Good morning. My name is Kim and I will be your conference operator today. At this time I would like to welcome everyone to the New Residential Second Quarter 2016 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. [Operator Instructions] Thank you. Mandy Cheuk, Investor Relations, you may begin your conference.

Thank you, Kimberly and good morning everyone. I would like to welcome you today to New Residential's second quarter of 2016 earnings call. Joining me here today are Michael Nierenberg our CEO; Nick Santoro, our CFO; and Jonathan Brown, our CAO. Throughout the call we are going to reference to the earning supplement that was posted to the New Residential website this morning. If you have not already done so, I would suggest that you download it now. Before I turn the call over to Michael, I would like to point out that certain statements made 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 investor presentation regarding forward-looking statements and to review the Risk Factors contained in our annual and quarterly reports filed with the SEC. In addition we’ll be discussing some non-GAAP financial measures during the call today. And the reconciliation or these measures to the most directly comparable GAAP measures can be found in the earning supplement. And now I would like to turn the call over to Michael.

Thanks, Mandy. Good morning everyone and thanks for joining our second quarter earnings call. For the quarter, I think we had a terrific quarter and we continue to do all we can to deliver consistent earnings, while maintaining and hopefully growing our dividend overtime. And despite all the volatility that we saw in the market and the uncertainty following Brexit, again we’re very proud of our results. For the quarter we saw global [indiscernible] following Brexit and yields in all fixed income assets headed lower. We saw spreads on mortgage assets tightened as fixed income investors search for yield. Just to give a sense on some yields. On a year-over-year comparison, in June of 2015 the 10-Year Treasury rate was 2.35%. One year later, at the end of June in 2016, it was 1.47%. So obviously, we saw a very big rally in the treasury market. The 30-Year Mortgage rate, for comparison at the end of June in 2015 was 4.02% and at the end of Q2 in 2016 was 3.48%, so again a very big rally in mortgage rates. For us our core investment strategy performed very well despite the challenging markets. During the quarter, we invested $233 million of capital with most of that targeting the Non-Agency mortgage market. We bought Non-Agency mortgage securities in which we own the associated call rights. For the quarter, our Non-Agency business did extremely well. We had an unrealized gain of approximately $68 million, which increased our book value by $0.30 per share. Our advance business continues to perform like we thought it would. Advance balance continue come down as delinquencies trend lower. For the year advance balances are lower by 13% since January 1. In our MSR segment, despite seeing the lowest mortgage rates we’ve seen since May of 2013, our…

[Operator Instructions]. Your first question comes from the line of Jeremy Campbell with Barclays. Your line is open.

Just here I see here in the last slide, the size of the MSR pipeline is about $500 billion, but when you think about the pipeline of “seasoned and credit impaired MSRs” which is your main target, what does that look like?

I would say that out of $500 billion it is probably closer to - 350 to 400 is probably the amount. We use 500 a little bit as a rough number. I do think the actual amount of MSRs that could come to the market could be even more than that. The other thing I would do want to point out with a 10-year treasury rate this morning at 155. If we are ever going to take a look at different MSRs I think it probably be reasonable time to do so. Yeah, the legacy MSR pipeline looks very robust, but I would also say the MSR pipeline is broadly looks extremely robust.

Got it, and the seasoned credit impaired mean, really mostly non-agencies or do some agencies fit that bill as well?

There is both actually, if you take a look at our portfolio roughly 70% of our equity capital is in the Non-Agency legacy MSR business. So as a result you know seeing mortgage rates for example at the end of June at 3.48%, yeah, that get as nervous, but the flipside of that is, when you take a look at the nature of the portfolio it has performed extremely well, particularly around the Non-Agency stuff and we like that very, very much. There are legacy credit imparities in agency MSRs, we look for seasoned MSRs as well but I wouldn’t limit that to one versus the other at this point.

Got it, and then consumer loan charge also remain all time low similar to other consumer credit classes and you also mentioned that feature clean up call deals required delinquencies and advances, continue to decrease from here. So what we remain in a pretty benign credit environment for the consumer. How do you think about the risk to NRZs earnings if the economy does sort of deteriorate and delinquency and charge-offs due start to rise.

