Q4 2021 Ocwen Financial Corp Earnings Call

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Greetings and welcome to Ocwen financial Corporation's full year, and fourth quarter earnings and business update conference call.

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Yes.

I would now like to turn the conference over to your host.

Mr equal accelerating SVP corporate communications.

Good morning, and thank you for joining us for <unk> full year and fourth quarter 2021 earnings call. Please note that our earnings release and slide presentation are available on our website.

Speaking on the call will be Ocwen, Chief Executive Officer, Glen Messina, and Chief Financial Officer, Jean Campbell as a reminder, the presentation. Our comments today may contain forward looking statements made pursuant to the safe Harbor provisions of Federal Securities laws.

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

Bear this uncertainty in mind, you 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 one file our Form 10-K for the year ended December 31, 2021, and our current and quarterly reports since such date in the past.

Actual results have different materially from those suggested by forward looking statements and this may happen again.

Our 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.

In addition, the presentation our comments contain references to non-GAAP financial measures such as adjusted pre tax 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 addition to and not as an alternative for the company's reported results under accounting principles generally accepted in the United States.

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, now I will turn the call over to Glen Messina.

Thanks, Steve Good morning, everyone and thanks for joining us we're excited to share our progress with you. This morning, So let's start with slide four and will review a few highlights for the full year and the fourth quarter.

We delivered full year GAAP net income of $18 million and adjusted pre tax income of $59 million 2021 was our first full year of positive GAAP net income since 2013.

Fourth quarter adjusted pre tax income of $10 million is consistent with our third quarter performance, excluding the call rights transactions and our fourth quarter net loss of $2 million includes $14 million in pre tax notable items. Excluding these notables we delivered an annualized adjusted ROE of 12% in the fourth quarter and that's <unk>.

<unk> with our targeted return objectives.

Yes in the fourth quarter I'm really proud of the team we delivered record total servicing additions double digit growth in our highest margin channels solid operational execution, we achieved a recapture rate of objectives in consumer direct and cost reduction in servicing was ahead of target.

Our servicing team was recognized for their superior operating performance and operating execution by.

By both Gse's, we received the Freddie Mac Sharp Gold award as their best performing servicer in their top tier.

Servicing group and we also received the Fannie Mae Star Award for Excellence in all three categories of performance and those include general servicing solution delivery and timeline management. So congratulations and many thanks to all of our servicing associates.

In October we closed our acquisition of the RMS reverse mortgage servicing platform consistent with prior disclosures, we expected the RMS acquisition to initially be dilutive.

Fourth quarter adjusted pre tax income includes a $4 million pre tax loss in reverse servicing and this is largely related to staffing actions to support adding 60000 loans by the end of the third quarter of 2022.

And this will roughly double our reverse sub servicing portfolio.

Assuming the current loan boarding schedule and subject to investor approval.

We project run rate adjusted pre tax income for reverse servicing will improve by roughly $7 million by the third quarter of 2022 versus the fourth quarter of 2021.

Looking ahead interest rates have risen higher and faster than what industry forecast suggested just a few short months ago. As a result, we expect a smaller more competitive and generally more challenging originations market now that said, our rising MSR values and lower prepayments are also expected with rising interest rates.

Yes.

Our balanced business model is working we are seeing lower volume in January but that is offset by MSR fair value gains and lower MSR amortization.

In response to market conditions, we continue to focus on expanding our client base and higher margin products and services. We're intensifying our focus on reverse in consumer direct and driving continuous cost improvement.

We are taking the opportunity to selectively harvest MSR gains at robust valuation levels to mitigate asymmetric risk in our MSR portfolio and.

And we believe our balanced business model exemplary servicing performance proven cost management and track record of execution, our key advantages and navigating the market environment ahead.

Let's turn to slide five for some highlights on originations.

Our originations team again delivered solid results against our operating objectives for the full year of 2021 total servicing additions of $152 billion is up a 166% from 2020 levels in the fourth quarter, we closed a $43 billion in total servicing additions and that's.

Up 63% over the third quarter total servicing additions includes $33 billion in sub servicing additions and $11 billion in MSR additions, which were down 5% from the third quarter level.

Our enterprise sales approach and TCP acquisition have allowed us to grow our seller base to over three times versus year end 2020 levels and we're continuing to grow and our fourth quarter recapture rate of 31% slightly exceeded our target for the fourth quarter.

We continue to grow and higher margin channels consistent with our strategy fourth quarter consumer direct volume was up over 20% from the third quarter and we've roughly doubled consumer direct volume year over year best effort to non delegated deliveries more than doubled in the fourth quarter versus the third quarter and reverse originations were up over <unk>.

10% in Q4 versus Q3 and up 60% year over year.

In Q4, according to reverse market insights, we increased our market share in reverse by three points to nine 4% and now with the RMS acquisition. We are the only end to end service provider and a reverse industry.

Overall, our originations team made terrific progress against our objectives for 2021.

Let's turn to slide six for a progress update on servicing.

Servicing as well made great progress in 2021, driving lower cost maintaining strong operation execution and improving the customer experience.

We've made substantial investments and transformational technology to reduce cost improve execution and improve the bar experience. We've automated over 140 processes in 2021 to drive automation.

And improve customer connectivity and more self service options for customers. We expect these investments will continue in 2022 as we believe our actions to improve client borrower and investor experience are critical elements to support.

Our growth objectives over the long run.

Overall servicing operating costs are down over four basis points year over year, and we've exceeded our year end cost reduction objective in terms of scale. We've increased our total servicing <unk> by over 41% year over year and our percentage of private servicing has grown to 68% of total servicing E&P.

In terms of portfolio composition, increasing the percentage of agency loans is helping to increase average loan balance and decreased delinquencies and both these trends will help improve our ratio of operating expenses as a percent of <unk>.

We believe we have tremendous operating leverage in our servicing platform and we're excited about the growth opportunity for servicing, particularly in sub servicing which I'll cover in a few moments.

Now, let's turn to slide seven.

Review, our servicing operating execution.

In 2021, our servicing platform received the Freddie Mac Sharp Gold award as the best performing servicer and their top tier servicing group and we're also one of two servicers to receive the Fannie Mae Star Award for Excellence in all three categories of performance management.

General servicing solution delivery and timeline management. These awards are a testament to the dedication and commitment of our team the high levels of customer service, they deliver and the overall strength and quality of our servicing capabilities.

Our servicing operations continued to perform well in several areas as compared to MBA reported metrics that the industry average speed of answer was better than the MBA average and our abandonment rate as well as less than half the MBA average.

We are continue to be laser focused on supporting borrowers who are exiting forbearance and helping them understand their options and we do believe the best path for homeowners and investors is defined what works with an investor guidelines to keep the consumer in their home.

You can see we outperformed the industry as reported by the MBA relating to the percentage of borrowers with an agency loan who exit forbearance with the reinstatement or loss mitigation solution in place. Additionally, the percentage of GSE borrowers on forbearance plans paying current is six points higher in our portfolio than the MBA.

Average.

With our servicing performance and recognition by the Gse's there should be no doubt that our platform is delivering best practice levels of performance for investors and homeowners. Many many thanks to our servicing team who continue to deliver great performance for homeowners communities and investors.

Now, let's turn to slide eight to discuss our progress in driving an improved customer experience.

Consistent with our strategy to provide the service experience that delivers on our commitments, we've put significant efforts towards improving our net promoter score or NPS. Our servicing NPS is up 12 points, even with numerous bulk MSR purchases and sub servicing boardings in 2021.

As well as a very focused effort to help borrowers emerge from forbearance.

Consumer direct NPS scores are up 56 points.

That was while we doubled volume in 2021 in that channel.

Even in reverse in their wholesale channel, where we have an incredibly high score of 91.

Improved by three points as well.

<unk> is a key part of the performance management as well as reward and recognition systems at Ocwen NPS is measured for every function of department, regardless, if they serve internal or external customers.

We do provide continuous training monitoring coaching and empowerment to our teams to enable them to drive our care that C. A R E service philosophy and standards the acronym care stands for carrying accurate responses and empowered.

Technology and process simplification increased self service options have also been a key part of our customer experience improvement journey.

We've made numerous enhancements to our web portal and mobile app, including video based instruction resources to further enable consumer self service.

For 2022, we have a roadmap of the 27 projects, which cover over 500 individual changes in our operations to further improve customer experience cost structure and operating execution.

Now, let's turn to slide nine to discuss our approach to sub servicing.

Okay.

We believe we've built a best in class servicing platform for both performing and special servicing with the capacity for growth that can offer a compelling value proposition for new and prospective clients with.

With the closing of the RMS reverse servicing platform acquisition, we are now positioned to compete in both reverse and forward sub servicing.

The investments we've made in our platform are being recognized with over $56 billion in sub servicing additions in 2021, and our sub servicing pipeline has never been more robust.

