Q1 2022 Ocwen Financial Corp Earnings Call

May 5, 2022

Good day and welcome to the Ocwen Financial Corporation first quarter earnings and business update conference call.

Information today's call is being recorded.

I'd now like turn the call over to Mr. <unk>, Australia, Senior Vice President corporate Communications.

Go ahead Sir.

Good morning, and thank you for joining us rock wins first quarter 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 are set.

All securities laws.

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

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 differed 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 infer.

<unk> future events or otherwise.

In addition, the presentation and our comments contain references to non-GAAP financial measures such as adjusted pre tax income and adjusted expenses among others.

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 <unk>.

<unk> 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.

Thanks, Steve Good morning, everyone and thanks for joining us we're looking forward to sharing our progress with you. This morning, and our plans for the balance of the year.

Let's get started with slide four to review a few highlights for the first quarter.

We believe our actions to build a balanced and diversified business have positioned us well to navigate the current mortgage cycle and our first quarter results are consistent with our expectations.

We delivered net income of $58 million.

Strong annualized ROE in the quarter and a 14% appreciation in book value per share from year end 2021, we are taking a cautious and prudent approach to investing and managing our liquidity position, which has improved from year end.

Consistent with our previous guidance in the first quarter, we Opportunistically sold select MSR is at what we believe our robust valuation levels to harvest value appreciation and mitigate asymmetric hedge risk in our MSR portfolio.

Our servicing platform is performing well operationally our servicing financial performance is improving with rising interest rates.

Msr's are appreciating in value brought up is declining we continue to improve our cost structure and our portfolio is growing.

Yesterday, we announced our sub servicing agreement with NRG was renewed until year end 2023 with annual extension options. Thereafter, we think at RSA for their confidence in US. We appreciate their business and we are looking forward to continuing to serve them and their borrowers.

Florida origination space, the challenging environment in the first quarter, while total servicing.

<unk> of $20 billion is up about 46% year over year, driven by sub servicing additions origination volume was down 13% year over year and margins were below expectations.

We are taking the necessary actions in forward originations to reduce our operating expenses and shift our product mix and service mix to restore profitability.

Our reverse business is performing very well both in originations and sub servicing.

Origination volume has more than doubled year over year margins are holding flat relative to Q4 and the origination market is growing.

Reverse sub servicing is performing ahead of expectations and we are building a strong opportunity pipeline to support future growth.

Let's turn to slide five to discuss the environment and our market positioning.

Interest rates have risen higher and faster in the first quarter as an industry forecast suggested just a few short months ago and they continue to increase.

In the current environment, we see three main drivers of our profitability going forward.

First with a core strength in servicing and an expectation for even higher interest rates, we expect our servicing business will be an important driver of our future earnings.

Our balanced business model is working servicing pretax income in the first quarter is up significantly versus the first quarter of last year due to MSR value appreciation lower pay up volume expense productivity and portfolio growth.

The profitability improvement in servicing and MSR value gains more than offset the decline in profitability and in forward originations as volume and margins contract.

Forward originations will be a less important driver of earnings in this market cycle, but a critical element to replenish and grow our servicing portfolio.

Second driver is sub servicing.

We made great progress in growing our forward sub servicing business supported by our global technology enabled scalable platform.

We believe our success here reflects our proven industry, leading operating performance that has been recognized by Fannie Mae Freddie Mac and HUD with top honors in our respective servicing performance recognition programs.

We continue to be a leader in special servicing supporting borrowers and investors and outperforming NBA moodys industry operations benchmarks.

We work hard everyday to earn our clients' trust and this has been rewarded with meaningful sub servicing conditions and potential opportunities.

We've added $64 billion in sub servicing <unk> in the last 12 months.

We have $28 billion in scheduled sub servicing additions in the next six months.

And our forward some servicing opportunity pipeline of roughly $280 billion in potential additions.

In addition to the NRC renewal, we are in advanced discussions with math to potentially double our investment capacity.

Third driver is our reverse business.

We are the only large scale full service end to end reverse mortgage provider in the industry.

The industry opportunity is growing.

Our originations volume and market share continues to improve and origination profitability is stable.

A reverse originations are reverse sub servicing business is gaining scale profitability is improving and we have an opportunity pipeline of roughly $55 billion.

Overall, we're really excited about the potential for reverse business.

And our overall business and do not believe our recent share price is reflective of our financial position earnings power or the strength of our business.

With industry volume shrinking we continue to look at potential M&A opportunities that can expand scale and capabilities or otherwise create value for shareholders.