It is a good question I think, just to be clear on the consumer portfolio our carrying value is approximately $145 million. When you think about a company that has equity capital, little bit shy of $2.7 billion in a market capital of $3.2 billion, what we are concerned about, always concerned about everything. I think it is not as significant of a concern, if we were quite frankly a pure consumer company that is one and two. On the Non-Agency side of the business, these loans are very, very seasoned. I mean when you look at the average age of 115 months, I just think over time we are going to continue to clean up the delinquency pipeline. Yes if delinquencies go up or advance balances could up a little bit but I think in general where we are in the cycle and the season nature of this portfolio I feel like we have less risk around that than if they were not a seasoned and haven’t been in these pipelines for so long.

Great, thanks so much.

And your next question comes from the line of Doug Harter with Credit Suisse. Your line is open.

Do you have a sense as to whether when you get the final approvals, is that something that kind of opens doors for MSR acquisitions kind of immediately or is that still kind of a longer terms opportunity?

Doug, I think it is kind of immediate, now while saying that we still have a little bit of work to do but we set out to do this for a reason, one is so we would operate our company and diversify our servicing partners, two is to protect the interest of our company but I think the bigger opportunity as we look at the pipeline of MSR is that potentially could be for sale. It is more of an immediate opportunity than it is something that you know we would speculate into the future.

Great and then looking at the Non-Agency MBS opportunity, obviously you were able to make a big investment there this quarter. How easy is it for you to source bonds where you have the call rates right now at that prices that you find attractive?

I would say, we deployed a fair amount of capital in Non-Agencies and will continue to do so. I will tell you, it is not as interesting today because spreads of non-agency mortgage securities are trading towards the kind of reason pipes we have seen over the course of the past couple of years. While saying that you know that average price on our portfolio is approximately $0.67. So we think that from an accretion stand point over time we have some reasonable run way which is kind of help us accelerate the time line on some of the calls but the broader market it is so today is not as interesting on season legacy Non-Agency mortgage securities. Spreads are tied; there is a tone of capital being deployed in the sector. I think technicals are such that, likely if rates remain around these levels will probably continue to perform extremely well.

Great, thank you.

And your next question comes from the line of Bose George with KBW. Your line is open.

Good morning, just want to start one on the mark on the servicing advances. Can you just remind us what drives that mark - there was a negative mark last quarter which was pretty positive this quarter?

Yeah, so the servicing advance business is marked to have the forward curve. So what happens is that as forwards rates trend lower, you are going to have a - assuming everything else is equal for example if your discount rate is equal, you are going to have a lower mark, in a quarter with extrovert rate are lower. This quarter the discount rate tightened, the forward rates were lower and as a result the discount rate out weighted the forward rates as it relates to from a P&L perspective. So I think the number was approximately the gain from the discount rate was about $25 million to $30 million and I think the loss stood at forwards was about $15 million to $17 million. So net, net there was a positive mark on the advanced business.

Okay, that’s helpful, thanks. The discount rate is that driven by market rate as well for you guys.

Yes

Okay, great. Thanks and then actually switching to the just - on Ocwen call, they noted that their higher interest expense to you guys will end up this quarter. When we think about your economics there, is there an offset or I think any comment there?

You know the company and the way we look at earnings today and the way we look at forward earnings we take obviously, we take into account everything including incentive payments from Ocwen or anybody else. So as we look at Q3 earnings and Q4 earnings, if there is no incentive in payment from one of our servicing partners that is factored into how we look at the go forward business.

Okay, so but when we, sort of think about modeling that basically that, whatever that payment to you is, no longer part of the earnings stream?

Correct.

Okay, great and then just one more, can you just comment on the excess liquidity that you had, you noted, you paid down some of the servicing advances, can you quantify how much excess capacity guys have.

