Preliminary Q4 2020 Ocwen Financial Corp Earnings Call

Greetings and welcome to the Ocwen Financial Corporation preliminary fourth quarter earnings and business update conference call at.

At this time, all participants are in a listen only mode and of course.

And the answer session will follow the formal presentation.

For anyone should require operator assistance during the conference. Please press star zero and the telephone keypad. Please note. This conference is being recorded.

Now I'll turn the conference over to your host equal Actuarially Senior Vice President of corporate Communications you may begin.

Good morning, and thank you for joining us for Ocwen preliminary fourth quarter of 2020 earnings and business update call.

Please note that our preliminary fourth quarter of 2020 earnings release and slide presentation are available on our website.

On the call of the Ocwen, Chief Executive Officer, Glen Messina, and Chief Financial Officer, Jim Campbell.

As a reminder of 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 maybe identified by reference to the future period or by use of forward looking terminology and address matters that are uncertain and.

Important risks and uncertainties that may cause our results to differ from our forward looking statements are described in our SEC filings. Our forward looking statements speak only as of the day. They are made and we disclaim any obligation to update or revise any forward looking statements, whether as the result of new information future events or otherwise and.

In addition, the presentation and our comments contain references to non-GAAP financial measures such as adjusted pretax income and adjusted expenses among others. We believe these non-GAAP financial measures provide a useful supplement to analysis of our financial condition, and then alternate way to view certain aspects of our business that is instructive.

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 the <unk>.

Reconciliation of the non-GAAP measures using the presentation for their most directly comparable GAAP measures maybe found in the press release and the appendix to the investor presentation available on our website.

Finally, this presentation and our comments refer to our preliminary fourth quarter financial results. These statements are based on currently available information and reflect our current estimates and assessments. The company has not finished as the fourth quarter financial closing procedures. There can be no assurance that actual results will not differ from our current estimates and assessed.

And that's including as a result of first and fourth quarter financial closing procedures and any such differences could be material now I will turn the call over to Glen Messina.

Thanks, <unk> and good morning, everyone. Thanks for joining us so let's get started today on slide three.

We're really energized by the great progress we've made across the company, we've executed and an incredible business transformation were better balanced and more diversified mortgage originator and servicer, we're stronger more efficient and better aligned with future market opportunities.

We have concluded our strategic review and are excited to announce and expansion of our strategic alliance with Oaktree capital with their investment and the LFC Holdco notes.

We believe our alliance with Oaktree kind of enable a level of growth and EPS accretion and potential value creation that we cannot achieve on a standalone basis as well as support the refinancing of our corporate debt.

And the fourth quarter, we continued to improve profitability, we delivered record growth and originations and we continue to reshape and diversify our servicing portfolio.

Yes, we look ahead and we believe we are well positioned to capitalize on potential future growth opportunities and multiple market segments.

And we're focused on executing the straightforward operating objectives to drive improved value for shareholders.

Let's jump to slide six to discuss the outcome of our strategic review process.

Yeah.

You know our expanded strategic alliance with the trade marks the conclusion to our strategic review process that we announced and in May 2020.

The objective of our strategic review was to maximize the long term value for our common shareholders.

I'll review of alternatives, which was overseen by our board and with the support of Barclays and Credit Suisse was fulsome and robust outreach was aided by a public announcement of the strategic review process, which also resulted in inbound inquiries by parties are not included in our initial outreach.

We had discussions with numerous parties and and all options were considered.

And at the end of the day, there were really no actionable change of control of mercury or opportunities that emerge from these discussions.

And the absence of a change of control transaction.

And we believe we need to accelerate our originations and servicing growth and address the upcoming corporate debt maturities to maximize our values of Standalone company.

We concluded through our strategic review that our ability to increase the leverage of the total company using the assets of the operating company was limited by a number of factors, including proposed regulatory requirements that may increase capital and liquidity requirements for non bank mortgage companies.

Instead of a dress, our AR growth and refinancing objectives with these constraints, we focused our structured financing solutions that would provide incremental capital to accelerate our growth and position the company to successfully refinance.

Coming of corporate debt maturities without encumbering, the assets necessarily of PHH and our operating company.

Yeah. We're we're excited to announce that we've executed a definitive agreement with oak tree for $250 million and increments of capital through Holdco notes issued by Ocwen Financial Corporation. This is our holding company and this increments of capital is in addition to our joint venture with Oaktree of map.

When combined with <unk>, we expect the over $460 million and capital provided by Oaktree can enable us to potentially increase our earnings per share by 65% or more once the proceeds are fully invested.

And we believe the Holdco notes also support our corporate debt refinancing out and more favorable terms, while increasing the capacity for secured financing and share repurchases.