We're focused on delivering best practice levels of performance for our clients across the six six of what we call key servicing deliverables. These include competency, putting the client first customer centricity technology enabled capabilities at <unk>.

Well staffed bank at great risk and compliance model and a strong value based culture that underpins everything we do.

We continue to evolve and refine borrower and client facing technology to address the needs of clients and consumers to streamline our business and improve the ability for customer and client self service.

We can offer Swift onboarding responsive service to our clients and consumers and as we covered on pages six and seven we do believe believe we deliver industry, leading operating performance that's been recognized by our investors.

We are entering 2022 with customer commitments and forward and reverse sub servicing for over 35 billion and <unk> additions and that is subject to investor approval.

76 billion in potential opportunity with our top 10 prospects and a total prospect pipeline of over $240 billion in deferred business.

And since the first of the year. We've also built a prospect pipeline of over $57 billion.

In reverse sub servicing opportunities.

Again really proud of what our team has been able to build here and accomplish in particular, our enterprise sales team for.

Building, such a robust pipeline and while sub servicing has a long sales cycle. We are nonetheless, very excited about the opportunity we have here to grow some servicing.

Now, let's turn to slide 10 to discuss our thoughts on the operating environment for 2022.

Is the average of the January and February origination forecast from the <unk> and the Nba's project total origination volume of declined over 30% for 2022 inch.

Interest rates are up sharply to start the year with both the 10 year treasury rate and the 30 year mortgage rate up higher and faster than the industry consensus forecast last quarter, and probably more closely matching the expectations at year end per that prior quarter forecast, we do believe the rapid run up in rate.

And long term outlook for even higher rates will drive a highly competitive environment and originations. We believe margin pressures in forward will persist until excess capacity can be eliminated. However, higher interest rates are good for servicing values. So far this year MSR values are up significantly prepayments have slowed.

And we believe if interest rates hold and go even higher prepayments can slow even further.

We aren't seeing a wide view of MSR values in the market and various trade journals have commented on increasing bulk MSR sales and the potential for increased M&A activity Lastly.

Lastly, we are seeing the agencies buy box shift with higher loan limits.

Support for first time, and low to moderate income homebuyers and restrictions on vacation rental properties and.

Disciplined pricing for third party originations.

However, we believe our strategy of balanced diversification strong operating execution and a focus on low cost is the right strategy for this market environment. Our management team has a track record of successfully navigating multiple mortgage cycles with a focus on prudent growth.

Cost management operational excellence and customer experience, we intend to be disciplined and origination and we will continue to focus on expanding our client base and addressable markets, where we can grow higher margin products and services.

Obviously, we will continue to drive cost optimization, which is part of our DNA to enhance our competitiveness and with respect to servicing the rapid rise in values creates a bit of asymmetric risk and low coupon msr's with more downside than upside and with the wide range of perspectives on MSR values, we expect to select.

<unk> harvest MSR gains where market view of value exceeds ours and maps, while continuing to invest in new msr's.

As we saw on the previous page, we've got a very robust sub servicing pipelines. So we intend to aggressively pursue our sub servicing opportunities, including reverse sub servicing and lastly, we expect to prudently approach bulk purchases with map and as well evaluate M&A opportunities to enhance scale and capabilities.

As it relates to math, we had a very successful 2021, and we are working with oak tree too.

Potentially upsize the capital commitment to math.

Now, let's turn to slide 11 to discuss our operating objectives for 2022.

Yeah.

In 2022, we're targeting roughly $100 billion in total servicing additions. This is down roughly one third from 2021 levels.

We are taking several actions to offset in part the decline in industry volume and margins overall, we're targeting to grow our mix of consumer direct reverse best effort to non delegated. This is what we call our higher margin products services and channels.

Roughly 11% of total volume in 2021% to 23% of total volume in 2022.

In correspondent lending, where our client base is still roughly half of other competitors with more mature platforms. We are targeting to add another 150 to 200, new sellers with a continued focus on growing best efforts non delegate deliveries as well as Ginnie Mae and non agency products, where we have grown in 2021, but still have a very.

A small presence today.

In consumer direct we're targeting to maintain recapture rates at over 30% with the long term objective of industry best practice levels by Investor Type Inc.

In consumer direct we have been transitioning to cash out mortgage products, which in the fourth quarter accounted for over 65% of our consumer direct funded volume.

And we expect that percentage will continue to increase in 2022.

We're focused on improving overall conversion and consumer direct conversion of leads to funded volume through technology data analytics.

Processes and training and in reverse we're targeting over 30% growth overall, including 30% growth in retail volume, which was up 38% in 2021 from 2020 levels.

Continuous cost improvement is part of our DNA as I said before we're targeting another one basis point decrease in servicing and overhead opex from fourth quarter 2021 levels.

We're also targeting to drive roughly 20% operating productivity in our originations channels to help offset margin pressure.

Industry, leading operating execution and delivering on our commitment to clients and borrowers is a critical component of our value proposition that will continue to be an emphasis for our business in 2022 and beyond.

In servicing our balanced business model is working our MSR valuation was up $18 million net of hedges in January .

We also saw CPR declines and we do believe CPR will decline from 21% in 2021% to 13% in 2022, which can also help improve servicing profitability.

And considering our opportunity pipeline in sub servicing and our relationship with <unk>, we are targeting to roughly double our sub servicing portfolio, excluding the NRC sub servicing and lastly, with the rapid increase in interest rate levels. We are expecting 2022, <unk> and call rights income will be down roughly 75%.

From 2021 levels.

Considering the transitioning mortgage market. We expect first half 2022 earnings will be driven by MSR fair value adjustments offsetting origination headwinds and the build out of our servicing platform. We are targeting low double digit to mid teen after tax ROE before notable items in the second half with the expected benefits.

Of successfully executing our business initiatives.

And now I'll turn it over to June to discuss our financial performance in more detail. Thank.

Thank you Glenn Please turn to slide 12 in the fourth quarter, we reported $10 million and adjusted pre tax income. This is our ninth consecutive quarter of positive adjusted pretax.

You can see in the top right of the slide of quarter over quarter walk our fourth quarter results were largely consistent with the third quarter, excluding call rate gains and costs associated with building out our RMS sub servicing platform, which did impact our reverse servicing business and I'll talk more about RMS in a few slides.

Net income in the quarter was a $2 million loss, including $14 million of mostly RMS integration of employee incentive plan notables.

We achieved a 12% annualized after tax ROE excluding notable items.

On the bottom right Bar chart, you can see that we are delivering on our growth objectives and cost leadership revenue increased 26% year over year, largely due to higher servicing fees and an additional $79 billion in <unk> and we.

To demonstrate exceptional cost discipline.

Our earnings per share was $1 56, which exceeded analysts' consensus and book value per share increased $1 $52 per share.

Please turn to slide 13.

This slide demonstrates that our balanced business model is operating as expected and will serve us well in a volatile market.

Left side of the slide you can see that adjusted pretax income year over year was impacted by lower revaluation gains on MSR cash window and flow purchases and lower origination margins.

As Glenn mentioned, we are expecting a mix shift to higher margin products in segments, which we believe will help offset margin pressure as industry volume levels contract.

Our enterprise sales approach focusing on sub servicing and the strategic acquisitions, we made last year have positioned us well to maximize performance.

On the right side of the slide you can see the results of our servicing segment.

Servicing adjusted pre tax income of $10 million was largely driven by higher servicing fees from the $79 billion and higher <unk> year over year and operating costs being down as you saw on the prior slide.

Keep in mind that the servicing segment results included a $4 million loss in our reverse servicing business related to the RMS platform acquisition, which I'll talk about on the next slide.

Going forward were expecting slower prepayments lower MSR amortization and higher MSR fair value gains.

Please turn to slide 14.

We're excited about a reverse sub servicing platform uniquely positions our reverse servicing business for accelerated growth. This year you can see on the left side of the slide we expect $11 million in higher reverse mortgage revenue from forwarded and committed volume this year $25 billion of the 27 billion and <unk> are under our <unk>.

Five years sub servicing agreement.

With scale and optimized cost structure, we expect the acquisition to be accretive to our reverse servicing business in the second half of the year, achieving $5 million and adjusted pre tax income by the fourth quarter.

Two key metrics on the bottom of the slide show you the estimated growth trajectory of the platform.

Please turn to slide 15.

This is our operating framework for 2022, assuming a stable interest rate environment for the balance of the year and no adverse changes in market conditions or the legal or regulatory environment.

The pages broken down by our operating objectives, and the origination servicing and corporate segments.

We expect the first half earnings to be driven by MSR fair value adjustments offsetting origination market headwinds and the reverse servicing platform build out.

We're targeting low double digit to mid teen after tax ROE before notable items in the second half of the year.

In originations, we expect a mix shift to higher margin products and segments from 11% to 20 plus percent as Glenn mentioned.

Servicing we plan to continue to grow performing sub servicing through math, the reverse servicing business and adding new clients.

We expect <unk> and other revenue diversification in the range of $8 million to $10 million.