Including all of our, when we incurred excess liquidity we like to think about our ability to finance certain assets on our balance sheet. You know we have been pretty vocal that, you know we have access liquidity of coming into the quarter between $750 million and $800 million. Currently we think we have excess liquidity of something around $500 million assuming that we did certain financings around some of our assets. Current cash on our balance sheet at the end of Q2 was $234 million.

Okay, great, thanks.

And you next question come from the line of Jessica Ribner with FBR Capital Markets. Your line is open.

Hey, good morning. Thanks for taking my question. Two just quick questions here, what can we inset here [ph] kind of the real economic so to speak on the called loan securitization this quarter? Did you get that those two points or are you seeing any benefits in the market from lower rates?

Jess, it’s a little bit of both. We did there $306 million deal in May and including bond accretion it was at least two points quite frankly and we would expect the same going forward. Obviously, we can’t give forward-looking statements from a profitability standpoint, but based on past history and the way that we think about the business, we feel like we should be in a similar range as we go forward.

Okay. And then switching gears to the servicing expense, it ticked up this quarter pretty meaningfully from last quarter. How can we think about that on a go-forward?

On the servicing expense on the consumer loans?

Yeah, it’s a loan servicing expense item.

Jessica, the increase is due to the consolidation of SpringCastle this quarter.

Got it.

This is the fourth quarter, which we’re consolidating the results.

So tremendous consumer portfolio, Jess.

Okay. I appreciate that. That’s it from me. Thank you.

Thank you.

Your next question comes from Michael Kaye from Citi Group. Your line is open.

Yeah, good morning. So, you made some clear progress this quarter on MSR licensing front, I mean, but couldn’t the company really compete with some of the larger banks on more plain vanilla non-credit impaired agency MSRs?

Could we - the answer is absolutely yes. When it comes down to pricing, whether it works for the company? No, to be honest, I mean we have in the past - we have not set out to buy a kind of clean new production agency MSRs. Could that change with the 150 tenure treasury? No, absolutely. But what I’m saying that is going to work for us. Obviously, the banks have a lower cost to capital than we do, but I’m not sure in net-net. I would say we could compete whether it works for us or not, it depends on the portfolio. It depends on the salary. There is obviously a couple of different variables.

Fair enough. You talked about the large $500 billion MSR acquisition pipeline. You talked about that last quarter on a three to six-month horizon. I mean what kind of hurdles or roadblocks, like are you seeing from getting deals actually done? Is it just borrowing, seller funding the right price? Is it work hard towards hurdles? Is it financing? Is there going to be like the specific catalyst beginning something done like someone going into some sort of financial distress?

I don’t think there is anyone seeing that’s preventing whether a seller or a buyer to consummately in transaction. I would say that obviously we are in the middle of a lot of disturb for our core businesses to invest in MSRs and I would expect us to be successful as we set out that timeframe of whatever three months or six months or whatever reasons to get licenses to give us that flexibility to be able to acquire MSRs. So I think we are there.

Great, alright. Thanks very much.

Thank you.

The next question comes from Trevor Cranston from JMP Securities. Your line is open.

Hi, thanks. A follow-up on your comment that Non-Agency Securities are a little less attracts, because spreads are relatively tight levels. Can you say what you think they expected returns are on the securities you were able to add in the quarter? And then the second part of the question, are you guys expecting any change in the repo terms available on Non-Agencies with the money market fund reform coming up soon? Thanks.

So, as it relates to that, our targeted yields still are, what I would call, 12% to 15% on the Non-Agency side and that is on a levered basis. That also when you think about what the true return when we call those transactions, it is significantly higher than that. What we're seeing overall spread wise is for those of you that are better bond folks, you're seeing senior securities now trades roughly 250 over or 200 over. So, the real leverage yields on things like that are probably more in the upper single digits. So, we have tended not to be to acquire those assets. We will acquire them over time. Again if the market gives us the ability, we think it adds value to our call strategy. As it relates to the funding, I don't see any change. I think the banks are truly flushed with cash making essentially secure loan against the Non-Agency security where we have, call it, 25% equity in that security.. I think it's something that the banks will continue to lend to us on. We’re also working with other types of funds to try to increase as they broaden the take of financing arrangements we have. So, I don't see any change right now.