And for these reasons the board found the Oaktree offered it'd be the most compelling opportunities to enable the level of growth EPS accretion and potential of long term value creation that we could not achieve on the standalone basis.

We believe the Oaktree investment and enhances our ability to compete and prosper as well as demonstrates their confidence in and commitment to ocwen for long term success.

Now, let's turn to slide seven and for some of the details on math and Holdco notes.

Yeah.

Yeah, starting with the Holdco notes. These are structured with the collateral package limited to a second lien on the assets of OFC. The holding company. There is no lean on the PHH assets of guarantees from PHH.

This is a substantially reduced collateral coverage and more deeply subordinated position in our capital structure versus our existing high yield notes.

And the limited collateral package and deep subordination of enables us to treat the proceeds from the Holdco notes that gets contributed to PHH or operating company as equity and.

And we expect this will increase our ability to leverage the assets of PHH with first lien debt unsecured financing.

You know this deeply subordinated position and our capital structure relating to the Holdco notes does translate into pricing that's close to equity.

The Oaktree no type of face value of 285 million with the $35 million original issue discount for net proceeds of $250 million.

Yeah, the coupons of 12% plus about 2% for the effect of annual cost of the OID.

In addition, Oh true receive warrants for 12% of the fully diluted shares of Ocwen.

Now in terms of use of proceeds we intend to use the $100 million of the proceeds to pay down and support the refinancing of our existing corporate debt and a concurrent refinancing transaction.

Yeah, we expect less restrictive covenants, eliminating amortization and relative to existing corporate debt extending the maturity with and expect the tenure of six years on the Holdco notes.

Concurrent with the refinancing will pay off our existing corporate debt a part of their respective terms.

The remaining $150 million and proceeds from the Holdco notes will be used to support our on book growth objectives for MSR purchases and funding a portion of the amount of investment.

We do expect the increments of capital in the operating company will allow us to improve the terms of our existing MSR financing, which can create up to about $75 million and the additional capital from our existing msr's.

The proceeds from Oaktree will come in two tranches. The first tranche is $175 million and that will come in and concurrently with the closing of the.

Of the corporate debt refinancing the remaining 75 million will come and concurrent with the closing of bad.

Moving onto the math as we announced in December we formed a partnership joint venture with Oaktree capital to launch and MSR asset vehicle. This vehicle will purchase Msr's, Oh people, and 85% and ocwen of alone and 15%.

Yeah, Matt of expects to leverage.

Up to $250 million and capital is that'll be contributed by Oaktree and Ocwen, respectively based on a relative shares.

To a purchase of MSR is and this will be leveraged up roughly one for one with secured MSR financing. So that gives us the capacity for up to about $60 billion of MSR you P. J.

The PHH will be the sole provider of origination and sub servicing and recapture and administrative services to map.

And Ocwen will also earn our MSR investment returns on its capital contribution and from profit sharing on returns and map of above 12%.

Now I'd expect it to close and the first half of 'twenty 'twenty one.

Subject to GSE and regulatory approvals.

In terms of benefits yeah, bad supports our servicing and sub servicing growth objectives are on a capital efficient basis and will help generate increased cost efficiency through increased origination and servicing scale.

Moving on to slide eight in terms of the financial impact of the Oaktree investment and Ocwen, Yeah, we estimate that a combined basis. The holdco notes and math can contribute up to $78 million and annualized pretax income from full deployment.

The capital provided by these two structures.

We estimate full deployment of the proceeds can generate roughly $5 per share and incremental earnings on a fully diluted basis. This translates to over 65% increase above our potential baseline EPS range, which assumes and after tax ROE range of roughly 10% to 15% on about 414 million.

And so of equity.

And you're using a p/e multiple range of some of our peers of roughly four to six times forward earnings the potential incremental of value creation is roughly 20 to $30 per share. Yeah. This is of seven to 10 times multiple of the potential book value per share dilution.

The warrants are fully issued and the corresponding increase of our equity from the proceeds related to issuing the warrants.

The incremental investment capital will allow us to further expand our originations activities and and expand our participation in the in the bulk purchase market, we expect to source roughly up to a $200 billion and incremental total volume over the next couple of years and again its estimate.

Two of source up to $200 billion, making about the volume over the next two years.

The total growth and volume of allow us to grow our total sub servicing portfolio to roughly $300 billion by the end of 'twenty and 'twenty two assuming the energy sub servicing contract is not renewed so again, our current strong growth and the servicing portfolio, resulting from the originations.

You know, we believe it's a great time to invest and Msr's pretax cash IRR and our MSR is generated and December were about 12% before MSR financing and that's translates to roughly 18% after MSR secured financing.