And as usual, we expect all segments to continue to achieve productivity targets.

Now I'll turn it back over to Glenn.

Thanks, Jim and if you could now please turn to slide 16.

2021 was our first full year of GAAP profitability since 2013, and our ninth consecutive quarter of positive adjusted pre tax income the investments we've made in corporate culture employee engagement diversity and inclusiveness have enabled the team to thrive in a largely remote work model and as a.

A result, we met or exceeded all our operating targets for 2021.

We believe our balanced business model exemplary servicing performance proven cost management and track record of execution, our key advantages and navigating the market environment ahead.

We remain focused on delivering prudent growth by continuing to expand our client base and increasing our presence in higher margin channels products and services and driving continuous cost improvement.

Our servicing platform delivers industry, leading performance of multiple loan types, a highly competitive cost structure and his relentless in its pursuit of delivering on commitments.

We're investing to support customer commitments and forward and reverse for an additional $35 billion in sub servicing additions and have a sub servicing opportunity pipeline of over 300 billion.

We're investing in enabling technology with proprietary coes driving automation and lean process reengineering.

Our balanced business model is working our MSR valuation and is up and CPR are declining which should help improve profitability in servicing.

And lastly, I am proud of how our team is executing our management team has a track record of successfully navigating multiple market cycles with a focus on prudent growth cost management operational excellence and customer experience, we will be unwavering in this focus.

We're operating in a volatile and uncertain environment.

We're actively monitoring the financial markets economic environment and industry conditions closely we are dynamically managing our operations plans and targets and will adjust as necessary to address emerging market risks.

I'd like to thank and recognize our board of directors and the global business team here at Ocwen for their hard work and commitment to our success I am thankful for their hard work and proud of what our team has accomplished in 2021.

And with that Peter let's open up the call for questions.

Thank you.

At this time, we will be conducting a question and answer session.

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One moment, please while we poll for questions.

My first question is from the line of Bose, George with K B W. Please go ahead.

Hey, everyone. Good morning.

I wanted to ask just about gain on sale trends for.

So the that Youre seeing now versus what you saw in the last quarter. Both on the forward, but also just the reverse is the reverse a little more sort of agnostic to some of the issues that are going on in terms of rate.

Yeah. Thanks for the question, we are seeing gain on sale margins and all channels. Yes, we do expect them to contract in 2022, I think it is going to be a tough environment in originations with rates up and a shrinking mortgage market.

That said, we don't expect to see the same pressure in reverse actually we expect reverse margins to be flat and maybe even up a little bit during the course of 2022.

For us to combat the margin compression, we expect to see across the forward business. It is all about mix shift we have a very small presence in it.

Consumer direct and best efforts and non delegated and again, a small shift in mix again going from 11% of our total business to 23% of our total business, which is as you know is relatively small compared to some of our peers.

Does provide a pretty big lift in average margins for the for the origination channel.

Okay.

Certainly the reverse business again.

A good portion of our gain on sale margins, Yes, we think that.

That opportunity in reverse to continue to grow that business, it's a growing market.

12000, new new people turn age 65 every day and that group has about 10 trillion dollars in home equity. In addition continued home price appreciation as well as the increase in the in the maximum claim amount to over 970000.

I think will help fuel growth in the reverse mortgage market despite higher interest rates. So.

We're very optimistic about the reverse business and we see that as being a key part of our margin expansion initiatives in 2022.

Okay, great. Thanks, and then just in terms of.

Returns on MSR is can you just talk about where Unlevered returns are currently and then also how does the return differ from the forward MSR versus the.

Reversion, thus far.

Look we're seeing returns in MSR is again for the.

Leverage returns and MSR as for the forward business I would say is really GSC in the call. It eight ish range 85 range jenny's or in the.

Certainly north of eight and a half call. It eight five to nine five.

It has gotten more competitive as I mentioned before there is we are seeing a bit of price discovery going on theres, a fairly wide range as values on msr's certainly as rates spiked up quite a bit during January and February timeframe, we are seeing the price curve on MSR slow down.

And as well mortgage rates are not really tracking with treasuries were seeing some disconnect. There so mortgage treasury spreads have widened.

And mortgage rates have just not responded lower with with treasury since they've sold off a bit.

On the reverse side, our all in returns on reverse Msr's.

Our higher than even <unk> right. So we're talking in the 10% to 11% range. So again the reverse business has just very attractive attributes.

From both an originations perspective, and a servicing perspective, and now with us being positioned as the only end to end provider in the reverse mortgage business. It's got a great opportunity to grow the sub servicing side of that business, which again is more profitable than forward sub servicing.

Okay. That's helpful. Thanks, and then actually just one follow up.

Advance rates on.

<unk> reverse numbers or are they pretty similar to two two forward MSR.

Actually no.

Our reverse msr's.

That market has not matured to the sophisticated type of.

Advancing we see for the forward markets, so advance rates for financing a reverse msr's.

Is not as well developed or or as high.

So there's a natural reason as to why the returns are higher yes.

Okay, great. Thanks, a lot.

Thank you.

Thank you.

Our next question is from Matthew Howlett with B Riley. Please go ahead.

Oh, Hi, Glen agenda for taking my question just first on map.

PB basis, where does it stand now.

Glenn you talked about upsizing it.

Potentially what would that look like wood ocwen contribute another 15% if it was upset.

Yes, so look man.

Right now has we've deployed roughly.

60 ish percent, 50%, 60% of our total committed capital in math, Thats <unk> balancing around $30 billion range.

But again, we're seeing continued opportunities to purchase in the market going forward. So we're having preliminary discussions with oaktree about the merits of increasing that.

Look we I don't think were at a point, where we can discuss in terms of conditions, just yet, but certainly given it's a material transaction if something happens there will be care sure to update the market.

Are you it sounds like you're ahead of schedule on growing that but that would be upside to that would be a second half 'twenty to compensation.

We are ahead of schedule redeployed.

Structured math with an initial term of about three years to ramp up our investment there and again, we've put in about 60% of our investment in the first.

First year of operation of maps. So it is tracking ahead of schedule. So yeah. I mean, if there is an upside in place it probably would be something that would be a second half initiative.

Great. Thanks.

When you talk about the dynamic of selling some MSR and then but still being reactive in the bulk market I mean, what are you seeing.

There's some pockets of your portfolio that are just over.

Overpriced or bid, but you're still seeing generally.

<unk> to acquire bulk.

Yeah, we're seeing look I think there's.

Just generally stepping back I think in in the mortgage business just generally.

Need to be willing to be a buyer and a seller as price and market conditions dictate we've got we've built.

As a diversified origination capabilities that we have the ability to replenish.

Assets into our servicing portfolio, but look rates ran up very high very fast.

And that created what we saw was a fairly wide view of the values of Msr's.

And particularly for lower coupon servicing what we believed was asymmetric risk so a value of an MSR can only appreciate so much because prepayment speeds can only slow so much and once you reach the top of that prepayment S curve the value for MSR is pretty much at the Max where it's going to be.

And there's probably more downside than there is upside in value. So.

Look we took the opportunity.

To test the market and look we think there is.

Opportunistically when prices are high.

And higher than our view of value and maps used value, especially if you want to minimize the asymmetric risk in your portfolio you have.

Probably going to look to take some risk off the table take some money off the table and redeploy it into msr's that are closer to market market pricing, where you have symmetrical risk exposure up and down it's easier to hedge and obviously creates refinancing incentives right if rates go down, but obviously value appreciation freights go up so look up.

I think in this transitioning mortgage market you have to be dynamic and that's just prudent business management in my view.

And you mentioned $18 million net of hedges in January for the portfolio.

Total.

Yes, Sir.

Okay, great Okay.

Well last question on just general capital needs to look at you retaining capital clearly youre seeing opportunities you might free up some capital from sales and generally Glenn that when you look at your very actually a very busy with integration, but when you look at capital needs for Ocwen.

Opportunities out there in the bulk market growing maybe.

Maybe other platforms clearly taken a lead in reverse what can you tell us in terms of.

Capital needs.

What the capital outlay plan now as this year.

Yes so.

And june's.

James presentation. She had the kind of the roadmap for the business in terms of where we're expecting financial results. So yes look we are expecting to originate a $100 billion of <unk>.

Business total servicing additions next year, yes.

Yes, we are planning to be active in all our channels and grow our higher margin business. We believe we have access to the capital resources to support our business going forward.

NAV, we've had preliminary discussions with <unk> around upsizing math they've been busy.

Yeah, we generally we saw close to $90 billion of <unk> traded in the bulk markets.

In the month of January and February so far.

NAV based on its strike zone, so to speak its appetite they bid at about $20 billion <unk> and $109 billion in January . So we are out there with mab actively bidding in the bulk market.

And.

For deals that fit our investment criteria and mass investment criteria.

And we're going to continue to drive.

Expansion of our correspondent seller base and grow reverse so yeah, I think we're positioned with the capital we need to operate our plan and achieve our commitments.

