Preliminary Q2 2020 Ocwen Financial Corp Earnings Call
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Hi, My pleasure control over to de collects really senior Vice President Corporate Communications. Please go ahead Sir.
Good morning, and thank you for joining us Rockland preliminary second quarter 2020 earnings and pick this up they call.
Please note that our preliminary second quarter 2020 earnings release in slide presentation are available on our website.
Speaking on the call will be often chief Executive Officer Glen Messina.
As a reminder, your presentation in our comments today may contain forward looking statements made pursuant to the safe Harbor provisions in federal Securities laws.
Looking statements may be identified by reference to the future period and live I used to forward looking terminology.
Looking statements by their nature address matters that are two different degrees uncertain.
No something I've forgotten substantial change and it doesn't result of the covered Nike pandemic. We are in the midst of appeared a significant capital markets volatility and rapidly evolving mortgage lending in servicing environment has magnified such uncertainty.
You should barely factors in mind, when considering such statements and should not place undue reliance on such statements.
I was looking statements involve several assumptions risks and uncertainties that could cause actual results to differ materially, including those risks and uncertainties described in our reports and filings with the FTC, including our annual report on form 10-K for the year ended December 31st 20 Nike.
And our current and quarterly reports since such date.
In the past actual results have different from those suggested by forward looking statements in this may happen again.
Always looking statements speak only as of the date. They are made and we disclaim any obligation to update or revise any forward looking statement, whether as a result of new information future events or otherwise.
In addition.
The presentation, our comments contain references to non-GAAP financial measures such as adjusted pre tax income adjusted pre tax income, excluding amortization of energy lump sum payments and adjusted expenses among others. We believe these non-GAAP financial measures provided useful supplement to discussions an analysis of our financial condition.
We also believe these non-GAAP financial measures provide an alternate ways of used certain aspects of our business that is instructive.
Non-GAAP financial measures should be viewed in addition to and not hasn't alternatives for the company reported results under accounting principles generally accepted in the United States.
A reconciliation of the non-GAAP measures he's in the region presentation to go to their most directly comparable GAAP measures maybe found in the press release in the appendix to the Investor presentation available on our website.
When elaboration on the factors I just discussed please refer to our presentation and yesterday's preliminary earnings release as well the company's filings with the FCC.
Finally, this presentation and her comments refer to our preliminary second quarter financial results. These statements are based on currently available information and reflect our current estimates and assessments. The company has not finished its second quarter financial closing procedures. There can be no assurance that actual results will not differ from our current estimates.
An assessment, including as a result of second quarter financial closing procedures and any such differences could be material. The company expects to release final second quarter 2020 result in early August now that will turn the call over to Glen Messina.
Thanks to go good morning, and thanks for joining our call today I'm excited to share our preliminary second quarter results with you.
We continue to make great progress in the business, our turn around and profitability trajectory have really strong momentum and we're delivering on what we committed to do.
We've built a great team are working together with passion and energy to deliver results for our customers and our investors I couldn't be prouder of what they accomplished this quarter I'm dark team has demonstrated an incredible resiliency and commitment to serve our borrowers in need during this pandemic.
Before we get into the details, let's turn to slide three so I can introduce you to today's often.
Oh, we are leading mortgage special servicer and originator that's focused on creating positive outcomes for homeowners communities and investors. We have two principal business units, our servicing unit and our originations unit.
Servicing more of the largest special servicers, serving over a million borrowers thousands of investors and well have 100 sub servicing clients.
Oh, we've got a strong subservicing and specialty servicing capability that includes conforming mortgages small balance commercial loans and servicing loans and private securities.
And we've got approved in a capability and creating non for closure outcome as an industry, leading performance against independent benchmarks in operations efficiency and improving outcomes for borrowers and investors.
Not to replenishing grow arc servicing portfolio, we've built a diverse multi channel originations platform and bill forward and reverse mortgages and we've grown volume 14 times. Since this time last year, which helps provide a balanced earnings profile to our servicing business.
We expect to originate over $30 billion a in volume this year, excluding bulk acquisitions with roughly 60, 40 split and own servicing and Subservicing and we believe we've just scratched the surface of aren't potential in originations. We also believe that there's an emerging opportunity over the next several months for our strong and scalable.