In addition, we'll continue to Opportunistically evaluate M&A transactions to expand our originations and servicing capabilities, which might provide enhanced returns versus MSR investments.

These estimates are based on the judgment of management and based on our current assumptions, which maybe subject to change based on market and industry conditions among other things.

And I look the bottom line here is we're really excited about our alliance with Oaktree and the opportunity of provides to enable a level of growth and EPS accretion and potential value creation that we could not achieve on a standalone basis.

Moving onto slide nine and maybe a little bit about the the fourth quarter. So look during 'twenty and 'twenty. We demonstrated exponential told of volume growth of total cost improvement and built a scalable and efficient platform to support our future growth.

Adjusted pre tax profitability was up roughly 15% and the fourth quarter over the third quarter. Despite declining origination margins annualized adjusted pre tax profitability has improved over $380 million over the second quarter 2018 baseline for Ocwen and PHH combined.

Our multi channel origination platform continues to deliver really strong results flow origination volume and the fourth quarter was up 49% over the third quarter and up over seven times as compared to 2019. So again, just really great performance by the originations team and.

And as we talked about earlier, we're focused on accelerating our growth trajectory and 'twenty 'twenty one.

Yeah, we are focused on driving.

The efficiency and our operating expenses and as a result of that efficiency and our continuous cost improvement of operating expenses are down 44% over the second quarter 2018 baseline for Ocwen and PHH combined that's over a $400 million cost reduction and so again, just great performance by the team and our it really rethinking and re imagining.

For our business infrastructure.

We're disappointed that settlement discussions with the CFPB did not resolve this matter and since especially since we've resolved all state regulatory actions filed against the Ocwen and 2017, we engage with the Bureau, and good faith throughout the course of the mediation and numerous related discussions and took all actions and an attempt to reach of <unk>.

Fair and reasonable resolution.

We increased our legal and regulatory accrual related to the CFPB matter by $13 million and the fourth quarter, resulting from our efforts to resolve the matter and mediation and yeah. We remain steadfast in our belief that the CFPB is claims regarding ocwen past servicing practice are unsubstantiated and the bureau of settlement demands did not reflect the merits of this case.

While we remain committed to attempting to resolve the matter of prior to trial, our pending motion for summary judgment, which was filed on June 5th of 'twenty and 'twenty supports our position on this matter and we expect of continually.

Continue to vigorously defend ourselves going forward.

Look it was of great quarter in the fourth quarter, great year in 'twenty, and 'twenty and I could not be prouder of the team of of what they accomplished.

Moving to slide 10, maybe a little bit about the originations platform and we delivered a record total volume of $30 billion and the fourth quarter, which translates to roughly and annualized run rate of about $60 billion from our flow channels and about $60 billion annualized for bulk Ah.

Total volume for 'twenty and 'twenty was 15 9 billion versus 26 billion last year. So we've doubled total volume.

Full year flow and kosher originations were up eight times over last year, a full year of bulk and sub servicing ads were up over 40, and 48% as compared to last year.

Our correspondent and flow celebrates increased about threefold since the fourth quarter of 2019, you know all of our channels delivered strong double digit growth quarter over quarter and saying that.

And before cash yields and MSR is continue to be very strong and our portfolio of replenishment was exceptional.

In addition, and the fourth quarter, we were awarded multiple sub servicing contracts with the projected volume of $16 billion to $24 billion that we expect wallboard and the first and second quarter of.

Margins as well continue to the contract in the fourth quarter, we had expected that the average margins fell to about 56 basis points versus our expectation of 77 basis points for Q4, and this was really solely due to higher than expected third party volume and.

Margin compression and by each channel was actually slightly less than the unexpected.

Again here, great performance by originations and capital markets teams and I believe we've got more room to grow we'll talk about that and a minute.

Turning to slide 11, and our servicing platform continued to deliver very strong performance and the fourth quarter. You are sort of thing leadership team is doing a great job of driving continued improvement and efficiency and effectiveness and and helping customers navigate through the crisis for our call Center continued to outperform the M b.

The reported industry averages are key claims metrics also continued to perform with nearly 100% effectiveness.

And we continue to invest and technology to lower unit costs improved performance for investors and enhance the customer experience.

Despite almost all of our people working remotely we've continued our unparallel track record of helping homeowners and need and 2020, we provided forbearance of weak for over 180000 consumers, we and we completed about 40 virtual bar outreach events to reach consumers potentially impacted by the pandemic.

The strength of our originations has allowed us to grow our servicing portfolio of slightly and the fourth quarter and we achieved roughly a 50 50 mix of owned servicing and sub servicing.

And again here I'm really proud of how our servicing team has transformed the operation you know all of our hard work over the last two years really positions us well for for profitable growth leveraging of scaling.

