Q3 2022 Ocwen Financial Corp Earnings Call
[music].
Good day and welcome to the Ocwen Financial Corporation third quarter earnings and business update conference call.
Throughout today's recorded presentation, all participants will be in a listen only mode.
After the presentation, there will be an opportunity to ask questions.
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At this time I would like to turn the conference over to Diego exploration Senior Vice President Corporate Communications. Please go ahead.
Good morning, and thank you for joining us for Aqua third quarter earnings call. Please note that our earnings release and slide presentation are available on our website.
On the call will be often chief Executive Officer, Glen Messina, and Chief Financial Officer, Shaun O'neil.
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 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, including 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.
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 of 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. Because they are measures that management uses to assess the financial performance of our operations.
And allocate resources 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 as well as.
Information regarding why management believes these measures may be useful to investors 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.
Looking forward to sharing our progress with you. This morning today, we will review a few highlights for the third quarter take you through our actions to address the market environment and discuss why we believe our balanced and diversified business model can deliver long term value.
Now please turn to slide three.
Yeah.
As well, though with rising interest rates the servicing environment has improved substantially while the originations environment is quite challenging.
Our balanced and diversified business model is working well and we've made great progress in the third quarter.
We're delivering focused prudent growth driving enterprise wide cost reduction and optimizing liquidity and allocating capital to deliver value to shareholders.
We delivered strong net income Roe.
Book value appreciation and our adjusted pre tax loss was substantially reduced versus the second quarter.
MSR values increased during the quarter and our origination segment has returned to profitability.
Our servicing portfolio is growing with total servicing and sub servicing UBB, both up versus the third quarter of last year.
We're reducing our cost structure enterprise wide and expect to exceed our cost reduction target with over $70 million in annualized cost reduction in the fourth quarter versus our second quarter 'twenty to baseline.
Regarding our capital structure, our share repurchase program is nearly complete we completed the mab upsides and we signed two additional capitalized MSR partnership transactions outside of map.
Many thanks to Oaktree for their continued support of our business and many thanks to our two new MSR funding partners for putting their trust in us as an asset sourcing and management partner.
As we look forward I believe we are positioned very well to address the challenges and opportunities ahead.
In originations, our priority is reducing costs, expanding higher margin products and growing our client base.
In servicing our priority is driving growth through sub servicing across all product types forward reverse small balanced commercial and special or nonperforming loan servicing.
Expense management is more important than ever we will maintain our continuous cost improvement discipline and adjust expenses and capacity to match the market environment.
We are prioritizing our relationship with <unk> and other MSR funding partnerships to support capital efficient growth.
Is a core strength of our business model.
MSR values are rising and profitability is improving driven by slower prepayments lower prepayment related expenses.
Higher escrow earnings and stable delinquencies.
We are seeing increased MSR investment opportunities with attractive returns and we expect continued elevated bulk volume as originators continues to be under profitability and cash flow pressure.
Regarding sub servicing the opportunity to remain strong client the laser evening and our opportunity pipeline is robust.
We are seeing increased interest in the mortgage sector from asset investment capital providers, who are looking for partners to source and service Msr's Poe loans and nonperforming loans.
Origination volume levels continued to fall on the fourth quarter.
As a result the strategy.
Will continue to be cost reduction.
<unk>, a new client additions for the foreseeable future.
In this environment, we believe our core strength and servicing is the right Foundation.
Value creation plan built underscore strength passport T honest.
Ravaging the strength of our balance and diversified business model.
Driving pretty gross adapted for the environment.
Reducing our cost structure across the organization.
And optimizing liquidity diversifying funding sources and allocating capital to maximize value for shareholders.
Let's turn to fly five to discuss the benefits are balanced and diversified business model.
Our balance and diversify business model is a core strength for us, particularly in this environment.
Service and gap pretax income in the quarter is up significantly versus third quarter last year due to MSR value appreciation.
More than offset the coin and profitability and originations.
To date, we've delivered over $100 million net income despite the origination environment.
Our focus on driving industry, leading operating performance is supporting strong growth in our some servicing portfolio.
We are a top rated servicer by Fannie Mae Freddie Mac.
And Fitch is upgraded our service of ratings to our strong posed pandemic performance.
To our investment in technology and global operating capability, we felt an efficient amateur platform with capacity for growth that drives improved financial outcomes for clients.