Let's turn to slide six for some servicing highlights.

In servicing MSR value net of hedges increased by $56 million in the first quarter. So far through April MSR value net of hedges has increased by roughly $36 million.

Based on our MSR sensitivity profile, we estimate an immediate 25 basis points parallel increase in interest rates would increase our earnings per share by roughly $2 70.

Which translates into a DBA want to roughly $1 million.

Servicing income excluding MSR gains has increased by $23 million year over year, despite lower <unk> gains and interest rate driven fair value losses on repurchased loans held for sale.

Our diversified growth strategy executed by our enterprise sales team has resulted in meaningful servicing portfolio growth year over year up over 50%.

All segments of our portfolio owned servicing and sub servicing forward reverse and small balance commercial are growing.

We're targeting forward servicing and sub servicing <unk> of roughly $290 billion by year end.

The extension of our current sub servicing agreement within our Z, which covers approximately $54 billion in <unk> at the end of Q1 had been set to expire in July .

The agreements have been extended until year end 2023 with annual extension options thereafter, as part of the renewal we agreed to share a portion of some ancillary revenues and simplify the future process for extensions at the end of each term.

As we've said in the past this contract has a thin margin, but considering the significant cost reductions we've achieved in our servicing platform. We believe the renewal is a good outcome for both companies.

Moreover, we appreciate NRC as a business partner and their confidence in our servicing capability reflected in a renewal.

So the combination of scale portfolio composition technology investment and process reengineering, we've reduced our servicing cost structure and basis points of view PB by over 30% or almost four basis points in the last year.

Through continued digitization and process improvement, we are targeting further reductions to seven basis points of UCB by you're at.

Higher interest rates are driving lower prepayments and related expenses, we believe Ralph may slow further to between $13 five in 2014%.

As short term interest rates increase we expect higher revenue from our $2 $4 billion of escrow balances. This should help offset higher interest cost on our $1 2 billion of floating rate debt.

We are actively managing our portfolio as is evidenced by our sale of the first quarter and we are executing several sale transactions to reduce our severely aged Ginnie Mae loan population. We believe the sale will improve the quality of earnings going forward through lower unreimbursed claims expense and a derisked our portfolio.

We did experience a loss on MSR value for these loans in the first quarter and will recognize a loss on sale in the second quarter upon completion of the sale.

We believe we have tremendous leverage in our servicing platform and we're excited about the growth opportunity for servicing particular and sub servicing.

Let's turn to slide seven to review forward originations.

I believe its generally understood that the environment for forward originations is tough and likely to get tougher we are taking actions in response.

Our originations team delivered $20 billion in total servicing additions up 46% year over year, largely driven by sub servicing additions, but on a sequential quarter basis total origination volume was down 23%.

We experienced a pre tax loss in forward originations driven by lower lock volume lower margins and volatility related hedge ineffectiveness.

During February through mid March we saw a wide range of MSR values between the primary originations market or valuation experts and bulk sales transactions at some coupon levels. The variation was more than 15 basis points.

During this timeframe, we made the prudent decision to intentionally constrained volume in correspondent lending by capping new origination MSR prices, while we validated MSR values through our valuation experts and our own bulk sales transaction.

Tapping new origination MSR prices drove margin compression and volume reduction beyond competitive influences as well as drove hedge and effectiveness.

Since mid March we've seen a much tighter range of MSR values, we have since lifted the pricing caps and correspondent lock volume margins and hedge performance have improved.

We continue to focus on growing our client base, leveraging our multichannel capability.

Our total client count is up over two five times in the first quarter last year and it continues to grow.

We're growing higher margin <unk> and non agency products and best efforts and non delegated deliveries volume here has doubled year over year and April volumes have exceeded the first quarter levels.

Our refinance recapture rate continues to improve we achieved 39% during the first quarter with Mark just level at 41%.

We estimate annual forward consumer direct volume for 2022 will be roughly half of 2021 levels.

Portfolio growth improved recapture rate and cash out refinancings, which are now 72% of our business is offsetting in part the significant decline in rate and term refi opportunity.

Under current market conditions, we must adjust our capacity and cost structure to match a smaller originations market.

In March we executed actions to reduce our forward origination staffing by 21% including contractors.

Further reductions are expected to occur during the second quarter.

We are targeting to reduce our cost structure and basis points of volume by roughly 45% by the fourth quarter versus the first quarter of this year.

For the full year, we're targeting about $75 billion in total for its servicing additions. This includes.

$45 billion in sub servicing additions, including MAF and about $30 billion of forward originations.