Eight a scalable and efficient platform for 'twenty and 'twenty one.

Yeah.

Turning to slide 12.

You know in 'twenty and 'twenty one.

Looking ahead the market, we expect the total originations would be down roughly about 17%.

And with much of the decline in the second half of the year of Black Knight is reporting that theres still about $16 million to $17 million 17 million borrowers who are eligible for refinancing which should continue to drive the refi market in the near term.

And as well of the millennial generation is driving significant growth in the number of first time potential homebuyers are which should long term also bode well for the purchase market.

A reverse origination platform is positioned to support the financial needs of our growing senior population by tapping into an estimated seven and eight trillion dollars of untapped home equity.

Our special servicing expertise and track record of creating non for closure of outcomes for for consumers positions us to support the roughly $1 8 million of homeowners, who are still on forbearance, who may need loss mitigation of assistance.

We estimate that roughly 85% of these borrowers are delinquent and we further estimate that about 25% will need loss mitigation of assistance.

We expect the increase and TDMA workouts as foreclosure alternatives will drive increased the E V O early buyout gain opportunities and Ginnie Mae servicing.

Servicing and.

And the current low interest rate environment can create opportunities to drive increased realization of gains for executing call rights.

As most of you know as rates rise a total industry volume will decline. We also expect op margins will contract and we've seen some of that this year. However, rising rates can increase the day of around msr's by extending duration and the MSR amortization will slow as prepayments decrease due to the increase in MSR values as rates rise and possibly impact booked out.

And for sure.

Turning to slide 13, our focus for 2021 will be on executing our five key business initiatives that we believe will help us capitalize on the opportunities that are available in the market the head.

Are those or accelerate growth strength.

Strength in our recapture performance and.

And prove our cost leadership position and maintain high quality operational execution and.

Expand servicing revenue opportunities.

Yeah from a regulatory perspective, we are monitoring and we'll continue to evaluate the impact that the binding administrations key agenda items may have and our industry.

I will also closely monitor the monitoring statements from the CFPB regarding any planned priorities or areas of focus.

The President has already signed an executive order, calling for various federal agencies to extend foreclosure and eviction moratoria and the administrations and hint stimulus plans could include additional protections with respect to forbearance and foreclosure and eviction Moratoria and.

The changes at the federal level will obviously be uniform across all competitors and the interest rate and thus far ocwen and alone as well as the industry has proven to be adaptable and of dynamic regulatory environment.

Yeah, we expect the successful execution of our.

Our key initiatives will allow us to deliver positive GAAP earnings in 'twenty and 'twenty, one with low double digits of mid teen after tax ROE again by mid 'twenty and 'twenty, one assuming no adverse changes and the market industry of business conditions or legal and regulatory matters and generals take us through our roadmap for 'twenty and 'twenty, one later and maybe I'd like to share of.

A little bit more about each of these initiatives for 'twenty and 'twenty one on the next few pages.

Turning to slide 14 in 'twenty and 'twenty, one of our goals to achieve over $100 billion and volume with the 40 60 mix of owned servicing and sub servicing respectively. Our fourth quarter run rate kind of puts us on track for for those levels.

Yeah, we focused on several actions to accelerate our growth trajectory by leveraging our multichannel platform.

And we're targeting to grow our seller base again over 40, and 50 sellers in 'twenty and 'twenty, one to support our growth and correspondent and flow volume as well as performing and special sub servicing opportunities. We believe our broad portfolio of services, including sub servicing and specialty servicing MSR purchase for multiple delivery methods provides a compelling value.

And.

We're also focused on expanding.

Our our product for each so expanding our share and and the Ginnie Mae market through correspondent and the Ginnie Mae co issue market and correspondent. We're also working to introduce jumbo and non QM products as well as expanding our service to include best efforts and non delegated the delivery methods.

Yeah, and sub servicing we're expanding our small balance commercial loan business, that's the big integral and nicely for us and finally, your math will allow us to expand our participation and the bulk market significantly which will help us create synthetic subservicing.

And finally as I mentioned earlier, we continue to evaluate opportunities to enter higher margin channels based on market conditions.

Turning to slide 15, we continue to target of achieving at least of 30% recapture rate for for a recapture of platform and we believe our recapture performance is only limited by our operating capacity to address available opportunities and our recapture team is consistently over the last for five quarters are grown our closings quarter.

Over a quarter and and and as has marched up the recapture rate quite nicely, but we've still got more room to grow.

So we expect the increased staffing levels by over 40% through the course of 'twenty 'twenty, one we're continuing to hire and train new team players and.

And every position and intend to do so throughout the year.

