New Residential Investment Corp. (NRZ) CEO Michael Nierenberg on Q1 2020 Results - Earnings Call Transcript
New Residential Investment Corp. (NRZ) Q1 2020 Earnings Conference Call May 5, 2020 8:00 AM ET
Company Participants
Kaitlyn Mauritz - Investor Relations
Michael Nierenberg - Chairman, Chief Executive Officer and President
Nick Santoro - Chief Financial Officer
Jack Navarro - President and Chief Executive Officer, Servicing, NewRez
Bruce Williams - Chief Executive Officer, Shellpoint Partners
Andrew Sloves - Director, Audit Committee Compensation Committee
Conference Call Participants
Tim Hayes - B. Riley FBR
Bose George - KBW
Giuliano Bologna - BTIG
Stephen Laws - Raymond James
Trevor Cranston - JMP Securities
Kevin Barker - Piper Sandler
Matthew Howlett - Nomura
Operator
Good day and welcome to the New Residential First Quarter 2020 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] Please note that 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 would 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 have not already done so, I would encourage you to download the presentation now.
Before I turn the call over to Michael, I would like to point out that certain statements today will be forward-looking statements. These statements, by their nature, are uncertain and may differ materially from actual results. I encourage you to review the disclaimers in our press release and earnings supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will 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 will turn the call over to Michael.
Michael Nierenberg
Thanks, Kate. 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 the 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 on price and what happened is this created liquidity issues, not only for mortgage REITs 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 okay, 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. Overall leverage got reduced to 1.5x to 1.7x, we reduced our bond positions by 85%, we reduced our loan positions by 45%, and today, our loan and bond positions are at the lowest levels we have 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. And today, our cash position is significantly higher, while our balance sheet is a fraction of what it was. Our cash position as of 4/30 was $517 million with unencumbered assets just under $400 million. Our mortgage company which continued and still continues to support homeowners through this difficult period, work with borrowers on forbearance programs and agreements to help alleviate the hardship caused by COVID-19. We are 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 increasing our borrower retention efforts. On the ancillary business side, Covius, Avenue 365, eStreet and Guardian continue to support our origination and servicing business. We expect to see growth in those divisions as we enter into a more normalized state as we go forward.
Our advance business, we have increased our advance capacity and commitments by $1.8 billion raising our total financing lines to $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 are 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 4 months during the forbearance periods for P&I, again, another positive development. As we go forward we will maintain discipline, focus on assets, which are low-leveraged, term finance as well as service by our NewRez and Shellpoint Partners. We will maintain higher levels of liquidity that we have seen in the past, while focus on our operating business and opportunistic investments that we see. We look forward to growing our book value once again and providing terrific 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 have been working 24/7 to do all we can to get back to where we believe we should be.
With that, I am going to refer to the supplement, which has been posted online and I will begin with Page 4 actually. We are going to right through our company 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 and 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 is 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 4/30, we had $517 million of cash again building up our liquidity position. Unencumbered assets were $390 million. Our net equity as of 3/31 is $5.2 billion. Book value per common share as of 3/31 was $10.71. 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 5, going back to my earlier comments, this really was a tale of two quarters for us. Prior to the March 13, we were on track for a great quarter. Core earnings were slated to be $0.65. Our book value was between $15.72 and $15.89. Our mortgage company was going to make between $125 million and $150 million, origination volumes, $12 billion and our overall leverage was 3.5x. As we fast forward and you could see the impact 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. Origination and servicing income went down by $67 million and origination volumes tailed off a drop as we pulled in the rates, overall reduction in leverage 1.7x as a total company through 3/31.
Page 6, we put the 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 and we say those companies trade at a 5 P/E. 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 recreate an extra $2.73 per diluted share or an implied book value of $13.44. So if you look at the right side of the page, you could see on balance – on balance sheet value of $4.5 billion and the total will be something around 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 7, 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 1.5x and that’s down from 3.5x. When you look to the right side of the 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 8, as we reposition the company today and we think about the go forward again, we sold $27.9 billion in securities that includes non-agency securities, agency securities and loans. Our mark-to-market once again has been decreased dramatically. We reduced our repo exposure. And even in the height of the crisis, we priced at $450 million seasoned non-agency deals. 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 strategies 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 are currently serviced by either NewRez or Shellpoint.
