Michael Nierenberg, a former Bear Stearns director, now serves as the CEO, president, and chairman of New Residential Investment Corporation and as chairman of the Samuel Waxman Cancer Research Foundation. In the past, he has also worked as a managing director for Fortress and the head of Merrill Lynch’s Global Mortgages. Mr. Nierenberg has leveraged deep experience in a variety of markets to help inform his current real estate investment success. In particular, he focused on how he has innovated to create opportunities out of recent disruptions to the mortgage market.
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Michael Nierenberg’s Take on Disruptive Business Models
Nierenberg is known for his unique and effective real estate investment philosophy. For instance, he told Business Matters Magazine that investors should not look at disruptive business practices as a threat. Instead, disruptions can offer opportunities for innovation. He observed that markets have grown less durable than in the past. He said that some business models had been fixed for decades as businesses tried to make them work better than their competitors did. Today, business models can change very rapidly. He says that businesses should prepare for the disruption and sometimes, even the destruction of old markets.
He believes mortgage companies have operated with an attitude that if “something’s not broken, don’t fix it” for the past 50 years. While the rest of the industry celebrates the status quo, New Residential Investment Corporation, established in 2013, operates as an exception. Nierenberg said that the 2007 financial crisis changed real estate investment markets. A number of banks had to sell mortgage servicing rights, or MSRs. In turn, CEO Michael Nierenberg took the chance to operate a non-bank mortgage lender, New Residential, as a large and growing MSR asset owner.
Mortgage Market Disrpution: NewRez Non-Qualified Mortgage Loans
One such strategy New Residential employed consisted of aquring NewRez, a nationwide source of non-qualifed mortgage loans. Non-QM lenders don’t have to conform to the same underwriting guidelines as producers of qualified loans do. That means that they can offer loans to buyers who may otherwise not get approved for residential mortgages. Borrowers still get evaluated by their ability to pay, but the lenders have alternative ways to evaluate potential borrowers and reduce risks.
According to BankRate, these kinds of non-QM loans have typically been most popular with real estate investors, self-employed people, and foreign nationals. Sometimes, borrowers with prime credit also seek them out because non-QM lenders can offer beneficial features. For instance, a prime creditor may have enough assets to buy a property but want to take out a mortgage to keep their cash fluid. Other borrowers may have some issues with their credit report that would disqualify them for another mortgage; however, a non-QM can mitigate extra risk in ways that conventional lenders cannot. For example, they may require a larger down payment or charge extra points.
NewRez can accept loans in 49 states and DC. New Residential Investment Corp. securitizes the loans that NewRez originates. They have already generated nearly $1 billion in mortgage backed securities. Nierenberg believes his success makes it clear that replacing and renewing old mortgage practices has benefited borrowers and investors. Since 2013, the year he founded New Residential, more non-bank owners have followed his example and purchased mortgage servicing companies. He believes that his company has led the way to transform the business model for residential mortgages. This includes the way companies service, own, and originate them.
Bankrate also mentioned the strength of the non-QM market. Because of tighter restrictions after the Great Recession, the demand had grown for this kind of flexibility. Even better, these mortgages had performed very well, with almost all current for repayment and a 60-day late rate of less than four percent. They compared that to an 8.7 delinquency rate for FHA loans for the same period of time.
About New Residential Investment Corp.
New Residential Investment Corp. operates as an mREIT, or mortgage real estate investment trust. As such, it has accumulated the assets to service and originate non-bank mortgages, Shellpoint and NewRez. The parent company also recently invested in a financial technology developer called Covius Holdings. All of these investments fitted with their business goal of improving available technology for the sectors.
In 2018, New Residential tripled the size of the NewRez team. More recently in 2019, the parent company acquired Ditech Assets, with additional mortgage and servicing assets. After this acquisition, it grew into one of the top 10 companies in its non-bank mortgage category. Because of his knowledge of and success within the industry, Michael Nierenberg has been mentioned as one of its most highly skilled leaders.
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