And I'll just sneak one in and if you don't mind just on technology. One of your peers had a partnership with the cloud Tech provider Ocwen has always been a leader in technology highlighted every quarter, Glenn just anything to talk about there well positioned in this new environment.

Yes.

We took the time through the integration to re platform.

The technology in our business.

<unk> tabak, so new origination system, new telephony system.

New websites and portals, new servicing system, new capital market system, New General electric New HR system.

The amount of change in the technology arena during the integration process was profound.

But I believe we've got a great set of foundational technology in the business. It's modern it's cloud based it's up to date.

Also during that integration process, we even though we were cutting costs and will reduce our cost structure from the pre acquisition to 2018 pre acquisition baseline by about 40%. We did set aside money, we invested and built our own robotics and automation center of Excellence excellence and lean process Center of excellence.

And we've been investing in robotic process automation.

Again, our customer self service technology.

Video tutorials for our consumers.

We've been investing in mobile App as a matter of fact, our servicing mobile App is probably one of the highest rated ones in the Apple App store.

And we're now entering into optical character recognition.

Cognitive AI and conversational AI, so I feel great about the strides we've made in technology that said.

It's an ever changing environment, you can never rest on your laurels as it relates to technology. So we're continuing to invest and as I said, we've got 27 projects to drive automation across the servicing platform.

Which is going to touch over 500 discrete elements across our business. So.

It's a place we're excited about we love how technology enables low cost enables customer experience and enables operational effectiveness.

Thanks, a lot Glenn Thanks chip.

Thank you Matt Thank you.

Thank you. Our next question is from Marco Rodriguez with Stonegate capital. Please go ahead.

Good morning, and thank you for taking my questions.

I was.

Wondering if maybe you could talk a little bit about how you see your business positioned could succeed it will it could be a pretty volatile mortgage market.

Yes, Marco look it all starts I think with people look I'm really proud of what our team has been able to execute here I think we've got.

One of the best management teams in the business and having a highly engaged workforce strong culture and our management team with a track record of navigating multiple mortgage cycles is essential to the environment, where youre going to go through.

Second to that we've spent a lot of time building, a balanced and diversified business model here at Ocwen.

It's been something we've been driving for the past 253 years.

And to me, having that balanced and diversified business model is an absolutely essential element to be able to navigate the transitional mortgage market, we're going into.

Look we've demonstrated the ability to manage our cost structure, we've demonstrated the ability to grow in higher margin products and services and channels, where we still have a very small share today. So again, our plan is and our plan is I think.

Obviously.

Aggressive and responsive to the market. We believe we can given our low position and higher margin channels, we shift our mix from.

From 11% of total servicing additions to our total originations to 23% of total originations.

Our servicing platform has been recognized by the Gse's as being quite frankly, the best servicing platform from an investor perspective in the industry period full stop we're growing in reverse we've got a strong position there at 9% market share in a market that's growing so look up.

I think we've got a lot of attributes about our business that have demonstrated resiliency, we've demonstrated the ability to navigate the pandemic.

The mortgage industry is volatile.

It goes up and down and we've built our business model assuming that thats in place.

And that's going to happen and that's what we're seeing today. So I think our team our technology, our platform and our strategy of driving growth and higher margin channels, reducing costs focusing on operational excellence and continued to provide a service experience that delivers on our commitments to consumers is the right one for this environment.

Got it.

And then kind of a follow up in regard to that.

Maybe if you could talk a little bit about how you sort of expect the overall business to perform if.

If we entered into a recession.

Yes.

Ocwen historically recessions have been good for Ocwen, we are still one of the leading default servicers in the industry in general our superior default servicing capabilities I think set us up well to.

To perform in a recession relative to peers with less experience in servicing defaulted loans.

We've demonstrated during with helping borrowers emerge from forbearance, we've had more a greater percentage of our borrowers emerge from forbearance.

Agency borrowers that has emerged from forbearance with a loss mitigation solution or reinstatement plan in place those borrowers who are on forbearance, a greater percentage of ours are paying current.

So look that this is our strength. This is the core DNA of Ocwen, we did not lose that during the course of the integration and look while advances tend to increase during a recession, we have bound funding and availability and pricing to remain solid on it.

Advances even in times of stress.

And the balance of having in our servicing portfolio of having owned servicing and sub servicing and right now a greater portion of our portfolio servicing portfolio is in sub servicing.

Net revenues in that business will tend to increase as delinquencies increase so we get paid for the additional cost. So we think we have the resiliency and operating capability to navigate fairly well through a recession.

Got it and last one for me maybe.

Maybe if you can talk a little bit about.

The growth Youre seeing in sub servicing how is that kind of progressing to to your <unk>.

Your targets your expectations. Thanks.

Yeah the growth in sub servicing we're really excited about it and I think there's really two key elements that is driving our growth in sub servicing first is our enterprise sales approach and second is our just our servicing performance. So the.

The enterprise sales model that we have leverages, our capabilities across all of our originations so the ability to do SMP.

Fannie Mae S&P originations originate through Ginnie Mae pit originate through.

The Freddie Mac co issue cash exchange correspondent mandatory best efforts non delegated and the ability to offer forward reverse and sub servicing is just a very comprehensive sales tool and we found that that's been one of the greatest differentiators, we have vis vis selling against traditional sub servicing providers and <unk>.

<unk>, we can offer portfolio recapture services that some of those folks cannot offer.

So look our enterprise sales approach is I think a key differentiator on the front end.

And more importantly on the servicing execution side.

I believe we've got a terrific value proposition with our servicing platform.

Again our.

Our sub servicing clients are recognizing our performance.

That's been recognized by Fannie Mae and Freddie Mac, so were doing quite well.

I feel good about the growth in the sub servicing business. Our pipeline has never been higher again sub servicing is a capital light growth vehicle for the company and again, we were rewarded with over $50 billion total sub servicing additions in 2021, we've got 35 billion.

Committed backlog subject to investor approval for the 2022 with a very robust pipeline behind us so.

Really excited about the sub servicing business start thank our team there is executing quite well.

Got it. Thank you I appreciate your time.

Yes, Sir.

Thank you.

Next question is from drew Mackintosh.

Please go ahead Sir.

Hi, Thanks, and good morning. My question is on the reverse servicing business, specifically on the competitive landscape landscape.

You guys mentioned, you don't think you'll see margin compression in that area, but just wanted to get a little more color on that with the possibility of more new entrants into that market.

Sure Andrew look number one if it is not coming through on the call. We loved the reverse business. It is a great business for US look the industry is coming off a record year.

Which was assisted by refinancing activities endorsements grew 18% year over year.

MBS issuance grew to $13 billion, which was a 23% increase over 2020 and actually a 21% increase off the previous record year of 2010.

So look while rates may be going up in competition may be coming into the market. We do believe that the market will continue to grow in 2022.

HPA home price appreciation and the increase in the maximum claim amount as I said before to 978.

$800, we expect we will continue to.

New production and is helping to offset the impact of higher rates and again from a demographic perspective 12000 people are turning age 65 every day in this country and the.

Equity in home equity held by this group of people over age 65, now <unk> 10 trillion.

So.

Look I think there is the potential for new entrants to come into the marketplace.

But again I think we are positioned well from a competitive perspective, we are the only.

Player participant in a reverse industry, who can originate.

And issue and B, a direct servicer I think this provides us with a unique position vis vis our competition.

The reverse mortgage industry is really dominated by five primary.

Issuers, including Ocwen accounting for about 93% of all issuance.

Again, our market share has been growing.

We're up to slightly over 9% as the fourth quarter of 2021.

And the top 10 originators make up about 80% so you'll look as the top five companies to remain largely unchanged.

Look this is a very specialized area of of mortgage lending it is not a.

Quick fast transaction, its not going in and doing a quick refined theirs borrower counseling period, you have to go through a borrower qualification period you have to go through.

And the product has a number of unique attributes and elements.

So look I think the market growth is there to support.

The competition that we expect to see any environment.

And with margins holding relatively stable.

That said.

We would say have some level of concern.

That.

Irrational competition coming in.

While they may not necessarily damage margins all that much.

Good day cause additional reputation risk because they're not trained well are not trained enough. We're not trained at all.

And potentially get the space a bad name, but that said I think it's a great product I think it's a space, where we intend to continue to grow share and grow our presence.

Great. Thanks, a lot.

Thank you.

Ladies and gentlemen, we have reached the end of the question and answer session.

And I would like to turn the call back to Mr. Glen Messina.

Closing remarks.

Thanks, Peter and to close I, just want to thank all of our investors and our employees and our board of directors for your continued commitment to Ocwen I believe the investments we've made in culture employee engagement diversity inclusiveness have enabled the team to really thrive in 2021, and I believe our balanced business model.

Will exemplary servicing performance proven cost management and track record of execution are key advantages for us in navigating the transitional and difficult mortgage market environment ahead. Thank you all and look forward to speaking to you next quarter.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.