Page 9 is our typical call right slide. I am 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 that we made a large sale of non-agency securities, included in that words were roughly $17 billion of call rights that will 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 portfolios of advance balances. Advances are one of the highest quality assets you can get in the mortgage market. They are 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 advance 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 w have completed 15 advance securitizations for $6.1 billion and we believe by working with our servicers, not only Shellpoint and NewRez, but other servicers, Cooper, Ocwen and others will 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 brought the slide back out, servicer advance balances today are $3.5 billion, that’s down from $3.8 billion at the end of 2019. That’s financed with $3 billion of debt, $1.9 billion of which is in the capital markets, the LTV of 86% includes a no advancing on or no advance facilities on Ginnie Maes at this time and we expect that to come online and I will talk to that 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 have extended some of our maturities there.
Page 12, total advance capacity, $5.25 billion, couple of things to point out on this slide. We are currently working with Ginnie Mae on some advanced 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 million to $350 million we expect this advanced financing to come online hopefully in the next 30 to 60 days. Today, based on the new Ginnie programs, as I pointed out earlier, Ginnie provides a 100% financing on P&I, the loans in forbearance, non-FHA, they announced last week that they are going to limit servicer obligations to advance P&I for 4 months, while the loans are in forbearance. Couple 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. MSRs are one of the few fixed income assets that will rise in value when interest rates rise. To talk to that, when you look at – when you think about yesterday’s announcement from the Fed and treasury that they are going to issue $3 trillion of debt this quarter. We do believe with rates at historical lows that it is a great time to think about MSR investment. Obviously, we have a large portfolio there. We took a reasonably large size markdown 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 are working on recapture with Cooper. We are working on recapture with NewRez. We have some sub-servicing agreement 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 recaptured percentages on refis 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 of things to point out, one, on our MSR financing, 50% of our MSR financing is in capital markets term notes, with limited mark-to-market exposure, the other 47% is on banks – 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 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 212,000. We are very seasoned loans and more credit impaired loans in the industry 81-month season versus 39 months. 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 origination today, the jumbo market pulling back bangs a couple of the large money center banks announcing that you are getting out of the origination business around HELOCS. I do think their credit box is tightening. What does that mean? Obviously, we will be there to provide credit for our customers, but I do believe it’s going to mean in 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 have seen in years. As I pointed out, we shifted our production to this Fannie, Freddie and Ginnie loans. We have exited non-agency and non-QM and a multi-channel approach provides flexibility, so we can 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 as second to none. We continue to work with homeowners. We continued to implement new forbearance programs and we continue to work on creating digital functionality in our online portals to educate and help homeowners. Finally, during the quarter, we had a very good profit as I pointed of $90 million that is down from $150 million. 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 you are 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 billion and $50 billion for 2020. And as I pointed out earlier, our gain on sale margins are at some of the recent wides that we have seen in a long time.
Page 17, when we think about the direct-to-consumer origination business, this is where we are 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 recapture. This channel is going to help us do that and we are 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 are going to be at 4.6. 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 in this very difficult environment of 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 and $300 billion at year end. On the special servicing side, this is something we are 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 have implemented online digital tools to support our forbearance requests and we continued 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 Aril 30 2020. 200,000 borrowers in our portfolios have been granted forbearance. Of those 200,000 borrowers 60% that were current in March have made their April payment are still current and of all the 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 am not going to spend a lot of time on it as you may recall from prior earnings calls we have an investment in Covius run by Rob Clements, 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 to banks and servicers.
Finally Page 22, our focus I think the one thing they 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 $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 protecting grow book value couple 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.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Today’s first question comes from Tim Hayes with B. Riley FBR. Please go ahead.
Tim Hayes
Hey, good morning Mike. Thanks for taking my questions and hope you are doing well. My first question before the pandemic hit you were already in the process of transitioning to more of an operating company versus a REIT portfolio and you highlighted the ancillary services on Page 21 there and most of them are performing better in this type of environment just given the disruption in the portfolio transformation you 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
Yes, we have been pretty vocal the past couple quarters that how important the operating business is to our company not only to grow the operating business but really to support that portfolio retention part of our portfolio is something that is very important to us when you think about the mortgage servicing and origination business and if you recall when we first acquired Shellpoint New Penn back last year, that was a pretty strategic acquisition for 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, in 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 that 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 business. There will be opportunistic investments, I don't know what the next 6 or 12 months are going to bring for us. I will tell you that we 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 business. A long winded answer is probably, yes.
