Preliminary Q1 2021 Ocwen Financial Corp Earnings Call
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Greetings and welcome to the Ocwen Financial Corporation preliminary first quarter earnings and business update conference call.
At this time all participants are in a listen only mode.
And the answer session will follow the formal presentation, if anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference of which of your host today, Mr. <unk> excellent really and thank you Sir you may begin.
Good morning, and thank you for joining us for Ocwen preliminary first quarter 2021 earnings and business update call.
Please note that our preliminary first quarter 2021 earnings release and slide presentation are available on our website speak.
Speaking on the call will be Ocwen, Chief Executive Officer, Glen Messina, and Chief Financial Officer, Jim Campbell.
As a reminder, the presentation of 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 of different degrees of uncertainty.
Should bear this uncertainty 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 described in our SEC filings, including our form 10-K for the year ended December 31, 2020 and of our current and quarterly reports since such date in the past actual results of differ materially from those suggested by forward looking statements on this may happen.
And again.
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 statement, whether as a result of new information future events or otherwise.
The presentation of our comments contain references to non-GAAP financial measures such as the adjusted pretax income and adjusted expenses among others.
We believe these non-GAAP financial measures provide a useful supplement to discussions and analysis of our financial condition and an alternate way to view certain aspects of our business that is instructive.
Non-GAAP financial measures should be viewed in the in addition to and not as an alternative for the company's reported results under accounting principles generally accepted in the United States. The reconciliation of the non-GAAP measures used in this presentation to their most directly comparable GAAP measures maybe found on the press release and the appendix to the investor.
The presentation available on our website.
Finally, this presentation of our comments refer to our preliminary first quarter financial results. These statements are based on currently available information and reflect our current estimates on assessments. The company has not finished its first quarter financial closing procedures. There can be no assurance that actual results will not differ from our current estimates on assessments include.
As a result of first quarter financial closing procedures and any such differences could be material. The company expects to release final first quarter 2021 results in early May now I will turn the call over to Glen Messina.
Thank you Joe Good morning, everyone. Thanks for joining the call today on let's get started on page three.
Oh look we're off to a terrific start it's been a really busy first quarter I'm really proud of the team for the results they've delivered a reported or GAAP net income per share of 98 cents and positive adjusted pre tax income June will take us through our first quarter financial results in a moment.
We delivered a really strong originations growth the $14 billion in total of servicing additions for the quarter plus we executed bulk purchase letters of intent for roughly $68 billion on MSR you Pee Dee.
Given our progress in the first quarter, we're increasing our target for total servicing additions to up to 150 billion and that obviously includes map as well our first quarter servicing additions and our bulk L. O I's total on over 50% of our revised target so again.
We're off to a really good start.
We're excited about our transactions, we announced with Texas capital Bank, they'll help us accelerate our growth trajectory and provide about 25% of the targeted servicing it could be from map with the bulk servicing a portion of that transaction.
Regarding the have we've received all state approvals necessary to close as well as approval from Freddie Mac, we're targeting to commence funding of servicing and mass in the second quarter and accelerating <unk> growth into the third quarter.
We closed the first tranche of the Oaktree notes also in the first quarter and executed the refinancing of our corporate debt of 100% of our corporate debt is now due after 2025, we believe the significantly derisked the balance sheet.
As discussed last quarter with these actions complete we are targeting incremental MSR financing of some of the over $500 million to support our growth.
And based on our conversations to date, we do expect that the results are will show that we can reduce the average spreads on the MSR financing by a.
Roughly of 170 basis points.
Lastly, the final judgment has been entered in the CFPB litigation and the case ordered closed following the court's grant of summary judgment in favor of Ocwen and.
Any further action is dependent on the Cfpb's of pellet filing as we said before we believe we have meritorious defenses to the CFPB allegations and we intend to defend ourselves vigorously.
Yeah look it was of great quarter really excited about the momentum we have and our team is executing with focus and speed on the on all fronts.
Turning to page four.
Today, we're a balance mortgage originator and servicer with two primary business units, our multichannel multi product originations business helps balance earnings through market cycles and drives growth of our servicing portfolio.
Enterprise sales strategy has been successful in delivering robust growth and we've got opportunities to expand in the market we serve.
Our servicing business operates with a four pillar portfolio diversification strategy.
And the deliveries really strong operational and cost performance as compared to our independent benchmarks from Moody's in the MBA over the.
The past two years, we've built the low cost technology enabled scalable platform that we believe is positioned to deliver strong financial performance as we grow our portfolio.
Our strategy is to drive balance and diversification relentlessly pursue cost competitiveness of our best in class operating performance and leading client investor and consumer satisfaction.