[music].

[music].

[music].

Greetings and welcome to Ocwen financial Corporation's full year, and fourth quarter earnings and business update conference call.

At this time all.

Participants are in a listen only mode.

A question and 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 over to your host Mr. <unk> <unk> SVP corporate communications.

Good morning, and thank you for joining us for our full year and fourth quarter 2021 earnings call. Please note that our earnings release and slide presentation are available on our website.

Speaking on the call will be Ocwen, 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 maybe identified by reference to a future period, whereby use of forward looking terminology and address matters that are to different degrees uncertain you should bear bear this uncertainty in mind 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 one filed our Form 10-K for the year ended December 31, 2021, and our current and quarterly reports since such date in the past actual results have different materially from those suggested by forward looking statements and this may happen again.

Our 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.

In addition, the presentation and our comments contain references to non-GAAP financial measures such as adjusted pretax net 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.

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.

Now I will turn the call over to Glen Messina.

Good morning, everyone and thanks for joining us we're excited to share our progress with you. This morning, So let's start with slide four and will review a few highlights for the full year in the fourth quarter.

We delivered full year GAAP net income of $18 million and adjusted pre tax income of $59 million 2021 was our first full year of positive GAAP net income since 2013.

Fourth quarter adjusted pre tax income of $10 million is consistent with our third quarter performance, excluding the call rights transaction and our fourth quarter net loss of $2 million includes $14 million in pre tax notable items. Excluding these notables we delivered an annualized adjusted ROE of 12% in the fourth quarter.

And that's consistent with our targeted return objectives.

Yes in the fourth quarter I'm really proud of the team we delivered record total servicing additions double digit growth in our highest margin channels solid operational execution.

We achieved our recapture rate objectives in consumer direct and cost reduction in servicing was ahead of target.

Our servicing team was recognized for their superior operating performance and operating execution.

By both <unk>, we received the Freddie Mac Sharp Gold award as their best performing servicer in their top tier.

Servicing group and we also received the Fannie Mae Star Award for Excellence in all three categories of performance and those include general servicing solution delivery and timeline management. So congratulations and many thanks to all of our servicing associates.

In October we closed our acquisition of the RMS reverse mortgage servicing platform consistent with prior disclosures, we expected the RMS acquisition to initially be dilutive.

Fourth quarter adjusted pre tax income includes a $4 million pre tax loss in reverse servicing and this is largely related to staffing actions to support adding 60000 loans by the end of the third quarter of 2022.

This will roughly double our reverse sub servicing portfolio.

Assuming the current loan boarding schedule and subject to investor approval.

We project run rate adjusted pre tax income for reverse servicing will improve by roughly $7 million by the third quarter of 2022 versus the fourth quarter of 2021.

Looking ahead interest rates have risen higher and faster than what industry forecast suggested just a few short months ago. As a result, we expect a smaller more competitive and generally more challenging originations market now that said rising MSR values and lower prepayments are also expected with rising interest rate.

Yeah.

Our balanced business model is working we are seeing lower volume in January but that is offset by MSR fair value gains and lower MSR amortization.

In response to market conditions, we continue to focus on expanding our client base and higher margin products and services, we're intensifying our focus in reverse and consumer direct and driving continuous cost improvement.

We are taking the opportunity to selectively harvest MSR gains at robust valuation levels to mitigate asymmetric risks in our MSR portfolio.

And we believe our balanced business model exemplary servicing performance proven cost management and track record of execution, our key advantages and navigating the market environment ahead.

Let's turn to slide five for some highlights on originations.

Our origination team again delivered solid results against our operating objectives for the full year of 2021 total servicing additions of $152 billion is up a 166% from 2020 levels in the fourth quarter, we closed a $43 billion in total servicing additions and thats.

Up 63% over the third quarter total servicing additions includes $33 billion in sub servicing additions and $11 billion in MSR additions, which were down 5% from the third quarter level.

Our enterprise sales approach and TCP acquisition have allowed us to grow our seller base to over three times versus year end 2020 levels and we're continuing to grow and our fourth quarter recapture rate of 31% slightly exceeded our target for the fourth quarter.

We continue to grow and higher margin channels consistent with our strategy fourth quarter consumer direct volume was up over 20% from the third quarter and we've roughly doubled consumer direct volume year over year best effort to non delegated deliveries more than doubled in the fourth quarter versus the third quarter and reverse originations were up over <unk>.

15% in Q4 versus Q3 and up 60% year over year.

In Q4, according to reverse market insights, we increased our market share in reverse by three points to nine 4% and now with the RMS acquisition. We are the only end to end service provider and a reverse industry overall originations team made terrific progress against our objectives for 2021.

Let's turn to slide six for a progress update on servicing.

Servicing as well made great progress in 2021, driving lower cost maintaining strong operation execution and improving the customer experience.

We've made substantial investments in transformational technology to reduce cost improve execution and improve the bar experience. We've automated over 140 processes in 2021 to drive automation.

And improve customer connectivity and more self service options for customers. We expect these investments will continue in 2022 as we believe our actions to improve client borrower and investor experience are critical elements to support.

Our growth objectives over the long run.

Overall servicing operating costs were down over four basis points year over year, and we've exceeded our year end cost reduction objective in terms of scale. We've increased our total servicing <unk> by over 41% year over year and our percentage of private servicing has grown to 68% of total servicing <unk>.

In terms of portfolio composition, increasing the percentage of agency loans is helping to increase average loan balance and decreased delinquencies and both these trends will help improve our ratio of operating expenses as a percent of <unk>.

We believe we have tremendous operating leverage in our servicing platform and we're excited about the growth opportunity for servicing, particularly in sub servicing which I'll cover in a few moments.

Now, let's turn to slide seven.

To review, our servicing operating execution.

In 2021, our servicing platform received the Freddie Mac Sharp Gold award as the best performing servicer and their top tier servicing group and we're also one of two servicers to receive the Fannie Mae Star Award for Excellence in all three categories of performance management.

General servicing solution delivery and timeline management. These awards are a testament to the dedication and commitment of our team the high levels of customer service, they deliver and the overall strength and quality of our servicing capabilities.

Our servicing operations continued to perform well in several areas as compared to MBA reported metrics that the industry average speed of answer was better than the MBA average in our abandonment rate as well as less than half the MBA average.

We are continue to be laser focused on supporting borrowers who are exiting forbearance and helping them understand their options and we do believe the best path for homeowners and investors is defined what works with an investor guidelines to keep the consumer in their home.

As you can see we outperformed the industry as reported by the MBA relating to the percentage of borrowers with an agency loan who exit forbearance with the reinstatement or loss mitigation solution in place. Additionally, the percentage of GSE borrowers on forbearance plans paying current is six points higher in our portfolio than the MBA.

Average.

With our servicing performance and recognition by the Gse's there should be no doubt that our platform is delivering best practice levels of performance for investors and homeowners.

Many many thanks to our servicing team who continue to deliver great performance for homeowners communities and investors.

Now, let's turn to slide eight to discuss our progress in driving an improved customer experience.

Consistent with our strategy to provide the service experience that delivers on our commitments, we've put significant efforts towards improving our net promoter score or NPS. Our servicing NPS is up 12 points, even with numerous bulk MSR purchases and sub servicing boardings in 2021.

As well as a very focused effort to help borrowers emerge from forbearance.

Consumer direct NPS scores are up 56 points.

That was while we doubled volume in 2021 in that channel.

Even in reverse and their wholesale channel, where we have an incredibly high score of 91, we've improved by three points as well NPS is a key part of the performance management as well as reward and recognition systems at Ocwen.

NPS is measured for every function of department, regardless, if they serve internal or external customers.

We do provide continuous training monitoring coaching and empowerment to our teams to enable them to drive our care that C. A R E service philosophy and standards the acronym care stands for carrying accurate responses and empowered.

Technology and process simplification increase self service options have also been a key part of our customer experience improvement journey.

We've made numerous enhancements to our web portal and mobile app, including video based instruction resources to further enable consumer self service.

For 2022, we have a roadmap of 27 projects, which cover over 500 individual changes in our operations to further improve customer experience cost structure and operating execution.

Now, let's turn to slide nine to discuss our approach to sub servicing.

Yes.

We believe we've built a best in class servicing platform for both performing and special servicing with the capacity for growth that can offer a compelling value proposition for new and prospective clients with the closing of the RMS reverse servicing platform acquisition. We are now positioned to compete in both reverse <unk>.

Sub servicing the.

The investments we've made in our platform are being recognized with over $56 billion in sub servicing additions in 2021, and our sub servicing pipeline has never been more robust.

We're focused on delivering best practice levels of performance for our clients across the six six of of what we call key servicing deliverables. These include competency, putting the client first customer Centricity technology enabled capabilities are well staffed bank of <unk>.

Risk and compliance model and a strong value based culture that underpins everything we do.

