Preliminary Q3 2020 Ocwen Financial Corp Earnings Call

October 20, 2020

[music].

Hello, and welcome to the Ocwen Financial Corporation preliminary third quarter earnings and business update conference call. At this time, all participants will be listen only mode. If anyone wants to acquire operator assistance. Please press star zero I hear a telephone keypad.

A question and answer session will follow the formal presentation.

As a reminder, this conference is being recorded.

Now my pleasure to introduce your host he collects really please go ahead sir.

Good morning, and thank you for joining us for our French preliminary third quarter 2020 earnings and business update call. Please note that our preliminary third quarter 2020 earnings release and slide presentation are available on our website.

Speaking on the call will be often chief Executive Officer, Glen Messina, and Chief Financial Officer, Jim Campbell.

As a reminder, the presentation. Our comments today may contain forward looking statements made pursuant to the safe Harbor provisions of the federal Securities laws.

These forward looking statements may be identified by reference to a future period or by use of forward looking terminology address matters that are to different degrees uncertain.

You should bear this on certainly in mind, when considering such statements and should not place undue reliance on such statements.

Forward looking statements involve assumptions risks and uncertainties, including the risks and uncertainties.

And uncertainties described in our SEC filings.

Putting our form 10-K for the year ended December 31st 2019, and our current quarterly reports since such date.

In the past actual results may differ materially from those suggested by forward looking statements and this may happen again.

Forward 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 you know.

In addition, the presentation comments contain references to non-GAAP financial measures.

<unk> adjusted pre tax income adjusted pre tax income, excluding amortization of NRC lump sum payments and adjusted expenses among others.

We believe these non-GAAP financial measures provide a useful supplement to discussions and analysis of our financial condition is an alternate way to view certain aspects of our business that are constructed.

Non-GAAP financial measures should be viewed in addition to and not as an alternative for the company's reported results under accounting principles generally accepted in the United States.

A reconciliation of the non-GAAP measures used in this presentation to their most directly comparable GAAP measures may be found in the press release and the appendix to the investor presentation available on our website.

For an elaboration of the factors I just discussed please refer to our presentation and this morning's preliminary earnings release as well as the Companys filings with the SEC.

Finally, this presentation and our comments refer to our preliminary third quarter financial results. These statements are based on currently available information and reflect our current estimates and assessment.

The company has not finished its third quarter financial closing procedures. There can be no assurance that actual results will not differ from our current estimates and assessments, including as a as a result of third quarter financial closing procedures.

And then he such differences could be material to come.

The company expects to release final third quarter 2020 results in early November now I will turn the call over to Glen Messina.

Great. Thanks, Teco and good morning, everyone. Thanks for joining our business update call today to get started on slide three.

You know, we continue to make great progress here and I'm really excited to share our preliminary third quarter results with you today and we've got a great team here everybody is working with a lot of passion and energy to deliver results for our consumers and investors.

Really I'm, just so proud of what they've been able to accomplish you know today, we're a stronger more efficient more diversified business and we're delivering on what we committed to do.

Profitability is improving originations volume continues to grow we've got a competitive cost structure. We've built a diverse servicing portfolio that we believe can perform through the cycle, where resolving our legacy regulatory matters and we believe our capabilities line up really well with market trends and opportunities.

We are focused on executing a straightforward strategy. It's all about balance diversification cost leadership and operational excellence and look we believe continued execution of this strategy will enable long term growth profitability and will create value for our shareholders.

[noise] Oh, let's turn to slide four just for a couple of words on today's Auckland.

We are a leading mortgage special servicer and originator, who is focused on creating positive outcomes for homeowners communities and investors. We've got two principal business units servicing and originations yeah. We serve over 1 million borrowers thousands of investors and hundreds of clients with various mortgage products, we've got proven capabilities in.

Creating non for poacher outcomes for borrowers and industry, leading performance against a number of independent benchmarks and operations that efficiency [noise].

Yeah, we'd also built a diverse multi channel origination platform in both forward and reverse mortgages, that's grown total volume by 115% over the past year.

And we think Weve got room for a product channel and client base expansion and originations.

There are several industry trends and Tailwinds that we believe we are well positioned to benefit from.

In both performing and reverse originations as well as special servicing and these trends are really driven by interest rates.

Favorable first time home buyer and retiree demographics and expiring covert plant.

Our proven team has demonstrated the ability to deliver de novo growth acquire and integrate drive efficiency and drive operational effectiveness that weve built a low cost technology enabled controlled scalable platform that we believe positions us really well to deliver profitability and capture growth opportunities in the current industry environment.

[noise], yeah, turning to slide five maybe.

Maybe a couple of highlights on the quarter, we've continued to execute really well here in the third quarter, we delivered adjusted pre tax earnings of $14 million, our fourth consecutive quarter of profitability.

As measured by adjusted pre tax earnings.

Yeah. When you look at adjusted pre tax profitability before the amortization of NRC lump sum payments, yeah, we've improved that metric by more than $375 million since the second quarter 2018 baseline for Ocwen in PHH combined that's just a remarkable performance.

[noise], Yeah originations volume continues to grow MSR and Subservicing volume was up about four times and 24% respectively over the last year.

This is balancing the co hvid and prepayment impact on our servicing platform yes.

We are now, including our interim Subservicing additions and originations volume. This has been part of our business model for quite some time and as part of our portfolio replenishment, but we used to report this in our roll forward of our servicing portfolio in the 10-Q, so we'll be showing it here in our originations volume going forward.

Make it easier for investors to six.

We continue to make positive progress as you can see in our continuous cost improvement over the past two years, we've reduced our adjusted operating expenses by 43%, which is now better up about two percentage points since last quarter.

It Didnt was cost improvement is a key element of our go forward strategy and we do believe Weve got room for continued improvement.

[noise], we made great progress on our legacy legal and regulatory matters in the third quarter as previously announced we settled our legacy matter with Florida prior to mediation, yes.

You know with the Florida resolution.

We've now resolved all state actions from 2017.

Yeah, the settlement in Florida in huge a combined total payment of $5.2 million. In addition, 1 million is payable in two years any event specific loan modification objectives are not met and we've agreed to waive $5.5 million in late fees assessed to bar accounts, but not yet collected.

A recognized into income.

[noise] Yeah connection was settling this matter during the third quarter, we did book and incremental reserve of $2.7 million.

Yes on the other matters here you know in addition, we've completed the post loan boarding data integrity audit as required by New York and the final Esper Review report has been issued to the participating state. While we are not at Liberty to discuss the results in detail.

The results for these both these items were favorable to the company.

And lastly on legacy matters, we are scheduled to commence the mediation with the CFPB on October 20 Threerd.

[noise] settling the Florida matter has no direct impact on the CFPB matter, we do remain hopeful that our settlement with the state of Florida may offer a potential path forward our goal remains to resolve.

The CFPB matter in the shortest timeframe possible that results in an acceptable outcome for our stakeholders.

You know again, just just wrapping up here overall, we believe it was another strong quarter, we continue to execute well on our key priorities for 2020, and our performance is progressing right on track with our expectations.

Turning to slide six you know look like.

Look our our multi channel origination platform and enterprise sales team are making great progress.

Total volume, including Subservicing additions is up 32% over the second quarter and up 115% over the third quarter of last year.

We did see margins contract quite a bit in the third quarter versus the second quarter largely in the correspondent and slow channels. So this was expected as industry volume as industry builds capacity to address the industry volumes in MSR buyers, we enter the market. After the initial Tobin shock in the second quarter.

As well as our our changing mix with continued growth.

In flow and corresponding volume again, we our expectation years margins would contract you know that said volume growth has largely offset the margin contraction in June we'll talk about that in a moment.

Our correspondent volume was up almost three times in the second quarter, we added 24, new sellers to our correspondent based to the team. There is performing very well all flow volume was up roughly 48% over the second quarter. We added about 14, new sellers to the S&P coefficient partner program again enterprise sales team.

They're doing well in terms of new sellers and coalition partners.

Yeah, we capture platform continues to grow funding was up roughly or total fundings were up roughly 16% in the core recapture rates for the quarter averaged 18% and this was largely limited by staffing levels. You have funded volume is running about three times what it was at this time last year.

Now we are seeing increased activity into sub servicing space, we issued 12 proposals during the quarter.

And we're in late stage discussions on about $15 billion in sub servicing opportunities.

MSR cash yields continued to be relatively high expected cash.

Expected cash Iris and MSR originated in the third quarter blended across all our channels was roughly a 17% higher or so so very good very strong compared to historical levels.

And lastly, we continue to make great progress here replenishment rate it.

It continues to improve despite record prepayment levels that we saw in the third quarter, our replenishment rate excluding the terminated NRC Subservicing was 104%, which is up from only 34% last year. So again really.

Really strong quarter for the originations organization with every channel delivering year over year and sequential quarter growth.

Turning to slide seven.

Again, our enterprise sales strategy is working and working well for US we think we've just scratched the potential here for our enterprise sales approach.