We've earned the trust of clients and partners as evidenced by $69 billion in sub servicing UBB added in the last 12 months strong scheduled subservicing boarding and a potential opportunity pipeline of $350 billion.
We have consistently investors and are servicing platform capabilities, and we believe our core strength and servicing positions as well to navigate the market ahead.
We have broad and deep domain expertise with industry, leading capability and forward reverse small balance commercial and special servicing.
The only large scale full service and to N reverse mortgage provider in the industry.
And we continue to be a leader in special servicing supporting borrowers and investors and outperforming M B, a and Moody's industry operations benchmarks.
With more than half, our total servicing portfolio and sub servicing.
Potential exposure in a recession to elevated advances and higher servicing costs without a corresponding revenue is limited.
We have a continuous cost improvement mindset throughout the company.
We continue to demonstrate the ability to reduce our cost structure, while maintaining strong operations execution.
We believe having an industry leading cost structure is an advantage in any environment.
Lastly, the development of capital partners to co invest in Msr's and create synthetic subservicing helps us grow our servicing and originate <unk> on a capital efficient basis.
We believe are expanding capacity math and.
And development of additional capital partners physicians as well to increase our managed asset base.
Creating optionality and flexibility in our capital allocation process.
Overall, we're excited about the potential for our business and did not believe a recent share prices reflective of our financial position or earnings power for the strength of our business.
Let's turn to slide six to discuss our growth focus in the current environment.
Our growth strategy is focused on driving higher margin products client base expansion and some servicing additions.
Originations team is performing well under the current market conditions with MSR originations, excluding both transactions down about 4% versus the second quarter and down roughly 33 per cent versus last year.
Industry volume projections for 2023 seem to get revised lower each month, and we are expecting lower origination volume and margins in the fourth quarter.
In the third quarter, we took the opportunity to purchase bulk msr's from one of our sub servicing clients who was selling.
This enabled our client to avoid the boarding pass and allowed us to acquire Msr's and attractive returns.
Leading a key value element of our enterprise sales approach.
[noise] servicing additions were comparatively light in the third quarter compared to prior period as current and prospective clients were largely focused on addressing market conditions.
We're seeing the delays moderate and currently have $28 billion in sub servicing addition, scheduled over the next six months.
Consistent with our growth focus are mixed up higher margin origination products was roughly flat with the second quarter and up five percentage points versus third quarter of last year.
Similarly, our focus on growing sub servicing is evident with sub servicing you could be up 46% versus the third quarter of last year.
The shift to sub servicing and our focus on diversification is evident when looking at our portfolio composition.
We believe our emphasis on growing sub servicing and GSE owned Msr's.
Which are now 54% and 34 per cent of our portfolio, respectively will be beneficial in the event of a recession.
And sub servicing we have no exposure to advances and.
We earn revenues, even if bars are delinquent.
And GSE servicing the credit quality is high.
Principal and interest advances are capped at four months and in the case of Fannie Mae we recover our servicing advances monthly.
The segments of our portfolio, where we have more significant advancing responsibility as well as revenue risk with bar delinquency and relatively lower credit quality, our pls and Judy may forward owned Msr's.
However, these segments combined only comprise 10% of our portfolio.
Or deliberate strategy to diversify our servicing portfolio reduces our risk exposure in the event of a recession.
We expect to have adequate capacity to support special Subservicing for others should market conditions drive increased demand.
Now please turn to slide seven for an update on our expense management actions.
We remain committed to reducing costs to a line to market demand and support business needs. In this part of the industry cycle, while continuing to deliver on our commitment to customers clients and investors.
<unk> has made great progress against our cost reduction target.
We're on track to exceed $70 million and analyzed expense reduction.
By the fourth quarter versus the second quarter baseline of this year.
We're maintaining or we're focused on driving sustainable cost reduction.
Supporting the most essential activities and maintaining a prudent risk and compliance management framework.
We've largely it adjusted snapping levels across the organization for most significantly focused and originations and in our consumer direct in reverse retail platforms.
Our cost structure measured in basis points is down, 35% and 21% from the fourth quarter of 2021 and originations and servicing respectively.
We continue to leverage our season, the mature global operating capabilities are proprietary global operating platform has been in place for the last 20 years and supports all business activities.
We continued to drive automation digital migration and other systemic process enhancements dances with our technology roadmap and focus on continuing this process improvement.
As noted earlier, we are expecting low originations volume in the fourth quarter.
Committed to adjusting capacity and expenses further is necessarily going forward.
