What Caused the Changes in Banking Industry?
Over the past two decades, financial service customers and investors have experienced the impact of the rapid changes in the banking industry. These changes were caused by the 1999 repeal of the Glass-Steagall Act and the credit crisis of 2007. The repeal of the Glass-Steagall Act enabled banking institutions to conduct businesses differently. The 2007 credit crisis caused banking institutions to make involuntary and voluntary changes to business processes. For instance, (MSRs) Asset Sales of Mortgage Servicing Rights have required banks to make improvements when it comes to capital reserves and balance sheets. These improvements were requested in response to the 2007 credit crisis.
Since 2009, the residential mortgage market share for traditional banks has plummeted from 90 percent to 50 percent. As banking institutions incorporated these changes, the team at NRZ formulated a strategy to transform the way that residential mortgages are originated, owned, and serviced.
New Residential Investment
Michael Nierenberg is the chief executive officer, president, and board chairman of NRZ (New Residential Investment Corp). Mike Nierenberg has been noted as an innovator when it comes to residential mortgage market strategies.
What are the Highlights of NRZ’s Formation and Development?
NRZ was founded in 2013 as a real estate investment trust. It was a spin-off from Newcastle Investment Corp. NRZ is a publicly traded REIT (Real Estate Investment Trust). NRZ has a portfolio that includes residential mortgage-background securities (RMBS). This is beneficial with the growing complexity of the residential mortgage process. One example of this complexity is securitization of mortgage loans. There are roughly 80 percent of residential mortgages that are securitized. However, NRZ can harness this complexity to create new investment opportunities.
NRZ also uses an active and opportunistic management method that takes time and expertise, which ultimately leads to the long-term success of its clients. There are two main assets in NRZ’s portfolio, which include mortgage service rights and RMBS. Furthermore, NRZ offers non-Agency versions of RMBS, and the company has call rights for an estimated $125 billion in mortgage funds, which is about one-third of non-Agency mortgages.
Since the company was founded, NRZ has paid out an estimated $2.4 billion in dividends to shareholders. In 2018, NRZ has a return on investment that was 20 percent of its entire portfolio.
The Acquisition of Shellpoint Mortgage Servicing
Because of the continued leadership of Mike Nierenberg, formally at Bear Sterns, NRM acquired Shellpoint Mortgage Servicing in 2018. Shellpoint Mortgage Servicing was ranked 15th among the largest non-bank mortgage servicer companies in the United States. This acquisition encompasses a whole pie strategy that NRZ takes, which harnesses the potential of a continuous source of new mortgage servicing rights.
In the New Residential 2018 Annual Report, Mike Nierenberg explained that the company has already seen a solid synergies between its MSR portfolio and the assets from Shellpoint Mortgage Servicing.
The Beyond the Bank Trend
New Residential is known as a leader in the beyond the band trend. Non-bank ownership has become more common for many reasons, which includes legal challenges, bank failures, and tighter profit margins.
Mr. Nierenberg and his team used the thinking beyond the bank when it invested in the acquisition of Shellpoint Mortgage Servicing. When New Residential acquired Shellpoint Mortgage Services, Mr. Nierenberg explained that the acquisition was a vital step forward when it comes to capturing the consumer value chain from start to finish. The merger of Shellpoint and NRZ resulted in a vertically integrated non-bank mortgage platform.