You know our clients and investors of our primary path to grow our business. We are a largely of third party originator, but ultimately our ability to serve our consumers on how well we serve them and demonstrate that we are a socially conscious of responsible company is critical to our reputation our customer retention and overall success.
To this end we are committed to serving the communities, where we live and work are reaching out to help consumers and need and promoting a culture that values inclusiveness and diversity.
We believe our success is built off the foundation of meeting customer expectations.
The speed and decisiveness, maintaining an engaged workforce, a strong culture of integrity and transparency and a relentless commitment to technology.
Moving on to slide five I'm, maybe I'm, a little bit about the market and competitive environment. So you know look it's been a dynamic first quarter. So far in 2021 with interest rates rising more swiftly than industry estimates at the beginning of the quarter.
You know the average of the current industry forecast from Fannie Mae Freddie Mac.
On the MBA or really not materially different in terms of total origination volume from the average of the forecast at the beginning of the quarter. However, the split between purchase and refi has changed obviously refinancing volume is lower than previous estimates and purchase volume is higher than previous estimates.
Look.
Interest rates are still relatively low compared to historical levels and you know with millennials maturing as homebuyers.
It is driving a surge in home purchases and we've all heard about the fact that there's a home shortage of housing shortage of supply shortage of cross across the country.
Yeah in terms of of the rate environment rising rates of driving higher values for MSR, but reduce refinancing volume levels are impacting our forward origination margins and increasing competition. We did expect margins would compress we are seeing that so margins are contracting a consistent with expectations relative to interest rate levels.
Perhaps a bit more swiftly the anticipated June will cover our margin performance in the moment.
The market dynamics are driving M&A and increased activity in the bulk MSR market certainly we were the beneficiaries of that in the first quarter we.
We do expect M&A related activity is likely.
To continue upward we also expect the robust bulk market to continue and we do expect that there's probably going to be more top talent available for us to recruit as we continue to build out our originations platform.
Yeah forbearance levels in Guinea of the private securities remain high our roughly $1 6 million of borrowers on forbearance and they get about 30% of the forbearance plans are now seasoned over 12 months.
We continue to expect at least 25% of borrowers remaining on forbearance plans will require of loss mitigation and.
And we are ready to serve those consumers.
Lastly, we continue to see great strength in the reverse mortgage market. We think it's of great long term opportunity for the company on our platform performed really well on the first quarter as industry volume of us in margins there remain relatively high.
Moving on to slide six we outlined last quarter for 2021, we're driving our five operating objectives with with purpose and focus on speed to deliver on our growth and profitability goals. Our team is making strong progress on executing well against these objectives.
Based on our execution in the first quarter me on what we're seeing from industry forecast and assuming we achieve successful execution of our plans for the balance of the year. We believe we are on track to achieve our profitability goals for 2021.
Let's get into our performance against some of these objectives, so, let's let's move to slide seven.
Yes, we disclosed last week, where we're pleased with the transactions, we announced the Texas capital Bank to acquire the correspondent lending business and approximately $14 billion of bulk MSR is there a correspondent business has a proven track record of really high quality operations. We're excited to welcome their members.
<unk> of their team into the PHH family.
Based on the fourth quarter 2020 volume levels, you know our acquisition of the TCP of correspondent platform roughly doubles, our standalone correspondent volume.
And accelerates our entry into the high margin best efforts market. Yeah. The 14 billion dollar of MSR portfolio of high quality agency servicing for about 60000 customers. We were familiar with this portfolio. If you recall, we announced in the fourth quarter of 2020, we'd entered into a sub servicing agreement with unexpected.
I am of $13 billion in the U P b.
This previously announced sub servicing agreement was restructured as the $14 billion MSR transaction, we're talking about here with T C b.
We do ultimately expect to fund the TC portfolio GCB portfolio into NAV. Once net of has implemented. So this portfolio will remain a subsurface portfolio and one of the portfolio recapture opportunities on it going forward as well.
Yeah look I I can't think Texas capital Bank enough for trusting their team and our hands going forward TCP is of great strategic partner for Ocwen and I'm on the thank them for their collaboration of partnership and completing the two important agreements we are targeting to close these transactions in the second quarter.
And look I really believe this transaction is a great deal for us, it's a great way for us to grow our business and accelerate entry into higher margin segments in the correspondent channel.
We are constantly monitoring the market looking for opportunities like this to further expand our breadth of capabilities and reach.
I'm moving on the page eight I'm, you know a little bit about our origination objectives. You know again the team delivered really strong results during the first quarter, we're executing well on all dimensions of our growth plans.
So we said sort of of total servicing additions for the quarter were 14 billion of all in cash Irr's on on our Msr's are consistent with our expectations roughly 14% before leverage on hedge costs are we executed the bulk LOI for 68 billion of servicing additions that does include the TCP transaction, we just discussed.