Let's turn to slide eight to discuss our reverse business.

We're very excited about the opportunity in a reverse mortgage market.

Increases in home price appreciation the increase in the maximum claim amount to roughly $970000 in combination continues to fuel new loan production and is helping to offset the impact of higher interest rates.

Demographics here are favorable with 12000 people turning age 65, each day and home equity held by this group now top 10 trillion.

There is also a growing amount of research and positive news articles supporting the consideration of reverse mortgage as retirement tool.

Our origination performance has been quite strong and is another successful example of our balanced and diversified business model.

We continue growing market share, which is up one five percentage points over Q1 versus the same quarter of last year.

Origination volume has more than doubled year over year, we're seeing growth in all channels direct to consumer retail wholesale and correspondent lending.

Direct to consumer retail is our fastest growing channel.

As John will share in a moment revenue margins have drifted down over the past year. However margins by channel have been stable for the past several quarters.

We are positioned as the only large reverse mortgage market participant that can offer end to end capabilities across originations and servicing.

The integration of the RMS platform is going well loan boardings are ahead of schedule and we are slightly ahead of our financial expectations as a result.

Our sub servicing opportunity pipeline has grown to 55 billion and interest in our platform has been quite strong.

We expect the sub servicing platform is profitable by Q2 and thereafter after we complete the integration and achieve our initial scale objectives.

We believe we are uniquely positioned in reverse mortgage market and the diversification of this business provides helps mitigate our reliance on the forward mortgage origination market.

Now I'll turn it over to June to go through our financial performance in more detail.

Thank you Glenn Please turn to slide nine in the first quarter, we reported $11 million and adjusted pre tax loss you can see in the top right. The slide a year over year walk our origination segment reported a $40 million reduction in adjusted pre tax income from reduced industry volume and lower margins, while our servicing segment.

To $30 million improvement in adjusted pre tax income from higher UBB due to growers growing sub servicing slowing prepayments in operational efficiency I will talk more about the segment results in the next few slides.

Net income in the quarter was $58 million up from $9 million year over year.

Consistent with our first half 2022 guidance strong net income was a result of $56 million in MSR fair value adjustments net of hedges, which included $13 million of evaluation assumption loss on delinquent Ginnie Mae loans scheduled for sale in the second quarter.

Other notables included legal settlement recoveries and a favorable long term incentive adjustment from the decrease in our stock price.

We ended the quarter with strong liquidity $269 million in cash and $45 million in available borrowing.

Earnings per share increased to $6 30.

And book value per share increased to $58.

On the bottom right Bar chart revenue held year over year as higher servicing and sub servicing fees from higher <unk> in both servicing and sub servicing was offset by lower origination volume and margins.

The chart on the bottom right of this slide demonstrates continued successful execution of our continuous cost improvement discipline.

Please turn to slide 10.

Forward originations adjusted pre tax income declined to a $13 million loss as discussed forward originations profitability was impacted by reduced industry volume and margins.

Our volumes volumes were also impacted by our intentional strategy in correspondent to restrict volume as interest rates rapidly increased and we saw a wide range of MSR values amongst the primary origination market broker values and bulk market values.

In addition, consistent with the second quarter of last year, we transferred S&P and flow volume to mass.

So with the terms of our agreement with math.

You can see on the top right the decline in revenue margins experienced in the consumer direct and correspondent channels. The.

The margin decline is a function of intensified competition, our decision to limit new origination MSR values, and resulting hedge ineffectiveness.

We're taking actions to return the origination segments profitability, reducing costs and right sizing segment operations as well as the corporate functions supporting this segment by approximately half.

Continuing to grow volume and higher margin corresponded products and delivery options. This volumes approximately doubled year over year and as you saw in an earlier slide we're continuing to improve recapture rates, which were up 10 points from fourth quarter of 21 to <unk>, 41% in March of this year.

Please turn to slide 11.

The market opportunity continues to be strong and reverse originations with continued home price appreciation, resulting in increased customer borrowing capacity.

Adjusted pre tax income held a $10 million in the first quarter consistent with the first quarter last year origination volume was up $284 million year over year led by the consumer direct channel, which has the highest channel margins.

The growth in origination volume offset lower margins versus the first quarter last year.

Margins by channel, while all were down from the first quarter last year have been relatively stable in each channels since the third quarter of 2021.

We remain optimistic on the growth opportunity in reverse originations and we continue to invest in resources and marketing to grow the higher margin consumer direct channel.

Please turn to slide 12.