In addition, we're consolidating our forward and reverse operating platforms in bulk originations and servicing.
Focus on leveraging as single backbone platform and processes for activities that are common across both forward and reverse.
This will result in scale benefits for both forward and reverse and.
One of the few competitors in the reverse space, who has the capability to execute this strategy.
The initial results are promising and we expect further benefits going forward into 2023 as we can continue.
Continue to refine and optimize our approach.
Now please turn to slide eight for an update on our capital management actions.
As we discussed last quarter wrapped demising liquidity funding sources and custodial arrangements to support the needs of our business. During this part of the market cycle.
The cornerstone of our capital management plan, both last year and this year has been math.
We're excited to announce we've completed the map up songs with incremental contributed capital of up to $250 million.
With library from Amazon secured financing. We expect this is sufficient to support Incrementals $60 billion in synthetic Subservicing U P. B at current MSR prices.
We realized strong double digit your returns on our $21 million and net capital contributed to map.
Or an investment balanced dance at $39 million, including Kimberly of earnings and dividends.
We're also excited to announce the signing of two additional MSR funding partnership transactions, we close one transaction in the third quarter and expect to close the second and the fourth quarter.
We are driving growth with a bias towards capitalized subservicing.
We expect to fund a portion of flow origination volume with our new partners in the fourth quarter consistent with this approach.
This year, we've opportunistically and prudently sold as well as invested in Msr's, keeping our M. S. R. U P b roughly between $115 billion to $130 billion.
While growing our total servicing portfolio through sub servicing additions.
I think it goes without saying that our investor driven approach to Amazon purchases introduces an added level of price discipline to our independent broker my process.
Drop the year, we've been able to monetize msr's at levels at or above our acquisition cost.
Looking ahead, we believe are.
Sourcing product distribution and unique servicing capabilities can give rise to additional partnership opportunities and reversed.
Stressed or high risk assets and small balance commercial subservicing.
We are dedicating business development resources to build relationships with investors and clients across each of these asset classes to fully leverage our servicing capabilities.
We believe the development of investor relationships to support capital efficient growth.
Port achieving our servicing scale objectives and enables further capital allocation flexibility to maximize returns for shareholders.
Again, I want to thank our business partners at Oak tree.
New at M. S R Investor partners for their trust and confidence they placed in our team.
To help them achieve their growth and profitability objectives, we take this responsibility seriously and we will deliver on our commitment.
Now I'll turn it over to Sean to discuss our results for the third quarter and outlook for the fourth quarter.
Thank you Gwen please turn to slide nine for our financial highlights.
In the third quarter, we realized GAAP net income of $37 million for $4.33 earnings per share outcome.
Book value per share rose to $69, which was an increase of $18 year over year for 35%.
In addition to what we show here. We have also provided information regarding our fully diluted shares in equity for book value calculations in the appendix.
This information allows for the most conservative view is all of the tree warrants were executed on a cash settled basis and.
In addition, we show earnings per share as both current and diluted for comparison purposes.
Similar to the second quarter, we again, so higher rates positively impact MSR appreciation and our own servicing bug.
Also in a repeat of the second quarter, we again saw strong performance and our correspondent inflow lending origination business.
For adjusted pretax income, which is a non-GAAP metrics, we have strong improvements quarter over quarter for both origination and services.
The graph shows a quarter to quarter three walk for this metric.
Third quarter results was an 8 million dollar loss, but that was a significant improvement from the 26 million dollar loss in the second quarter.
This was due to several drivers.
The cost reductions previously mentioned by Glen They were implemented and partially recognized in the third quarter resulted in a $14 million improvement and at our expense line.
When I say, partially recognized it is because any saves on our compensation and benefits line only saw partial impact as they occur throughout the quarter and will have incremental fourthquarter lift.
Chief will run right and.
In addition, we continued to enact more cost reduction steps it will appear in the fourth quarter and into 2023.
Both of our court originations and forward servicing businesses improved their adjusted pretax income quarter over quarter with a small offset from a lower profit and reverse servicing and a small loss on reverse origination.
Cover this in the next few pages.
I'd like to recap the notable items that connect are adjusted pretax income back to our GAAP net income we provide adjusted pretax income for greater investor transparency and it is a metric we used in managing the business.
Notables, which are listed in the appendix are comprised primarily of.
$53 million improvement and M. S. R value adjustments net of hedge this is due to changes in both interest rates and assumption valuation inputs.
