Q4 2023 Ocwen Financial Corp Earnings Call

Operator: www.globalonenessproject.org Good morning, ladies and gentlemen, and welcome to the Ocwen Financial Corporation fourth quarter earnings and business update conference call. At this time, all lines are in listen-only mode.

Good morning, ladies and gentlemen, and welcome to the Ocwen Financial Corporation fourth quarter earnings and business update conference call.

At this time all lines are in listen only mode.

Operator: Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the option. This call is being recorded on Tuesday, February 27th, 2021. I would now like to turn the conference over to Dico Raylian, Senior Vice President of Corporate Communications. Please go ahead.

So in the presentation, we will conduct a question and answer session.

At any time during this call you required immediate assistance. Please press star zero for the operator.

This call is being recorded on Tuesday February 27, 2024, I would now like to turn the conference over to <unk>.

Dear Balian Senior Vice President Corporate Communications. Please go ahead.

Dico. Raylian: Good morning, and thank you for joining us for Ocwen's fourth quarter and full year 2023 earnings call. Please note that our earnings release and slide presentation are available on our website. Speaking on the call are Ocwen Chair and Chief Executive Officer, Glen Messina, and Chief Financial Officer, Sean O'Neill.

Good morning, and thank you for joining us for <unk> fourth quarter and full year 2023 earnings call. Please note that our earnings release and slide presentation are available on our website speaking on the call will be occupants chair and Chief Executive Officer, Glen Messina, and Chief Financial Officer, Shaun O'neil.

Dico. Raylian: As a reminder, the presentation or comments today may contain forward-looking statements made pursuant to the safe harbor provisions of the federal securities laws. These forward-looking statements may be identified by reference to a future period or by the 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.

As a reminder, the presentation of our comments today may contain forward looking statements made pursuant to the safe Harbor provisions of the federal Securities laws.

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

You should bear this uncertainty in mind and should not place undue reliance on such statements.

Dico. Raylian: Forward-looking statements speak only as of the date they are made and involve assumptions, risks, and uncertainties, including those described in our SEC filings. In the past, actual results have differed materially from those suggested by forward-looking statements, and this may happen again. In addition, the presentation and our comments contain references to non-GAAP financial measures, such as adjusted pre-tax income, 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 to the company's reported GAAP results.

Looking statements speak only as of the date they are made and involve assumptions risks and uncertainties, including those described in our SEC filings in the past actual results have differed materially from those suggested by forward looking statements and this may happen again.

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

Dico. Raylian: A reconciliation of non-GAAP measures used in this presentation to their most directly comparable GAAP measures and management's view on why these measures may be useful to investors may be found in the press release attached to the investor presentation. Now, I will turn the call over to Glen Messina. Thanks, Dico.

Conciliation of non-GAAP measures used in this presentation to their most directly comparable GAAP measures and management's view on why 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 Heiko.

Glen A. Messina: Good morning, and thanks for joining our call. Today, we'll review a few highlights for the fourth quarter and the full year and take you through our actions to address the market environment and deliver long-term value for our shareholders. Please turn to slide three.

And thanks for joining our call today, we will review a few highlights for the fourth quarter and the full year and take you through our actions to address the market environment and deliver long term value for our shareholders.

Please turn to slide three.

Glen A. Messina: Ocwen has undergone a significant transformation since 2019. Guided by our strategy, we've transformed the company into a well-balanced mortgage originator and servicer that creates positive outcomes for clients, homeowners, investors, and communities. We've built up from our foundation and special residential and small balance commercial loan servicing with the PHH and RMS acquisitions to include performing agency and reverse mortgage services. Today, we're a top 10 non-bank servicer by UPB, with broad capabilities and multiple industry awards for delivering top-tier industry performance for customers and investors. We've added multi-channel originations capabilities to replenish and grow our servicing portfolio and provide earnings balance through interest rate cycles. Our Originations platform ranks as a Top 10 Correspondent Lender and Top 5 Reverse Lender by volume and endorsements, respectively, and we've substantially improved our portfolio recapture capabilities over the past four years.