Okay, got it. And thanks for the color.

Then next question comes from Jason Deleeuw from Piper Jaffray. Your line is open.

Thanks. Good morning. And it's good to see the portfolio performing so well, especially with the decline in rates and you guys did $0.52 of core EPS this quarter, $0.49 last quarter, $0.52 in the fourth quarter. So I'm just kind of and you've been building the Non-Agency call right securitizations. I'm just kind of trying to get a sense in your view, Mike, has the sustainable earnings power of the portfolio increased?

Yeah, I mean, the one thing I point out, Jason, we come in every day saying how are we going to make money for investors and how are we going to maintain and grow our dividend, so in doing that we try to stay obviously within our core asset groups. I do think the sustainability and the earnings power of the portfolio is extremely powerful. I also think that if we are able to do some of the things we want to do around some new potential acquisitions of MSRs and other things that will only add to the sustainability and the earnings power of the portfolio. It is a mortgage, so obviously they do amortize, so we have to continue to replace assets. But the net of it is the portfolio, as it continues to grow, will continue to kick off a lot of cash flow and the sustainability I think is extremely powerful.

And is there any way to quantify how much of the core EPS is coming from the Non-Agency call right securitizations at this point?

The core EPS for the quarter that's coming through is approximately $0.08.

Okay. And is there any way you could kind of give us a sense like since the beginning of the year or maybe just a couple of quarters ago like how much is that increase, just so I just think it would be helpful, investors could kind of get a sense for how this asset class of Non- Agency call right is actually contributing to the quarterly for EPS?

Yeah, Jason, let us go to some numbers and then obviously in one of the follow-up calls we can give you some of those numbers. Clearly as we accelerate the timelines of this is going to be a significant driver of earnings as we look forward. Clearly, we’ve been talking about this for a couple of years. I do think we're closer now than we've been in sometime as these portfolios season more and advance balances come down, but again I think there is a broader market fix to get rid of or clean up what I would say some of these legacy loans that have been sitting in the pipeline for years, which will help us accelerate the time lines around the call right and it will be very, very good for quite frankly homeowners, for servicers, for anybody that owns bonds. So, it's a bigger fix, but it's not something that - it's something that we’re ultra-focused on and hopefully at some point in the near future we’re able to figure this out and it will be a bigger driver of earnings as we go forward.

Okay. That's great. And then just a last question on the servicer advances and how you've been working with your servicer partners to bring those down. Can you just help us kind of understand what you're doing exactly with your servicer partners to bring those advances down? And then just kind of give us a sense for how that benefits your P&L? I mean my sense is lower interest expense and funding the servicer advances, but is it just that or are there other aspects in the P&L that benefit.

Yeah, I think just to comment on the servicer advances, while we work for the servicers, obviously the servicers do what they have to. In a quarter, it would be underlying, pulling and servicing agreements and how they need to service them. So I think that is truly on the servicer themselves. Keep in mind in advance as they cost to a servicer and what we do is we provide equity capital to the servicers - to our servicing partners. So they’re incented to bring down advanced balances as their interest costs go down significantly. As these portfolios season and as the servicers go through and say, okay, maybe that advance shouldn’t have been made or maybe we have the ability to call it back, that is work that I believe we will continue to happen at our servicing partners. But we don’t control that as it is - as it is a basic servicing function. As it relates to the financing and what we do, I would say that there is a tremendous amount of financing available to us in the servicing advance business that could be done via bank balance sheet and then a lot of the larger banks that we all deal with are very much involved in that business. We are seeing some interests from insurance companies that are involved now in the business. And then the third part of that is, we could issue term notes and if you think about it, with fixed income assets from yield standpoint trending lower and spreads tighter, it does give us the ability to issue more term like securities in the marketplace today than we have been able to do it in some time. So it’s a combination of everything. I’ll say, kudos to our team that works on the servicing advance business and they’ve done a great job working with the banks and different servicing partners to get the lowest cost of funds as well to increase our advance rates on these different facilities.