Offset by a 12 million dollar loss and other notables primarily from severance costs, one time lease termination costs under PHH Mount Laurel facility.
And a small negative net income.
<unk> legacy and regulatory settlement spend or reserves. This was offset by some litigation reserve release due to favorable outcomes.
Finally, before I leave the stage I want to reiterate.
Our year to date are we have 27% on an annualized basis as well as remind listeners of the $105 million of net income that has been generated year to date, which is driving almost $12 of earnings per share. It through the first three quarters.
For more detailed segment information. Please turn to page 10, where we will start with forward servicing.
In the upper left charge received the adjusted pretax income.
The bulk of one time asset sale and mark to market impacts from the second quarter did not reoccur. The result was a positive $5 million.
The $6 million of servicing income was down in the prior quarter due to higher MSR runoff driven by higher one UCB quarter over quarter and lower ancillary fees in the quarter as well as some isolated rapine warrant expenses due to a few specific loans.
Moving to the right forward some servicing growth continues a strong year over year growth trend of 23 per cent December slightly different than what Glenn quoted because this is just a forward said servicing both versus the entire book.
Improvements and float income continue on the roughly $2 billion of custodial balances, we hold as well as on her own operating cash. This is expected to continue to increase in the fourth quarter as we seek out.
<unk> right banks.
Finally, we have one of the most controllable aspects for any successful servicer continuously improving our cost structure, regardless of the interest rate environment or servicing team is always seeking improvements.
I would add near our cost structure includes all foreclosure and other liquidation expenses, which some other servicers may exclude so keep that in mind, if you're making a direct comparison.
Please turn to page 11 for Ford origination segment details.
On this page you can see the toward origination head strong improvement in both absolute numbers and relative to the second quarter.
Justin pretax income for the third quarter is significantly due to both cost control and strong corresponded and slow lending performance.
Again these numbers differ slightly from what the gas numbers Glenn showed you do primarily the severance impact.
Similar to last quarter correspondent and flow Lenny is the largest contributor with a strong income growth of $11 million from last quarter. This was driven by those higher funded volume and better marches.
This is driven by our efforts to continue active clients being added in high margin areas, such as best efforts Nondelegated and Judy may products.
As you would expect in this difficult originations market the consumer direct volume again declined quarter over quarter, but we were able to offset most of that income decline with cost reductions.
We anticipate the total for the origination costs will continue to improve significantly into the fourth quarter as we right size. This business for the current environment, while keeping a strong focus on both servicing our correspondent and direct retail customers and maintaining a high standards for risks in compliance.
Please turn to page 12 per segment details on both of our reverse businesses.
Here, we look at reverse origination and reverse servicing.
The longterm reverse mortgage opportunity remains attractive primarily due to borrow demographics as well as the behavior of a reverse MSR bean counter cyclical when home prices turned down there continue to be the same near term headwinds that we introduced last quarter.
First mortgage rates continue to increase this reduces peckham refinance opportunities.
And his rates increase the amount of cash that a reverse borrower can take out of a property declines for example on a 450000 dollar appraised house from January to October the amount that it has some borrower can take out has been reduced by $60000 or 22% decline.
Private label or non Ginnie Mae heck them products are becoming less interesting to investors in the current risk off environment. While this has some impact on our business. We are over index to Ginny may have some products.
Even that product is reflected in H N. B S. Issuer data continues to share declining volume and May continue to drop in the fourth quarter.
All of these headwinds are reflected in a slight adjusted pretax income.
Lost in the third quarter as well as a decline order of a quarter.
Over in the reverse servicing business, we continue to show a profit, but smaller than the second quarter. As we are encouraged some costs as we integrate that business into our forward servicing business.
Volumes in the reverse servicing business were relatively flat quarter over quarter, but there is strong growth indicated for the first quarter of twenty-three based on our pipeline today.
Going for we will be integrating both the reverse origination and the reverse servicing businesses into our respective for businesses to ensure we maximise productivity.
Now please turn to page 13 for an update on our prior announcements on the new FHFA and Ginnie Mae ratios that were issued in August .
As we publicly stated we believe at PHH mortgage Corporation will comfortably exceed all of the networks capital and liquidity ratios that the FHFA engineering may have put out for adoption next year would be sold exception being the Ginnie Mae risk based capital ratio.
Which is the focus of this page.