You know our enterprise sales team offers a full portfolio of our existing product suite to potential and and potential new clients and our existing clients. We launched our marketing Blitz in late third quarter and our enterprise sales pipeline continues to grow our top 10 opportunity.

This represents a $125 billion in subservicing flow MSR purchase and recapture services opportunities over the next.

Yes for the next 24 months.

We are targeting to grow our correspondent and slow seller base to over 250 by year end 2020, and over 400 by year end 2021, So again, great progress there.

You know, even with anticipated market contraction that growth in our seller base should allow us to deliver about one and a half to $2 billion up per month in the correspondent flow volume.

Year to date eight nominal amount of our volume has been Ginnie Mae roughly.

Roughly 29% of the industry volume originations volume overall is in the Ginnie Mae space.

And we expect to begin participation in the Ginnie Mae co issue program in the first half of 2021 and look forward to.

Ginnie Mae products being a a slightly greater share of our originations going forward.

Yeah, we continued to improve and grow our retention platform as I said before hiring there is our biggest challenge and I think it's a challenge across the industry.

Yeah, we are targeting to increase our capacity by another 25%.

By the by the end of the year and again, Thats really driven through a combination of staffing technology and process driven productivity enhancements and leveraging our global operations footprint.

These actions that we've we've done these actions so far this year it and they've helped us double our recapture rates in the second quarter of 2019 to the.

To the 18% level, where we are today and we are still targeting recapture goal of about 30%. However, due to the hiring challenges that we're seeing in the marketplace. We have now.

We expect to get there by mid 2021, it's going to take a while to staff a platform.

Yes, our current originations run rate is over $40 billion in annualized volume again, just remarkable progress since for over a year ago and growing off this base console.

Considering the growth in our seller base as well as the the opportunities were seeing in the sub servicing arena. We are now targeting over $60 billion in volume for 2021 with roughly a 40 60 mix of owned servicing and Subservicing get really really proud of what our enterprise sales team here is driving Florida.

Composting.

Yes, turning to slide eight our servicing platform continues to perform really well so servicing faced a number of expected expected headwinds this quarter with record prepayments driving over a 40% increase in MSR amortization of versus the second quarter as well as higher lean release expenses and reduce.

Just ancillary income some of this is anticipated in this type of environment.

Despite these headwinds our team reduced adjusted pre tax loss before amortization of energy lump sum payment by roughly two thirds to nearly breakeven for the quarter in June we'll share those results results in a moment.

Yeah, we continue to operate largely remotely employees remain engaged productive and committed to assisting our customers clients and investors you on the left hand side of the page here you can see several of the key metrics that impact investors and clients, namely drilling cycle times and claim effectiveness, which continue to perform well.

Now.

Our cost per loan remains favorable to M.B.A. Ben.

Barks, and again performing well for both performing and nonperforming loans.

And as I said earlier, we believe our continuous cost improvement actions global operations, and enabling technologies that will help us maintain or should help us maintain a highly competitive direct servicing cost structure yet so.

He has a strong performance on the metrics here on the left side of the page.

You will result in a lower total cost and higher realized cash flow for our investors MSR owners, including ourselves.

On the right hand side of the page, we continue to focus on performing for our customers.

Our call Center continues to outperform the industry on hold times and abandonment rate versus the weekly survey data that we're seeing from the MBK notwithstanding the increase in assistance for borrowers as they're coming off forbearance customer set up.

Customer satisfaction scores have continued to trend positively we remain committed to enhancing the experience for both consumers and clients and we're investing in a lot of technologies to help us do that so technologies like robotic process automation or.

Our optical character recognition technology advanced Decisioning analytics online agent appointment models.

All with a goal to simplify customer and client access to.

To their data and to us.

These investments also help us reduce cycle times, and our operation helps us improve accuracy and ultimately Ken can help eliminate rework to the extent rework is necessary.

Our servicing platform has a long track record of helping homeowners who are facing challenging times and we continue to be laser focused on supporting our customers, especially those who have been harmed by the Coca 19 pandemic and again when you look at this page in totality, we think these servicing metrics.

Our a picture that clearly indicates we we have a really strong platform here that continues to deliver well for consumers and investors.

Turning to slide nine give you an update here on our COVID-19 forbearance.

Situation, so look our exposure to loans on forbearance continues to diminish you can see in the upper left that the total number of forbearance plans and the forbearance plans, we where we ultimately have the responsibly to advance continued to decline. Yes. A chart reflects there's a pretty big difference between total forbearance plans and the plan.

It's where we have the ultimate responsibility to advance that's a function of and a benefit from frankly, our strategy to maintain a mix of owned servicing and Subservicing you are.

You know our owned servicing portfolio again were where you have to responsibly to advance.

[noise] is performing consistent with other non bank servicers in terms of percentage of loans on forbearance, if you adjust for mix differences between our portfolio and the industry average shown here in the MBK stats, our percentage of forbearance loans on forbearance as a percent of total would be roughly 7.1% versus the industry.

The 6.8, so again very consistent performance.

Yes, we are seeing roughly 40% of our borrowers on forbearance plans maturing reinstate about 41% our extended so roughly about 5% of progressed to loss mitigation and we're awaiting direction from the bar borrower on roughly about 14% of plants that have matured and we will.

And we will continue to work with them to see what makes the most sense for them.

Yes, we are seeing about 30% of borrowers on forbearance continue to make payments our expectation is roughly 75% of those bars on for Barents will reinstate and roughly 25%, we'll need some form of loss mitigation assistance.

We believe consumers, who have Ginnie Mae in Pls loans are likely to need the most assistance when they run out of forbearance options, we stand ready to assist these consumers and will continue to focus on what we do best and Thats, creating positive outcomes for homeowners and investors again within the permissions of our investor servicing guidelines.

Turning to slide 10, I'd like to share with you, how we think about our servicing portfolio.

Our goal is to build a servicing portfolio that can perform well through business changing business cycles and changing interest rates we are.

We are targeting both diversification and balance based on four macro characteristics those are owned servicing.

Subservicing Peru.

Performing servicing and special servicing.

The objective here is to pivot our emphasis on each one of those quadrants or dynamics based on market return.

Market returns and the economic cycle.

So maybe a couple of characteristics your own servicing while capital intensive has profitability dynamics that are counter cyclical coal to origination. So it does balance our originations business.

They owned servicing offers higher net income per loan and subservicing, but profitability does deteriorate when prepayments accelerate and delinquencies rise.

[noise] performing servicing generally has lower right.

Relative returns and higher prepayment volatility, but reduced credit related return volatility.

Special servicing generally has higher relative returns than performing servicing but lower prepayment volatility.

Higher credit related returned volatility so our goal here through our new originations is to improve our vintage and increased average loan balance, which both of which are key factors to our profitability improvement plan. We also.

We also expect to replace our legacy subprime.

Servicing portfolio run off with Ginnie Mae product.

Yes for the next 12 months, we are targeting to grow our own servicing to about $90 billion. This is a bit below our previous target, but thats really due to increased the increased prepayment environment and quite frankly, the progress, we're making our continuous cost improvement, which actually lowers our optum scale point.

Yes on the right hand side of the page, maybe a little bit about sub servicing and Subservicing provides fee based income with limited capital commitment.

If structured with a cost per loan framework profitability is generally unaffected by prepayment acceleration, assuming you revise the portfolio and profitability is maintained or can improve when delinquencies increase we continue to get paid when a loan is delinquent in sub servicing as compared to on servicing where our revenue stops when a loan goes delinquent.

Yes, performing subservicing is less resource intensive and provides a good base to absorb fixed cost us special sub servicing is more resource intensive but offers higher margins and fewer sub servicers are proficient in this type of servicing and we have a core competency here.

You know the next 10 Jets, we should say next 12 months, we are targeting to maintain our sub servicing at a level of at least $100 billion.

Replenishment and growth here will be driven by existing client adds new client adds synthetic subservicing through our MSR asset vehicle and obviously performing recapture services.

Moving on to slide 11 here you.

Here you can see we closed the quarter with a strong liquidity position unrestricted cash was $320 million plus an additional $91 million in borrowing capacity that could have been drawn but went unused giving us total.

Total liquidity position of $411 million, which is up quite a bit from the second quarter.

Servicing advances closed quarter, roughly 27% below our forecast at the beginning of the crisis we.

We fully realized our balance sheet optimization actions for the third quarter and our planned actions for the rest of the year or do remain on track team's doing a great job there in.

In this margin environment origination cash consumption continues to be low relative to the pre covered environment as well higher prepayments can help fund kenai advances and wider originations margins does translate to a lower cash costs for MSR acquisitions and originations did.

The combination of these dynamics allow us to replenish the portfolio and fund forbearance late advances while consuming less cash.

Yeah, we are using available cash to reduce debt, where we can to minimize interest expense. We do believe it has been prudent to keep higher than usual cash reserves, given our growth objective and uncertainties in the economic environment, but we believe as but we believe we can run the business with less cash going forward.