Profitability in the servicing segment has improved as expected with higher interest rates, our actions to build scale deliver cost improvement slower prepayments and integrate our reverse sub servicing platform ahead of plan.

On the left side of this slide adjusted pre tax income is up $23 million year over year to $16 million driven by <unk> increased to $275 billion.

As well as cost reduction of approximately four basis points of NPV.

Prepayment rates were 10 percentage points lower versus the first quarter of 2021 due to higher interest rates.

Unfortunately higher interest rates also drove $7 million.

Lower in gain on sale due to asset revaluations, mainly on our Ginnie Mae portfolio.

On the right side of the slide we show reversed sub servicing results, we generated a small positive adjusted pre tax income in Q1 by accelerating boarding loans and achieving planned operating expense reduction driving improved operating efficiency.

We believe we are on track to achieve the $5 million and adjusted pre tax income for the fourth quarter of 2000 to 2022 for guidance provided on our earnings call in February .

Please turn to slide 13.

This is our roadmap from actual adjusted pre tax income in the first quarter to the projected fourth quarter of 2022.

Assuming a stable interest rate environment, and no adverse changes in market conditions or the legal and regulatory environment.

The roadmap is broken down by key actions to deliver our targeted returns.

We expect between 9% and $10 million improvement from productivity and right sizing actions as I mentioned originations is targeting reducing costs by approximately half delivering annualized expense savings of roughly $30 million.

We expect between 10 and $11 million improvement from growing higher margin originations products and delivery options in correspondent.

And between five and $6 million improvements from sub servicing growth and reduce run off <unk>.

Approximately $28 billion in sub servicing is currently scheduled for boarding and we have a strong sub servicing opportunity pipeline is forward and reverse.

Our projected adjusted pre tax income in the fourth quarter is approximately $15 million up from the $11 million loss this quarter.

We're targeting between nine and 15% after tax ROE before notables in the second half of this year, we're slightly reduced.

Lower end of our guidance since the last quarter, given the severe impact of the current market environment on forward originations.

Our target return levels are consistent with our major competitors.

We continue to guide to first half earnings being driven by MSR fair value gains offsetting origination market headwinds.

Finally, consistent with our expectation for lower origination volume levels and a more competitive market for Msr's, we're evaluating all our capital allocation options, including to support debt and share repurchases.

Now I'll turn it back over to Glenn.

Thanks Sharon.

Let's turn to slide 14.

We believe our balanced diversified business exemplary servicing performance proven cost management and track record of execution position us well to navigate the market environment ahead.

Our first quarter results are consistent with our expectations and we delivered strong net income and book value per share appreciation.

Liquidity has improved from year end, and we're taking a cautious and prudent approach to investing managing our liquidity position and capital allocation.

Servicing financial performance is improving with rising interest rates and we expect servicing will be an important driver of financial performance going forward.

Msr's are appreciating in value runoff.

Runoff is declining.

We continue to improve our cost structure, our portfolio is growing and we have $2 $4 billion in escrow balances, which should generate increased revenues as short term interest rates increase.

We have a strong value proposition as demonstrated by our backlog of scheduled sub servicing boarding the NRC renewal and a robust sub servicing opportunity pipeline.

So originations is facing a challenging environment and we're taking necessary actions to reduce our infrastructure operating expenses and shift our product and service mix to restore profitability.

We believe we are uniquely positioned in the reverse mortgage market and our reverse business is performing very well both in originations and sub servicing favor.

Favorable demographics and home price appreciation are expected to drive further market growth.

We are focused on delivering prudent growth and capital management, and we're evaluating all capital allocation options, including share and debt repurchases to maximize value for shareholders.

We expect first half 2022 earnings will be driven by MSR fair value adjustments offsetting originations headwinds and to build out of a reverse of servicing platform.

We are targeting after tax ROE before notable items in the second half of 9% to 15% with the expected benefits of successfully executing our business initiatives.

I'm proud of how our team is executing and unprecedented market conditions are.

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 will be unwavering in this focus.

We are operating in a volatile and uncertain environment, we're closely monitoring the financial markets economic environment industry conditions closely.

We're dynamically managing our operations plans and targets and will adjust as necessary to address emerging opportunities and risks.

I'd like to thank and recognize our board of directors and global business team for their hard work and commitment to our success.

With that George let's open up the call for questions.

Thanks, so much sir.

Ladies and gentlemen, if you would like to ask a question. Please press star one on your pulpwood keypad. Please just introduce your mute function is not actively below cigarettes, which equipment. So once again, please press star one.

