New Residential Investment Corp. NRZ is scheduled to report third-quarter 2021 results on Nov 2, before market open. The company’s third-quarter earnings and net interest income (NII) are likely to reflect growth from the year-ago reported figures.

This New York-based mortgage real estate investment trust (“mREIT”), primarily focused on residential real estate investments, posted core earnings of 31 cents per share in the last reported quarter, meeting the Zacks Consensus Estimate.

Over the preceding four quarters, the company met the Zacks Consensus Estimate on three occasions and missed in the other, the average negative surprise being 2.21%. 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

Let’s see how things have shaped up prior to this announcement.

Factors at Play

In the third quarter, the mortgage market continued to show decent strength, backed by a strong housing market and favorable credit spread tightening as the government stimulus package steered the economy toward recovery. Also, the yield curve started to steepen.

Also, low mortgage rates in the quarter and high demand for home bolstered the mortgage originations market. Amid the beneficial environment and considering New Residential’s origination capacity, the company is likely to have benefited from the favorable environment in the third quarter.

Mortgage rates increased marginally in the September-end quarter. This is expected to have reduced prepayment speed. Hence, premium amortization on agency mortgage-backed securities (MBS) is expected to have been lower in the third quarter. This is likely to have alleviated NII pressure. Overall, the Zacks Consensus Estimate for third-quarter NII of $172.7 million suggests year-over-year growth of 67%.

We expect decent spread tightening across many asset classes to support a recovery in the mREIT’s book value for the September-end quarter.

New Residential’s servicing portfolio should have been resilient, with favorable mark-to-market adjustment, driven by a continued decline in forbearance requests and pay downs. The company’s net servicing revenues are expected to be $84 million for the third quarter, whereas it reported a negative $87 million in the prior quarter.

However, the primary-secondary spread slightly declined sequentially in the third quarter. Therefore, we expect a contraction in gain on sale margins for New Residential relative to the third quarter. The Zacks Consensus Estimate for the company’s third-quarter net gain on originated mortgage loans held for sale is pegged at $424 million, suggesting a 12.9% fall from the prior-year quarter’s reported figure.