As the environment stabilizes, yes based on our assumption that margins will return to normal levels, we do expect originations will be.

To be more cash consumptive going forward you know on the other hand.

The funding alternatives are improving so we believe we can continue to fund our growth going forward.

Our capital allocation framework right now continues to prioritize investing in growth and replenishment to support our long term profitability objectives, and that's where we're allocating our capital.

Yes, we do believe our cash and liquidity position will permit us to fund our operating needs and support our our targeted MSR investment objective for the balance of the year and for 2021.

Yes previously discussed we've been working on an MSR asset vehicle or mass to act.

To accelerate our growth and support the creation of synthetic Subservicing do we continue to make sound progress here and approvals for math and we are in advanced discussions now with investors to provide funding in math for up to $55 billion of MSR EWC rebate that we would sub service and provide recapture services for so we're really excited.

About this and maybe we can turn to page 12, and I can share with you. Some highlights about our continued progress on that.

So again, Matt as an MSR investment vehicle that we created from one of the excess license legal entities from the PHH integration.

Yeah, the way the math works as an investor would invest equity capital into map roughly 85% of the amount of MSR to be purchased AUC when would invest remaining 15%. This investment would be leveraged up with roughly an equal amount of debt to purchase MSR.

Often will assist math in purchasing.

MSR us and provide certain other administrative services to map.

AUC when will sub service the portfolio and perform portfolio recapture services.

We believe we are on track for GNC approvals and again, we're seeing high investor interest here and we're in advanced discussion with with investors Operationalizing that would give us the capacity to fund volume in excess of our estimates all of which would be categorized as subservicing Ns.

And as such it would alter our anticipated mix of owned servicing and sub servicing originations.

We are targeting to operationalize NAV in 2021, and we intend to revisit our volume estimates and mix of owned and subsurface volumes, we have greater clarity on exactly when when NAV can be operationalized.

Turning to slide 13, you may.

Yeah, maybe a little bit about how.

How we see the market unfolding for us here in the future and we do believe the current market dynamics present potential near term and long term opportunities that we're pretty well positioned for you on that.

Yeah on the near term Gses are protecting interest rate levels will drive industry, but originations volumes to 3.8 trillion for 2020 in about 2.6 trillion for 2021, Yeah look 2021. This revised projections are still relatively high to historical levels and demonstrate strength in both the purchase and refinancing markets up black.

Black Knight estimate that there are still a 19.3 million high quality refinance homeowners as well as 6.5 trillion dollars of untapped home equity.

And as well based on Zillow as analysis of US census data, they're projecting 44.9 million people over the next decade will turn aged 34, which is yeah. The median age of first time homebuyers. So when you.

When you look at these factors combined with the debt was targeted to keep interest rates near historic lows suggest that.

Look it's going to be relatively strong home purchase market for the foreseeable future.

Yes longer term as loans come off forbearance, Unfortunately, not all MSR owners and if they do not directly service or sub servicers are well equipped to deal with loss mitigation volumes that will emerge from the current forbearance levels, we expect opportunities and nonperforming assets will emerge likely centered around a gen.

He may and npls or non QM, where pools are experiencing forbearance rates of 10% and sometimes as high as 20%.

Yeah. This this opportunity we think we estimate equals roughly 1.9 million homeowners roughly 40% of these borrowers are extending your forbearance plans and again, we expect about 25% will need loss mitigation assistance.

We do believe our industry, leading operational cost performance will drive better outcomes for MSR owners mortgage.

Mortgage investors and consumers here and we are positioned I think very well to take advantage of this opportunity.

Yes, a little bit maybe about the reverse mortgage opportunity, we do expect the maturing.

The maturing baby Boomer generation will create potential growth opportunities for our very profitable reverse mortgage business you have a national reverse mortgage lenders Association reports that seniors.

We have 7.7 trillion dollars of untapped home equity.

To support their retirement needs. It. Unfortunately, many of these seniors do not have sufficient savings and cash flow for their retirement.

We do have the necessary skills in general that align to all these opportunities and as I've said before our primary growth limitation will be our access to available capital.

As we've noted in this regard we are exploring all strategic options to live in our leverage our proven operating capability in this environment to realize the full potential.

Value potential of our platform and we are working with our advisors Barclays and credit Suisse to evaluate a broad range of options and alternatives to maximize value of our platform.

So let me stop here and turn it over to June who will cover the financials for the quarter and our roadmap and timeline to achieve our profitability objectives.

Thank you Glenn Please turn to slide 15. This is our fourth consecutive quarter of adjusted pre tax income revenue increased quarter over quarter, driven primarily by volume growth across all origination channels operate.

Operating expense improvement is from leveraging technology and productivity actions as we continue to invest in our originations platform.

Oh, sorry, Jonathan the increase is driven by higher run off from prior vintages, we continue to grow our MSR MSR with a nuisance to offset higher learner.

Adjusted pre tax income is $14 million $5 million higher than prior quarter as higher revenue and lower expenses offset higher run off.

You can see that we had income tax favorability during the quarter driven primarily by peers that net tax benefit partly offset by offshore tax expenses.

Please turn to slide 16 about.

Our balanced business model is operating well originations growth and profitability as replenishing the servicing portfolio in offsetting runner.

On the left side of this slide you can see that our multichannel platform is fueling strong originations volume with growth up 32% quarter over quarter.

[noise] originated volume for the quarter was up 67% quarter over quarter driving strong replenishment of the 104%.

Adjusted pretax income is $35 million, 8% lower than the prior quarter as higher volume was offset by expected margin margin normalization and investment in our platform.

On the right side of Arsfive servicing segment is demonstrating strong performance through the refinance cycle delivering improved results quarter over quarter in spite of increased MSR runoff.

Productivity savings and leveraging technology is improving efficiency and driving down operating costs.

You can be run off is being replenished newly originated servicing sub servicing we had a strong subservicing pipeline with our top 10 prospects at $125 billion with additional opportunities for math.

Please turn to slide 17.

We're driving growth balance and diversification of our segments and cost leadership and operational excellence to create long term value. We told you in our Q2 business update that we expect to generate positive adjusted pretax income for 2020.

Positive GAAP earnings in 2021 with low to mid teen after tax our OE by mid 2021.

This page is a roadmap to achieving these results the key drivers to our business on market dynamics originations growth balance and diversification and cost leadership and operational excellence, we sell into paid how we see these key drivers impact performance in our originations servicing and corporate segments from now to the end of December 2020.

In one.

I won't go through the details on the call here today, but please let me know if you'd like to review it another time and I would have to be happy too to walk you through it.

With that I'll come back a little late June.

Thanks, Andrew Let's turn to slide 18 to wrap up and move into Q1 day. So you know again and we've built a great team who are working together with passion and energy to deliver results for our consumers and investors and I really couldn't be prouder of what they have accomplished that today, we're a stronger more efficient.

Diversified business and we're delivering on what we committed to do profitability is improving originations volume is growing we've got a competitive cost structure. We've got the diverse servicing portfolio that we believe can perform through the cycles, where resolving our legacy regulatory matters and we believe our capabilities line up very well.

So with market trends and opportunities.

We are laser focused on executing a straightforward strategy of balanced diversification cost leadership and operational excellence and we believe continued execution of this strategy will enable long term growth profitability and value creation for our shareholders.

And with that I'll turn it over to the operator to address any questions Kevin.

Thank you, we'll now be conducting eclipsing Susan if you'd like to be placed in the question can you. Please press star one on your telephone keypad, a confirmation tone will indicate your line is adequate.

You mean approved for two people or to request from the Q.

Participants using speaker equipment, maybe this is going to be comprehensive before closing score one one moment, please where we pull for questions.

My first question.

He is coming from Bose George.

KBW who runs noble.

Good morning.

A couple of 3%.

Personally on the origination the $11.4 billion, which it does keep on slide six.

Originations, if you break it down into servicing and Subservicing as well just wanted to make sure I understood though is that.

He goes like <unk> personnel on the flow some of that flow. We're just giving you just sort of break that out into <unk>.

How that works.

[noise] Oh, Yeah Bose so good morning.

He.

The servicing additions is really coming from correspondent loan portfolio retention and the details of that by channel, we'll come out with our Q.

We'll be following shortly and you know what our Subservicing additions to those are really from new portfolio adds with existing subservicing clients, who continue to flow business to us on a on a monthly basis under interim subservicing arrangements.

So some of it is because I live its going to be you know those listening to those as originations will you book a gain on sale.

Or some of them.

The politically but some of them are also flow loans that go to the servicing portfolio.

Move through in Gabon.

Yeah.

Yeah, those for the 4.33rd quarter to 4.7 in Subservicing addition, theres no gain on sale for that right that just flows into the portfolio for the.

For the 6.7 million in servicing additions.

Theres a gain on sale or positive saw MSR fair value adjustment associated with those with those loans.