We continue to evolve and refine borrower and client facing technology to address the needs of clients and consumers to streamline our business and improve the ability for customer and client self service.

We can offer Swift onboarding responsive service to our clients and consumers and as we covered on pages six and seven we do believe.

Aleve, we deliver industry, leading operating performance that's been recognized by our investors.

We are entering 2022 with customer commitments and forward and reverse sub servicing for over 35 billion and <unk> additions and that is subject to investor approval.

We have $76 billion of potential opportunity with our top 10 prospects and a total prospect pipeline of over 240 billion and our forward business and since the first of the year. We've also built a prospect pipeline of over $57 billion in reverse sub servicing opportunities.

Again really proud of what our team has been able to build here and accomplish and in particular, our enterprise sales team for <unk>.

Building, such a robust pipeline and while sub servicing has a long sales cycle. We are nonetheless, very excited about the opportunity we have here to grow some servicing.

Now, let's turn to slide 10 to discuss our thoughts on the operating environment for 2022.

If the average of the January and February origination forecasts from the <unk> and the Mba's project total origination volume declined over 30% for 2022 inter.

Interest rates are up sharply to start the year with both the 10 year treasury rate and the 30 year mortgage rate up higher and faster than the industry consensus forecast last quarter, and probably more closely matching the expectations at year end per that prior quarter forecast, we do believe the rapid run up in rate.

And long term outlook for even higher rates will drive a highly competitive environment and originations. We believe margin pressures in forward will persist until excess capacity can be eliminated. However, higher interest rates are good for servicing values. So far this year MSR values are up significantly prepayments have slowed.

And we believe if interest rates hold and go even higher prepayments can slow even further.

We aren't seeing a wide view of MSR values in the market and various trade journals have commented on increasing bulk MSR sales and the potential for increased M&A activity. Lastly, we are seeing the agencies buy box shift with higher loan limits.

Support for first time, and low to moderate income homebuyers and restrictions on vacation rental properties and <unk>.

Disciplined pricing for third party originations.

However, we believe our strategy of balanced diversification strong operating execution and a focus on low cost is the right strategy for this market environment. Our management team has a track record of successfully navigating multiple mortgage cycles with the focus on prudent growth.

Cost management operational excellence and customer experience.

Tend to be disciplined and originations and will continue to focus on expanding our client base and addressable markets, where we can grow higher margin products and services.

Obviously, we'll continue to drive cost optimization, which is part of our DNA to enhance our competitiveness and with respect to servicing the rapid rise in values creates a bit of asymmetric risk and low coupon msr's with more downside than upside and with the wide range of perspectives on MSR values, we expect to select.

<unk> harvest MSR gains where market view of value exceeds ours and maps, while continuing to invest in new msr's.

As we saw on the previous page, we've got a very robust sub servicing pipelines that we intend to aggressively pursue our sub servicing opportunities, including reverse sub servicing and lastly, we expect to prudently approach bulk purchases with map and as well evaluate M&A opportunities to enhance scale and capabilities.

As it relates to math, we had a very successful 2021, and we are working with Oaktree too.

Potentially upsize the capital commitment to math.

Now, let's turn to slide 11 to discuss our operating objectives for 2022.

In 2022, we're targeting roughly $100 billion in total servicing additions. This is down roughly one third from 2021 levels.

We are taking several actions to offset in part the decline in industry volume and margins overall, we're targeting to grow our mix of consumer direct reverse best effort to non delegated. This is what we call our higher margin products services and channels.

Roughly 11% of total volume in 2021% to 23% of total volume in 2022.

In correspondent lending, where our client base is still roughly half of other competitors with more mature platforms. We are targeting to add another 150 to 200, new sellers with a continued focus on growing best efforts non delegate deliveries as well as Ginnie Mae and non agency products, where we have grown in 2021, but still have a very.

Small presence today.

In consumer direct retarding to maintain recapture rates at over 30% with the long term objective of industry best practice levels by Investor type <unk>.

In consumer direct we have been transitioning to cash out mortgage products, which in the fourth quarter accounted for over 65% of our consumer direct funded volume.

And we expect that percentage will continue to increase in 2022.

We're focused on improving overall conversion and consumer direct conversion of leads to funded volume through technology data analytics.

Processes and training and in reverse we're targeting over 30% growth overall, including 30% growth in retail volume, which was up 38% in 2021 from 2020 levels.

Continuous cost improvement is part of our DNA as I said before we're targeting another one basis point decrease in servicing and overhead opex from fourth quarter 2021 levels.

We're also targeting to drive roughly 20% operating productivity in our originations channels to help offset margin pressure.

Industry, leading operating execution and delivering on our commitments to clients and borrowers is a critical component of our value proposition that will continue to be an emphasis for our business in 2022 and beyond.

In servicing our balanced business model is working our MSR valuation was up $18 million net of hedges in January .

We also saw CPR declines and we do believe CPR will decline from 21% in 2021% to 13% in 2022, which can also help improve servicing profitability.

And considering our opportunity pipeline in sub servicing and our relationship with <unk>, we are targeting to roughly double our sub servicing portfolio, excluding the NRC sub servicing and lastly, with the rapid increase in interest rate levels. We are expecting 2022, <unk> and call rights income will be down roughly 75%.

From 2021 levels.

Considering the transitioning mortgage market. We expect first half 2022 earnings will be driven by MSR fair value adjustments offsetting origination headwinds and the build out of our servicing platform. We are targeting low double digit to mid teen after tax ROE before notable items in the second half with the expected benefits.

Of successfully executing our business initiatives.

And now I'll turn it over to June to discuss our financial performance in more detail. Thank.

Thank you Glenn Please turn to slide 12 in the fourth quarter, we reported $10 million and adjusted pre tax income. This is our ninth consecutive quarter of positive adjusted pretax.

You can see in the top right of this slide a quarter over quarter walk our fourth quarter results were largely consistent with the third quarter, excluding call rate gains and costs associated with building out our RMS sub servicing platform, which did impact our reverse servicing business and I'll talk more about RMS in a few slides.

Net income in the quarter was a $2 million loss, including $14 million of mostly RMS integration employee incentive plan notables.

We achieved a 12% annualized after tax ROE excluding notable items.

On the bottom right Bar chart, you can see that we are delivering on our growth objectives and cost leadership revenue increased 26% year over year, largely due to higher servicing fees on an additional $79 billion in UTD and we.

To demonstrate exceptional cost discipline.

Our earnings per share was $1 56, which exceeded analysts' consensus and book value per share increased $1 to $52 per share.

Please turn to slide 13.

This slide demonstrates that our balanced business model is operating as expected and will service well in a volatile market.

Left side of the slide you can see that adjusted pretax income year over year was impacted by lower revaluation gains on MSR cash window and flow purchases and lower originations margins as Glenn mentioned, we are expecting a mix shift to higher margin products in segments, which we believe will help offset margin pressure as industry volume levels.

<unk>.

Our enterprise sales approach focusing on sub servicing and the strategic acquisitions, we made last year have positioned us well to maximize performance.

On the right side of the slide you can see the results of our servicing segment.

Servicing adjusted pre tax income of $10 million was largely driven by higher servicing fees from the 79 billion and higher <unk> year over year and operating costs being down as you saw on the prior slide.

Keep in mind that the servicing segment results included a $4 million loss in a reverse servicing business related to the RMS platform acquisition, which I'll talk about on the next slide.

Going forward were expecting slower prepayments lower MSR amortization and higher MSR fair value gains.

Please turn to slide 14.

Excited about a reverse sub servicing platform uniquely positions, our reverse servicing business for accelerated growth this year.

You can see on the left side of the slide we expect $11 million of higher reverse mortgage revenue from forwarded and committed volume this year $25 billion of the $27 billion in <unk> are under a five year sub servicing agreement.

With scale and optimized cost structure, we expect the acquisition to be accretive to our reverse servicing business in the second half of the year, achieving $5 million and adjusted pre tax income by the fourth quarter.

Two key metrics on the bottom of the slide show you the estimated growth trajectory of the platform.

Please turn to slide 15.

This is our operating framework for 2022, assuming a stable interest rate environment for the balance of the year and no adverse changes in market conditions over the legal or regulatory environment.

The pages broken down by our operating objectives, and the origination servicing and corporate segments.

We expect the first half earnings to be driven by MSR fair value adjustments offsetting origination market headwinds and the reverse servicing platform build out.

We're targeting low double digit to mid teen after tax ROE before notable items in the second half of the year.

In originations, we expect the mix shift to higher margin products and segments from 11% to 20 plus percent as Glenn mentioned.

Servicing we plan to continue to grow performing sub servicing through math, the reverse servicing business and adding new clients.

We expect <unk> and other revenue diversification in the range of $8 million to $10 million.

And as usual, we expect all segments to continue to achieve productivity targets.

Now I'll turn it back over to Glenn.

Thanks, Jim and if you could now please turn to slide 16.