Loss mitigation capabilities as difficult economic times will drive a higher delinquencies as far as come off forbearance plants.
Oh, we're proud of the company we've built a we believe our valves business model proven special servicing capability, our low low cost structure controlled and scalable platform really position us very well to deliver all profitability and growth and capture and the opportunities in the current environment.
I'm turning to slide for a we've made tremendous progress on improving profitability are delivering growth and reducing key risks in the business regarding profitability in the second quarter, we delivered a preliminary results of $8 million and adjusted pre tax income before.
One of energy lump sum payments. This represents a 353 million dollar improvement and annualize profits versus the second quarter of 2018, a adjusted baseline for the combined Auckland PHH. A this is a remarkable turnaround executed by our team.
Assuming no adverse changes to market conditions or legal and regulatory matters.
Oh, we do expect adjusted pre tax income will be positive for 2020, a and we expect positive GAAP earnings in 2021.
Well, we believe we're on track to achieve low double digit to mid teen after tax arteries by mid 2021.
Yeah living a growth regarding our growth actions do you know, we have built and originations platform.
To surface or growth engine and is paying off very well we are taking advantage of the near term robust high quality agency loan originations market by growing in all our origination channels, a substantially versus 29 team and we're continuing to expand our capacity.
Oh, we have maintained staffing levels.
In servicing and can quickly scallop to take advantage of the expected delinquent servicing purchase and Subservicing opportunities that we believe will result from the from the coated pandemic.
Regarding key risks you know our coated Nike results are trending far better than we and others expected at the end of the first quarter.
In addition, the actions by the agencies have substantially improved.
Expected revenue projections and have kept loan level advances.
We've expanded our servicer advances navistar financing lives to support more than our base case forecast for forbearance plants, and we expect to have adequate liquidity to grow originations to over $40 billion by 2021 with roughly a 60 40 mix of owned servicing and Subservicing.
You know, we believe our portfolio composition combined with our special servicing skills and our global operating capability.
It does help limit our exposure to significant cost increases from coated forbearance related defaults in our existing portfolio and lastly on the legal and regulatory front. There have been continued favorable developments in the CFPB into Florida EG matters.
The presiding judge ruled to combine the cases into one and the matters will be held as a bench trial now the jury trial.
Additionally, a very recently the judge has.
Postpone the trial, which was scheduled to begin this October and has ordered the parties to manage remediation. Once the summary judgment briefing is completed in September.
Our goal remains to resolve these matters as quickly as possible in a manner that produces an acceptable outcome for all of our stakeholders, but we believe the recent case developments here, including mediation order are positive catalyst to help facilitate a possible settlement.
Yeah, so to summarize look our turnaround.
And profitability trajectory has strong momentum risk exposure continues to abate.
And our proven special servicing skills position us, we believe very well to capitalize on current emerging industry growth opportunities.
Turning to slide five maybe just a couple of details and highlights on our second quarter pulmonary performance and I think you know the second quarter for US was a milestone for for several reasons. This was our third consecutive quarter of positive adjusted pre tax earnings we achieved a profit.
Double positive profitability before amortization of NRC lump sum payments you know the amortization of the NRC lump sum amounts stopped in April o.
Oh pursuant to <unk> original schedule you are strong performance in originations is helping to balance out coated in prepayment impacts on our servicing platform.
Net income is positive for the quarter, we delivered $18 million of adjusted pre tax income.
Origination volume was up 75% versus the first quarter. So I'll talk a little bit later about originations in that and a terrific job that team is doing.
Yeah, we did experience slightly over a 1% decline in the total servicing portfolio due to accelerated run off yeah. We did achieve at 95% replenishment rate for our owned MSR is despite a 30% CPR in G.S.C.
Servicing and a 22% CPR in Ginnie Mae servicing.
From a cash perspective unrestricted cash was $314 million up $50 million from the last quarter, our balance sheet optimization actions were on track.
Barents planned levels are trending down and outstanding service or expenses came in about 17% below our forecast.
Yeah from a cost reengineering perspective, we continued to deliver on our planned continuous cost improvement actions. This is very important for our competitiveness or in our highly competitive industry and adjusted operating expenses are down 41% compared to the second quarter 2018 baseline for the combined docket in PHH.