We are focused on process and technology as well, we're focused on helping new tier players improve their productivity as they mature and the roles that we're also driving continuous process improvement with our process improvement teams are leveraging our global workforce, and where folks and implementing new technology to support expanding our capacity and cross the it's.

Tier loan origination and the lifecycle.

Yeah, and moving to slide 16, we remain focused on driving productivity to improve our cost leadership position, while maintaining high quality operational execution, we're targeting tier to reduce our servicing operating costs by roughly two basis points of view P. B and this year and.

Reducing corporate overhead expenses by roughly one basis points of view P. B.

We're executing over 60 technology enabled projects across the business to drive productivity cost reduction and improve customer experience and support growth.

We will continue to focus of high quality execution, and our operations relative to competitive entry benchmarks to further improve our customer experience and create value for investors and clients.

And as we did in 'twenty and 'twenty, we stand ready to support consumers and need of forbearance relief and loss mitigation of assistance as they come off for parents.

Now on slide 17, you'll finally, we're focused here on several actions aimed to expand our servicing revenue opportunities.

And we're preparing for a surge and loss mitigation related to expiring TDMA forbearance plans. We expect this will also create a potential surge and early buyout and modification related re delivery of games.

You know, we're tracking roughly $300 million and RMB S call rate opportunities, we expect roughly of 125 million will be eligible to call in 'twenty and 'twenty, one and will continue to evaluate the variables that impact eligibility and economics of executing these calls throughout the year.

And finally, we continue to evaluate opportunities to expand our capabilities and both forward and reverse servicing and.

And now I'll turn it over to June to go through our financial performance for the quarter. Thank you Glen Please turn to slide two this is our fifth consecutive quarter of positive adjusted pre tax income.

Revenue decreased quarter over quarter, driven primarily by lower interest and sub servicing fees, resulting from into the transfer of run off.

Awarded multiple sub servicing contracts and the projected volume of $16 billion to $24 billion and closed approximately $15 billion of MSR bulk purchases, which should largely offset the lost revenue.

And it's the only adjustment decrease is driven by share value of calibration for higher run off which reduced the fair value the almost of ours in the third quarter.

We also recorded $3 million of higher gains during the quarter, largely driven by higher MSR purchase volumes.

Operating expenses for leveraging technology and productivity actions and we continue to invest and of our originations platform.

Adjusted pretax income of $15 million $2 million higher than prior quarters favorable MSR valuation and lower expenses and lower revenue.

Notable for the fourth quarter include of $13 million additional CFPB of cool and $4 million and the other legal accruals.

We had higher income tax expense during the quarter, which excludes the tax benefit and fourth quarter legal accruals, which we expect to recognize when paid in 2021 and fourth quarter period adjustments of the cares Act benefit for higher pretax income and previously estimated for the year.

We reported a GAAP net loss of $7 million $2 million of improvement over prior quarter after of the $13 million of additional CFPB of cool I previously mentioned.

Please turn to slide 20 of balanced business model is operating well the originations growth and profitability of replenishing the servicing portfolio and offsetting runoff.

On the left side of the slide and you can see that our multi channel platform is fueling strong originations volume with growth of 164% quarter over quarter.

Servicing originated volume was up almost four times quarter over quarter, driving strong replenishment of 267%.

Adjusted pretax income of $35 million $2 million lower than prior quarter as higher volume was offset by expected margin normalization.

$5 million of investment in the platform.

On the right side of the slide our servicing segment is demonstrating strong performance through the refinance cycle delivering improved results quarter over quarter.

You can be run off is being replenished the newly originated servicing and sub servicing in spite of $16 billion transfer of the energy portfolio previously terminated in 'twenty and 'twenty.

We have a strong and sub servicing the pipeline with our top 15 prospects and approximately $85 million with additional opportunities for math.

We continue to optimize our cost structure for a rigorous process redesign and increased automation and driving improved efficiency.

Please turn to slide 21.

Our total exposure to loans on for bearings continues to diminish and trucks favorable to our forecast.

You can see and the lots of both the total number of forbearance plans and before the on spreads where we have ultimate responsibility to of brands continue to decline.

As the chart reflects there's a significant difference between told of forbearance plans and the amount where we have ultimate responsibility towards that.

This is a function of the benefit from our strategy to maintain and mix of owned servicing and sub servicing.

And the upper right chart, you can see that our owned servicing portfolio has performed and favorable to other non bank servicers in terms of the percent of loans in forbearance.

We're seeing the roughly 53% of our borrowers are mature and forbearance plans for real estate of 40% extent.

Roughly 4% and progressed the loss mitigation and we are awaiting decision the direction from the borrower on about 3% of plans that have matured.

