share. As you think about the marks we took which were pretty significant. If those come back in a reasonable period of time 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, much smaller on the bond and loan side. So it's not going to be that material. I think the operating businesses are where you're going to get lift and a gain on sale margin stay where they are. The return on equity is going to be great.

Kevin Barker -- Piper Sandler

And how do you see that as normal or is that something that's just a near-term profit?

Michael Nierenberg

The United States, the world --the world is shut down, that's not normal. So I can't tell you what's normal anymore. Right, I mean...

Kevin Barker -- Piper Sandler

Of course.

Michael Nierenberg

But I do think in the near term. I think our operating businesses are going to hopefully make a lot of money and whether that continues to the third quarter. I'm not --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. And as I pointed out we're 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. I mean, quite frankly we all and every one of us at the company take it to heart where our stock prices and what's happened, unfortunately we couldn't control those one or two weeks as much as we would have liked to, but I think we did what we needed to do to get to the other side, and now it's, we're back in a place where liquidity is terrific. The operating businesses are continuing to do extremely well. The portfolio is much, much smaller. Our repo and mark to market exposure is very, very low and that will continue to get smaller. And I'm looking forward to actually growing book value back to where we get to $14, $15, $16 a share, so.

Kevin Barker -- Piper Sandler

And then one last one. The RMBS portfolio was a major portion of your hedging for the MSR portfolio, and you had to sell that down significantly. How are you hedging the MSR now given that the agency RMBS portfolio is small fraction of what it was previously?

Michael Nierenberg

Right now, we were a little bit biased. I think to the short side because of when I think about the, the state of where we are, at some point we will add agency mortgages if and when they cheap and up or 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'll continue to evaluate our hedges, whether it'd be in swaps, swaptions, options as well as agency MBS. So, we continue to monitor that. I mean agency MBS is where it is because the Fed bought a ton of them. So we continue to monitor that in early this week they came out and said they will buy as needed. So I think you should see that softened up a little bit and 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 -- Piper Sandler

Thank you for taking my questions.

Michael Nierenberg

Thanks, Kevin.

Operator

Thank you. Our next question today comes from Matthew Howlett with Nomura. Please go ahead.

Matthew Howlett -- Nomura

Thanks, Mike. Long call, but I appreciate taking my question. And certainly appreciate all the hard work with the team...?

Michael Nierenberg

Hey, Matt.

Matthew Howlett -- Nomura

As soon as there's March. Mike, just a big picture question, we're hearing a lot of reports with the state of the non-banking industry origination and servicing the FHFA has been vocal about pulling servicing from people. Can you just give us a top-down view. What are your conversations like with regulators. Where do you see the industry headed?

Michael Nierenberg

I think the team has a lot of -- our team has a lot of dialog, whether it'd be with a FHFA, Ginnie, Fannie and Freddie. We have wonderful relationships with everybody. You know, the Ginnie Mae program will help servicers, the FHFA announcement recently about the four months limitation on P&L advances on loans and forbearance should help. I think overall, I mean I pointed out, we have more liquidity today than we've had in a long time and I think maintaining higher levels of liquidity is essential, right now, which I do think the non-banks. When you think about the amount of whether it'd be origination and servicing that the non-banks do, it's greater than 50% of the overall market are really, really important to the overall housing market and the system and the homeowner community and our hope as we go forward is continued support of the non-banks. I think for us personally, we'll continue to maintain whatever levels of liquidity that we need to in this environment as we go forward to take care of our customers, to make money in the origination and servicing business. But I think that there is a lot of good constructive dialog. I think 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 and you know everybody has models and things that delinquencies are going to do this or forbearance numbers are going to do that and I think until we actually see the real numbers, that's why we're going to continue to build liquidity when we -- when we think we need to, but I think that hopefully the support. I think the folks at the agencies get it.

Matthew Howlett -- Nomura

Is your appetite to take on sub-servicing, you know, say if there are transfers that GSEs do, is your appetite for a big bulk MSR package if it comes out?

Michael Nierenberg

Listen, everything is about balance right now, just to be clear. We're 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. So I think 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 -- Nomura

Got it. And then just two quick questions, just securitization, you said, you did, didn't you see that NPL ratio, what's the state of that and then the call rights, are you still retaining the, what's you're looking at [Indecipherable] $8 billions. You still you didn't sell away all your call option that would be right. Two of those questions?

Michael Nierenberg

No. So, the securitization we did was a seasoned ARM [Phonetic] deal that we had called, clearly the overall proceeds were lower than where we would have been if -- if we were 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 balance is now to do securitizations on advances. As we go forward in those balances build if in fact they do, then we'll look to do securitizations in the advanced market. As we go forward on the call business we retain $80 billion of call rights that we currently own and the sale -- and 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'll work with our partners there on potentially executing those call rights. So we still control a lot of collateral. We're going to be smart though, how we deploy capital and how we add to our balance sheet here.

Matthew Howlett -- Nomura

And the securitization advance, that would be cheaper than what you're getting on the bank line so...?

Michael Nierenberg

It depends. So, you know depends where you're 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 -- Nomura

Great. Thanks, Mike.

Michael Nierenberg

Thanks, Matt.

Operator

And our next question is a follow-up from Bose George of KBW. Please go ahead.