Book value per share at $3.33 was flat compared to the quarter as well as well above our current share price.
Notable items for the quarter included severance charges assisted associated with our cost improvement actions as well as abandonment charges for facilities and certain facilities exits that we've done.
Other notable items included net unfavorable fair value change and some cobot related expenses for surge resources and equipment to enable our remote working environment. Overall, we believe it was a really strong quarter, reflecting the positive impact of the execution of our key initiatives on the business.
Turning to slide six I'd like to talk a little bit about what we've done in originations and looked at our originations team years, making great progress as I noted, we've built a multi channel profitable scalable originations platform adjusted pre tax income is up substantially driven by growth in both volume and.
Andrew.
Volume by Investor types continues to be largely GST at this stage the game.
Originators are generally choosing to hold Ginnie Mae MSR is due to a fairly wide bid ask spread.
Really I think thats tripled to a difference in the perceived risk of holding Ginnie Mae and servicing Ginnie Mae loans in this in this environment.
At low interest rates and industry capacity constraints are driving improved origination margin levels average origination margins across all channels was 149 basis points.
Oh, we originated $4 billion MSR you'd be during the quarter with cash investment a before financing of approximately $5 million.
Cash flow from MSR originations was positive after financing.
This dynamic of low cash cost of MSR originations accretion is common and customary in a high refinancing environment as margins wide now the Cas cost cash cost of MSR originations actually goes down.
Moving on to enterprise sales or enterprise sales team is doing a terrific job our correspondent seller base is up to 95 seller from 68 at the end of the first quarter.
We've also signed to Subservicing agreement for small balance commercial loan portfolio of roughly a billion, we expect to sign a residential subservicing agreement for roughly another $500 million and we've signed a reverse mortgage recapture services agreement.
As well these activities are on these.
Three transactions are expected to commence in the fourth quarter.
You know, we've we've made good progress on our originations growth objectives. This quarter, but we believe we're really just scratching. The surface you know our platform is providing access to approximately $30 billion of volumes potential opportunity in the second quarter. That's what we saw for our trials and that exclude.
If anything on the bulk side.
We believe there remains still substantial growth opportunity just by adding new sellers over the next 12 to 24 months and returning to grow our correspondent seller base to over 150 sellers a bit by the end of this year ended the fourth quarter 2020.
Well, we lost our first Fannie Mae SMP customer in June and we see significant opportunity to sign new flow customers to participate in this program as well as the companion program with Freddie Mac, the Freddie Mac co issue exchange program.
We continue to improve and grow our retention platform is very important to us.
So far weve doubled retention operation capacity in the second quarter versus the first quarter and we're looking to double it again by the fourth quarter.
Yeah, the actions we've taken to improve.
And expand our retention capacity has roughly doubled our recapture rates in the second quarter 2019 to roughly 18% at the end of June and we believe we're on track to achieve our targeted 30 plus percent recapture rate by the end of this year.
The current enterprise sales pipeline. This is looking good we've got.
Roughly across our seventh top prospects in the pipeline.
Includes about $33 billion in Subservicing volume about a billion dollars per month and flow MSR and about $12 million, an annualized recapture services volume. So a very robust pipeline and the team. There I think is doing a terrific job.
We are beginning to see a few small especial sourcing opportunities in the bulk market for loans up forbearance into Tomatoes that we believe this opportunity will take some time to develop.
As you know forbearance plans given service or some relief for now at least for now, but obviously, we think thats situation is going to change as borrowers come off the forbearance plant.
We intend to launch a special servicing marketing Blitz through our enterprise healthy in the third quarter and we're excited about the potential prospects from that activity you again on originations maybe just to wrap up here a team has made really strong progress our capacity capabilities continue to expand.
And we believe we're well positioned to originate assets at very strong returns in the current market environment.
Moving on to slide seven maybe just some updates here on the servicing platform you look servicing can use performed very well.
Despite the current market challenges.
Come as no surprise the combination of increased increased prepayments.
End forbearance plants have reduced servicing adjusted pre tax income not before the amortization lump sum payment by approximately $11 million versus the first quarter.
Is largely from higher compensating interest.