Ocwen has undergone a significant transformation since 2019.

Guided by our strategy, we've transformed the company into a well balanced mortgage originator and servicer that creates positive outcomes for our clients investors.

Investors and communities.

We've built up from our foundation and special residential and small balanced commercial loan servicing with the PHH and RMS acquisitions to include performing agency and reverse mortgage servicing.

Today, we're a top 10 non bank servicer by E&P with broad capabilities and multiple industry awards for delivering top tier industry performance for customers and investors.

We've added multichannel originations capabilities to replenish and grow our servicing portfolio and provide earnings balance through industry cycles.

Our originations platform ranked at the top 10 correspondent lender and top five reverse lender by volume and endorsements respectively and.

And we substantially improved our portfolio recapture capabilities over the past four years.

Glen A. Messina: We believe our rich nations platform is positioned to grow volume and earnings should the forecast for lower interest rates in the second half of 2024 materialize. We've invested in technology to enable low cost, high performance, and improve the customer experience. We re-platformed the entire business, invested in multiple digital interface channels, such as our AI-enabled chatbots and mobile app, and enabling technologies like robotic process automation. Our technology-enabled global operating platform is scalable with a highly competitive cost structure, and we believe we will deliver further profitability improvements as we increase our total service in UPB. Servicing is a capital-intensive business, so we focused on driving prudent, capital-like growth to reduce capital demand.

We believe our originations platform is positioned to grow volume and earnings showed the forecast for lower interest rates in the second half of 2020 for Materialise.

We've invested in technology to enable low cost high performance and improve the customer experience.

We re platform the entire business.

That said multiple digital interface channels, such as our AI enabled chat box and mobile app.

And enabling technologies like robotic process automation.

Our technology enabled global operating platform is scalable.

Are they competitive cost structure, and we believe we will deliver further profitability improvement as we increased our total servicing UBB.

Servicing is a capital intensive business. So we are focused on driving prudent capital light growth to reduce capital demands.

Glen A. Messina: We have 113 subservicing clients, and building from our successful math joint venture with Oaktree, we now have five capital partners which we believe will support our growth by converting new originations to subservicing and growing servicing UPB without traditional or additional MSR investment. To enhance returns, we continue to focus on asset management transactions that leverage our core competency in special servicing. These transactions, including cleanup calls, claims processing, and asset recovery, delivered $15 million in pre-tax income in the second quarter of 2023, and we expect more transactions in 2024.

We have 113 sub servicing clients and building from our successful mask joint venture with Oaktree. We now have five capital partners, which we believe will support our growth by converting new originations to sub servicing and growing servicing you debate without traditional or additional MSR investment.

To enhance returns we continue to focus on asset management transactions that leverage our core competency in special servicing.

These transactions, including cleanup calls claims processing and asset recovery deliver $15 million in pre tax income in the second quarter of 2023, and we expect more transactions in 2024.

Glen A. Messina: We've meaningfully improved business performance, capabilities, and the potential for growth and value creation. We believe the continued execution of our strategy of balance and diversification, capital-like growth, low cost, top-tier operating performance, and dynamic asset management will deliver long-term value for shareholders. Now, please turn to slide four.

We've meaningfully improved business performance capabilities and the potential for growth and value creation we.

We believe the continued execution of our strategy of balance and diversification capital light growth.

Low cost top tier operating performance and dynamic asset management will deliver long term value for shareholders.

Now please turn to slide four.

Glen A. Messina: Despite the challenging environment for Originations, we continue to improve adjusted pre-tax income in the fourth quarter and throughout 2023. We reported fourth quarter adjusted pre-tax income of $11 million and improvement on both a sequential quarter and year-over-year basis. Adjusted pre-tax income for the year of $49 million is up $118 million over last year. Adjusted ROE is in our target range for both the fourth quarter and full year. We reported a $47 million loss in the fourth quarter and a $64 million debt loss for the full year.