Today's first question is going to be coming from Mr. Eric Hagen call year from BTG. Please go ahead. Your line is open.

Hey, Thanks, good morning.

Well a couple for myself did you say that you expect to sell something at a loss in the second quarter I may have just missed what it was and also the amount of what it was maybe you can re highlight that.

And then I think you noted some hedge ineffectiveness from more volatile interest rates can you talk about.

Any developments of hedging the MSR the pipeline and how you see that evolving with higher interest rates.

Sure So I'll take those two separately Eric.

Looking at selling some.

Severely aged Ginnie Mae loans.

In our servicing portfolio.

We had taken at MSR Mark in the.

In the.

In the first quarter June I think there was 13 13, perhaps thats correct.

And once we buy those loans out of the out of the respective pools and sell them there'll be an additional loss on sale, we didn't really disclose how much the loss on sale is but you get a sense of what we talked from MSR Mark perspective.

In terms of hedging ineffectiveness number one interest rate volatility during the quarter did give rise to.

Some of the hedge volatility we saw in the mortgage pipeline.

Less so on the MSR hedge.

And the actions we took to.

Frankly, Stefan MSR prices, just given the wide range of values, we were seeing in the first quarter.

<unk> also contributed to some of the hedge and effectiveness because they're artificially constraining essentially the value of msr's in our pipeline.

We've since.

<unk> MSR values narrow, we've obviously confirm values with our servicing brokers and.

Our own bulk sale transaction and we've lifted the constraints on pricing we are seeing better hedge performance. During the I would say the latter half of March and into April and and margins as well.

Improved because were not artificially constraining MSR values.

On the servicing hedge again with interest rates rising.

We have repositioned our hedge so obviously we've.

Yeah.

We've switched drove more option based strategy.

As which I think is prudent as rates are moving up.

Rolled up the strikes in our Tpa is and we've taken off swap coverage. Yeah that also helps preserve liquidity as rates are going up you're not burning cash in terms of.

Having to post margin so to speak.

Yes, we have as well.

Modified or or or.

Adapted our hedging policy MSR hedging policy for this environment.

We are focused now on rate protection down 25 down <unk> 50, and targeting 40 basis points hedge coverage ratio for the down rate scenarios.

Okay. That's helpful. Maybe just a couple more on the servicing.

Do you think you guys would ever look to sell <unk> as a form of liquidity and capital management, especially if MSR values stay relatively strong and then can you also just quickly share how the profitability between yet Z portfolio compares with just say agency sub servicing.

Once you consider the G&A that goes with it thanks.

Yes sure.

So in terms of selling MSR is look I think what we've shown over the last 12 or 14 months, we dynamically manage our MSR portfolio.

We are always looking at a couple of things one is.

Views starts with view of value right. So yes, do we have a view of value on msr's that differs from market participants and if we think that our view of value is.

Yes.

Under where market participants are we would choose to sell on Srs and harvest that value, obviously with interest rates going up and.

Certain segments of our portfolio.

<unk> lack of a better term refinancing burn out our prepayment speeds slowing to a very large degree.

Accrete asymmetric hedge risk in your MSR portfolio, such as essentially what we did in the first quarter as we sold off those assets.

And mitigated that risk and harvested the capital appreciation or value appreciation in those assets.

As June and I mentioned on the call look we we recognize.

Look we are operating in a volatile environment, we are constantly evaluating our capital allocation strategy and we'll look at opportunities to match, our MSR portfolio and generate liquidity in ways that count.

Best maximize value for shareholders.

That's really helpful. How about the profitability between the Z portfolio relative to agencies sub servicing in this environment. Once you consider the G&A expense.

<unk>.

Yes, yes.

Yes, so look the energy portfolio as we said at one point in time.

It was unprofitable.

On a fully allocated basis, but we've since done a lot of work on our cost structure and have radically reduced our cost structure, particularly in servicing.

In basis points of UBB look NRC is in <unk>.

Now with our cost structure is different.

Yes.

And with some of the modifications we've made in our contract book energy is not really that different than agency sub servicing and margin as a percent of revenue it's lower as the costs are much higher given the delinquency. So the optics of it may be a little bit different but net net.

We've managed our cost structure to the point, where we believe that portfolio is.

Generating profitability consistent with our agency Subservicing.

That's good color. Thank you guys very much.

Great. Thank you how are you.

Ladies and gentlemen, once again, if you have any questions. Please press star one and if you're part of your question has been answered you may.