Tim Hayes
Got it, okay. And then just kind of piggybacking on that, you have done a lot clearly to de-leverage at this point and have a lot more liquidity on hands relative to the size of your portfolio than you generally do so just curious how you prioritize maintaining liquidity here versus putting capital to work or further de-leveraging and/or buybacks at current levels?
Michael Nierenberg
I would say buybacks I can’t really comment that’s kind of a Board decision just like the dividend stuff will be Board decisions as we go forward. I think having more capital today is essential. We are not just going to go out and go back and reinvest in a ton 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 freefall and it just crushed us. So, we are going to have more liquidity than we probably ever had before. We want to navigate through this. We do think – again there will be opportunities. I think our history has demonstrated our ability to be opportunistic in nature. And we are going to grow and get back to where we belong and hopefully grow book value and create great returns for shareholders.
Tim Hayes
And I guess just maybe as specifying that a little bit more, do you feel that you need to further de-leverage at this point or is that a top priority or do you feel that the balance sheet is a good spot right now and you would rather kind of just hoard cash rather than de-leverage given where your multiple is right now?
Michael Nierenberg
Yes, I think what you will see in our kind of our short-term financing books, those books will be probably give or take $1 billion to $1.5 billion 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 everyday we are 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 1.5x, 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 will be back to where we belong and in the near future.
Tim Hayes
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 $120 million to $390 million, does that for the advances, does that assume that or does that have any implied assumption that you are 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 would be tapping the PTAP facility or that you do secure this Ginnie facility you talked about. Just any more context around that would be helpful?
Michael Nierenberg
Yes, these are just equity numbers. As I pointed out earlier, we have $5.25 billion of total debt available to us on the advance lines. This is just an equity component to the extent that we are 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 in the height of all this, we did a $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 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 you know 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.
Tim Hayes
Okay, that’s helpful. I will leave it there, but that thanks again for taking my questions and stay well.
Michael Nierenberg
Alright. 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
Hi, guys. Sorry, my line is muted.
Michael Nierenberg
Hey, Bose. Good morning.
Bose George
Good morning. I hope everyone is staying safe. So first let me – I wanted to just ask about the credit costs – the credit assets, would you continue to sell that [indiscernible] if you are able to? And just can you comment on that sort of the outlook for doing that?
Nick Santoro
Yes, 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 crushed, bonds got crushed, loans got crushed, MSRs got crushed, all that created liquidity needs for us and I think the broader market quite frankly. We are not going to get back into a position where we are buying a lot of bonds with repo, I just can’t do it. I think we are comfortable with the size of that book. There is some AAA isles for example there. I do think as I pointed out with the Fed announcing – the government announcing that they are going to issue $3 trillion of government bonds there will be huge needs for the government to issue debt in these markets. And I think for us as a result, I’d like the way that we are 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 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 that markets recover, 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 are give or take 6% to 8% un-levered in a COVID scenario. When I think about that, the risk – the asset returns are very, very attractive. While saying that, they need to be term financed, so we don’t get into a mark-to-market issue as we go forward. So I think we are comfortable overall with the size of the portfolio.
Bose George
Okay, great. That’s helpful. Thanks. And then actually switching to the servicer advance, the slides you showed where you showed the stress days delinquency that you could get to, does that sort of assume the forbearances or delinquencies and is that across all the three with the Fannie, Ginnie, PLS markets?
Michael Nierenberg
Yes. Well, the second part of your question is across all of our buckets. The stress scenario, we run this out 6 plus months and I think the delinquency numbers or the forbearance numbers go to like 30 – to delinquency numbers go to like 30%, 30 days or something like that. So, the numbers go up at substantially. And I think in those stressed case scenarios that’s where we wanted to illustrate the amount of potential equity that we would need to do that. And you know – again, we feel that’s extremely manageable for our company.
Bose George
Okay, yes, that makes sense. And actually, is there a lot of the prepayments pulling the big party as well in terms of offsetting the advance needs during those periods just given that prepays are high right now?