Despite the challenging environment for originations, we continue to improve adjusted pre tax income in the fourth quarter and throughout 2023.

We reported fourth quarter adjusted pre tax income of $11 million.

And improvement on both the sequential quarter and year over year basis.

Adjusted pre tax income for the quarter for the year of $49 million.

Is that a $118 million over last year.

Adjusted ROE is in our target range for both the fourth quarter and full year.

We reported a $47 million loss in the fourth quarter, and then $64 million net loss for the full year.

Glen A. Messina: The net loss for both the quarter and the full year was largely driven by MSR fair value changes and hedging. Our fourth quarter unfavorable MSR fair value change was driven by an 82 basis point reduction in key interest rates, offset by a hedge coverage of 69%, which was aligned with our average target for the quarter. In December, we increased our hedge coverage ratio target to 100% to protect book value should rates fall in 2024 as anticipated. The full year unfavorable MSR fair value change reflects the impact of high hedge costs due to the inverted yield curve and rate volatility and a five basis points reduction in our own portfolio value versus prior year end to align with both market value levels. In servicing, we continue to grow average servicing UPP in the fourth quarter and have entered 2024 with subservicing boarding commitments roughly 1.5 times our total additions in 2023. Also, in 2023, we made great progress on enterprise-wide continuous cost improvement. Full-year operating costs were down 19% versus last year, excluding expense notables, further improving our cost competitiveness as we enter 2024.

Net loss for both the quarter and full year was largely driven by MSR fair value changes and Andrew.

Our fourth quarter unfavorable MSR fair value change was driven by 82 basis point reduction in key interest rates offset by hedge coverage of 69%, which was aligned with our average target for the quarter.

In December we increased our hedge coverage ratio target to 100% to protect book value should rates fall in 2024 as anticipated.

The full year unfavorable MSR fair value change reflects the impact of hedge cost due to the inverted yield curve and rate volatility.

Five basis points reduction in our own portfolio of volume versus prior year and to align with bulk market value levels.

In servicing we continue to grow average servicing <unk> in the fourth quarter.

Has entered 2020 for the sub servicing boarding commitments roughly one five times, our total additions in 2023.

Also in 2023, we made great progress on enterprise wide continuous cost improvement.

Full year operating costs were down 19% versus last year, excluding expense notables further improving our cost competitiveness as we enter 2024.

Glen A. Messina: Year-end liquidity of $242 million is up versus both the third quarter and the prior year due in part to support our higher hedge coverage ratio and higher seasonal disbursements in the first quarter. We intend to continue to opportunistically repurchase corporate debt in 2024 as excess liquidity permits. As we look ahead, third-party estimates project industry volume remaining low in the first quarter of 2024 before moving into the spring and summer home buying season.

Year end liquidity of $242 million is up versus both the third quarter and the prior year due in part to support our higher hedge coverage ratio and higher seasonal disbursements in the first quarter.

We intend to continue to opportunistically repurchase corporate debt in 2024 as excess liquidity permits.

As we look ahead third party estimates project industry volume remaining low in the first quarter of 2024 before moving into the spring and summer home buying season.

Glen A. Messina: Declining interest rates for the second half of the year are expected to help drive $2 trillion of total industry originations for the full year. I'm excited about how we're positioned entering 2024. We believe our balanced business model positions us well if interest rates remain steady or decline as projected. Now, please turn to slide five.

Declining interest rates for the second half of the year are expected to help drive two trillion dollars in total industry originations for the full year.

I am excited about how we're positioned entering 2024, we believe our balanced business model positions us well if interest rates remain steady.

Decline is projected.

Now please turn to slide five.

Glen A. Messina: The execution of our strategy has helped us to continuously improve adjusted pre-tax income over the past six quarters and deliver financial performance in line with our adjusted retirement equity guidance. For 2024, our financial objectives start with sustaining the performance improvements we've achieved to date. This will require a continued focus on cost improvement, disciplined MSR investing with optimized hedge coverage, and maintaining a prudent risk and compliance management approach.