On the risk based capital ratio the numerator takes a company's network and subtract from it any excess MSR value or the amount of msr's that exceed your network in our case PHH as a net worth of about $680 million and a known MSR book of roughly $1.7 billion, therefore that numerator.
Or as a negative number.
While we greatly appreciate the Ginnie Mae partnership on the <unk> on the forward servicing side of our business is a relatively small contributor to our P&L Ginnie Mae represents 10% of our owned assets and 4% of our total servicing UCB book of $283 billion.
This was the graphics at Glen showed you back on page six.
The right side of the page shows some of the options. We are considering to address this issue, which becomes irrelevant at the end of 2024, which is when Ginnie Mae will implement that specific metrics.
Option, one is for PHH to self bond a separate legal entity, which withhold only Virginia may servicing assets. We believe we could do this with our existing liquidity and capital structure. However, we would generate a lower or are we on the same assets is the capital required under the new metric is greater than the equity we current.
We have deployed against Virginia assets, if we choose to pursue this model. We believe we can do it without raising any additional equity or generating any additional liquidity to support it.
Both options two and three until working with outside capital providers similar to the models that plan as previously described.
We could do something such as a Ginnie Mae targeted MSR acquisition vehicle that would be a ginnie Mae version of math or synthetic or true subservicing relationships.
Final option is to exit before Ginnie Mae and servicing asset business altogether and replace those with other non Judy may assets, such as GSP Your private label on the Sars.
This option, we could continue to serve service Ginnie Mae Msr's for other owners and our tech them or reverse business would not be affected and we continue to evaluate all these options.
Please turn to page 14 for view on our stock price relative to both index performance and book value per share.
Awesome continues to deliver sustained growth in book value for sure. Our current third quarter book value of $69 indicates a compound annual growth rate of 46%.
In addition to book value, we have grown earnings per share year to date in 2022 by almost $12.
This compares to $2 of earnings per share growth in the full year of 2021.
At the end of the third quarter based on 930 data our stock was trading at 34% of but we think this discount is not representative of the value we are creating nor of our current balance sheet.
As Glenn indicated earlier at the stock repurchase program that we launched in the second quarter is almost completed as we had board approval for $50 million repurchase and at the end of October we were slightly over $48 million.
When we consider the best use of any excess liquidity. We're cognizant that are options for high yielding investments have increased significantly since the second quarter.
Distressed assets or entire companies coming to market.
As well as the ability to generate higher returns on buying back either our staff or our corporate debt being among some of our consideration.
We will continue to evaluate those or liquidity needs and these options as we move forward.
Now please turn to page 15 for an updated path to our projected fourth quarter results.
Here, we're going to walk you'd from the second quarter adjusted pretax income with negative $26 million into the third quarter and then two unexpected fourth quarter.
The third quarter improvement of approximately $18 million was previously discussed on page nine and is driven by cost reduction actions and margin enhancements primarily in the origination business.
As we project out the fourth quarter on and adjusted pretax basis, we anticipate additional gains from cost reductions.
Growth and are some servicing business and improved float income.
This will be partly offset by lower results due to a challenging origination market.
We have lowered our view slightly from the last quarter due to the prolonged deterioration of the origination market.
But we expect these collective corporate wide efforts will propel Auckland to a strong fourth quarter and a positive result for both gas and adjusted pretax income.
This will further increase the already strong year to date earnings per share impact as well as improve our year to date annualized Roy of 27 per cent.
Back to your Buddy.
Thanks Shaw.
Now if I could please turn to slide 16 for a few wrap up comments before we go to Q&A.
We believe our balance and diversified business exemplary servicing performance proving cost management and track record of execution possession as well to navigate the market environment ahead.
We're executing a focus prudent growth strategy.
We're leveraging our superior operating capabilities to grow some servicing across multiple investor on prototypes.
We are positioned to deliver a value to clients investors and consumers in an economic downturn.
We remain steadfast in our pursuit of industry costs leadership by driving continuous cost and process improvement.
We're on track to exceed our expense reduction target.
And we will continue to optimize expenses during 2023.
Finally.
We are prudently managing capital and liquidity to maximize shareholder value.
We repurchased roughly $75 million in debt and chairs.
Improve liquidity versus here in 2021.
Upsize math and delivered on our commitment to expand acid investor partnerships to enhance our capital allocation flexibility.
Your today.
Our balance and diversified business model as delivered over $100 million of net income strong book value appreciation and an annualized gap return on equity of 27%.