Michael Nierenberg
Yes. I mean we are running – we do think over time obviously as delinquencies tick up, I do think with the credit box, tighter that you are going to see slower speeds and I think our – and to the extent that you don’t and we are good at our direct-to-consumer vertical and origination remains robust, we think that we are going to be in a very good place. Should speed gets fast as you pointed out both that creates less needs on the advance side as you get more printable back in. So we will have – it’s like a catch 22, if it 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
Yes, yes. That makes sense. And then just one last one – since quarter end, has there been much change in the book value?
Michael Nierenberg
No, no, I mean, I would argue that prices in general are much more stable. We have had a number of our REITs and other folks that got liquidated during the quarter. Today, I do think that asset prices are more stable than where they have been in a long time if not higher and our book value is I think it’s something consistent with where we were.
Bose George
Okay, great. Thanks.
Operator
And our next question today comes from Giuliano Bologna with BTIG. Please go ahead.
Giuliano Bologna
Good morning and I guess – well, it’s unfortunate that the book value is down. So it’s great to see some performance on the operating business side. I guess expanding 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 you are 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 we have seen in a long, long time. And I think as we go forward, I do think they will compress quite frankly, but I think for right now, the gain on sale margins in all channels are extremely robust and we will continue to focus on that. I can’t – I would love to tell you where I think they are 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 sales margins are extremely attractive.
Giuliano Bologna
That makes a lot of sense. And kind of a little bit two-part follow-up, when I was thinking about the servicing side of 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 that are serviced 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 a sense of how many or what number of loans that are in forbearance you are 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 I have, hey Jack, you want to jump in on this?
Jack Navarro
Sure, I’d 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’s out on exactly how much of a positive inside our self-service platform. Today, we have 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 trend is continuing for May. So again if you are 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 servicers?
Giuliano Bologna
The other one was more so on the specialty side with 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 what you can do in terms of earnings or generated more on that basis?
Michael Nierenberg
Yes, 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 range, up to 30%. I think we will see a little downturn in that in the second quarter just as the nature – of the nature of the increased volume and the increased costs. And I think you will see us 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 of 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 specialty 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 have had a lot of inquires both from the existing clients as well as new clients for how much capacity do we have and how much we could do. We are going to be really – again we are going to prioritize the existing clients and we are going to be really thoughtful about the expansion of the business, but there is definitely an opportunity – definitely an opportunity to expand.
Giuliano Bologna
That’s great. Well, thanks for taking my questions and I will jump back into queue.
Michael Nierenberg
Thank you.
Operator
And our next question today comes from Stephen Laws with Raymond James. Please go ahead.
Stephen Laws
Good morning.
Michael Nierenberg
Good morning.
Stephen Laws
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 in about $6.5 billion to $7 billion of sales or decrease in April. Do you think that where it needs to be, do you expect more of a decline in May kind of where we are, do you expect the trough or bottom to be from a portfolio size or maybe other ways just you feel comfortable at the current size or you feel like we need to keep getting smaller?
Michael Nierenberg
Our goal and but I try 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 1.5x to 1.7x if you include the mortgage company we will continue to run a very, very low leverage business. I think we are comfortable with our portfolio size now I did point out that we did have a realized loss of $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 in mark-to-market could be pretty significant. So if you think about it if we lost give or take 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 in their yielding 6% to 8% in a COVID scenario I could see. Based on a 0% interest rate which is kind of where we are in the market place that we could see a recovery of I don't forget to see recovery of $2 but 8 weeks ago that $2 was in book value so overall portfolio size we are comfortable with term financing continues with the with the hard work that's going on with our team and our counterparties whether it be the banks or insurance companies we are working with so we're comfortable where we are.
Stephen Laws
Great. To touch on the origination of $45 billion was mentioned as the new goal and I think that the layout at page 13 has changed slightly has changed slightly. So have to look in the queue yet, I apologize but agency is in 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 into 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
Yes, we are a Fannie, Freddie, Ginnie originator right now. What we saw in the – as a result of the downward pressure on asset prices, we saw non-QM loans go down 10 to 15 points and you can’t originate a loan at par and sell it 90. That math doesn't work. So, we have added that space at this point. So you will see Fannie, Freddie and Ginnie origination as Jack pointed out we will focus on our existing portfolios will focus on recapture, and that's where we are going to – and the direct-to-consumer channels that’s where we think we are 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 quarter and see further growth in our operating business.