Okay, Great. Thanks, and then you noted you noted that the normalization of margins on the correspondent side can you just talk about the recapture of logins today versus last quarter.

Yeah sure. So you know recapture margins are actually holding in there fairly well.

Yeah, I don't think were the other ones who are facing hiring challenges in the industry retail generally I think is.

Probably the most capacity constrained so while there has been some level of contraction in margins there not nearly to the degree of what we see in correspondent and flow, which are coming correspondent flow margins or are coming very close to I would say historical levels, but.

But given recapture again margins are still historically very strong.

Okay, great. Thanks, and then in terms of your growth expectations. He you know the 250 per sponsored spoke.

Your own lumpy, but next year can you just characterize the competitive landscape on that side.

It seems like there are obviously a lot of companies now coming public et cetera is there more on retail and wholesale versus first Tony can you just give us a little dilemma.

Sure you know the competitive landscape in correspondent and flow SMP program in the agency cash window look I'd say the competitive environment is probably less competitive than it was immediately prior to the cobot crisis.

Yeah, there there probably fewer players in that segment right now I'm not.

Not to say, it's you know it's not competitive correspondent flow has always been competitive but.

So a lot of yeah, there have been.

A number of historic MSR originators in correspondent flow, who will coordinate there now.

You know on the retail side as you've seen from your rocket United wholesale number of others right. There continues to be a lot of people in the retail segment.

With the big platforms growing aggressively.

But our portfolio retention platform continues to perform well so encouraged by that.

Encouraged by the competitive apart.

Okay, Great puts all I had thanks a lot.

I suppose.

Once again as a reminder, that stone wouldn't be please request in queue. Our next question to these coming from recuperating from when we go through and we won't put through by there's no one.

Yeah, Hi, Thanks appreciate it.

I guess on July 17, you publicly stated in October it was exploring strategic alternatives. You mentioned you engaged an investment banker.

We received very credible approaches at this point in time.

That's two questions.

Oh sure Lee Good morning, Liam we're not going to speculate good morning, I don't think it's yeah, I'm not really going to speculate on the all of the options and alternatives that you know that we've been looking at but yeah. We have we are working with our bankers on a number of different things a broad range of options as as we've talked about before.

And we continue to make progress there so nothing to update us as this time.

Well it was an issue speculated is this if you have any credible approaches business, but doing this a yes or no.

Oh.

We're looking at a number of different approaches that we think can.

Great value for shareholders.

Okay.

Given the way you want to run the business as a second question. What is incredible return on these shows investment that you expect to achieve and what does your timetable to get there.

I'm $49 were reporting non learnings.

No what do you what do you think a reasonable return on their shareholders investment.

Would it be and how will you see who will take you to get there.

Yes, Lee so consistent with what you know June talked about earlier, we are you expecting a positive GAAP earnings and positive adjusted earnings and 2021, its low double digit to mid teen after tax are always by mid 2021.

Room is do you think you can move quickly. Thank you remove should gradually improve my only observation would be we should be more aggressive in cutting costs, but I'll leave that up to you.

Great. Thank you very much support speaking later.

Thank you once again that store one to be placed the question queue.

Our next question is coming from Marco Rodriguez from Stonegate capital markets. Your line is now alive.

Hi, Good morning, and thank you for taking my question.

I was wondering if maybe you could talk a little bit more just from a higher level. You know you had a very.

You know you had a very nice presentation on slide excuse me my presentation of a particular opportunities near term and long term for AUC when it perhaps.

Perhaps maybe you can drill down a little bit more just for the next 12 months. If you could just talk about the the biggest opportunities you see for awkward, but also on the flip side just what are the biggest risks you're focused on.

[noise] Yeah, Marco how are you. Good morning, Yeah look I think there is as we talked about you know the opportunities here for us in the near term you're really focused around let's say maturing our originations platform, so expanding that seller base in both correspondent and flow cell.

Cars as well as you're executing on conversion of our enterprise sales pipeline right. So we've got a very robust pipeline. There, we built $125 million of combined subservicing and flow opportunity in portfolio recapture services. So again near term opportunity. We do believe is in that performing a rich.

Nations and sub servicing space.

And you know historically, we've not really originate a lot of Ginnie Mae part and as we expand into the Ginnie Mae of flow program and in the first quarter of thought of 2021 again I think we can we can fuel continued growth of our business. Despite an overall shrinking market.

You know longer term I do think there's two dynamics that pushed position, we're positioned very well for us. So what is in the special servicing arena you know look at it. It is a very tough time for you in pockets.

Pockets of consumer segments out there Theres you know, it's particularly when you look at Ginnie Mae loans, npls loans or non QM loan.

Millions of dollars on forbearance plans, who are going to need help we're seeing these borrowers extend their full barents plans.

Unfortunately, you know that the hotel sector transportation travel you know those sectors restaurant industry being adversely impacted it and you just got to feel for these consumers and they're going to need help and look I think given our proven capabilities, including non for closure alcons for consumers. We can help we can.

Help consumers, we can help investors and we can do that either through subservicing.

Portfolios with people, where they have concentrations like us or you know like we did following the financial crisis to the extent that people don't want to own. These assets, we can buy them and service them profitably, assuming obviously, we buy them at the right price.

And then last yeah third I'd say on a long term side the whole demographics around the aging population United States, We've got a great little reverse mortgage business, but one of the top originators and servicers and reverse mortgage space.

The reverse mortgage is our brand we go to market with there.

You know again, that's an area where there is lots of.

Lots of untapped equity.

And and inconsistent seniors homes and you know unfortunately for a lot of seniors their cash flow.

Doesn't really match their their expenditures and retirement. So you know our reverse mortgage is a good product to help there. So that's yeah. That's how I see the environment going forward I get I think its balance both near term and long term.

Very helpful and last question just circling back on the enterprise sales force I'm just kind of wondering if maybe you can help us understand a green that opportunity there in the last few calls youve.

You mentioned, the fact that that you're just sort of scratching the surface with the use of crazy you've had there. So can you help us maybe understand and scream out maybe a timeline wise when it's no longer just scratching the surface and then sort of what is going to take to kind of get there if you will.

[noise], Yeah. So I think you know.

We will have a matured origination platform probably by the end of 2021 again I think we have a lot more room to grow our seller base. We've laid out those objectives. There. So it's you know in terms of the details <unk> kits and portfolio retention as well to our goal is to get so 30% recapture rate. So I think.

The objectives, there are celebrating growth and that's how we're going to measure ourselves going forward. In addition to volume how we're growing our seller base.

Second is capacity expansion.

In our retention services platforms as we continue to expand operating capacity and continue to increase close loans and drive higher recapture rate those would be the key metrics there.

And then conversion of our Subservicing pipeline, our enterprise sales pipeline I think thats. Those are the metrics that we'll look at and continue to talk about through the balance of 2021.

Got it very helpful. Thank you guys I really appreciate your time.

Oh, Thank you Mark appreciate it.

Thank you as a reminder, that star one to be pleased with the question queue. Our next question today is coming from Jonathan with whom corn pre capital. Your line is now alive.

Well in general good progress this quarter.

I did see that last week, we had another record low rate of the 30 year fixed rate I believe it was.

2.81%.

How long do you see this mortgage origination boom lasting and how does AUC when sees more of this opportunity without adding a lot of costs that.

You know won't be needed when the mortgage ration slow.

Hey, good morning, John Thanks. Thanks for your question you know I I covered on slide 13, there's the give the data from Black Knight that said Theres you have 19.3 million high quality refinance eligible borrowers with about 6.5 trillion dollars of untapped home equity known as a a massive opportunity that obviously the entire industries.

Going after.

You know I, it's the industry. So far originations volumes. This quarter are not backing off are not seeing a reduction in volume yeah. The MBA Fannie Mae are expecting to see originations tail off in in 2020 and 2021.

So youre right now John I don't have any better information than the M.B.A. and Fannie Mae forecasts, but I have to say when I look at that the Fannie Mae forecast and the Black Knight data the Black Knight data would suggest.

Yeah, the robust originations market probably has more runway then what I see in the in the Fannie Mae forecast.

And in terms of the second part of your question how do we go after that without adding a lot of cost.

I do think our strategy of growing our correspondent platform and our flow seller base.

Through our enterprise sales approach is a very efficient way to grow.

To grow our originations and portfolio replenishment our cost structure. There. It's sweet you attend one of the things. We may want to think about is the differential in cost structure between correspondent and up and retail for example.

If you just go to general industry statistics, yeah that drastically different cost structures between a corresponding flow platform and a retail platform. Your retail cost per loan is seven to $8000 per loan where you don't correspondent and flow. Your your your industry average cost structure, probably less than a thousand dollars alone. So you know growing outside of.

Our business makes sense from the efficiency standpoint, it's the way to replenish the portfolio the fastest or with the least amount of investment in infrastructure, but obviously, it's a balancing act because retail margins are very very strong a lot higher than you see in correspondent and flow and he had the mortgage build a direct relationship with the consumer the better off you are for long term portfolio retention.