Our expectation is roughly 75 per cent of the borrowers and forbearance of reinstate the loss of 25% will need some form of losses.

And it.

Please turn to slide 22.

We ended the quarter with $285 million of liquidity.

We have made significant investments and <unk>.

Bulk MSR and market opportunities and originations during the quarter.

We invested 190 $990 million of cash before financing to fund $25 billion of MSR originations each.

$18 billion higher than the prior quarter, largely driven by opportunistic bolt on acquisitions.

Originations generated strong cash on cash unlevered yields of approximately 12% across all channels.

Servicing of dancers completely detract favorably and actual advances were 29% lower than forecast.

Lower of dance originations were largely driven by higher prepayments and more of forbearance for loans performing.

Please turn to slide 23.

And we're focused on the five operating objectives and highlighted by Glenn earlier to achieve our profitability goals.

We expect to generate positive GAAP earnings in 'twenty and 'twenty, one with low to mid teen after tax ROE by mid 2021.

The state of the roadmap to achieving these results broken down by the operating objectives and origination servicing and corporate segment.

I won't go through the details and the call here today for please send an email and she'd like to review and another time and they have to go through the detail now looking at that over the goal.

And thanks for your.

Yeah, and a wrap up lets turn to page 24.

And as I said at the outset are I'm, just energized about the opportunities and our potential for 'twenty 'twenty, one and beyond you know, we we've radically transform the ocwen a better balanced diversified mortgage originator and servicer.

Our strategic alliance with Oaktree can provide almost a half a billion dollars of incremental capital to enable a level of growth.

P S accretion and potential value creation that we could just out of cheap on a standalone basis.

We're stronger more efficient and better align future market opportunities as a result of all of the hard work of the Ocwen global team.

Yeah, we're delivering record growth and originations and we continue to reshape and diversify our servicing portfolio.

As we look to the opportunities ahead, we believe we're fairly well positioned to capitalize on the potential future growth opportunities and multiple market segments.

Yeah on 'twenty and 'twenty, one we're focused on executing five straightforward objectives to drive improved value for shareholders and achieve our goal of low double digit to mid teen after tax return on equities by mid 2021.

And none of this would be possible without all the hard work of our global Ocwen team. So I want to thank our board and global team members for their tires and tireless efforts to.

Transform ocwen and their service to homeowners communities and investors.

And with that cash Somali, let's open it up for questions.

Alright, and at this time, we will be conducting a question and answer session. If you'd like to ask the question. Please press star one on your telephone keypad.

Consummation of tone will indicate your line is and the question queue.

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One of more me please while we poll for questions.

And our first question is from Lee Cooperman with Omega family Office. Please proceed with your question. Thank you.

You've provided a tremendous amount of information and use.

It's been some time the adjusted I congratulate you.

And whenever you said it seems very positive.

And I'm little confused and I think I have a feeling and has to do what time frame.

On page three of the presentation, you took a bit of low digit low double digit to mid teen and it was JAKKS return of equity.

And then on page eight you talk about the tune of 12, 12, 10 to 12 down 10 cents a share and earnings.

Number one what is the pro forma book value for the second transaction with Oaktree.

What are we looking at in terms of book value.

The lead based on the.

The current $414 million of equity capital at Ocwen.

Our current book value for ship per share and this is on page 27 of the presentation for for future reference is the 47 and 65.

And after execution of all of the warrants that were granted to oak tree and again, assuming the proceeds from those warrants come into the company really.

And related to executing those warrants we.

And we would expect the diluted book value per share to be 40 for 87 again, starting with the $414 million. Okay. So the the the return on equity of <unk>.

Low double digits and mid teens should be played against the of 44 87 number.

Hum.

I don't think so Lee so well it all depends on when the when oaktree excuse the warrants right so to execute them right upfront and obviously the additional capital comes in the business and the dilution of happens.

And we're assuming and our targets that are the warrants aren't immediately exercised.

They wouldn't be exercised until some future date, so are low double digits of mid teen returns.

It's really focus on the 414 million of equity.

So the the the 10 to 12 of those and 10 cents of incremental earnings what timeframe and we're talking about and it's obviously not 'twenty 'twenty one.

Yeah, Lee, we think it'll take about two years to fully invest all the proceeds that are coming in from Oaktree.

Yeah, both in terms of math as well as the on book capital of <unk>.

Honestly invested as fast this weekend and obviously, it's the it's a great market environment now so I think there's lots of near term opportunity to invest.

But for purposes of of what we laid out here. We are assuming it takes about two years to invest the proceeds.

So the two years and.

[noise] generate incremental 10 to 12 of those and earnings and the return of equity be materially different.

Yeah. That's rightly. So you know again, if you do the math coming off of page 27, and it would imply a return on equity of about 22% to 26%.