Stephen Laws
Yes. And a follow-up on that, I don’t need specifics, but maybe general commentary on the assumptions behind that forecast. I know some entities the MBA for one, 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 the $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 40 to 50 so 45 is a midpoint but can you give us a little bit of an assumptions you have for the agency mortgage market that that underlies that forecast?
Michael Nierenberg
I think as we turn back on certain channels wholesale we grow our direct to consumer possibly doing a little bit more in correspond as long as margins are there that's why we feel pretty confident in our ability to do 45 it's a projection though I mean that just to be honest I mean, could it be $60 billion could it be $35 billion or $40 billion and 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 but again it is it is a projection that projection comes from our mortgage company our mortgage company currently has give or take 4200 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 Steven it's purely a projection.
Stephen Laws
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 COVID but going forward a lot of agency applications especially refi are largely automated can you talk about what the pipeline or the how much it's goanna link them if a borrower that used to be kind of instant auto approval, now had to go on unemployment for 6 weeks due to COVID or have some COVID impact that was very unique and short-term and they go back, but now they have got a blip in their credit history. Does that get kicked out of your system? If so, how will those type of applications being handled and what type of lengthening should we expect to see in the closing of a loan?
Michael Nierenberg
Bruce Williams is on as well. First, I don’t know if you have an answer to that or if we want to come back to that?
Bruce Williams
No, Michael, thank you. Good morning, everyone. Yes, basically, there has ever been a whole set of what I’ll call them redo of all the process. So really what we are originating now, very close to closing, we have a process in place that basically people attest 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 are right that basically if we – we are multi-channel, each of the channels are different, but effectively with kind of the online ability, retention and all of that, we don’t expect timelines to increase dramatically. Things are turning. It’s surprising – but things are turning over relatively quickly.
Stephen Laws
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 have been able to move inspections and things of that to virtual, do you have issues with title verification or any type of access to government buildings or employees still may not be back at work. How do we think about of the different pieces of those – sort of the different services that are being dramatically impacted and kind of how the timeline of when those may get back to normal, which branded maybe a county by county situation?
Michael Nierenberg
Here is the way I would think about it. Covius is as I pointed out earlier, we have an investment in Covius. They are truly a third-party to us and everybody else. Everybody has limitations on their business right now as everybody still working from home or wherever everybody is. When you think about title and 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 or people going into other folks’ homes to appraise something and I think the answer is probably not. So, I think all of these businesses are impacted. I think as a result you will see until we get back to quasi normal state, I think all these business lines will be impacted. One thing I do want to emphasize is the actual contribution from these businesses to our overall earnings is very, very small at this point. Covius is a seal box. Those earnings stay in that system. So, it’s really the value of that asset title and appraisal as we do loans. It’s good to have 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
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 detail.
Michael Nierenberg
Thanks, Stephen.
Operator
And our next question comes from Trevor Cranston with JMP Securities. Please go ahead.
Trevor Cranston
Thanks. Good morning. Hope you are well.
Michael Nierenberg
You too.
Trevor Cranston
Couple of more questions on the servicer advances, the first one, can you help us think about how you guys are performing 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 curious particularly like on the capacity you have added since the end of March, are there any material differences in terms of the terms of the financing you have been able to add in the sense of LTV or the cost of the financing? Thanks.
Michael Nierenberg
Sure. Andrew, you want to take this one?
Andrew Sloves
Sure. This is Andrew. Nice to speak with you. So, the first question regarding when we able to recover the servicing advances after the deferment. We have been in dialogue with the GSEs and there is some discussion about putting into place deferment program, which would enable us to recover our advances shortly or immediately after the forbearance program ends. So our expectation is that across the vast majority of our portfolio we should be able to pretty quickly recover the outstanding advances and have that balance normalized as borrowers come off the forbearance programs. In terms of the costs of the servicing advance financing yes there has been an incremental increase in the cost of the servicing this additional servicing advance finance frame but we feel that it is prudent and a worthwhile expense to put that in place sort of you have more than sufficient advanced capacity across a range of scenarios.
Michael Nierenberg
And then I guess just a follow up on that advance rates are give or take 90% to 95% and the cost of funds is I believe is about LIBOR plus 275 is that right Andrew.
Andrew Sloves
Yes, that’s correct yes.