We believe with the <unk> of our business initiatives, we can deliver positive adjusted pretax income in the fourth quarter and we believe were taken the actions necessary to operate at our targeted Roy range before notable items once origination stabilized.
I'm proud of how our team is executing we.
We have an experienced global operating team with an established track record of successfully navigating multiple mortgage cycles with a focus on pretty growth.
Cost management operational excellence in customer experience.
It'll be unrelenting and this focus.
With that let's open up the call for questions.
Hi, Kim.
You would like to ask a question. Please signal bypassing star one on your telephone keypad.
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We have.
The moment to allow everyone an opportunity to stick out.
We will take our first question from Derek.
Summary from Zachary.
Go ahead.
Hi, Good morning, guys could you describe the activity you're seeing in the bulk MSR market.
The deals pricing.
Neil characteristics like that thanks.
Yeah sure bulk market is is active there's a lot of transactions that are that.
We've seen this year and it continues to be enacted market. Yeah look MSR prices are up that's not a surprise to anybody because interest rates are up but we are seeing returns improve so yields are improving safer ball.
S C as well as Ginnie Mae bulk packages.
For I would say unlevered yields.
Everybody's got their owner.
Valuation model, so I'll give you what <unk>, what our models would say, but other other people's files may produce a different result, but luck, we're seeing your high single digit low double digit pre leverage retard on asset levels. Obviously, you put leverage against that it's a much better return.
And you know in terms of.
Who is selling that's largely he'd think it's independent mortgage bankers.
Primarily focused people with a rich nation centric origination just focus models, who over the last couple of years I've been holding onto Msr's and you're on this part of the cycle will give him worthy originations market is they need to shelter.
Great casual to support their operations, but overall again, we expect the market be robust for the foreseeable future with very attractive recounts.
Great very helpful. Thank you.
<unk> <unk> Oh, they charge from K B companies. Please go ahead.
Hey, everyone. Good morning, Uhm actually just a follow up on the the bulk MSR market.
The low single.
Hi single low double digit yields could you just break that add a little more just on Ginnie Mae versus Jessie.
Yeah, I'd say, Jenny Maes, you're running higher right. So just generally speaking yeah, I'd say, probably 200 ish basis points higher.
Round numbers.
And which is pretty typical <unk>, obviously, the risk profile in Genesis M is higher than the GSE production as noted in my comments I think it's generally understood across the industry. So.
Yeah, the <unk> do command a bit of a premium from <unk> perspective that as well as there's fewer buyers Virginia.
Yep.
Great. Thanks, and then actually I was just on your book value growth. This quarter, so is up $10.
And the I was just trying to do the roll forward like the gap earnings looks like it was a foreign changed so I was just trying to figure out the difference there.
Sure.
I'm, sorry, you're talking about the difference between EPS in book value just book value per share change quarter over quarter says it too is it two large factors you'd have to consider one is.
Operating or net income the other one is the reduction and share count 60, because we have been repurchasing chairs.
But you know maybe John you can work with those apartment.
Okay that would be great yeah, it's our basement English.
P B S or otherwise 10, so yeah that would be would be helpful.
Yeah.
Thanks very much.
Great. Thanks pills.
We will take our next question from Matthew pilot.
Please go ahead.
Oh, Hey, guys Uhm, just a question on the upside nomad.
Two other capital a vehicle to me.
And he did the first round of Mabee gave the number ratio in terms of.
<unk> it was pretty significant at English and $40 million you know at the time. It just curious how are we should think about returns on the upsizing eco over which was like on those two other capital light vehicles.
So I'll start with math.
Math has had we've had really strong returns.
<unk>, So again I think Sean you it outlined yeah.
Double digit returns we've received some returns of capital distributions of earnings and profits.
You know obviously the return to map will be a function of interest rate levels, and where assets are being acquired but look where.
We're excited about the results.
Results, we've had year to date with Mab oak trees really excited about the results here to date, we've had with Mab and we're excited to put more capital behind it.
In England.
The capital crime, it can be 15% or so.
Understood.
And currently.
Yes marriage capital.
Capital ratios between the partners has not changed its that's 80 515 85 per cent Oh tree 15.
And those two other vehicles will you put up many capital of those are those are gonna be straight just observers shape.
There's two other relationships are different than naff right. So yeah, where our goal was to try to diversify.
Investors.
Because it H investor has a different appetite for assets right. So you want to make sure you can get broad market coverage with broad investor appetite. So you bring in different investors.