The execution of our strategy has helped us to continuously improve adjusted pre tax income over the past six quarters and deliver financial performance in line with our adjusted return on equity guidance.

For 2024, our financial objectives start with sustaining the performance improvements we've achieved to date.

This will require a continued focus on cost improvement disciplined MSR investing with optimized hedge coverage.

And maintaining a prudent risk and compliance management approach.

Glen A. Messina: Next, we're focused on improving return on equity and capital ratios and have three levers to do this. First, by growing our subservicing portfolio while we hold our owned FSR UPB in the $115-$135 billion range. Second, as our access to liquidity permits, we expect to continue to deliver the business through opportunistic debt repurchases, which we believe will also help reduce enterprise risk and earnings volatility. Third, by improving the profitability of our legacy owned MSRs. Roughly 11% of this $18 billion portfolio is over 60 days delinquent, and it carries $458 million in advances, which is diluted by earnings and returns.

Next we're focused on improving return on equity and capital ratios and have three levers to do this.

First by growing our sub servicing portfolio, while we hold our owned MSR and PB in seed.

115 to 135 billion.

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Second as our excess liquidity permits we expect to continue to delever the business through opportunistic debt repurchases, which you believe will also help reduce enterprise risks and earnings volatility.

Third by improving the profitability of our legacy owned MSR.

Roughly 11% of this $18 billion portfolio is over 60 days delinquent and it carries $458 million in advances, which is dilutive to earnings and returns.

Glen A. Messina: Lastly, we're focused on capitalizing on market cycle opportunities. We believe our rich nations platform is positioned to take advantage of a lower interest rate environment. Roughly 17% of our own portfolio would be refinance eligible if the 30-year fixed-rate mortgage drops to 5.5%.

Lastly, we're focused on capitalizing on market cycle opportunities.

We believe our originations platform is positioned to take advantage of a lower interest rate environment.

Roughly 17% of our own portfolio would be refinance eligible if a 30 year fixed rate mortgage dropped to five 5%.

Glen A. Messina: We continue to execute accretive special servicing and subservicing transactions. We have executed four transactions in the past five quarters and continue to scan the market for opportunities. As always, we remain flexible and committed to considering all options in this dynamic market to maximize value for shareholders. We're pleased with the performance improvements we've driven and are committed to executing our financial objectives to further deliver value to shareholders. Now, please turn to slide six.

We continue to execute accretive special servicing and sub servicing transactions executed four transactions in the past five quarters and continue to scan the market for opportunities.

As always we remain flexible and committed to considering all options in this dynamic market to maximize value for shareholders.

We're pleased with the performance improvements we've driven.

We're committed to executing our financial objectives to further deliver value to shareholders.

Now please turn to slide six.

Glen A. Messina: Our balanced and diversified business offers several benefits in the current market cycle. We are first and foremost a servicer, and our servicing business enables us to navigate current market conditions, delivering strong earnings and cash flow performance. While Originations today is not a material earnings contributor, as you can see, in 2021, when interest rates were lower, Originations delivered more substantial earnings.

Our balanced and diversified business offers several benefits in the current market cycle.

We are first and foremost a servicer and our servicing business enables us to navigate current market conditions, delivering strong earnings and cash flow performance.

While originations today is not a material earnings contributor as you can see in 2021 when interest rates were lower originations delivered more substantial earnings.

Glen A. Messina: Our diverse capabilities in both origination and servicing create opportunities and give us multiple avenues to generate earnings growth and returns. We have a top ten or better market position in both originations and servicing, multiple volume acquisition channels, diverse capabilities spanning small balance, commercial, and reverse servicing, and strong default management and loss mitigation capabilities. In addition to growing our agency-forward servicing UPV, we've executed multiple transactions enabled by our special servicing skills and are growing performing and delinquent small-balance commercial loan servicing. We're excited about the potential growth in these higher-margin areas.

Our diverse capabilities in both origination and servicing create opportunities and give us multiple avenues to generate earnings growth and returns.

We are a top 10 or better market position in both originations and servicing.

