Mike Nierenberg and Differentiated Mortgage Strategy

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Businesses often struggle with efforts to differentiate their company from competitors. With successful product and service differentiation, consumers and investors will immediately recognize a company as distinctive and different in comparison to the competition. But when differentiation strategies are either weak or non-existent, a business will lose many competitive advantages. Coco Chanel expressed the vital importance of this mentality: “In order to be irreplaceable, one must always be different.”

Each industry usually has only one or two companies that are preeminent illustrations of excellence in differentiating their services and business from industry competitors. This article features a stellar example from the mortgage industry — New Residential Investment Corp.

 

Differentiated Strategies — New Residential (NYSE: NRZ)

What separates many market leaders like New Residential from competition within and outside the mortgage industry is a successful multi-pronged approach to differentiation — multiple strategies that each demonstrate excellence and distinctiveness. In the ultra-competitive mortgage business, most companies struggle to identify even one or two features, benefits and advantages that make them truly different from competitors. For New Residential, the impressive list of differentiated strategies includes the following nine successes:

• A Diversified Network of Strategic Partners and Subservicers — All aspects of mortgage-related processes require multiple partners to facilitate success. In addition to strong working relationships with other companies, NRZ is actively pursuing a “whole pie” business strategy that enables internal control over more key steps of each process.
• Growing Instead of Shrinking — While recognizing that cost control is always important, NRZ continues to grow rather than shrink after making acquisitions. For example, after acquiring NewRez in 2018, New Residential expanded the team by 300 percent.
• Stable and Strong Cash Flow, Earnings and Dividends — With public companies such as NRZ, it is easy for borrowers and investors to keep track of data like book value, dividends and earnings that are excellent indicators of financial health. Return on equity and dividends are summarized in the closing paragraph below; New Residential’s book value has increased every year since NRZ’s inception (May 2, 2013).
• Well-Positioned for Different Market Circumstances — NRZ uses an active management style that can capitalize on changing market conditions. Specialized NRZ assets such as excess mortgage servicing rights (MSRs) should increase in value when interest rates rise.
• Ample Capital Resources for Growth, Investments and Technology — In today’s business environment, very few companies can succeed without ample financial resources for pressing needs such as leading edge technology. NRZ’s strong liquidity and balance sheet facilitate timely and opportunistic acquisitions and strategic investments.
• Products and Services That Are Scaled Up and Hard to Replicate — NRZ’s portfolio includes MSRs and non-Agency securities. New Residential is one of the largest owners of MSRs in the United States and controls about one-third of the non-Agency market.
• Portfolio and Business Diversification That Enhances the Bottom Line — NRZ has assembled a portfolio of specialized assets that include a non-bank loan originator, a non-bank mortgage servicing company, residential mortgage-backed securities (RMBS), consumer loans, call rights and MSRs.
• Innovation in Leadership, Management, Marketing and Finance — Steve Jobs described the critical relationship between innovating and leading: “Innovation distinguishes between a leader and a follower.” NRZ’s executive management team (led by Michael Nierenberg) has not hesitated to employ unconventional business strategies and bold courses of action that consistently enable New Residential to stand out from the mortgage crowd in a positive way.
• Customer-Centric Mentality — Contemporary customers are increasingly demanding to be at the center of the sales process. Among other things, this can require more educational content, transparency and attention to niche audiences. With mortgages, NRZ and its subsidiaries emphasize non-traditional and flexible lending and mortgage servicing guidelines that provide more control for borrowers.

New Residential Investment Corp. and Michael Nierenberg

NRZ’s return on equity (ROE) was 20 percent for the whole loan portfolio in 2018. Here is additional information about Michael Nierenberg and New Residential:

Michael Nierenberg — President and Chief Executive Officer of NRZ since 2013 and Board Chairman since May 2016. As observed in a May 2019 summary of business achievements, “Michael (Mike) Nierenberg is a leading proponent of innovation in the mortgage industry.”

New Residential Dividend — Based on the May 14 price of New Residential ($16.57), the 2018 dividend of $2 per share (paid quarterly) represents a yield of 12 percent. Since 2013, NRZ has paid out more than $2.4 billion in total dividends to shareholders.

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