Great, thank you very much.

Thank you.

Then next question comes from Fred Small from Compass Point. Your line is open.

Hey, good morning. Thanks for taking my questions. On the - just one more on the call right strategy, you said - that I hear you right, you said $0.08 from call right strategy this quarter.

That’s correct.

It seems like that - the last time you disclosed the GAAP and core earnings from the call right strategy, I think was an preannouncement to the fourth quarter. It seems like the economics have improved just because you did less this quarter and made more from it. Can you sort of explain what’s changed there?

Yeah, I mean - Fred, we can get into more detail, but it’s - keep in mind the more bonds we own at a discount - I pointed out earlier that our portfolio - the weighted average market’s about $0.67, between $0.66 and $0.67 I believe. As you have more bonds per deal, when you call them, it just helps from an accretion perspective and that’s going to add to our core earnings and that’s the way that I would think about that and should you want to get into further detail, we’re obviously happy to do that with you as well.

So there - you own - when you put out like the 291 I guess, that’s just a gross number, not sort of the percentage of bonds that you own varies between, the total numbers that you report, is that what you’re saying?

Now, what is the 291 Fred?

Sorry, I thought that was the number in the release.

Yeah, it depends on the amount of bonds you own per kind of collapse or per securitization I should say.

Okay, alright thanks. And then your expectation - what’s your expectation on the annualized servicing expense from the consumer portfolio?

We expect that to be approximately 45 million.

Got it and is that fair to take that as sort of a rate that annualizes as the consumer portfolio amortizes?

It will decline, but it’s a fair assumption.

Okay, got it. You talked about the advance rates coming down, is there - do you have sort of an estimate of how much cash you receive from the reduction of advances or the reduction at the advances to UPB year-to-date in the second quarter?

So the advance bounces have declined approximately $1 billion since year end and if you think about it that our LTVs on those advantages in the low 90s, well, then the return of equity is going to be approximately 8% on that reduction in advance balance, as we have approximately 92% LTV. So $1 billion reduction in advance balance is going to be 80 million of return of equity.

Okay, awesome. That’s really helpful. Two other questions though, one on the spin on it, when you say you need help from other partners to clean up the Non-Agency market, can you give any more detail on sort of what you mean there?

Yeah, I mean, I’ve been doing this a long time. I think that when you look back to - these loans were created from ‘03 to ‘07, if you think about it. A lot of these loans are just sitting in these mortgage trusts, they’re very stale. I do think it’s in the best interest of the industry to clean up a lot of these legacy assets that are sitting or these legacy loans that are sitting in there. And if you think about it from the benefit standpoint, it would benefit everybody from the bond holders, right because you’ll have some accretion on your underlying bonds that you own. From a servicing perspective, the servicers would have much lower interest cost as a result of advance balances going away. I do think it potentially clears up some of the litigation - this legacy litigation from the trustee standpoint and the rating agencies. So while we will embark and do all we can, I think a broader solution - an industry solution will be more beneficial to the entire - quite frankly the entire business, not just NRZ, but the broader mortgage market. So that’s kind of how I think about it. Do I think that there will be broad based support for it? I would hope so because I think it would benefit everybody and homeowners as well.

Okay, awesome. Last one, does the capability to own MSRs in all 50 states or service in all 50 states, does that sort of weigh on the decision at all whether or not you want to move Ocwen servicing, assuming that they don’t get and SMP upgrade?

No, listen I think we’ve been pretty clear. We’re doing this to give us more flexibility to acquire MSRs and work with different sub-servicers and I think that is really the premise as far as why we’re doing this. As you think about protecting our company, I think it’s also an added layer of protection and I think it’s as simple as that.

Great, thanks a lot.

Thank you.

There are no further questions at this time. I would now like to turn the call back to Michael Nierenberg for closing remarks.

Well, happy summer everybody. We appreciate all of your support and look forward to updating you on Q3 in October. So enjoy the rest of the summer. Thank you. Bye-bye.

Ladies and gentlemen, this concludes today’s conference call. You may now disconnect.