Yeah, the bulk L. O I's as typical of are generally subject to various conditions of closing conditions, including the negotiation of purchase agreements the customary approvals of expanding our MSR financing.
Yeah, given the strength of our bulk market, we are focused on optimizing origination margins in our flow originations channels.
Weighted average interest rate spread by an additional 45 basis points for a total of 170 basis points.
And we continue to increase our MSR financing capacity together with the bad financing to support. The addition of the MSR relating to a bulk purchase activity and planned activity for the balance of the year.
Yeah.
Please turn to slide 16.
On the top half of the page you'll see on liquidity position supports our planned investment in purchases on growth in all of them in originations.
We ended the quarter with $276 million of cash and available borrowing capacity.
The MSR facility increase I mentioned was effective in April and provided an additional $62 million macdill borrowing capacity.
Excluding this amount of available liquidity was $338 million.
We've continued cash management discipline to drive lower borrowing in interest expense during the quarter.
On the bottom half of the page on servicing advances continue to track favorably the forecast as a result of higher prepayments of more for parents plants performing.
Please turn to slide 17.
You can see on the left the both the total number of forbearance plans and the forbearance plans for when you have the ultimate responsibility to advance continuous decline.
The continues to be a significant difference between total forbearance plans and the amount of where we have our ultimate responsibility to advance that's the benefit of our strategy to maintain the mix of owned servicing and sub servicing.
[noise] forbearance levels of our owned portfolio continues to compare favorably to other non bank servicers.
Our expectation continues to be roughly 75 per cent of borrowers on forbearance will reinstate and roughly 25 per cent will need some form of loss mitigation of assistance.
We believe consumers that had ginnie Mae and Pls loans are likely to need the most of assistance when they run out of forbearance of options and we stand ready to assist these consumers.
Please turn to slide 18.
We expect to generate positive GAAP earnings in 2020, one with low to mid teen after tax <unk> by mid 2021.
This assumes a stable interest rate environment, and no adverse changes in market conditions or the legal and regulatory environment.
This is the roadmap page to achieve these results broken down by our boost our operating objectives and the originations servicing and corporate segments.
A few key updates from the road map. We showed you last quarter on originations, we increased the expected number of correspondent lending and flow channel sellers from 450 in Q4 to 600, plus as a result of the Texas Capital Bank transaction.
This results in an expected increase in the average quarterly volume target for $10 billion to $12 billion.
And going forward, we expect to achieve revenue margin of 70 basis points for growth and higher margin channels and products such as consumer drag the best efforts reverse in Ginnie Mae.
On servicing the bulk transactions replenish our servicing portfolio, resulting in an increase in our expected owned MSR U P. B to $160 billion from 115 billion.
And servicing and sub servicing guidance for the year of reduced simply due to the interim sub servicing reduction, resulting from client portfolio of sales in the first quarter.
Please let me know if you'd like to discuss this in more detail on we can schedule a follow up call.
Now I will turn it back over to go on.
That's true, let's turn to slide 19.
Hum you know again I'm really proud of the team a great results here for the first quarter on we're executing other straightforward objectives of growth our cost leadership and operational excellence to drive improved value for our shareholders. Our alliance with victory is providing capital for growth and revenue diversification.
Derisked, our balance sheet by extending our debt maturities, allowing us to access the necessary asset based financing at lower cost of support our growth objectives.
Our originations business is delivering solid progress against our objectives, we've increased our target for total of servicing additions to up to $150 billion, including NAV.
And of roughly 50 per cent of that is either funded to date are under LOI.
Servicing is delivering strong operating performance as compared to independent benchmarks and we're executing a robust and comprehensive technology plan to further improve our performance and competitive position.
Our diverse capabilities and origination and servicing our we believe align well with market opportunities and we're expanding our products and services to serve a larger portion of our target markets.
Based on our execution for <unk> in the first quarter industry forecast and assuming successful execution of our plans for the balance of the year. We believe we are on track to achieve our profitability goals for 2021.
I'd like to thank the entire Ocwen global business team of our board of directors for their hard work and commitment to our success and everything they've done thus far of the position of our business for success.
The Tanya, let's with that let's open up the call for <unk>.
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At this time I would like to turn the call back over to Mr. Glen Messina for closing comments.
Oh, Thank you Latanya, so shareholders and constituents, who joined the call. Thank you for your support.
On confidence management's execution again, we're executing well and our against our objectives and look forward to talking to you on our next business update call. Thank you very much.
Thank you. This does concludes today's teleconference. You may disconnect. Your lines at this time and thank you for your participation and have a great day.
Okay.
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