The structures are different as well too so and the two other.
Partnership transactions, we do not have an Ah retained equity ownership percentage, we are purely just the subsurface or for the assets and a portfolio recapture services provider.
Gotcha, no that that that that's certainly interesting I look forward to you.
Hearing more hopefully some some guys six years on the potential creation from from all three last question on the share repurchases Lemme, just 34% of bulk Jimmy clearly highly highly accretive.
Does it feel like you didn't need that repurchases corner with tomatoes, with those would be creative as well I mean, yeah, I think you're up to the authorization Linda what's the appetite to you yes liquidity.
You know to continue to repurchase stock in that.
Now, let's aboard management are evaluating R capital allocation process as I as I as I mentioned look I think there's a number of things we want to consider here. So.
Obviously the.
There's dead, there's equity there's a ton of high yield investing opportunities that were saying come into the market and I think the yields are only gonna improve as time goes on we obviously got to consider our share floats our debt covenants restricted payments baskets all of those.
The things right. So there's.
A ton of things we've got to consider obviously capital allocation is front and center for the board and management and will update the market on our thinking as we move forward.
Thank you.
We will take our next question.
Eric.
Go ahead.
Hello, Thank you Bonnie Hope you guys again.
Mobile on online.
The classroom is you have right now.
You have the <unk>.
You can effectively spell out my flowers that you currently on outright.
The amount.
Apolo relief. Thank you well why do you guys think about exploring that optionalities.
Especially with <unk>.
Yep. He yeah look yes, we do have the optionality to sell Msr's off our books <unk>, we actually could do that with our other MSR investment partners as well too.
You know I think as we've talked about historically look we do have a certain amount of corporate debt on the box and we need earning assets to pay the interest expense on that corporate that right. So.
That's why we're trying to target between that $100 billion to $130 billion of MSR U P. B.
Which we think is the right level too.
Earned off that provide earnings to recoup that corporate debt now to the extent that we take action to lower the corporate that then you have a requirement to hold msr's could go down as well.
Guys. You noted that looked at and I think as Shawn has has said I'm sorry, Eric has Sean said we.
We we have a number of different options as we think even about the Genie may risk based capital requirements. One of them is reducing msr's through a capital vehicle and getting Msr's off our box is one of the ways, we could do that.
I'm also wondering and next May I. Please take your economics now can you <unk>.
We have that.
<unk> the asset.
Just one more if I can look weak foundation of of forward and reverse that you got you're talking about on the same platform. What are you, saying will be the financial impact of.
Of that change.
Yep so.
The Sars from their transferred to map are owned by MAFF right. So we can't.
Independently put secured financing against those assets right, but in theory, I guess, our investment in math is leverage.
Consistent with the Aqua in total overall corporate leverage right. So there is some leverage against that investment, but we can't separately.
Or haven't look to put secured financing up against those assets. That's all done within within the joint venture within map itself.
Look regarding the impact of integrating forward and reverse.
The initial cost reduction that we did receive is part of the $70 million, we did not break that out separately and and we're probably not going to but I actually think there's two benefits associated with integrating those platforms, particularly on the origination side of the business.
Yeah, and originations I would say one of the challenges.
Reverse industry has always faced was product distribution.
By integrating the forward platform and in particular the sales teams that we have supporting the correspondent at wholesale channels.
We get I think tremendous distribution leverage by distributing that product across.
All of our power clients, who are interested in selling the product as well as our existing reverse clients. Yeah. I can tell you from coming back from the NBA Conference. We were just at two weeks ago lot of interest on the part of our for clients about the reverse product.
You have a group called Liberty Academy, which trains people on how to sell the reverse product.
And again, having the capability to buy the asset as well as service at our sub services as the case may be really allows us to be in a position of providing an end to end solution to those for providers, who are looking to get into the reverse space.
So we're excited about the the cost reduction opportunity more work to do there were just at the early stages of of the integration.
Really excited about the go to market impact of that integration, which has been well received by our our existing corporate clients.
[noise] appreciate it.
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We will take our next question.
Lee Coca Ma'am Omega family at this time.
Congratulations are nice quarter.
I'm trying to figure out you know she'll be moving towards do you have a view of your Normalised earnings and normalized Roy over cycle to where you want to run the business.
Lee the way, we want to run the business you know again I think Sean covered deaths in his topics look we still are you in that low double digit to mid teen return on equity range and again that will vary across the cycle. As you noted there are peaks and valleys.