Bose George -- KBW

Hey guys, thanks for taking all the questions. I wanted to go back to the comment that someone made I think was Kevin about the $500 forbearance either the GSEs might start offering. I was just curious what the timing for that was and also are there -- are they contemplating any other changes in terms of their modification programs any other fees that could help as this process continues?

Michael Nierenberg

Jack, it's all you.

Jack Navarro -- President, CEO of the Servicing division, NewRez

Yeah, I was the one that mentioned it, it's a $500 deferment fee. They have, they've basically put a draft out to the various advisory boards we participate in that we've been able to review. It's not supposed to be up and running until July 1st. But again, let's just. I just want to be clear, it has not been announced yet. We thought we might hear about it last week, they are now saying maybe this week. So, I think they've got to get it through their final approval traps. Both Fannie and Freddie are working on it together and it's I don't know exactly where it stands between them and the 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've --they are also acknowledging that a certain number of the borrowers are going to need full modifications, where they can't pay the existing payment, because in that scenario they would basically beyond -- that basically the loan was just be brought current and the payments would be rolled to the, to the end of the mortgage and there we really be no impact in terms of the loan to be same payments, but certain borrowers are going to need a full modification. So, they are also talking about what they might do or facilitate in that process, but without again any specific directions. So that's where we stand today.

Bose George -- KBW

Okay, great that's helpful. And then actually [Indecipherable] the comment you made about a percentage of borrowers who are going to forbearance but 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?

Michael Nierenberg

Yeah, there is a statement in the document that for the enterprise as of April 30th -- I'm sorry. As of the end of the first quarter that it was 60%. I'm just want to get a copy of that, and so -- so that was, those were the numbers, those were the numbers as of most recently as of April 30, it was, it was 60% had pay 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're very early in the month. So it's hard to predict exactly where that's going to go and I'd be reluctant to leave anybody with the impression that there was a guarantee there. There are some partial payments being made. We're encouraging borrowers to both pay any payment amount as well as the full payment amount but, but I think is a very fluid situation. The trends are what exists today and it's a little hard to predict what exactly is going to happen going forward?

Bose George -- KBW

Okay, great. Thanks again.

Michael Nierenberg

Thanks, Bose.

Operator

And our next question today is a follow-up from Tim Hayes with B. Riley FBR. Please go ahead.

Timothy P. Hayes -- B. Riley FBR

Hey, Mike, just one quick follow-up. I know right now, liquidity is top of mind, but just based on the -- the earnings power from the origination platform. It seems like, I guess I'm just wondering how you think about the level where the dividend is set. And if you see, it kind of staying at a lower level than maybe core earnings could support at this point given kind of the preference for liquidity or at what point do you start seeing that scale up and kind of the dividend coverage or the payout ratio increased a bit?

Michael Nierenberg

I think, Tim, that will be obviously up to the board. The largest companies in the world have cut dividends or will continue to cut dividends. I think our focus obviously we'd like to pay a bigger dividend, my -- our main thing coming off probably the most horrific markets that quite frankly I've dealt with and I been doing it's a long, long time is such that we'll continue to evaluate the earnings power of the company. Our dividend policy, but clearly if we can get our book value back to a more normalized state with where we've been, there is the balance, right and how we think about it. So, it will be a Board decision, but I think for now, there's not much more I can say about that.

Timothy P. Hayes -- B. Riley FBR

Sure. Thanks, Mike.

Michael Nierenberg

Thanks.

Operator

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

Kevin Barker -- Piper Sandler

Thanks. In regards to the consumer loans, I noticed they were changed from equity method to held for investment. Was there chain -- did you take on that the consumer loans on your balance sheet, or are these continue to be equity method?

Michael Nierenberg

So, the change Kevin has to deal with the adoption of CECL. So we brought them on its fair value.

Kevin Barker -- Piper Sandler

Okay. All right. Thank you.

Operator

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

Michael Nierenberg

Thanks, operator. To all of you thanks for your support. You know, I take or you know and we all do, like I mentioned earlier stock price to hurt [Phonetic]. We want to perform for all of our shareholders and the work that's been done. I think and our team. I opened up and say thank you has been something that second to none, and something that I haven't seen in a long, long time. So, thanks to team and to all of you that our shareholders and all the analysts and our banking partners. We really appreciate it. Look forward to growing our book value. Getting back to where I think we belong and hopefully updating you on more positive results as we get through the quarter and get into next quarter.

With that, be safe and -- and hopefully we get to a normalized state sometime soon. Thanks everyone.

Operator

[Operator Closing Comments]

Duration: 80 minutes

Call participants:

Kaitlyn Mauritz

Michael Nierenberg

Jack Navarro -- President, CEO of the Servicing division, NewRez

Bruce Williams -- Bruce Williams, Chief Executive Officer, NewRez

Unidentified Speaker

Timothy P. Hayes -- B. Riley FBR

Bose George -- KBW

Giuliano Bologna -- BTIG

Stephen Laws -- Raymond James

Trevor Cranston -- JMP Securities

Unidentified Participant

Kevin Barker -- Piper Sandler

Matthew Howlett -- Nomura

More NRZ analysis

All earnings call transcripts

AlphaStreet Logo