And so it is a balancing act, but again a lot of our portfolio replenishment scarred from correspondent we're very efficient.

Can you can you comment on the I know you've talked about the MSR historic opportunity in the past obviously, you're launching this vehicle early next year can you comment on what you're seeing in the market for MSR is are you seeing more opportunities or is there still a gap between buyers and sellers.

I think it varies by product type. So you know in the agency market Fannie Freddie for example, I think there's a value alignment between buyers and sellers generally speaking it is a robust market. We're seeing again a lot of volume being delivered through the flow channels. The.

Im SMP program, the Freddie Mac, who wish to exchange program.

Theres profitable packages that are going around in the marketplace, yeah, the place where we've not seen a lot of bulk.

Bulk transactions get done in the Ginnie Mae space I do think Theres still some.

A bid ask spread difference there.

But a lot of the Ginnie Mae volume today is being done in in their co issue a program, which is something we want to participate in the first quarter of next year.

So NSR volume continues to be robust, particularly on the GFC side in the agency saw in the Ginnie Mae space.

I think a lot of independent mortgage banks are holding that product and I would expect to see more volume coming to market or in the next six months.

Thanks, Glenn Thanks, Jim extra.

Extra thank him.

Thank you we reached end of our question into the system I want to turn the floor back over to Glenn pretty progress closing comments.

[noise] Oh, everyone, who joined the call today. Thank you for your continued interest in OCC. When we appreciate your support here. We are again, we're working with passion energy to deliver results for our consumers and investors were delivering on what we committed to do foremost trends in the business are looking great and we're very.

Started about the opportunities for the future. So thank you for your interest in the company and the third is now contain export.

Thank you.

Thank you that does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.

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[noise] Hello, and welcome to the Ocwen Financial Corporation preliminary third quarter earnings and business update conference call.

This time, all participants will be listen only mode.

Liquidity would require operator assistance. Please press star zero on your telephone keypad.

A question and answer session will follow the formal presentation as a room.

As a reminder, this conference is being recorded.

Now my pleasure to introduce your host he collects really please go ahead sir.

Good morning, and thank you for joining us for our friends preliminary third quarter 2020 earnings and business update call. Please note that our preliminary third quarter 2020 earnings release and slide presentation are available on our website.

Speaking on the call will be offered Chief Executive Officer, Glen Messina, and Chief Financial Officer, Jason Campbell.

As a reminder, the presentation and our comments today may contain forward looking statements made pursuant to the safe Harbor provisions of the federal Securities laws.

These forward looking statements may be identified by reference to a future period or by use of forward looking terminology and address matters that are to different degrees uncertain.

You should read this on certainly in mind, when considering such statements and should not place undue reliance on such statements.

Forward looking statements involve assumptions risks and uncertainties, including the risks and uncertainties.

And uncertainties described in our SEC filings.

Leading our form 10-K for the year ended December 31st 2019, with our current and quarterly reports on such date and the.

In the past actual results to differ materially from those suggested by forward looking statements and this may happen again.

Addition, the presentation the comments contain references to non-GAAP financial measures such as.

Which has adjusted pre tax income.

Adjusted pre tax income, excluding amortization of NRC lump sum payments and adjusted expenses among others, we believe.

Non-GAAP financial measures should be viewed in addition to and not as an alternative for the company's reported results under accounting principles generally accepted in the United States.

A reconciliation of the non-GAAP measures used in this presentation to their most directly comparable GAAP measures may be found in the press release in the appendix to the investor presentation available on our website.

For an elaboration of the factors I just discussed please refer to our presentation in this morning's preliminary earnings release as well as the Companys filings with the SEC.

Also in early November now I will turn the call over to Glen Messina.

Great. Thanks, Teco and good morning, everyone. Thanks for joining our business update call today to get started on slide three.

You know, we continue to make great progress here and I'm really excited to share our preliminary third quarter results with you today, we've got a great team here everybody is working with a lot of passion and energy to deliver results for our consumers and investors.

Really I am just so proud of what they've been able to accomplish today, we're a stronger more efficient more diversified business and we're delivering on what we committed to do.

And ability is improving originations volume continues to grow we've got a competitive cost structure. We have built a diverse servicing portfolio that we believe can perform through the cycles, where resolving our legacy regulatory matters and we believe our capabilities line up really well with market trends and opportunities.

We are focused on executing a straightforward strategy, it's all about balance diversification cost leadership and operational excellence and.

And look we believe continued execution of this strategy will enable long term growth profitability and will create value for our shareholders.

Let's turn to slide four just for a couple of words on today's Auckland.

We are leading mortgage special servicer and originator, who is focused on creating positive outcomes for homeowners communities and investors. We've got two principal business units servicing and originations yeah. We serve over 1 million borrowers thousands of investors and hundreds of clients with various mortgage products, we've got proven capabilities in.

Creating non for poacher outcomes for borrowers and industry, leading performance against a number of independent benchmarks in operations and efficiency.

Yeah, we'd also built a diverse multi channel origination platform in both forward and reverse mortgages, that's grown total volume by 115% over the past year.

And we think Weve got room for a product channel and client base expansion and originations.

There are several industry trends and Tailwinds that we believe we are well positioned to benefit from.

In both performing and reverse originations as well as special servicing and these trends are really driven by interest rates.

Favorable first time home buyer and retiree demographics and expiring cobot plant.

Proving team has demonstrated the ability to deliver denovo growth.

Acquire and integrate drive efficiency and drive operational effectiveness.

Built a low cost technology enabled controlled scalable platform that we believe positions us really well to deliver profitability and capture growth opportunities in the current industry environment.

Turning to slide five.

A couple of highlights on the quarter, we've continued to execute really well here in the third quarter.

Delivered adjusted pre tax earnings of $14 million, our fourth consecutive quarter of profitability.

Measured by adjusted pre tax earnings.

Yes, when you look at adjusted pre tax profitability before the amortization of NRC lump sum payments, we've improved that metric by more than $375 million since the second quarter 2018 baseline for Ocwen in PHH combined that's just a remarkable performance.

Yes originations five continues to grow MSR and Subservicing volume was up about four times and 24% respectively over the last year.

This is balancing the co hvid and prepayment impact on our servicing platform yes.

We are now, including our interim Subservicing additions and originations volume. This has been part of our business model for quite some time and as part of our portfolio replenishment, but we used to report this in our roll forward of our servicing portfolio and the 10-Q, so we'll be showing it here at our originations volume going forward to make it.

Easier for investors to six.

Continuous cost improvement is a key element of our go forward strategy and we do believe Weve got room for continued improvement.

We made great progress on our legacy legal and regulatory matters in the third quarter as previously announced we settled our legacy matter with Florida prior to mediation.

With the Florida resolution Yeah, we've now resolved all state actions from 2017.

Yeah. The settlement the Florida includes a combined total payment of $5.2 million. In addition, 1 million is payable in two years any event specific loan modification objectives are not met and we've agreed to waive $5.5 million and late fees assessed to bar accounts, but not yet collected or right.

Good nice into income.

Yes connection to settling this matter during the third quarter, we did book in incremental reserve of $2.7 million.

On the other matters here. In addition, we've completed the post long boarding data integrity audit as required by New York and the final ESFR Review report has been issued to the participating state while we're not at Liberty to discuss the results in detail.

The results for these both these items were favorable to the company.

And lastly on legacy matters, we are scheduled to commence the mediation with the CFPB on October 20 Threerd.

Settling the Florida matter has no direct impact on the CFPB matter, we do remain hopeful that our settlement with the state of Florida may offer a potential path forward our goal remains to resolve it.

The CFPB matter and the shortest timeframe possible that results in an acceptable outcome for our stakeholders.

Turning to slide six look like.

Look our our multichannel origination platform in enterprise sales team are making great progress.

Total volume, including Subservicing additions is up 32% over the second quarter and up 115% over the third quarter of last year.

We did see margins contract quite a bit in the third quarter versus the second quarter largely in the correspondent and slow channels. So this was expected as industry volume as industry builds capacity to address the industry volumes and MSR buyers, we enter the market. After the initial Tobin shock in the second quarter.

As well as our changing mix with continued growth in.

And flow and corresponding volume again, we our expectation years margins would contract you have that.

That said volume growth has largely offset the margin contraction in June we'll talk about that in a moment.

Our correspondent volume was up almost three times from the second quarter, we added 24, new sellers to our correspond to base. The team. There is performing very well all flow volume was up roughly 48% over the second quarter. We added about 14, new sellers to the S&P coalition partner program again enterprise sales team.

They're doing well in terms of new sellers and coalition partners.

Yeah, we capture platform continues to grow funding was up roughly or total fundings were up roughly 16% in the core you'll recapture rates for the quarter averaged 18% and this was largely limited by staffing levels. You have funded volume is running about three times what it was at this time last year.

Now we are seeing increased activity into sub servicing space, we issued 12 proposals during the quarter.