Convenience expense on pay offs and reduce servicing fees and ancillary income due to loans on forbearance.
The overall impact of Cobot forbearance plans is less severe than we expected and our remote operations are working really well employees remain engaged productive and again I'm very proud of the resiliency and commitment to serving borrowers during this timeframe.
Post integration customer satisfaction continues to trend positively now we are laser focused on supporting our customers, especially those that have been harmed.
By the Cobot 19 pandemic our call Center performance continues to outperform industry on hold times and abandoned the rate versus the weekly survey data from the MBK.
And you know on the bottom half of the Peachtree, but it would be helpful to share some key servicing performance statistics to demonstrate the strength of our platform as a value we could deliver for clients and investors young on the left hand side Moody's track servicer performance on total delinquency cycle time now as you can see we clearly outperformed the market.
And this results in lower total cost and higher realized cash flow for investors.
And the middle of the page are going to me first legal due date I notice.
Metric, that's a key driver, Virginia make means curtailment and cost for Ginnie Mae MSR owners is nearly perfect at 99.7% average for the last six months. It has that this level for quite some time.
Similarly, our GST claims acceptance rate is nearly perfect as well at 99.3% for the last six months and has been performing at this level for also for quite some time.
On the right regarding efficiency, our cost reengineering actions global operations is enabling technologies that will position us with a highly competitive cost structure, both for that compare favorably against the MBK reported.
Cost survey data on both performing and nonperforming loans.
Look I don't think we can stand still here on cost performance cost is a competitive advantage and their industry and we are continuing to drive productivity in automation.
We believe we have room for continued enhancements and we intend to maintain our cost leadership position.
Oh, yes, but we believe these key servicing metrics are just part of a picture that clearly indicates we are one of the best servicer for nonperforming loans for the years of experience in creating positive outcomes for homeowners communities and investors.
Moving on to slide eight maybe just a few key data points on the performance of our Cobot 19, forbearance plans as of July 13th outstanding for Barents planned levels are down 15% to 112000 from 132000 at the end of June.
Roughly 35% of borrowers on forbearance plants continue to make payments.
On the upper right.
Net of the 35% of ours, we're still making payments forbearance plans, where we have the sole responsibly to advance our roughly 36% blow our forecast.
And for those plants that have reached the initial ended their initial forbearance period, roughly 22% of reinstating our canceling a two thirds are extending and 1% have progressed to loss mitigation roughly two thirds of the plants that are extending our pls related.
For those plants that have progressed to loss mitigation. We are focused on outcomes that held family stay in their homes by helping them secure sensible loan modifications or repayment plans as appropriate. We are also partnering with non profit housing advocates to conduct virtual borrower outreach events.
Across the country to help customers and needing assistance.
Turning to page 19, you can see we closed the quarter with again $314 million in unrestricted cash that sub $50 billion from end of the first quarter.
We fully realize our balance sheet optimization actions for the second quarter and our planned actions for the balance of the year are on track.
Current market conditions.
Yeah, the cash flow dynamics of our business changes slightly so low rates are driving site repayments and wide origination margins.
Higher prepayments help fund Pmnine advances in custodial account. So it's less cash we have to fund and less advances financing on or on our advanced financing line.
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Margins in in originations also translates as we said earlier to a lower cash costs for MSR acquisition in originations.
These dynamics will allow us to replenish the portfolio.
And fund forbearance related advances, while consuming less cash.
In the second quarter, we closed on a Ginnie Mae advanced financing line to support our existing facilities for Pls and GNC advances. This advanced financing line does cover both PNNT advances.
At the end of the second quarter, we have committed unused capacity under our financing facilities.
For MSR as a $145 million of of unused capacity servicing advance.
Unused capacity of $427 million and warehouse line capacity of roughly $202 million.
I'm servicing advances closed the quarter roughly 17% below our forecast.
We believe our servicing advance forecast is perhaps a bit conservative at this stage as it does not yet reflect.
The current favorable trends forbearance planned levels.
Hi, This is purposeful considering you have the surgeon cases, and certain government response to that as well with the current for closure Moratoria. We believe this conservatism as appropriate at this time, we continue to look at it and we will continue to adjust our forecast as appropriate.
