What's in the Cards for New Residential's (NRZ) Q1 Earnings?
New Residential Investment Corp. NRZ is scheduled to report first-quarter 2022 results on May 3, before market open. The company's first-quarter earnings are likely to have remained flat, while net interest income (NII) is anticipated to have witnessed growth from the year-ago reported figure.
The New York-based mortgage real estate investment trust ("mREIT"), primarily focused on residential real estate investments, posted core earnings of 40 cents per share in the last reported quarter, surpassing the Zacks Consensus Estimate of 38 cents.
Over the preceding four quarters, the company met the Zacks Consensus Estimate on two occasions and surpassed in the others, the average surprise being 7.7%. The graph below depicts this surprise history:
New Residential Investment Corp. Price and EPS Surprise
New Residential Investment Corp. price-eps-surprise | New Residential Investment Corp. Quote
Factors at Play
Mortgage originations, both purchase and refinancing, continued to normalize in the first quarter. The strength in originations in 2021, propelled by the ultra-low rates, is also making comparison difficult for the quarter. Notably, mortgage rates rose in the quarter under review.
As of the first-quarter 2022 end, the average rate on the 30-year loan rose to 4.67%, in sharp contrast to last year's record-low mortgage rate of around 3%. This resulted in a drastic fall in mortgage origination activities, with steadily rising rates hurting refinancing.
Despite the uninspiring backdrop, NRZ is likely to have reaped benefits from its efforts to grow and scale its mortgage platform.
The increase in mortgage rates in the March-end quarter is expected to have reduced prepayment speed. Hence, premium amortization on agency mortgage-backed securities is likely to have been lower in the first quarter. This is anticipated to have alleviated pressure on NII. Overall, the Zacks Consensus Estimate for first-quarter NII of $228.6 million suggests a year-over-year jump of 69.5%.
Also, the decline in mortgage prepayments and refinancing, and an increase in mortgage rates are expected to have driven markups and valuations for mortgage service rights in the first quarter.
However, we expect spread widening to hurt the mREIT's book value for the March-end quarter.
New Residential's servicing portfolio is expected to have been affected in the first quarter. The company's net servicing revenues are expected to be $484 million for the first quarter, suggesting a 5.8% decline from the prior-year quarter's reported figure.