Move yourself into Cuba question start to with our go to Matthew Howlett, calling from B Riley. Please go ahead.

Good morning, and thanks for taking my question.

Glenn in June just just first on the April update the estimates $36 million up on the MSR value. So we presume that book current book now is well over.

Over 60, just just give us an update on.

Where we are in a book value basis.

Yes, we didn't meet Theres lots of other puts and takes we didn't really disclose book value per share.

I'll leave it to you guys to run through the math, obviously theres other things that go through our P&L that we've got to be we've got to be conscious of and quite frankly. The books are closed for April so I really can't give you away.

And updated book value per share number but yes.

MSR values continued to appreciate even since April interest rates are higher now than they were at the end of April so.

<unk>.

MSR is working investment these days.

Absolutely I guess, where I'm going with this is that the stock here now at 0.3.

We're below that of current.

The current book.

When you prioritize Glen capital Management, you mentioned stock buybacks, you mentioned that.

Possibly debt repurchases upsetting them add additional M&A can you just sort of go through those and towards what are the priorities.

And how do you expect to execute this year.

Yes look the priority for board of management is very simply maximizing value for shareholders right and we're reevaluating all of our capital allocation options to include share and debt repurchases too.

To allocate our capital in a way that best makes sense for shareholders look we're frustrated.

Yes.

The strength of our business model and our business performance is not being recognized in share price.

And I think it's it's.

Prudent and appropriate.

Yes, we consider our capital allocation alternatives, if theres, a way to better allocate capital to create value for shareholders.

So yes, I mean to extent, we are going to we would choose to move forward with with the debt or equity repurchases.

I am conscious of the leverage the financial leverage that's out of the business. So as we think about it one of the things. We think about is how much we allocate to debt versus equity and making sure. We don't end up in an over leverage situation for the company. So again.

All options are being considered.

Hit the nail on the head in terms of what we're thinking through and again, our focus here is maximizing value for shareholders.

Got you and I certainly recognize you have to be cognizant of the leverage but it seems like liquidity positions improving should we take advantage of somewhat.

The discounted debt in equity prices in the market I mean, you mentioned M&A I mean, what would you need what are you looking for to add to add to the business. Just curious what would be something that you'd look to growing.

Yes, as we think about M&A opportunities.

And two.

A couple of different.

Baskets I would say one is increasing scale.

<unk> of our business platforms right. So if there is an opportunity to increase scale of servicing clearly we'd look at it particularly from a sub servicing perspective, because it's not capital intensive.

And then as well increasing capabilities so.

As the Gse's have you put in place more punitive measures against third party origination part punitive pricing against third party originations, which effects, all aggregators with correspondent lending platforms, including including ourselves in all of our competitors.

Yes, we've got to think about how much of our business flows through.

Our correspondent channel and where we can add value there, which is best efforts delivery not delegated delivery non agency products, so expanding our capabilities in those areas very important to us as well too.

And look we are we evaluate all our M&A options.

With the consideration of are they going to creep is it going to be value accretive for our shareholders. So.

Look TCP and RMS are examples of accretive deals right TCP.

It was largely an MSR by with the platform made enormous task for us to do and has been hugely accretive to our business RMS as well too yeah. We've built now a very powerful reverse mortgage business. So that's the type of things that we're thinking about.

Great Glenn just last question.

Are the conversations like with Oaktree, you've made do they sound.

Clearly they are happy with the first round of math.

Stocks are in the second half of it is there anything does it go beyond that would they look to restructure some of the sub notes.

What are the sort of can you just give us the updates on the conversations with them. Thank you.

Yeah, well first and foremost Oaktree is just an awesome partner really loved the support we get from the Oaktree team every member is looking to certainly create value and map and create value in the company. They are they have been hugely supportive and we are just very appreciative of.

Everything you've done for our business and continue to do for our business.

Our discussions really have remained focused on NAV math has been very successful for both of US it's enabled us to grow sub servicing quite a lot and certainly matters.

The investments they've made and MSR as have appreciated quite nicely, so generating great financial returns from App of which we're an investor and we get a portion of that.

And as we think about upsizing that we really think about a couple of things. So yes. As we mentioned we are in advanced discussions there, but with this rapid slowdown in originations market. We've got to think about look how big do we really need to be.

Bigger is always better to some degree but obviously.

We want to size it appropriately for our business as I mentioned as well second look there's been changes in the originations market.

So look the.

We have a benefit in that we have a multichannel origination platforms. So we participate in.

All of the spaces and correspondent mandatory best efforts non delegated plus we participate in the.