Oh, we do believe our cash and liquidity position will permit us to fund our operating need as well as supports over $30 billion in originations in 2020, and as I said over $40 billion in originations in 2020 once again as soon as a 60 40 split between owned servicing and Subservicing.
We you know this is with the proposed in our property.
And the favorable shareholder vote. We are moving forward is executing a one for 25 reverse split we believe this will help us achieve compliance with the NYSE listing requirements. We also believe the reverse split alone with the great progress made in the turnaround and improvement in our franchise value in this environment may improve the attractiveness of our stock scoreboard piece of it.
Testers and additional Alice we do intend to conduct a broad based analysts and debt and equity investor outreach effort in the third quarter fourth quarter to increase the market awareness of acklin.
Our turnaround performance.
And our performance potential.
Turning to page 10.
Maybe a little bit on what we see is the growth opportunities in the marketplace today, and we believe we're well positioned to capitalize on both the near term and long term opportunities to originate and acquire both performing and special servicing.
The near term interest rate levels.
Our leading the M&A to project industry originations volume for 2020 will be 2.8 trillion dollars and to put one trillion in 2021.
There is strength in both the home purchase and refinancing market.
Declining interest rates mortgage it trades operations capacity constraints, along with reduced to purchase activity by roots and financial investors.
Is driving growth opportunities and should help sustain elevated margin levels for awhile.
It's a terrific environment to originate high quality MSR newly originated MSR through generating roughly a 15% unlevered return unlevered yield as compared to roughly 8% to 9%.
In the pre coated days.
Switching over to the longer term opportunity, we believe the current double digit industry Pls and TDMA forbearance levels will result in a surgeon industry loss mitigation volumes.
Since the financial crisis, MSR generally on a more widely held through smaller banks in hedge funds.
I am these independent mortgage banks and read.
You May MSR us are generally largely held by Nonbanks goes loans come off forbearance, not all MSR owners and if they don't service themselves, they're Subservicing partners.
Our equipped to deal with a loss mitigation volume that will emerge from the current forbearance levels.
Yeah, we expect.
The opportunity to nonperforming assets will likely be centered around Ginnie Mae FHLB.
TDMA early buyout or ATM transactions and certain non QM loan products, and we believe our industry, leading operational and cost performance will deliver better outcomes for MSR owners mortgage investors and consumers and we believe our proven expertise in special servicing position us as one of the few players in the industry.
Uhhuh take advantage the opportunities to both grow performing and special servicing in this market.
You know we've built a great plant when a great team our primary limitation here will be our available capital to fully exercise and realize all the growth opportunities at the market presents.
In this regard as we mentioned last quarter, we are exploring all strategic options to leverage our proven operating capability isn't in this environment to fully realize.
The full value potential of our platform.
I'm turning to slide 11, maybe just a little bit about how we're managing.
The resolution of the current forbearance volumes in our owned and sub service portfolio. We do think it will have minimal operational cost impact for our business you have the dynamics of roughly 34% of our owned portfolio was pls, where we advance on most forbearances for 30 days at a time and there.
Before we are.
Out of pocket only one payment at a time.
Servicing fees, our deferred and we incur interest expense and advances until resolution of the forbearance splinter loss mitigation.
44% of our portfolio is DSE, where we advance up to 120 days or for payments.
Here again servicing fees are deferred and we incur increased advanced financing costs into resolution other forbearance or loss mitigation.
This will be partially offset by a $500 resolution incentive fee as loans come off for parents and have been resolved that was something new that was cost in the second quarter.
On the remainder of our portfolio roughly 21, 22% is Ginnie Mae where penile advances are untapped.
Ralph Forbearance period, and subsequent delinquency if unresolved against servicing fees are deferred here and we'll incur increase financing costs on advances until resolution.
We have.
The lower laugh, we have maintained.
Loss mitigation home retention for close to staffing levels at a pre crisis levels, even though we don't see a lot of ongoing through forbearance, we want to make sure position to help bars as they begin to exit. These forbearance plans to give you a sense of size and scale of our loss mitigation platform, we typically process loss mitigation workouts of.
Roughly.
14 to 16000 per quarter. So this is an industrial grade loss mitigation platform.
Based on our current outstanding Forbearance planned levels, we estimate that 35% of the borrowers who are paying today, we'll reinstate at some point.