Trevor Cranston
Okay, great. That's helpful. And then in terms of servicing expense I think you mentioned that it’s reasonable to expect that the costs are going to go up to service near term in light of everything you're dealing with in the MSR portfolio can you just help us think about what to expect in terms of the servicing expense, one item for the next couple of quarters and how much of it might increase versus the first quarter?
Michael Nierenberg
Jack?
Jack Navarro
Yes the easiest way to think about servicing expenses really in two ways one is mixed so how many more delinquent loans do we have and those are obviously more expensive to service and so we think them just as a result of the forbearances a natural increases, increases in delinquency we're going to see the mix change we had a really terrific track record. Inside this the own servicing business that reducing costs by about 37% year over year in the as of the first quarter of this year so we're down to direct cost to service on a current loan below $6 which is really has been a feat of technology and people really 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 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 for certainly the first two to four weeks of this whole event was 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 were 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 any kind of overwhelmed the call centers in the short term we mostly corrected that We still have some high call rates in – on the loss mid side, but most of the customer services side is sort of back to normal and so those are simply going to increase costs so that's really what's going to happen in the second quarter we'll still be profitable will still have decent margins but we'll see we'll see both mix increase a little bit and cost to service in each category increase 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 we within 24 hours had a system. To allow the borrowers to identify that they were COVID affected and about another 24 hours we had a way that they could – their forbearance could be finalized online in cooperation with the GSEs and we expect to use the same approach when we get to resolving those forbearances through the deferment program that we hope Fannie and Freddie 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 will still have borrowers who have to deal with them on but that the technology will definitely help save us significantly and I think that's sort of the cost of service picture.
Trevor Cranston
Okay, I appreciate all the color on that. Thank you.
Michael Nierenberg
Yes. Anyone else? I am sorry.
[Technical Difficulty]
Unidentified Analyst
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 have seen the daily count of forbearance increase as the next payments do?
Michael Nierenberg
Jack, you probably want that one. I think it does the actual press have gone down I believe right, Jack.
Jack Navarro
Yes. The trends have been pretty clear with forbearances. In the early days, we were at as many as 5,000 to 10,000 forbearance requests a day in the late days of March and early days of April. We are down inside own servicing business at around 2,000 additions a day and for the entire enterprise we are probably double that, but definitely the trend of forbearance requests had been a steady decline.
Unidentified Analyst
And if you could just sort of contrast that with kind of the base case and the stress case scenarios, you laid out on that slide and kind of what you are assuming and how you would say things are trending versus those expectations?
Jack Navarro
Mike, you want me to answer that?
Michael Nierenberg
Yes, sure. You are referring to advances right?
Unidentified Analyst
Yes.
Michael Nierenberg
Yes, okay.
Jack Navarro
Yes. From an overall delinquency standpoint, maybe I will comment on that and Andrew can comment on advances, but we are basically where we had sort of planned to be from an overall forbearance request standpoint. The thing 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 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 Analyst
Great, thank you.
Michael Nierenberg
Anyone else guys? Any other questions? Operator? Hello.
Operator
Apologies. Our next question today comes from Kevin Barker with Piper Sandler. Please go ahead.
Kevin Barker
Thank you. Good morning Michael.
Michael Nierenberg
Hey, Kevin. How are you doing?
Kevin Barker
I don’t know what happened there, but so on tangible book value, we saw significant spreads, I think in April, I know you made some comments about not realized versus realized, but could you estimate where tangible book value is today off of what you have seen in the market?
Michael Nierenberg
Yes. I think we think, I think someone else has asked this question earlier, we believe it’s pretty close to where we were at the end of Q1.
Kevin Barker
Okay, sorry I missed that. And then…
Michael Nierenberg
Yes, that’s okay.
Kevin Barker
And then given the destruction that we have seen in the origination market there in late March with the Fed buying assets and then where you see it going forward, can 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
Yes. I think the latter part of your question, I think is due to quite frankly the markets being – people working from home, more limited capacity, ability to get things through the pipes that 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 that the gross numbers could be anywhere from 50 basis points to 60 basis points. Today, I think that margins could be double that, but it remains to be seen 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
So are you assuming that correspondent remains subdued for a foreseeable future?
Michael Nierenberg
No we're actually going to start doing more as I pointed out earlier our main focus is really the direct to consumer channels because that’s where we feel like we're going to get the most lift out of our existing customers in our existing portfolio and again on sale there is obviously very good because it's a retention tool for us the correspondent stuff wholesale third party origination returning 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 that’s just quite frankly the non agency market the I mean the agency mortgage market until the Fed came in was trading in a 5.range I mean it was crazy so as we go forward I think you'll see these different channels turn on and will evaluate the profitability of each one.