2021 was our first full year of GAAP profitability since 2013, and our ninth consecutive quarter of positive adjusted pre tax income the investments we've made in corporate culture employee engagement diversity and inclusiveness have enabled the team to thrive in a largely remote work model and as a.

A result, we met or exceeded all our operating targets for 2021.

We believe our balanced business model exemplary servicing performance proven cost management and track record of execution, our key advantages and navigating the market environment ahead.

We remain focused on delivering prudent growth by continuing to expand our client base and increasing our presence in higher margin channels products and services and driving continuous cost improvement.

Our servicing platform delivers industry, leading performance of multiple loan types, a highly competitive cost structure and his relentless in its pursuit of delivering on commitments.

We're investing to support customer commitments and forward and reverse for an additional $35 billion in sub servicing additions and have a sub servicing opportunity pipeline of over 300 billion.

We're investing in enabling technology with proprietary coes driving automation and lean process reengineering.

Our balanced business model is working our MSR valuation and is up and CPR are declining which should help improve profitability in servicing.

And lastly, I am proud of how our team is executing our management team has a track record of successfully navigating multiple market cycles with a focus on prudent growth cost management operational excellence and customer experience, we will be unwavering in this focus.

We're operating in a volatile and uncertain environment.

We're actively monitoring the financial markets economic environment and industry conditions closely we are dynamically managing our operations plans and targets and will adjust as necessary to address emerging market risks.

I'd like to thank and recognize our board of directors and the global business team here at Ocwen for their hard work and commitment to our success I am thankful for their hard work and proud of what our team has accomplished in 2021.

And with that Peter let's open up the call for questions.

Thank you.

At this time, we will be.

Conducting a question and answer session.

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A confirmation tone will indicate your line is in the question queue.

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One moment please.

Questions.

My first question is from the line of Bose, George with K B W. Please go ahead.

Everyone. Good morning.

I wanted to ask just about gain on sale trends.

<unk> that youre seeing now versus what you saw in the last quarter. Both on the forward, but also on just the reverse the reverse a little more sort of agnostic to some of the issues that are going on in terms of the rate.

Yeah. Thanks for the question, we arent seeing gain on sale margins in all channels, Yes, we do expect them to contract in 2022, I think it's going to be a tough environment in originations with rates up and is shrinking mortgage market.

That said, we don't expect to see the same pressure in reverse actually we expect reverse margins to be flat, maybe even up a little bit during the course of 2022.

For us to combat the margin compression, we expect to see across the forward business. It is all about mix shift we have a very small presence in <unk>.

Consumer direct and best efforts and non delegated and again, a small shift in mix again going from 11% of our total business to 23% of our total business, which is as you know is relatively small compared to some of our peers.

It does provide a pretty big lift in average margins for for the for the originations channel.

Yeah.

Certainly the reverse business again is a good portion of our gain on sale margins, we think that that opportunity in reverse to continue to grow that business, it's a growing market.

12000, new new people turn age 65 every day and that group has about 10 trillion dollars in home equity. In addition continued home price appreciation as well as the increase in the in the maximum claim amount to over 970000.

I think will help fuel growth in the reverse mortgage market despite higher interest rates. So.

We're very optimistic about the reverse business and we see that as being a key part of our margin expansion initiatives in 2022.

Okay, great. Thanks, and then just in terms of.

Returns on MSR is can you just talk about where unlevered returns are currently.

And then also how does the return differ from the forward MSR versus the <unk>.

Reverse I'm not sure.

Those look we're seeing returns in MSR is again for the.

Leverage returns and MSR as for the forward business I would say is really GSC in the call. It eight ish range 88, and a half range jenny's or in the.

Certainly north of eight five call it eight five to nine five.

It has gotten more competitive as I mentioned before there is we are seeing a bit of price discovery going on theres, a fairly wide range of values on msr's, certainly as rates spiked up quite a bit during January and February timeframe, we are seeing the price curve on MSR slowdown.

And as well you know mortgage rates are not really tracking with treasuries were seeing some disconnect. There so mortgage treasury spreads have widened.

And mortgage rates have just not responded lower with with treasury since they have sold off a bit.

On the reverse side, our all in returns on reverse Msr's.

Our higher than even <unk> right. So we're talking in the 10% to 11% range. So again the reverse business has just very attractive attributes.

From bolt on originations perspective, and a servicing perspective, and now with us being positioned as the only end to end provider in the reverse mortgage business. It's got a great opportunity to grow the sub servicing side of that business, which again is more profitable than forward sub servicing.

Okay. That's helpful. Thanks, and then actually just one follow up.

Advance rates on.

<unk> reverse MSR are they pretty similar to two to forward MSR.

Actually no.

Our reverse msr's.

That market has not matured to the.

The sophisticated type of.

Advancing we see for the forward market, so advanced rates for financing a reverse msr's.

<unk> is not as well developed or or as high.

So there's a natural reason as to why the returns are higher yes.

Great. Thanks, a lot.

Thank you.

Thank you our.

Next question is from Matthew Howlett with B Riley. Please go ahead.

Oh, Glenn agenda. Thanks for taking my question just first on map on an <unk> basis, where does it stand now Glenn.

Glenn you talked about upsizing it.

Potentially what would that look like wood ocwen contribute another 15% if it was upset.

Yes, so look man.

Yeah, right now has we've deployed roughly.

60 ish percent, 50%, 60% of our total committed capital in math Thats UBB balancing around the $30 billion range.

But again, we're seeing continued opportunities to purchase in the market going forward. So we're having preliminary discussions with <unk> about the.

Merits of increasing that.

Look we I don't think were at a point, where we can discuss in terms of conditions, just yet, but certainly given it's a material transaction if something happens there will be sure to update the market.

Are you it sounds like you're ahead of schedule on growing that would that would be upside to that would be a second half 'twenty two conversation.

We are ahead of schedule we deployed.

Structured math with an initial term of about three years to ramp up our investment there and again, we've put in about 60% of our investment in the first.

The first year of operation of maps. So it is tracking ahead of schedule. So yes, I mean, if there is an upside in place it probably would be something that would be a second half initiative.

Great. Thanks.

When you talk about the dynamic of selling some MSR and then but still being very active in the bulk market. I mean, what are you seeing just there is some pockets of your portfolio that are just over.

Over price will bid, but you're still seeing generally.

Opportunities to acquire bulk.

Yeah, we're seeing it look I think there's.

Just generally stepping back.

Inc. In in the mortgage business just generally.

Need to be willing to be a buyer and a seller as price and market conditions dictate we've got we've built.

As a diversified origination capabilities that we have the ability to replenish.

Assets into our servicing portfolio, but look rates ran up very high very fast.

And that created what we saw was a fairly wide view of the values of Msr's.

And particularly for lower coupon servicing what we believed was asymmetric risk so a value of an MSR can only appreciate so much because prepayment speeds can only slowed so much and once you reach the top of that prepayment S curve the value for MSR is pretty much at the Max where it's going to be.

And there's probably more downside than there is upside in value. So.

Look we took the opportunity.

To test the market and look we think there is.

Opportunistically when prices are high.

And higher than our view of value and maps used value, especially if you want to minimize the asymmetric risk in your portfolio.

You are probably going to look to take some risk off the table take some money off the table and redeploy it into msr's that are closer to market market pricing, where you have symmetrical risk exposure up and down it's easier to hedge and obviously creates refinancing incentives if rates go down, but obviously value appreciation freights go up so look.

I think in this transitioning mortgage market you have to be dynamic and that's just prudent business management in my view.

Then you had mentioned $18 million net of hedges in January for the portfolio.

Total.

Yes, Sir.

Okay, well great Okay.

Well last question on just general capital needs you look at you retaining capital clearly youre seeing opportunities you might free up some capital from sales, we generally Glenn that when you look at your various FCA is very busy with integration, but when you look at capital needs Rockwood opportunities out there in the bulk market.

Matt maybe other platforms clearly taken a lead in reverse what can you tell us in terms of.

Capital needs.

What the capital outlay plan now as this year.

Yes so.

I think in June's James.

<unk> presentation. She had the kind of the roadmap for the business in terms of where we're expecting financial results. So yes look we are expecting to originate a $100 billion of.

<unk> business total servicing additions next year.

We are planning to be active in all our channels and grow our higher margin business.

We believe we have access to the capital resources to support our business going forward.

We've had preliminary discussions with <unk> around upsizing math they've been busy.

Yes.

Generally we saw close to $90 billion of <unk> traded in the bulk markets.

In the month of January and February so far.

NAV based on its strike zone, so to speak its appetite they have been at about $20 billion <unk> and one $9 billion in January . So we are out there with mab actively bidding in the bulk market.

And.

For deals that fit our investment criteria and maps investment criteria.

And we're going to continue to drive expansion of our correspondent seller base.

Grow reverse so yeah, I think we're positioned with the capital we need to operate our plan and achieve our commitments.

