Please ensure Javascript is enabled for purposes of website accessibility

New Residential Investment Rises on Better-Than-Expected Profitability

By Eric Volkman - Updated May 6, 2020 at 6:02PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The company managed to bail out of a crisis in its core non-agency MBS segment.

Operating in a sector that came under severe strain in the first quarter of this year, New Residential Investment (RITM 1.40%) actually did relatively well.

The company, which is a mortgage real estate investment trust (mREIT), saw its net interest income decline by 14% over last year's first quarter to $185.5 million. Core earnings fell by 22% to just over $198 million (working out to $0.48 per share).

That profitability was much higher than expected by analysts; according to Zacks, the anticipation was for $0.24 per share.

FOR SALE sign on the lawn of a house.

Image source: Getty Images.

As the SARS-CoV-2 coronavirus began to spread around the world, the market collapsed for the non-agency mortgage-backed securities that New Residential specializes in ("non-agency" means they're not backed by government agencies like Fannie Mae or Freddie Mac). This is because the economic uncertainty caused by the pandemic has led to serious doubts as to whether many homeowners can continue to pay their mortgages.

New Residential reacted by selling off nearly $28 billion worth of assets. Other retrenchment measures include a deep cut to the company's quarterly dividend, which was reduced to $0.05 per share from the previous level of $0.50.

The mREIT didn't hesitate to mention that it has a backstop of over $517 million of cash on its books, and slightly more than $397 million in unencumbered financing. 

"Looking ahead, our investment strategy will be to target assets that are term financed or low leverage," the company said in a statement. "Our primary focus will be on our operating business, which includes our mortgage origination, servicing and ancillary service business lines."

Investors apparently liked the sound of that; they bid New Residential's stock up by 7.6% on Tuesday, a rate that exceeded the gains of the broader stock market.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Rithm Capital Corp. Stock Quote
Rithm Capital Corp.
RITM
$10.15 (1.40%) $0.14
Federal National Mortgage Association Stock Quote
Federal National Mortgage Association
FNMA
$0.66 (-0.08%) $0.00
Federal Home Loan Mortgage Corporation Stock Quote
Federal Home Loan Mortgage Corporation
FMCC
$0.64 (1.07%) $0.01

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/13/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.