Yes, we do believe our actions that we're taking to adjust our cost structure our growth strategy.
And again ER capital allocation plans.
Should enable us to achieve that target.
Luckily gap Roe's right now off the charts as you would expect with you know MSR valuation depreciation which is part of the economic model.
And we are based on our actions expecting to turn the corner two adjusted pretax profitability in the fourth quarter, So excited about being able to make that change.
Yeah, well, if I take say a 40 per cent return on book.
That would give you a normal.
Defined as Normalised earnings that's about $10 a share your stock is like three times normal earnings.
Why do you think it shows a such a low multiple.
And is there anything.
We talk about an asset light model I'm, just wondering whether I'd rather be in oak trees position, you know they have a million warrants in which the strike price new Orange I mean, we have a very high cost of capital as a business.
And I'm, just wondering where do I wanna be in oak trees position physician.
Frankly, I think both physicians, okay. So oh tree. Obviously has has made substantial investments in the business, they've got that equity and they're committing more capital too.
Math, so they obviously are in support of the business and they've been a great partner.
And Luckily I think we're doing all the right things for this part of the market cycle I Love, how our business models position for the cycle I think our balance our diversity and our our roots.
To our core really as is a servicing centric business model and we're playing into that part of the cycle.
We will continue to evaluate capital allocation look to the extent that there is an opportunity to further drive capitalized model of our business. We certainly do favor that outcome and look we are frustrated with where are share prices. We don't think the strength of our business is being recognized.
We have been putting our money, where our mouth is in terms of share repurchases in debt repurchase.
Again, I, just reemphasize like hour position for the cycle, but I do think you know unfortunately for the sector. The rest a lot of uncertainty around mortgage these days.
Just have to ask questions just one.
Housekeeping what was the price you pay for $40 million worth of stock you bought back with average pressured you pay.
Sean averages roughly 28 29 ish.
Okay and.
The book value of real numbers could you liquidate the company before anything approaching book value.
Luckily.
Yeah, I think the biggest asset tests for US is how we've been managing msr's right. So we've been in MSR buyer and seller throughout the course of the year and as I said on the call.
That provides an added level of discipline to our MSR valuation process and as we've sold Msr's, we've not solid msr's below our acquisition price so.
We use third party broker marks.
We've got confidence in the process, we use to mark our Msr's, we think it's reflective of market value.
So.
Okay. I think we have demonstrated the ability to you know in a controlled and disciplined fashion to monetize msr's for our <unk>.
Okay. So I would just say this this is one person's opinion typically what a book value was worth in the market as a function of what the book value earns in the words of cut me to book value, earning two per cent on book. The book is not worth would've stayed at it with a <unk>.
14% or over your book Israel.
So I would say that if you can buy your struck back at three times earnings and a let's should have a book value that that would be the best you see a capital and that would be my vote.
Rather than getting involved in things, where you're taking a risk.
Business, you're buying back of the market as a business you know.
And that seems to me that would be the best use of capital.
At the current time, just one person's view, but good luck and you're doing a good job.
Thank you.
Thank you appreciate it.
And we we confirm that the average stock price buyback so far is $28.59 through the end of October .
And to finish his question how much in excess capital you have with a <unk> on the books today do you have any excess capital U capital constrained.
You know, we <unk>, we don't really have a concept of excess capital in the business, we tend to manage our acid investment levels library, leveraging mab and others.
To create excess capitalize needed.
We have pretty strong liquidity doubtless quarter relative to where we've been.
Well my hero in life with Dr. Henry Singleton, who did it self tender offers.
He didn't buy stock back as cheaply as you have the chance to buy you're stuck back. So I'd say the measure of the confidence you have in your book value should be a function of the Christian this which you approach to repurchase issue, but you understand those issues that I won't I won't take any more of your time, which I know we have another call later today, but thank you.
Thank you Sir I appreciate it.
No further question.
I would now like to turn the call back over to Glenn Messina any additional Eklavya Max.
Thanks, Elaine and look thanks, everybody for joining the call today I really appreciate it again are balanced and diversify business model is working as intended and we believe we're well positioned to perform in this environment to deliver a longterm value.
I'd like to thank and recognize a board of directors and global business team for their hard work and commitment to our success and I look forward to updating you on our progress on our next quarter's earnings calls thank you much.
This will conclude today's conference call. Thank you for your practice a patient in a decent gentleman you may now disconnect.
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