And I'll just sneak one in if you don't mind just on technology, one of your peers had a partnership with <unk>.

Cloud Tech provider Ocwen has always been a leader in technology.

Highlighted every quarter, Glenn just anything to talk about there well positioned in this new environment.

Yes, we took the time through the integration to re platform.

<unk> technology in our business.

Front to back so new origination system, new telephony system.

New websites and portals, new servicing system, new capital market system, New General electric New HR system.

The amount of change in the technology arena during the integration process was profound.

But I believe we've got a great set of foundational technology in the business. It's modern it's cloud based it's up to date on <unk>.

Also during that integration process, we even though we were cutting costs and will reduce our cost structure from the pre acquisition to 2018 pre acquisition baseline by about 40%. We did set aside money, we invested and built our own robotics and automation center of Excellence excellence and lean process Center of excellence.

And we've been investing in robotic process automation.

Again customer self service technology.

Video tutorials for our consumers.

We've been investing in mobile App as a matter of fact, our servicing mobile App is probably one of the highest rated ones in the Apple App store.

And we're now have entering into optical character recognition.

Cognitive AI and conversational AI, so I feel great about the strides we've made in technology that said.

It's an ever changing environment, you can never rest on your laurels as it relates to the technology. So we're continuing to invest and as I said, we've got 27 projects to drive automation across the servicing platform.

Which is going to touch over 500 discrete elements across our business. So.

It's a place we're excited about we love how technology enables low cost enabled customer experience and enables operational effectiveness.

Thanks, a lot Glenn Thanks chip.

Thank you Michael Thank you.

Thank you. Our next question is from Marco Rodriguez with Stonegate capital. Please go ahead.

Good morning, and thank you for taking my questions.

I was.

Wondering if maybe you could talk a little bit about how you see your business position could succeed what could be a pretty volatile mortgage market.

Yes, Marco look it all starts I think with people look I'm really proud of what our team has been able to execute here I think we've got.

One of the best management teams in the business and having a highly engaged workforce strong culture and our management team with a track record of navigating multiple mortgage cycles is essential to the environment, we're going to go through.

Second to that we have spent a lot of time building, a balanced and diversified business model here at Ocwen.

It's been something we've been driving for the past 253 years and to me, having that balanced and diversified business model is an absolute essential element to be able to navigate the transitional mortgage market we're going into.

Look we've demonstrated the ability to manage our cost structure, we've demonstrated the ability to grow in higher margin products and services and channels, where we still have a very small share today. So again, our plan is and our plan is I think.

Obviously aggressive and responsive to the market.

We believe we can given our low position and higher margin channels, we shift our mix.

From a 11% of total servicing additions to our total originations to 23% of total originations.

Our servicing platform has been recognized by the Gse's as being quite frankly, the best servicing platform from an investor perspective in the industry period full stop we're growing in reverse we've got a strong position there are 9% market share in a market that's growing.

So look I think we've got a lot of attributes about our business that have demonstrated resiliency, we've demonstrated the ability to navigate the pandemic.

The mortgage industry is volatile.

It goes up and down and we've built our business model assuming that thats in place.

And that's going to happen and that's what we're seeing today. So I think our team our technology, our platform and our strategy of driving growth and higher margin channels, reducing costs focusing on operational excellence and continued to provide a service experience that delivers on our commitments to consumers is the right one for this environment.

Got it.

And then kind of a follow up in regard to that.

Maybe if you could talk a little bit about how you sort of expect the overall business to perform if.

If we entered into a recession.

Okay.

Ocwen historically recessions have been good for Ocwen, we are still one of the leading default servicers in the industry in general our superior default servicing capabilities I think set us up well.

To perform in a recession relative to peers with less experience in servicing defaulted loans.

As we've demonstrated during with helping borrowers emerge from forbearance.

<unk> had more a greater percentage of our borrowers emerge from forbearance.

Agency virus that has emerged from forbearance with a loss mitigation solution or reinstatement plan in place those borrowers who are on forbearance, a greater percentage of ours are paying current.

So look that this is our strength. This is the core DNA of Ocwen, we did not lose that during the course of the integration.

And look while advances tend to increase during a recession, we have bound funding and availability and pricing to remain solid on.

Advances even in times of stress.

And the balance of having in our servicing portfolio, having owned servicing and sub servicing and right now a greater portion of our portfolio servicing portfolio is in sub servicing.

Net revenues in that business will tend to increase as delinquencies increase so we get paid for the additional cost. So we think we have the resiliency and operating capability to navigate fairly well through a recession.

Got it and last one for me maybe.

Maybe if you can talk a little bit about.

The growth Youre seeing in sub servicing and how it is that kind of progressing to to your.

Your targets your expectations. Thanks.

Yeah the growth in sub servicing we're really excited about it and I think there's really two key elements that is driving our growth in sub servicing first is our enterprise sales approach and second is our just our servicing performance. So.

The enterprise sales model that we have leverages, our capabilities across all of our origination so the ability to do SMP.

Fannie Mae S&P originations originate through Ginnie Mae pit originate through.

The Freddie Mac co issue cash exchange correspondent mandatory best efforts non delegated and the ability to offer forward reverse and sub servicing is just a very comprehensive sales tool and we found that that's been one of the greatest differentiators, we have vis vis selling against traditional sub servicing providers and <unk>.

<unk>, we can offer portfolio recapture services that some of those folks cannot offer.

So look our enterprise sales approach is I think a key differentiator on the front end.

And more importantly on the servicing execution side, we I believe we've got a terrific value proposition with our servicing platform.

Again our.

Our sub servicing clients are recognizing our performance.

That's been recognized by Fannie Mae and Freddie Mac, so were doing quite well.

I feel good about the growth in the sub servicing business. Our pipeline has never been higher again sub servicing is a capital light growth vehicle for the company and again, we were rewarded with over $50 billion total sub servicing additions in 2021, we've got 35 billion.

Committed backlog subject to investor approval for the 2022 with a very robust pipeline behind us so.

Really excited about the sub servicing business start thank our team there is executing quite well.

Got it. Thank you I appreciate your time.

Yes, Sir.

Thank you.

Next question is from drew Mackintosh Investor. Please go ahead Sir.

Hi, Thanks, and good morning. My question is on the reverse servicing business, specifically on the competitive landscape landscape.

You guys mentioned, you don't think Youll see margin compression in that area, but just wanted to get a little more color on that with the possibility of more new entrants into that market.

Sure Andrew look number one if it is not coming through on the call. We loved the reverse business. It is a great business for US look the industry is coming off a record year.

Which was assisted by refinancing activities endorsements grew 18% year over year.

MBS issuance grew to $13 billion, which was a 23% increase over 2020.

And actually at 21% increase off the previous record year of 2010.

So look while rates may be going up in competition may be coming into the market. We do believe that the market will continue to grow in 2022.

HPA home price appreciation and the increase in the maximum claim amount as I said before to $970800. We expect will continue to.

Fuel new production and is helping to offset the impact of higher rates and again from a demographic perspective 12000 people are turning age 65 every day in this country and the <unk>.

Equity in home equity held by this group of people over age 65, now <unk> 10 trillion.

So.

Look I think there is the potential for new entrants to come into the marketplace.

But again I think we are positioned well from a competitive perspective, we are the only.

Player participant in a reverse industry, who can originate.

And issue and B a direct servicer.

This provides us with a unique position vis vis our competition.

The reverse mortgage industry is really dominated by five primary.

Issuers, including Ocwen accounting for about 93% of all issuance.

Again, our market share has been growing.

We're up to slightly over 9% as the fourth quarter of 2021.

And the top 10 originators make up about 80% so you'll look as the top five companies to remain largely unchanged.

Look this is a very specialized area of of mortgage lending it is not a.

Quick fast transaction, its not going in and doing a quick refi. There's a borrower counseling period you have to go through a borrower qualification period you have to go through.

And the product has a number of unique attributes and elements.

So look I think the market growth is there to support.

The competition that we expect to see any environment.

And with margins holding relatively stable.

That said.

We'd say have some level of concern.

That.

Irrational competition coming in.

While they may not necessarily damage margins all that much.

Good day cause additional reputation risk because they're not trained well are not trained enough. We're not trained at all.

And potentially get the space a bad name, but that said I think it's a great product I think it's a space, where we intend to continue to grow share and grow our presence.

Great. Thanks, a lot.

Thank you.

Ladies and gentlemen, we have reached the end of the question and answer session.

And I would like to turn the call back to Mr. Glen Messina.

Closing remarks.

Thanks, Peter and to close I, just want to thank all of our investors and our employees and our board of directors for your continued commitment to Ocwen I believe the investments we've made in culture employee engagement diversity inclusiveness have enabled the team to really thrive in 2021, and I believe our balanced business model.

Will exemplary servicing performance proven cost management and track record of execution are key advantages for us in navigating the transitional and difficult mortgage market environment ahead. Thank you all and look forward to speaking to you next quarter.

Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.