Kevin Barker
I'm assuming that turning on the correspondent channels is a big portion of the guidance for $40 billion to $50 billion origination this year?
Michael Nierenberg
Yes I think it's a mix of everything but yes it's bad it's wholesale again growing DTC I put it we put a slide showing from the third quarter in 19 which was $1 billion and change to the third quarter I think in 20 where we had that going up 3 times so I think all these are going to contribute and again it's for me it’s not about the sheer volume the 40 to 45 to 50 or whatever number it is it's about how do we create value for customers and make money for shareholders obviously.
Kevin Barker
Right. And then according to your balance 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 $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 that balance sheet looks like and the financing structure?
Michael Nierenberg
I think you will see total repo on bonds and loans that will be I pointed that out earlier that'd give or take about $1.5 billion depending upon what we do in agencies and things like that I think a way 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 they are give or take about $2 billion each or actually the bond book couldn’t 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
Okay. So when you envision that scenario you see the term which is obviously a little bit more expensive than repo or what it was in the past anything about the pro forma balance sheet as we 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 to return on equity in those businesses as capital turnover quicker will be – I am hopeful, well north of 20%.
Kevin Barker
So you are saying that you think you can get 20% return on equity on a pro forma basis following the whole restructure in looking at?
Michael Nierenberg
The portfolio was going to be small right I mean the way that we think about it as I pointed out we took we had realized losses of whatever $1 92 per share as you think about the marks we took which were pretty significant that those come back in a reasonable period of time but 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 size it's not going to be that material I think the operating businesses are where you are going to get lift and a gain on sale margin stay where they are return on equity going to be great
Kevin Barker
Now, do you see that as normal or is that something that says near term?
Michael Nierenberg
The United States, the world is shutdown that’s not normal. So I can't tell you what's normal anymore. Right I mean that the course but I but I do 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 through 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 in as I pointed out we are 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 price is and what’s happened. Unfortunately, we couldn’t control those 1 or 2 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 are 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 am looking forward to actually growing book value back to where we get to have $14, $15, $16 a share, so…
Kevin Barker
And then one last one, the RMBS portfolio was a major portion of your hedging for the MSR portfolio you had to sell that down significantly, how are you hedging the MSR now given that the agency RMBS portfolio is a small fraction of what it was previously?
Michael Nierenberg
Right now, we are a little bit biased, I think to the short side, because when I think about the state of where we are, at some point we will add agency mortgages if and when they cheapen 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 will continue to evaluate all hedges whether it be in swaps, swaptions, options as well as the 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. And early this week, they came out and said they will buy as needed. So I think you should see that soften 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
Thank you for taking my question.
Michael Nierenberg
Thanks, Kevin.
Operator
Thank you. Our next question today comes from Matthew Howlett with Nomura. Please go ahead.
Matthew Howlett
It takes like a long call, but I appreciate taking the question and certainly appreciate all the hard work of the team during late March.
Michael Nierenberg
Hey, Matt.
Matthew Howlett
Mike, just a big picture question, we are hearing lot of reports of the speed of the non-banking industry origination, servicing, the FHFA has been vocal about pulling servicing from people. Can you just give us 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 dialogue, whether it be with FHFA, Ginnie, Fannie and Freddie, we have wonderful relationships with everybody. The Ginnie Mae program will help servicers the FHFA announcement recently about the 4-month limitation on P&I advances on loans and forbearance should help. I think overall I mean I pointed out we have more liquidity today than we have had in the long time and I think maintaining higher levels of liquidity is essential right now. I do think the non-banks when you think about the amount of whether it 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 there is continued support of the non-banks. I think for us personally, we will 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 if there is – there is a lot of good constructive dialogue. 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 everybody has models and things that delinquencies are going to do this. So our forbearance numbers are going to do that. And I think until we actually see the real numbers that’s why we are going to continue to build liquidity when we think we need to, but I think hopefully the support – I think the folks at the agencies get it.