About 40% of additional bars to reinstate at some point during the 12 month forbearance allowance.
And that leaves, 25% whole needs to be evaluated for loss mitigation options.
On this population, we believe roughly 25% or 7000, we'll go to foreclosure. Unfortunately.
In the context of our current staffing and typical loss mitigation volumes.
We don't believe we'll need.
Significant or any incremental staffing to support these volumes and again. These estimates of how we see things evolving at a forbearance come from our experienced post financial crisis, our experience in natural disasters and next was after forbearance plans. Some of the initial results that were seeing coming out of the forbearance plants that are maturing.
Today as well as just generally 30 to 35 years experience in servicing defaulted loans will continue to update this as appropriate to make sure that will or scaled appropriately to deliver.
The cycle time performance that we are used to delivering.
You don't to wrap up on slide 12, the execution of our.
Key business priorities has improved profitability and we believe position dockland for growth and reduced some of our key risks. We do believe we have strong growth in turnaround momentum and improving franchise value in this environment. Our core business is delivering profitable adjusted pre tax income before amortization of lump sum payments.
We've built a multichannel originations capacity with the ability to scale up and we believe we're just scratching the surface of the growth potential of our originations platform.
We are executing on our continuous cost improvement initiatives to maintain a competitive cost structure as well as a controlled and effective infrastructure to help us maximize profitability.
<unk> demonstrated core competency in servicing defaulted loans and have created a flexible and scalable operating platform with the consumer friendly philosophy that has executed roughly 800000 modifications to enable our consumer home retention.
We do believe the current environment, we increased demand for servicing and subservicing by operators with experienced in managing through severe delinquencies and finally, we believe are a compliance.
Environment, our compliance culture, and our control environment allow for operations to maintain quality, while undergoing increases in volume and rapid change I.
I believe were the right company with the right capabilities to capitalize on the profit growth opportunities in the current mortgage environment.
Im proud of the progress our team has made and the perseverance and resiliency Dave's demonstrated in this very challenging environment I'd like to thank the awkward team globally for their commitment and the board of directors as well for their tireless efforts to to deliver results for our customers and investors.
And with that Kevin lets open the call for questions.
Only when other conducting your question answer session, if you'd like to replacing the question can you. Please press star one under telephone keypad, a confirmation told will indicate your line is in the question Q. You May proceed or two if you'd like to remove your question from the Q participants using speaker equipment and may be necessary to pick up your handset before pressing.
Star one one moment, please what we pull for questions.
Our first question today is coming from Lee Cooperman from Omega family Office for light is alive.
A few other to be the first.
Excellent cool.
I had written out three questions for me to ask this morning last night.
Seek you've addressed some of them, but with your permission I'd like to discount to give you my questions maybe.
JV emphasis a little bit given the information we've put it out.
But my first question was a complement you on your efforts to write to ship.
But the process has been very slow in the quest to really come is very high.
What does your three a vision for the company in terms of you know return equity and other measures of profitability.
I would answer that question, we're saying if I heard you correctly. So up by mid 2021, you could have a loaded so low double digit return on equity I assumed by that time. They are booked value would be something in the area three of those maybe more hopefully so we're saying is no 30 from 40 cents a share an earnings in 2021 so.
Asked the question of answer that based upon the information we provided.
To give you the other two questions and you can come back to them. So.
Second question as the industry is consolidating and given that cost of capital.
Ours to show was better served by seeking a partner who tell you is it fair price for the business.
Business, our annualized overhead as a proxy fight was 50 million to produce very little preferred.
We are one of the best services for nonperforming loans of valuable expertise we have.
Terrific capability in reverse mortgages that are very valuable.
In the release to list last night, you indicated we are exploring all strategic options is outright sale one of them and if.
Yes, what are the other.
Passenger looking at the third question I had listened I was what does the status of our outstanding litigation I view them as managers poison pill.
We had would do a deal.
What does it at the Florida Agee or the see if the baby.
Want to makes it the also elusive.
And then I would add too.
And the additional question as a result, this morning's call, which was it was very good by the way.