And we're in late stage discussions on about $15 billion in sub servicing opportunities.

MSR cash yields continued to be relatively high I expect.

Expected cash Iris and MSR originated in the third quarter blended across all our channels was roughly a 17% higher or so so very good very strong compared to historical levels.

And lastly, we continue to make great progress here replenishment rate it.

Really strong quarter for the originations organization with every channel delivering year over year and sequential quarter growth.

Turning to slide seven.

Again, our enterprise sales strategy is working and working well for US we think we've just scratched the potential here for our enterprise sales approach.

This represents a $125 billion in Subservicing flow MSR purchase some recapture services opportunities you have as an.

Over the next 24 months.

We are targeting to grow our correspondent and slow seller base to over 250 by year end 2020, and over 400 by year end 2021, So again, great progress there.

You know, even with anticipated market contraction that growth in our seller base should allow us to deliver about one and a half to $2 billion per month in correspondent flow volume.

You know to date, a nominal amount of our volume has been Ginnie Mae Ruplu.

Roughly 29% of the industry volume rotations lime overall is in the Ginnie Mae space and we expect to begin participation in the Ginnie Mae Coalition program in the first half of 2021 and look forward to Jay.

Ginnie Mae products being a slightly greater share of our originations going forward.

Yeah, we continue to improve and grow our retention platform as I said before hiring there is our biggest challenge and I think it's a challenge across the industry.

Yes, we are targeting to increase our capacity by another 25%.

By the by the end of the year and again, Thats really driven through a combination of staffing technology and process driven productivity enhancements and leveraging our global operations footprint.

These actions.

We've we've done these actions so far this year, it and they've helped us double our recapture rates in the second quarter of 2019 to the.

To the 18% level, where we are today and we're still targeting recapture goal of about 30%. However, due to the hiring challenges that we're seeing in the marketplace. We've now.

We expect to get there by mid 2021, it's going to take a while to staff up the platform.

Our current originations run rate is over $40 billion in annualized volume again, just remarkable progress since for over a year ago and growing off this base of concern.

Pushing.

Turning to slide eight our servicing platform continues to perform really well so servicing faced a number of expected, adding expected headwinds this quarter with record prepayments driving over a 40% increase in MSR amortization of versus the second quarter as well as higher lean release expenses and reduce.

Just ancillary income some of this is anticipated in this type of environment.

Despite these headwinds our team reduced adjusted pre tax loss before amortization of NRC lump sum payment by roughly two thirds to nearly breakeven for the quarter in June we'll share those results results in a moment.

Yeah, we continue to operate largely remotely employees remain engaged productive and committed to assisting our customers clients and investors on the left hand side of the page here you can see several of the key metrics that impact investors and clients, namely drilling cycle times and claim effectiveness, which continue to perform well.

Ill.

Our cost per loan remains favorable to M.B.A. Ben.

Benchmarks and again performing well for both performing and non performing loans.

And as I said earlier, we believe our continuous cost improvement actions global operations and enabling technologies.

Help us maintain or should help us maintain a highly competitive direct servicing cost structure.

Strong performance on the metrics here on the left side of the page.

Result, in a lower total cost and higher realized cash flow for our investors MSR owners, including ourselves.

On the right hand side of the page we continue to focus on performing for our customers through our call Center continues to outperform the industry on hold times and abandonment rate versus the weekly survey data that we're seeing from the FDA.

Notwithstanding the increase in assistance for borrowers as they're coming off forbearance customer.

LCR optical character recognition technology.

Vance Decisioning analytics online agent appointment models or.

All with a goal to simplify customer and client access to.

To their data and to us.

These investments also help us reduce cycle times in our operation helps us improve accuracy and ultimately Ken can help eliminate rework to the extent rework is necessary.

Yeah, our servicing platform has a long track record of helping homeowners who are facing challenging times and we continue to be laser focused on supporting our customers, especially those who have been harmed by the COVID-19 pandemic and again when you look at this page in totality, we think these servicing metrics.

Our a picture that clearly indicates we we have a really strong platform here that continues to deliver well for consumers and investors.

Turning to slide nine give me an update here on our COVID-19 forbearance.

Situation, so look our exposure to loans on forbearance continues to diminish you can see in the upper left that the total number of forbearance plans and the forbearance plans, we where we ultimately have to responsibly to advance continued to decline. Yes. The chart reflects theres a pretty big difference between total forbearance plans and the plan.

Where we have the ultimate responsibility to advance that's a function of and a benefit from frankly, our strategy to maintain a mix of owned servicing and Subservicing you are.

You know our owned servicing portfolio again were where you have the responsibility to advance.

Is performing consistent with other non bank servicers in terms of percentage of loans on forbearance, if you adjust for mix differences between our portfolio and the industry average shown here in the MB a staff our percentage of forbearance loans on forbearance as a percent of total would be roughly 7.1% versus the industry is six point.

So again very very consistent performance.

Yes, we are seeing roughly 40% of our borrowers on forebears plans maturing reinstate about 41% our extended so roughly about 5% of progress to loss mitigation and we're awaiting direction from the bar borrower on roughly about 14% of plants that have matured and we will.

And we will continue to work with them to see what makes the most sense for them.

Yeah, we are seeing about 30% of borrowers on forbearance continue to make payments our expectation is roughly 75% of those bars on forbearance will reinstate and roughly 25%, we'll need some form of loss mitigation assistance.

We believe consumers, who have Ginnie Mae npls loans are likely to need the most assistance when they run out of forbearance options, we stand ready to assist these consumers and will continue to focus on what we do best and Thats, creating positive outcomes for homeowners and investors again within the permissions of our investor servicing guidelines.

Turning to slide 10, I'd like to share with you, how we think about our servicing portfolio.

Our goal is to build a servicing portfolio that can perform well through business changing business cycles and changing interest rates we are.

We are targeting both diversification and balance based on four macro characteristics those are owned servicing.

Subservicing for.

Performing servicing and special servicing.

The objective here is to pivot our emphasis on each one of those quadrants or dynamics based on market return.

Market returns and the economic cycle.

So maybe a couple of characteristics your own servicing while capital intensive has profitability dynamics that are countercyclical coal to origination so that balance our originations business.

They are on servicing offers higher net income per loan and subservicing, but profitability does deteriorate when prepayments accelerate and delinquencies rise.

Performing servicing generally has lower right.

Relative returns and higher prepayment volatility, but reduced credit related to return volatility.

Special servicing generally has higher relative returns than performing servicing but lower prepayment volatility.

We also expect to replace our legacy subprime.

Servicing portfolio run off with Ginnie Mae product.

Over the next 12 months, we are targeting to grow our own servicing to about $90 billion. This is a bit below our previous target, but that's really due to increase the increase prepayment environment and quite frankly, the progress, we're making our continuous cost improvement, which actually lowers our optum scale point.

Yes on the right hand side of the page, maybe a little bit about sub servicing and Subservicing provides fee based income with limited capital commitment.

If structured with a cost per loan framework profitability is generally unaffected by prepayment acceleration, assuming you replenish the portfolio and profitability is maintained or can improve when delinquencies increase we continue to get paid when a loan is delinquent in subservicing as compared to on servicing where our revenue stops when a loan goes delinquent.

[noise] performing sub servicing is less resource intensive and provides a good base to absorb fixed cost us special Subservicing is more resource intensive but offers higher margins and fewer sub servicers. Our provision in this type of servicing and we have a core competency here.

In the next 10 jet to should say next 12 months, we are targeting to maintain our sub servicing at a level of at least $100 billion.

Replenishment and growth here will be driven by existing client adds new client adds synthetic subservicing through our MSR asset vehicle and obviously performing recapture services.

Moving on to Slide 11 here you go.

Total liquidity position of $411 million, which is up quite a bit from the second quarter.

Servicing advances closed quarter, roughly 27% below our forecast at the beginning of the crisis we.

We fully realized our balance sheet optimization actions for the third quarter and our planned actions for the rest of the year or do remain on track team's doing a great job there in.

In this margin environment origination cash consumption continues to be low relative to the pre cobot environment as well higher prepayments can help fund kenai advances and.

Wider originations margins does translate to a lower cash cost for MSR acquisitions and originations state.

The the combination of these dynamics allow us to replenish the portfolio in fund forebear slate advances, while consuming less cash.

As the environment stabilizes.

Based on our assumption that margins will return to normal levels, we do expect originations will be.

The more cash consumptive going forward on the other hand.

The funding alternatives are improving so we believe we can continue to fund our growth going forward.

Yes, we do believe our cash and liquidity position will permit us to fund our operating agent support our targeted MSR investment objective for the balance of the year end for 2020 Watt.

Yes previously discussed we've been working on an MSR asset vehicle or Mab to act.

To accelerate our growth and support the creation of synthetic Subservicing do we continue to make sound progress here of approvals for Matt and were in advanced discussions now with investors to provide funding in math for up to $55 billion of MSR you PB that we would stop service and provide recapture services for us were really excited.