Matthew Howlett
Is there appetite to take on sub-servicing, let’s say, if there are transfers that GSEs do? Is there 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 are 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
Got it. And then just two quick questions, just the securitization, you said you see an NPL negotiation, what’s the state of that? And then the call rights, are you still retaining the – what’s your outlook on that as 80 billion you didn’t sell away all your call option that would be right? Just two of those questions.
Michael Nierenberg
No. The securitization we did was a seasoned arm deal that we had called clearly the overall proceeds were lower than where we would have been it’s – we are 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 balances now to do securitizations on advances. As we go forward and those balances build, if in fact they do, then we will look to do securitizations in the advanced market. As we go forward on the call business, we retained $80 billion of call rights that we currently own. In 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 will work with our partners there on potentially executing those call rights. So, we still control a lot of collateral. We are going to be smart though how we deploy capital and how we add to our balance sheet here.
Matthew Howlett
And the securitization advance, that would be cheaper than what you are getting on the bank line?
Michael Nierenberg
It depends where you are 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
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
Hey, guys. Thanks for taking all the questions. So why don’t you go back to the comment that someone made, I think it was Kevin about the $500 forbearance that the GSEs might start offering? I was just curious what the timing for that was and also 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
Yes, I was going to mention it, it’s a $500 deferment fee. They have – they basically put a draft out to the various advisory boards we participate in, that we have been able to review. It’s not supposed to be up and running until July 1, 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 have 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 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 the program. They are also acknowledging that a certain amount of borrowers are going to need full modifications where they can’t pay the existing payment, because in that scenario, they would basically be on the – basically the loan will just be brought current and the payments would be rolled to the end of the mortgage and there will really be no impact in terms of the loan to be same payments income, 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 direction. So that’s where we stand today.
Bose George
Okay, great. That’s helpful. And then actually I wanted to also the comment you made about a percentage of borrowers who are going to the forbearance is 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?
Jack Navarro
Yes, there is a statement in the document that for the enterprise as of April 30 – I am sorry as of the end of the first quarter is that it was 60%. I just want to get a copy of that. And so that was – those were the numbers. Those were the numbers as of most recently, as of April 30 it was 60% had paid 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 are very early in the month. So, it’s hard to predict exactly where that’s going to go and I would be reluctant to with anybody with the impression that there was a guarantee there. There are some partial payments being made. We are encouraging borrowers to both pay any payment amount as well as their full payment amount. But I think it’s a very fluid situation. The trends are what exist today and it’s a little hard to predict what exactly is going to happen going forward.
Bose George
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 head.
Tim Hayes
Hey, Mike. Just one quick follow-up, I know right now liquidity is top of mind, but just based off of the earnings tower from the origination platform. It seems like I guess I am 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 dividend coverage or the payout ratio increase a bit?
Michael Nierenberg
Tom, I think that will be obviously up to the board. The largest companies in the world have cut dividend or will continue to cut dividend. So I think our focus obviously we would like to pay bigger dividend. Our main thing coming off probably to be most horrific markets that quite frankly I have dealt with and I have doing this for long, long time is such that we will continue to evaluate the earnings power of the company or dividend policy, but clearly if we can get our book value back to a more normalized state with where we have been, there is the balance, right and how we think about. So, it will be a board decision, but I think for now, there is not much more I can say about that.
Tim Hayes
Sure. Thanks Mike.
Michael Nierenberg
Thanks.
Operator
And our next question comes from Kevin Barker of Piper Sandler. Please go ahead.
Kevin Barker
Thanks. In regards to the consumer loans, I know they were changed from equity method to held for investment, was there a change – or did you think on that the consumer loans on your balance sheet or are these continuing to be equity method?
Michael Nierenberg
So, the change, Kevin, has to do with the adoption of CECL. So, we brought them on it’s fair value.
Kevin Barker
Okay, alright. Thank you.
Operator
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. Thanks, operator. So, all of you, thanks for your support. I take our and we all do like I mentioned earlier stock price to heart. We want to perform for all of our shareholders. And the work that’s been done, I think on our team, I opened up and said thank you, has been something that’s second to none and something that I haven’t seen in a long, long time. So, thanks to the team and to all of you that are shareholders and all the analysts and our banking partners, I would be really appreciated, 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 hopefully we get to a normalized state sometime soon. Thanks everyone.
Operator
And thank you, sir. Today’s conference has now concluded. We thank you all for attending today’s presentation. You may now discount your lines and have a wonderful day.
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