The flow delivery channels, so the CRX.

Freddie Mac CRX channel at Fannie Mae S&P channel. So we could take delivery however, our customer roster deliver it.

And as we think about how the <unk> are yes.

Incentivizing sellers to move between correspondent and Crs, we have to make sure that thats reflected appropriately from an operational mechanics perspective in our agreements with map. So theres a lot of devil in the details and that's what we're currently sorting through and then lastly, as we always think about.

Building diversification in our business.

A lot has changed in the past year and Theres a lot of people who are investing in MSR cents.

We certainly are.

Our our first preference is always to work with math, but.

There are other players out there and do we want to.

Have a multi source platform.

Versus the single source platform so.

A lot of things to talk about but most of the discussion has really been focused on a map, but again, great partner love working with them they have been terrific.

Thank you.

Thanks, so much sir.

We'll now go to Mr. Marco Rodriguez, calling you from Stonegate capital markets. Please go ahead Sir.

Good morning. This is Preston sitting in for Marco Thanks for taking my questions.

Hey, Brandon.

Good morning, So you mentioned, you're really optimistic about the growth opportunity in reverse the originations that you are going to keep investing resources and marketing to sort of grow the consumer direct channel because it's the highest margin could you just sort of expand on that growth opportunity and what you think is possible there.

Yes, you bet look.

Yes.

That business, we just loved the reverse business. We look at if you look at the mortgage landscape today, it's one of the few areas, where our opportunity continues to grow.

Demographics are favorable.

And it's a product that this day and age with home price appreciation and higher.

The higher total claims amount from Ginnie Mae, which is roughly $970800.

This product can make a lot of sense for for consumers and as you know theres a fair amount that goes upfront in terms of consulting with consumers to make sure. The product is right for that Buck.

<unk> business, where we continue to demonstrate really strong momentum it's profitable the origination side continues to grow sub servicing is growing.

More specifically.

Typically on the.

The investments in growing direct to consumer retail that has been our fastest growing channel and as you probably saw on june's pages has the highest revenue margin, obviously higher cost structures, while too, but yes, it's been a good business. So look.

We are investing approximately two to $2 5 million in additional marketing spend and sales resources throughout the course of the year to drive additional production.

Which we've seen some of it in the first quarter, but really towards the second and really more so towards the back half of the year.

We expect the payback on that investment again, assuming we execute and achieve our.

Our plan to return, we contributed about $6 million to $7 million of incremental revenue to the channel through higher retail volumes. So net contribution $4 to $4 $5 million, we think it's a great payback on investments.

And it's something we want to continue to allocate capital towards.

Got it makes sense. Thank you and then you've discussed it a few of the questions.

This MSR values I think of about $36 million in April do you think how much room do you think is left for additional MSR valuation increases obviously theres a lot of factors outside your control, but if theres a way to quantify that.

Yes, so as we've mentioned.

In our in our earlier comments look we our current <unk> is about a $1 million, but that <unk>, one does or we've seen a decline certainly during the course of the first quarter and thats because of convexity MSR portfolio right. So it doesn't really move.

In a linear fashion.

Because prepayments tend to slow and Theres a floor right. There's only so low prepayments can go unscheduled prepay.

<unk>.

So in the first quarter as rates went up.

We saw the <unk> decline.

In absolute value went from roughly $2 6 million at the start of the year to about one 5 million by quarter ended as we said looking at our rate shock at quarter end was about about $1 million.

And look from a model perspective, a lot of that is driven by flooring out of of prepayment speeds, but again.

As interest rates go up Theres escrow and float balances that are modeled in MSR valuations and as interest rates rise.

<unk> are worth more money so value will continue to appreciate from a model perspective as rates go up.

Ultimately, though.

Look it's really a question about market value.

And what kind.

<unk> of buyers are out there, Brian Msr's and what limits make they impose MSR values or appreciation. They may see in MSR values. So it is a market based asset.

We are seeing.

<unk>.

Today multiples.

In the mid fives quite.

Quite frankly, which is up from historic purposes really pretty high.

Could they go to six maybe.

Right now, it's certainly with a number of us and our business have experienced for quite a few years in the industry six seems kind of unheard of but we are operating in unprecedented times for sure.

So look it's clear.

Clearly the rate of MSR appreciation is declining I think that that's a given with how low rates are one of the things that we're doing Preston to manage our portfolio as I said before is managing this asymmetric risk at some point in time, MSR MSR values become really hard to hedge because theres more.