Right right.

And just a few other questions of me.

Okay.

The access to information in the public doesn't have which is understandable since they've made some true luxury Lisbon.

And we derived some comfort for the Willis.

And that's close to a half a billion those as we go out and just see if she P. C. P F B of litigation.

Luckily I, you know and she might imagine oaktree, putting up almost a half a billion dollars of capital into the company. They you know the they performed the requisite diligence that's commensurate with the size of investment and look I think their commitment to the company the size of their investment and the duration of their investment.

The flex the strong commitment to the company and our growth potential and obviously they evaluated the you know the risks and opportunities associated with the company and we're excited to have him as a partner I think it's it takes the company to a whole new level of having a true.

Okay with the.

This new capital coming in and I assume the refinancing and no longer be conditional the refinancing will move ahead.

Yeah look for.

You know it's gotta be.

You know certainly market conditions can always impact any refinancing, but look we feel really good about the oaktree capital coming in and how that sets us up to do the refinancing of its a great market and the high yield market you know we're gonna.

Obviously, you know the time is of the essence of we want to react quickly here, but yeah again, we think the oaktree. The additional investment here is a huge boost and our ability to execute our refinancing plan.

Last question and really revolves around the cost of capital.

And people like P. If it's the only and coupe of for dancing and.

For the 8% without warrants.

We're picking 12 and half for sending money and give you of warrants we of course competitive vis vis the competition given of course the capital.

And I P O Lee look based on where you'll return Levered returns are and the MSR environment today, and the fact that we're not growing solely through on book capital. We're using math for example to create additional fee income, which enhances our base level of return on equity.

We are and you know one of the things that we've done and the business to drive.

Our improved competitiveness as we just read Littlest Lee focus on cost and operational execution and they go hand in hand, so just cutting cost without improving operational execution, just creates cost and the different way. So you know look we will continue to be passionate and the resolute and driving and industry.

The best practice cost structure, and the business, which helps offset.

Our cost of capital and.

As it exists today, but luckily as the business improves and as profit improves yeah. We expect it will produce it'll help us lower our cost of capital over time right.

And and just.

And as for often for the futures and right now but.

But given where the stock trades in the of proof of the book value and the anticipated 10 to 12 of those that'd be great.

And of the learnings that we can and generate the free cash flow to take advantage of the Mr market, where we could do shrink the equity to upset some of this dilution.

Creating through the warrants.

Yeah. The you know one of the the benefits of having this incremental capital come in to support on book MSR investments is on.

On bulk MSR is generate great cash flow and have very strong cash flow dynamics. So you know as we continue to invest and scale up our operation and take advantage of our scalable and efficient platform.

We expect cash flow will improve.

Along with the earnings of the company and and you know EBITDA. So to speak will improve with earnings of the company and you know under the current Holdco notes structures and as I mentioned earlier, we are assuming the refinancing gets done well, we'll have you know structurally increased flexibility.

Two to execute share repurchases you know as long as we're on target with our growth expectations and profit expectation.

Thank you very much good luck and congratulations on your refinancing.

Thank you and I appreciate it.

Yeah.

And just as a reminder for anyone has any questions you may dial star one on your telephone keypad and doing so it will ensure that you join the question queue.

Our next question is from Marco Rodriguez with Stonegate capital markets. Please proceed with your question.

Well good morning, everyone. Thank you for taking my question.

Yeah.

I always want Hey, Yeah, I was wondering if maybe you could talk a little bit more about the strategic review process and I was just kind of obviously I understand the.

What has been of dawn here, our terms with with Oakmark, but I'm just wondering if you could talk a little of it about the other.

Potentials that you kind of reviewed and and just kind of frame them in terms of of.

Compare and contrast, if you can between what you guys basically execute of right now.

Yeah sure. So Marco Yes, I mentioned earlier and and mentioned during the course of course of 'twenty and 'twenty as the strategic review is ongoing.

And all options are on the table. So we did.

Have a very broad outreach to many players with the within Ah Yeah, both strategic and financial investors and we did have a reverse inquiry come into the business as well because it was a public process. We're open about it yeah, we looked at a variety of different things from refinancing transactions to you of potential merge.

And your transactions and as I said earlier, yeah, there really were no actionable merger opportunities.

I want to say that we got great feedback during the strategic review process of people were impressed by the turnaround performance here and the business and the transformation that we've done.

But you know from from an M&A perspective of a merger perspective, you know look this is a very hot originations market as you can see in the press and the papers and the industry. You know a lot of folks with big of originations platforms are looking to monetize their investment and are looking to get bigger and originations.

So you know when we found that more from from and M&A perspective, They're generally you know I think valuation expectations of very high amongst the originators.