About this and maybe we can turn to page 12, and I can share with you. Some highlights about our continued progress on that.

So again, Matt is an MSR investment vehicle that we created some one of the excess license legal entities from the PHH integration.

Yeah, the way the math works as an investor would invest equity capital into math, roughly 85% of the amount of MSR to be purchased AUC when would invest remaining 15%. This.

This investment would be leveraged up with roughly an equal amount of debt to purchase MSR.

When will assist mass in purchasing.

Srs and provide certain other administrative services to map.

AUC when will sub service the portfolio and perform portfolio recapture services.

We believe we are on track for GST approvals and again, we're seeing high investor interest here and we're in advanced discussion with with investors.

Operationalizing that would give us the capacity to fund volume in excess of our estimates all of which would be categorized as subservicing.

As such it would alter our anticipated mix of owned servicing and sub servicing originations we.

We are targeting to operationalize NAV in 2021, and we intend to revisit our volume estimates and mix of owned and subsurface volumes, we have greater clarity on exactly when when math can be operationalized.

Turning to slide 13, yeah.

Maybe a little bit about how.

In the near term Gses are protecting interest rate levels will drive industry origination volumes to 3.8 trillion for 2020 at about 2.6 trillion for 2021, Yeah look at 2021. This revised projections are still relatively high to historical levels and demonstrate strength in both the purchase and refinancing markets black.

Black Knight estimates that there are still 19.3 million high quality refinance homeowners as well as 6.5 trillion dollars of untapped home equity.

When you look at these factors combined with the effect was targeted to keep interest rates near historic lows suggest that.

Look its got to be a relatively strong home purchase market for the foreseeable future.

Yes longer term as loans come off forbearance, Unfortunately, not all MSR owners and if they do not directly serviced or sub servicers are well equipped to deal with loss mitigation volumes that will emerge from the current forbearance levels, yet we expect opportunities in nonperforming assets will emerge likely centered around Jay.

He may and npls or non QM, where pools are experiencing forbearance rates of 10% and sometimes as high as 20%.

Yeah. This this opportunity we think we estimate equals roughly 1.9 million homeowners roughly 40% of these borrowers are extending your forbearance plants and again, we expect about 25% will need loss mitigation assistance.

We do believe our industry, leading operational cost performance will drive better outcomes for MSR owners mortgage.

Mortgage investors and consumers here and we are positioned I think very well to take advantage of this opportunity.

Yes, a little bit maybe about the reverse mortgage opportunity, we do expect the maturing.

We have 7.7 trillion dollars of untapped home equity.

Sport the retirement age and unfortunately, many of these seniors do not have sufficient savings and cash flow for their retirement.

We do have the necessary skills in general that align to all these opportunities and as I've said before our primary growth limitation will be our access to available capital.

As we've noted in this regard we are exploring all strategic options to 11, our leverage our proven operating capability in this environment to realize the full potential.

Value potential of our platform and we are working with our advisors Barclays and credit Suisse to evaluate a broad range of options and alternatives to maximize value of our platform.

So let me stop here and turn it over to June who will cover the financials for the quarter and our roadmap and timeline to achieve our profitability objectives.

Thank you Glenn Please turn to slide 15. This was our fourth consecutive quarter of adjusted pre tax income revenue increased quarter over quarter, driven primarily by volume growth across all origination channels operate.

Operating expense improvement is from leveraging technology and productivity actions as we continue to invest in our originations platform.

Oh, sorry document increase is driven by higher run off from prior vintages, we continue to grow our MSR MSR with solutions to offset higher run off.

Adjusted pre tax income is $14 million $5 million higher than prior quarter as higher revenue lower expenses offset higher run off.

You can see that we had income tax favorability during the quarter driven primarily by tiers that net tax benefit partly offset by offshore tax expenses.

Please turn to slide 16.

Balanced business model is operating well originations growth and profitability is replenishing the servicing portfolio in offsetting run off.

On the left side of the slide you can see that our multichannel platform is fueling strong originations volume with growth up 32% quarter over quarter.

Originated volume for the quarter is 67% quarter over quarter driving strong replenishment of 104%.

Adjusted pre tax income was $35 million, 8% lower than the prior quarter as higher volume was offset by expected margin margin normalization and investment in our platform.

On the right side of Arsfive servicing segment is demonstrating strong performance through the refinance cycle delivering improved results quarter over quarter in spite of increased MSR run off.

Productivity savings and leveraging technology is improving efficiency and driving down operating costs.

You PB runoff is being replenished newly originated servicing and sub servicing we had a strong sub servicing pipeline with our top 10 prospects at $125 billion with additional opportunities for lab.

Please turn to slide 17.

We're driving growth balance and diversification rock segments and cost leadership and operational excellence to create long term value. We told you in our Q2 business update that we expect to generate positive adjusted pre tax income for 2020 positive GAAP earnings in 2021 with low to mid teen after tax ROI by mid 2020.

One.

This page is a roadmap to achieving these results the key drivers to our business our market dynamic originations growth balance and diversification and cost leadership and operational excellence, we sell on the page how we see these key drivers impact performance in our originations servicing and corporate segments from now to the end of December 2000.

21, I won't go through the details on the call here today, but please let me know if you'd like to review at another time and I would have to be happy too to walk you through it.

With that I'll turn it back over to go back to you.

Thanks, Andrew Yes, so.

Let's turn to slide 18 to wrap up and move into Q. Today. So you know again, hey, we've built a great team were working together with passion and energy to deliver results for our consumers and investors I really couldn't be prouder of what they have accomplished that today, we're a stronger more efficient diversified business.

And we're delivering on what we committed to do profitability is improving originations volume is growing we've got a competitive cost structure. We've built a diverse servicing portfolio that we believe can perform through the cycles.

We are resolving our legacy regulatory matters, and we believe our capabilities line up very well with market trends and opportunities.

And with that I'll turn it over to the operator to address any questions Kevin.

Thank you. We'll now begin go through question and answer session, if you'd like to be placed in the question queue. Please press star one on your telephone keypad, a confirmation code would indicate who buy visible to you you repurchased or two people like to request from the Q.

For participants using speaker equipment, maybe necessary to be comprehensive before pressing star one.

One moment, please where we pull for questions.

Our first question is coming from Bose George from KBW. Your line is now.

Good morning.

A couple of things <unk> percent.

Personally on the originations 11.4 billion, but she goes give on slide six.

Originations, if you break it up into servicing and Subservicing I just wanted to make sure I understood though is that.

Yeah.

It is like.

Personal on deal flow some of that flow were just yet can you just sort of break that out into <unk>.

How that works.

Yes, Bose so good morning.

The the.

The servicing additions is really coming from correspondent loan portfolio retention and the details of that by channel, we'll come out with our Q.

We'll be following shortly and when our Subservicing additions those are really from new portfolio adds with existing subservicing clients, who continue to flow business to us on a on a monthly basis under interim subservicing arrangements.

So some of it is because I live in food food being you know those.

For those who listen to those this was originations will you book a gain on sale.

There are some of the phone that degree, but some of them are also flow loans that go to the servicing portfolio.

In Gabon.

Yes.

Yes, those for the four point for third quarter to 4.7, and Subservicing addition, theres no gain on sale for that right that just flows into the portfolio.

For the $6.7 million in servicing additions.

There is a gain on sale or positive saw MSR fair value adjustment associated with those with those loans.

Okay, Great. Thanks, and then you noted you noted that the normal.

Normalization the margins of the correspondent. So can you just talk about the recapture her.

Logisticare versus last quarter.

Yeah sure. So you know recapture margins are actually holding in there fairly well.

Yeah, I don't think we're the only ones who are facing hiring challenges in the industry retail generally I think is.

Probably the most capacity constrained so while there's been some level of contraction in margins there not nearly to the degree of what we see in correspondent flow, which are coming correspondent flow margins or are coming very close to I would say historical levels.

But given recapture again margins are still historically very strong.

Okay. Good thanks, and then in terms of your growth expectations, the 250 responds and spoke.

Your own who have decline next year can you just characterize the competitive landscape on that side.

It seems like there are obviously a lot of companies now coming public et cetera is there is more retail and wholesale versus first on could you just give us a little dilemma.

Sure you know the competitive landscape in correspondent and flow on the S&P program and agency cash window look I'd say the competitive environment is probably less competitive than it was immediately prior to the cobot crisis.

Yes, there there probably fewer players in that segment right now I'm not.

Not to say, it's you know it's not competitive correspondent flow has always been competitive but.

Well a lot of yeah, there have been.

A number of historic MSR originators in correspondent flow, who will core not there now.

You know on the retail side as you've seen from your rocket United wholesale number of others right. There continues to be a lot of people in the retail segment.

With the big platforms growing aggressively.

But our portfolio retention platform continues to perform well so encouraged by the competitive.

Okay, Great. That's all ahead, thanks, a lot. Thanks.

Thanks Bose.