Downside to up that upside and you ended up spending a lot of ion options to hedge that so we're being attentive to that we're watching our portfolio and we'll be making adjustments to our portfolio to make sure that we're not building.

Unnecessary.

Risks and asymmetric risk in our business that's expensive to manage.

Got it that's helpful. Thank you.

Rats on extending the NRG agreement.

I was going to ask for an update on the mab upside.

I think you've sort of already covered your discussions with oaktree.

That is all I have I'll jump back in the queue. Thank you.

Great. Thank you. Thank you Sir.

Ladies and gentlemen, once again, if you have any questions or follow up questions. Please press star one.

We'll now go to Mr Drew Mackintosh, calling for Mackintosh Investor Relations. Please go ahead Sir.

Hey, good morning.

Regarding the possibility of debt and share repurchases has your board approved any buyback programs.

Hey drew.

So now our board is yet yet authorized a dec.

Our stock buyback program, but we are as I said evaluating all capital allocation options, including share and debt repurchases to.

Maximize value for shareholders to the extent our board authorizes such a program obviously, we would disclose it.

Within the appropriate timeframe after the board authorization.

Got it.

Can you quantify the amount of excess capital here.

Could currently be deployed whether it's the MSR purchases or buybacks.

Yes as.

As you know drew we certainly have improved our liquidity position since year end, it's been managing liquidity in these volatile uncertain times is really very important we believe and we're taking a cautious and prudent approach to it we.

We are working through with the board right now how much excess capital. We believe we have for discretionary deployment.

Factors go into that to include our view of risks in the business. Our view of risks in the environment is a capacity we have with NAV any other.

Synthetic sub servicing arrangements you may we may put together and our outlook for the originations business and how much capital that actually need to support it so.

Still a lot of details to work through it and I don't have any guidance on that but rest assured it's something that's top of mind that we are we are having.

The appropriate level of focus to it.

Got it thank you.

Yes.

Thanks, a lot Sir.

We have no further questions at this time I'll turn the call back over to Greg for any additional or closing remarks. Thank you.

Great George Thank you and thanks, everyone for your questions and for joining the call again, we believe our balanced and diversified business exemplary servicing performance proven cost management track record of execution, all position us well to navigate the environment ahead as we mentioned look we're operating in a in a volatile.

Uncertain environment.

Actively monitoring our financial markets economic environment industry conditions closely.

I think we've got a lot of value drivers here in the business.

Don't think its being appropriately reflected.

In the value of the company, but we remain encouraged and excited about the opportunities in the business and our capabilities to navigate the market ahead and look forward to talking to you next quarter at our <unk> business update thank you everyone.

Thank you, Sir ladies and gentlemen. This concludes today's call. Thank you for your participation. You may now disconnect have a good day and goodbye.

[music].

Good day and welcome to the Ocwen Financial Corporation first quarter earnings and business update conference call.

For information today's call is being recorded.

I'd now like turn the call over to Mr. Defeo Australian Senior Vice President Corporate Communications. Please go ahead Sir.

Good morning, and thank you for joining us rock wins first quarter earnings call. Please note that our earnings release and slide presentation are available on our website speaking on the call will be often chief Executive Officer, Glen Messina, and Chief Financial Officer, Jim Campbell as a reminder, the presentation. Our comments today may contain forward looking statements made pursuant to the safe Harbor provisions.

Federal Securities laws.

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 differ 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 infer.

<unk> future events or otherwise.

In addition, the presentation and our comments contain references to non-GAAP financial measures such as adjusted pre tax income and adjusted expenses among others.

It 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.

Thanks, Steve Good morning, everyone and thanks for joining us we're looking forward to sharing our progress with you. This morning, and our plans for the balance of the year.

Let's get started with slide four to review a few highlights for the first quarter.

We believe our actions to build a balanced and diversified business have positioned us well to navigate the current mortgage cycle and our first quarter results are consistent with our expectations.

We delivered net income of $58 million strong annualized ROE in the quarter and a 14% appreciation in book value per share from year end 2021.

We are taking a cautious and prudent approach to investing and managing our liquidity position, which has improved from euro.

Our servicing platform is performing well operationally our servicing financial performance is improving with rising interest rates.

Msr's are appreciating in value runoff is declining we continue to improve our cost structure and our portfolio is growing.

Yesterday, we announced our sub servicing agreement with NRC was renewed until year end 2023 with annual extension options. Thereafter, we think at RSA for their confidence in US. We appreciate their business and we are looking forward to continuing to serve them and their borrowers.

Florida originations faced a challenging environment in the first quarter, while total servicing.