Cash generation do you expect to generate cash over the next 12 months and given the cash generation is there any flexibility you can have a new lending agreement that would allow you to capitalize on the mispricing of your debt and equity, but thank you for your efforts.
Very much appreciated.
Hey, good morning, they think the wording very much but for that for the kind work to comments.
You are still safe healthy and well in this environment.
Yes, So you know let me start with.
Yeah, the standing litigation again, the I can assure you that management and the board are laser focused on trying to resolve this matter as quickly as possible with an acceptable financial outcome for all our constituents.
These are regulatory discussions they don't follow a usual and customary commercial practice I'm sure that is frustrating for you it's frustrating for us as well.
We believe we have meritorious argument for our defenses and as I mentioned I think there's been some very favorable developments that happened recently the consolidation of the two cases.
The bench trial versus jury trial, and probably most recently in most importantly, the judges ordered us to go to mediation, which is expected to commence after.
Memory motion for summary judgment or files in September so.
So you know mediation brings in the third party to folks get together the required to work together to come to an amicable.
As our amicable, but a.
A reason solution.
And it's a court ordered mediation, so as you might imagine I'm sure. The court will be monitoring our progress so look I mean.
Unfortunately had have had the opportunity to deal with.
The CFPB in a prior life as well as you know have dealt with a lot of the state regulators FMC.
Yes, the department of Justice as well in certain matters and these these just don't follow a commercial timeline it's frustrating.
Slide here again, I feel good positive and optimistic about what we have in front of us.
You know in terms of cash flow generation and flexibility.
You know that in these market dynamics here the cash flow.
Consumption of the businesses is lower than we had anticipated because of high margins in the things I talked about.
As you know in our existing term loan we do have the flexibility to spend up to an additional $5 million on because these $5 million ready for share repurchase an additional $5 million for share repurchases debt retirement.
So that is there an existing flexibility we have.
Maybe bridging to your next question about our comments on exploring all strategic options to fully realize the value of our platform.
Lead again I can assure you that the board and management team are focused on executing the best risk adjusted option to maximize value for shareholders.
In my view all means all.
But some of the things that we are considering.
Obviously.
Would be a broad spectrum of options, including some options that may give us additional flexibility in.
Yes, given with our capital allocation.
I don't want to cause undo speculation so I'm not going to go any data further comments in the call, but you know again all means all.
And then in terms of three year vision and again I believe.
This company has an incredible breadth of capabilities to perform well as a mortgage servicer as special servicer and an originator I think we've demonstrated this quarter that we've built platforms of scale back and performed very well.
You know quite frankly.
Yes, it to pull off a $353 million profit improvement and turnaround in a regulated business of this size and complexity I think we've done it relatively quickly.
Not to be disrespectful, but.
Yes, I understand your shareholder in your view of time, maybe different than management, So I respect that difference.
Well look I do expect.
We will be how profitable again, assuming no adverse regulatory matters or changes and no change in the market environment.
We will be profitable.
In 2021, we expect to get to low double digits to mid teen after tax returns and we'll have a balanced scale business that can be.
A strong originator and servicer again with a special boutique capability and special sensing.
Well you've done a very fine job when do you hope to trends continue.
Thank you Sir appreciate it wouldn't it.
As it on the one for 25 reverse split you know with the book value of 333, and the greater clarity you provided on the cool.
Are you, where we locked in for one for 25, unless there's no big deal you know I've always said stock splits somebody gave me five singles for five dollar Bill would it didnt make really well for you, but we locked in at the one for 25.
Equally attractive defer to legal counsel and Thats, let me take that offline in some of it's no big deal is not as an important question, but thank you very much like thankfully appreciate it you too.
Thank you as a reminder, ladies and gentlemen, a star one three please and the question Q1 moment. Please what we pull for further questions.
If auto further questions at this time unless it from the four back over for any further closing comments.
And Kevin Thank you very much again.
I couldn't be more proud of our team we've demonstrated a solid progress and strong momentum in our turnaround and profitability objectives and I think we're operating in a very opportunity rich environment with room for continued growth and expansion. We've built a great team. We felt the great platform and look forward to continued positive progress and updating you on our next call. Thank.
Give everyone.
Thank you that does conclude todays teleconference. You may disconnect provided this time and have a wonderful day, we thank you for your participation today.
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