Once again as a reminder, that star one to be please in the question queue.

It's close to these coming from Lee Cooperman from Omega three and we will put through by there's no line.

Yeah, Hi, Thanks appreciate it.

I guess, one July 17th you probably do that OCC was exposure to to go through do you mentioned, you've engaged an investment banker and we received the credible approaches at this point in doing maybe you could talk with it.

Just two more questions.

Oh I'm sure Lee Good morning, Yes, Liam we're not going to speculate good morning, I don't think it's yeah, I'm not really going to speculate on the all of the options and alternatives that you know that we've been looking at but yet we have we are working with our bankers on a number of different things a broad range of options as as we've talked about before and we.

And we continue to make progress there so nothing to update us as this time.

It was an issue speculated exist to do have any credible approaches business, but doing this a yes or no.

Oh.

We're looking at a number of different approaches that we think can create value.

Great value for shareholders.

Moving to you given the way you want to run the business as a second question. What is incredible return on these shows investment that you expect to achieve and what does your timetable to get there.

Yes, $49 were reporting Nama learnings.

What do you what do you think a reasonable return on those shows investment.

Would it be and how will you see who will take you to get there.

Yes, Lee so consistent with what you know June talked about earlier, we are expecting a positive GAAP earnings and positive adjusted earnings and 2021 that low double digit to mid teen after tax our leads by mid 2021.

Okay.

Thank you.

Absolutely. Thank you very much and congratulations improvement moving observation would be we should be more aggressive in cutting costs, but I'll leave that up to you.

Great. Thank you very much support speaking later.

Thank you once again that store one to be placed in the question queue. Our next question is coming from Marco Rodriguez from Stonegate capital markets. Your line is no line.

Hi, Good morning, and thank you for taking my question.

I was wondering if maybe you could talk a little bit more just from a higher level.

You know you had a very nice presentation on slide Susan My presentation.

Particular opportunities near term and long term for AUC when it perhaps maybe you can drill down a little bit more just for the next 12 months. If you could just talk about the the biggest opportunity you see for awkward and then also on the flip side just what are the biggest risks you're focused on.

Hi, Marco how are you good morning.

Yeah look I think there is as we talked about the opportunities here for us in the near term.

Really focus around let's say maturing our originations platform, so expanding that seller base in both correspondent and slow sellers as well as executing on conversion of our enterprise sales pipeline right. So we've got a very robust pipeline there we built $125 million.

Dollars of combined Subservicing and flow opportunity in portfolio recapture services. So again near term opportunity. We do believe is in that performing originations and subservicing space and.

And you know historically, we've not really originate a lot of Ginnie Mae partner as we expand into the Ginnie Mae of flow program and in the first quarter of saw of 2021 again I think we can we can fuel continued growth of our business. Despite an overall shrinking market.

Yes longer term I do think there's two dynamics that pushed position, we're positioned very well for us so want us into special servicing Arena. You know look it is a very tough time for.

Pockets of consumer segments out there, there's it's particularly when you look at Ginnie Mae loans npls onto non QM.

Millions of dollars will on forbearance plans, who are going to need help we're seeing these bars extend their forbearance plans. Unfortunately, you know that the hotel sector transportation travel.

Those sectors restaurant industry being adversely impacted it and you just got a feel for these consumers and they're going to need help and look I think given our proven capabilities, including non for closure alcons for consumers. We can help we can help consumers. We can help investors and we can do that either through subset.

Servicing.

Portfolios with people, where they have concentrations like us or like we did following the financial crisis to the extent that people don't want to own. These assets, we can buy them and service them profitably, assuming obviously, we buy them at the right price.

And then last yeah third I'd say on a long term side the whole demographics around the aging population United States. We've got a great little reverse mortgage business were one of the top originators and servicers and reverse mortgage space.

Liberty reverse mortgage is our brand we go to market with there.

Again, Thats an area where it was.

Lots of untapped equity.

And in in country, and seniors homes, and you know unfortunately for a lot of seniors their cash flow.

Doesn't really match their their expenditures and retirement, so ill reverse mortgage is a good product to help there. So that yes, that's how I see the environment going forward I get I think its balance both near term and long term.

Very helpful and last question just circling back on the enterprise sales force just.

Just kind of wondering if maybe you can help us understand the green that opportunity there in the last few calls you've you've mentioned the fact that that you're just sort of scratching the surface with the use of crazy you've had there. So can you help us maybe understand and scream out maybe a timeline wise.

When it's no longer just scratching the surface and then sort of what is going to take to kind of get there if you will.

Yeah, So I think yes.

Yes.

We will have a matured origination platform probably by the end of 2021 again I think we have a lot more room to grow our seller base, we've laid out those objectives. There. So it's you know in terms of the details in kits and portfolio retention as well to our goal is to get so 30% recapture rate. So I think.

The objectives, there are celebrating growth and that's how we're going to measure ourselves going forward. In addition to volume how we're growing our seller base.

Second is capacity expansion in.

In our retention services platforms as we continue to expand operating capacity and continue to increase close loans and drive higher recapture rate those would be the key metrics there.

And then conversion of our sub servicing pipeline, our enterprise sales pipeline I think thats. Those are the metrics that we'll look at and continue to talk about through the balance of 2021.

Got it very helpful. Thank you guys I really appreciate your time.

Oh, Thank you Mark appreciate it.

Thank you as a reminder, that star one to be please in the question queue. Our next question today is coming from Jonathan Wittig from corn free capital. Your line is now live.

When in June good progress this quarter.

I did see that last week, we had another record low rate of the 30 year fixed rate I believe it was.

2.81%.

How long do you see this mortgage origination boom lasting and how does AUC when sees more of this opportunity without adding a lot of costs that.

You know won't be needed when the mortgage ration slow.

Hey, good morning, John Thanks. Thanks for your question you know I covered on slide 13, Theres. The give the data from Black Knight that said Theres, you have 19.3 million high quality refinance eligible borrowers with about six snap trillion dollars of untapped home equity now is a massive opportunity that obviously the entire industries.

Right after.

You know I noted that our industry is so far originations volumes this quarter not backing off are not seeing a reduction in volume yeah. The MBA Fannie Mae are expecting to see originations tail off in in 2020 and 2021.

So youre right now John I don't have any better information than the NVCA and Fannie Mae forecasts, but I have to say when I look at the the Fannie Mae forecast than that Black Knight data the Black Knight data would suggest.

Yeah, the robust originations market probably has more runway.

Then what I see in the in the Fannie Mae forecast.

And in terms of the second part of your question how do we go after that without adding a lot of cost.

I do think our strategy of growing our correspondent platform and our flow seller base.

Through our enterprise sales approach is a very efficient way.

If you just go to general industry statistics, yeah, the drastically different cost structures between a correspondent and flow platform and a retail platform year retail cost per loan is seven to $8000 per loan where corresponded in flow. Your your your industry average cost structure by less than $1000 alone. So.

Growing outside of our business makes sense from an efficiency standpoint, it's the way to replenish the portfolio the fastest.

The least amount of investment in infrastructure, but obviously, it's a balancing act because retail margins are very very strong lot higher than you see in correspondent and flow and if the mortgage bill that direct relationship with the consumer the better off you are for long term portfolio retention. So it is a balancing act, but again a lot of our portfolio replenishment scarred from correspondent were terrific.

Yes.

Can you can you comment on the I know you've talked about the MSR historic opportunity in the past.

Obviously you are launching this vehicle early next year can you comment on what you're seeing in the market for MSR is are you seeing more opportunities or is there still a gap between buyers and sellers.

I think it varies John by product type. So you know in the agency market Fannie Freddie for example, I think fares.

Xyo alignment between buyers and sellers generally speaking it is a robust market. We're seeing again a lot of volume being delivered through the flow channels. The Fame SMP program, the Freddie Mac kosher exchange program.

The others profitable packages that are going around in the marketplace, yeah, the place where we've not seen a lot of both.

Bulk transactions get done in the Ginnie Mae space I do think Theres still some.

A bid ask spread difference there.

But a lot of the Ginnie Mae volume today is being done in in their co issue program, which is something we want to participate in the first quarter of next year.

So NSR volume continues to be robust, particularly on the GFC side in the agency saw in the Ginnie Mae space.

I think a lot of independent mortgage banks are holding that product.

I would expect to see more volume coming to market in the next six months.

Thanks, Glenn Thanks, Jim Thanks.

Thanks, John Thank you.

Thank you we receive the workforce synthesis and I'm going to turn the floor back over to Glen for the further closing comments.

[noise] Oh, everyone, who joined the call today. Thank you for your continued interest in OCC when we appreciate your support.

Here, we are again, we're working with passion energy to deliver results for our consumers and investors were delivering on what we committed to do form is trends in the business are looking great and we're very excited about the opportunities for the future. So thank you for your interest in the company and the third stock contain export.

Thank you.

That does conclude today's teleconference. You may disconnect. Your lines at this time and have a wonderful day, we thank you for your participation today.

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