And as a result of just not sure there was anything as compelling.

You know quite frankly is as the Oaktree proposal.

As it relates to the Oaktree proposal you know there were other similar structures that were presented during the course of the process.

You know it was a pure obviously people execute of confidentiality agreement. So we didn't necessarily share of information across people, but you.

And you can't do that so yeah, but look oaktree was not the only proposal with this kind of structure, but it certainly was the most competitive and yeah. We believe you know the aggregate commitment of capital and again their relationship on the mass side as well as the PHH side of the Ocwen side of the house.

<unk> creates a terrific alignment of interests.

Across our across the business. So you know we intend to work cooperatively and.

<unk> built a great relationship with the folks over at Oaktree.

And we're excited to work with them going forward.

And it's very very helpful. And then in terms of of your origination volumes and the quarter I'm pretty substantial growth sequentially can you maybe talk a little bit about the drivers there.

Yeah, you know our originations team is doing a terrific job is the.

And the enterprise sales model that we've put in place, which again allows us to sell the total portfolio of of what we do so.

Bulk purchase of Msr's using the agency co delivery methods for the cash window of our correspondent channel.

Offering portfolio recapture services offering sub servicing our special servicing capability, it's a very broad and comprehensive product set and our enterprise sales team does a great job selling that you could see we had you know we've tripled the number of sellers that we deal with and our flow and co issue and correspondent program.

And the team continues to ramp up right. So were targeting 450 for next year and we're going to continue to expand products and introduce Ginnie Mae and non QM and jumbo and expand our services as well so bringing in.

Yeah, well, our best efforts delivery and and and non delegated as well. So you know look the enterprise sales model for US has just been terrific. Yeah, we've got and bulk we've got and sub servicing the new S&P sellers. It's it's really helped us build the <unk> the <unk>.

Nations platform, but look we're not done I think there's more opportunity here and you know frankly I think we're just scratching the surface. There's a lot of services and products, we could bring into our origination channel that other competitors have today and we don't so we think there's an opportunity to enhance our competitive position here.

Got it and the last quick question here for me just looking at your earnings and profitability framework for for 'twenty and 'twenty one.

Can you maybe just talk a little bit about what you see as the the biggest growth drivers there and then perhaps I'm also frame, where you might need to do a little bit more work and kind of attaining these goals if you will.

Yeah. So you know the biggest growth drivers are obviously the on book servicing and so building of rebuilding that MSR owned MSR portfolio and as well enhancing that buy of substantially building out of our sub servicing capabilities all of our sub servicing earnings contribution from.

Math.

So those are really the two drivers of of what's going to fuel the earnings performance of the business and as I mentioned to lead also the obviously the owned servicing has very strong cash flow dynamics. So.

And so that helps build the cash flow performance of of the business, which then creates capital to reinvest rate and more MSR. So it becomes.

You know kind of the flywheel effect as you begin to move the business forward.

You know its all about scaling up of originations.

For us in terms of delivering that capability now you know we are expecting to see a relatively robust.

The bulk market. It has been very active so far and the first quarter was very active and the fourth quarter, Yes, we closed $15 billion of bulk transactions.

We are seeing.

Activity here and the first quarter.

So you know continuing to expand our activities and the bulk market kind of job one right. So that helps us fill that and fill our books quickly, but we also want to continue to grow you know that that that correspondent seller base and grow our flow programs again I think we're just scratching the surface. If you have a mature.

Correspond the platform you probably have.

Six to 700 sellers active sellers of any given point in time.

And again, where we are.

Only half of that so you're scaling up the originations team scaling up our sales team getting more feet on the street getting out there and being more present, the physical and the market expanding those products and services will really help us fuel the growth of the correspondent platform.

Got it thanks, a lot of times and really appreciate your time.

Hey, Thanks Marco.

Yeah.

And we have reached the end of the question and answer session and I'll now turn the call over to President and CEO Glen Messina for closing remarks.

Oh, Thanks, sure Molly Hey, everyone. Thank you so much for taking the time to be on our core business update call. Today again, just couldn't be more energized about the opportunities we have in front of us for 'twenty, one and beyond where the.

The whole Ocwen team here has just been moving and the inn at an incredible pace to radically transform this business and create a significant amount of opportunities ahead for us to grow and mature and expand our business I'm grateful and appreciative to the team at Oaktree, who work tirelessly tirelessly with us as well through the strategic process.

And just very much appreciate the vote of confidence and the business.

And our leadership team. So thanks, everyone I appreciate your support and look forward to talking to you at the end of the first quarter.

Yeah.

And this concludes today's conference and you may disconnect. Your lines at this time, thank you for it.

Participation.