Multiple volume acquisition channels.

<unk> capabilities spanning small balanced commercial and reverse servicing and strong default management and loss mitigation capability.

In addition to growing our agency forward servicing UBB, we've executed multiple transactions enabled by our special servicing skills and our growing performing until linked with small balance commercial loan servicing.

We're excited about the potential growth in these higher margin areas.

Glen A. Messina: Lastly, we believe our diversified servicing portfolio with the growing mix of subservicing helps mitigate business risk. We've substantially improved our portfolio mix over the past several years, decreased client concentration risk, and reduced liquidity demands with over 85 percent of our servicing portfolio in subservicing and GSE-owned MSRs, where we have maturely lower exposure to advances. Now please turn to slide 7.

Lastly, we believe our diversified servicing portfolio with a growing mix of sub servicing helps mitigate business risk.

We have substantially improved our portfolio mix over the past several years.

Decreased client concentration risk and reduce liquidity demands with over 85% of our servicing portfolio and sub servicing and GSE owned MSR <unk>, where we have materially lower exposure to advance.

Now please turn to slide seven.

Glen A. Messina: We remain focused on capital-like growth and have built a strong foundation with a diverse investor base to support our growth objectives. Total servicing additions were down 31% in 2023, in line with a 32% reduction in overall industry origination volume. However, we increased the mix of subsurface additions.

We remain focused on capital light growth and has built a strong foundation with a diverse investor base to support our growth objectives.

Total servicing additions were down 31% in 2023 in line with the 32% reduction in overall industry origination volume.

We increased the mix of sub servicing additions by.

Glen A. Messina: By 15%, and doubled the volume of MSR UPB sold to capital partners consistent with their goal of driving capital-like growth. In 2023, we grew our average servicing UPB, supported by capital partners, by over 70 percent and established two new MSR capital partner relationships and closed the year with five capital partners in total. We're targeted to add two more by mid 2024.

By 15%.

And doubled the volume of MSR UBB solar capital partners consistent with our goal of driving capital light growth.

In 2023, we grew our average servicing UBB supported by capital partners by over 70% and established two new MSR capital partner relationships and closed the year with five capital partners in total.

We're targeting to add two more by mid 2024.

Glen A. Messina: The most successful of these relationships is our joint venture with Oak Tree and MASS, with an investment position for an investment period that runs through May of 2025 and capacity to support $20 to $25 billion in additional servicing acquisitions. Additionally, nearly all our capital partners have, individually, equal to or more investment capacity than math. I want to thank Oaktree and our other MSR Capital partners for the trust and confidence they have placed in our team to help them achieve their growth and profitability objectives. Our subservicing growth with mortgage banking clients and MSR Capital Partners has allowed us to more than offset runoff in the rhythm subservicing portfolio. Our average servicing UPB excluding rhythm is up 13% in 2022 or versus 2022 and up three times over the last two years.

The most successful these relationships is our joint venture with Oaktree and math.

With an investment position for an investment period that runs through May of 2025 and capacity to support 20 to 25 billion.

In additional servicing acquisitions.

Nearly all of our capital partners have individually equal.

Equal to or more investment capacity than mass.

I want to thank Oaktree and our other MSR capital partners for the trust and confidence they have placed in our team to help them achieve the growth and profitability objectives.

Our sub servicing growth with mortgage banking clients and MSR capital partners has allowed us to more than offset runoff and rhythm sub servicing portfolio.

Our average servicing APB, excluding rhythm is up 13% in 2022 versus 2022 and on.

Three times over the last two years.

Glen A. Messina: We've boarded over $100 billion in subservicing additions in the last 24 months and have client commitments to board $29 billion in servicing UPB in the first half of 2024. We're targeting $69 billion in subservicing additions from all sources in 2024. Our investor-driven approach to MSR purchases results in capital-efficient growth, helps manage our exposure to MSR valuation changes due to interest rates, and introduces an added level of price discipline for the Originations business. Now, please turn to slide 8.

We boarded over $100 billion of Subservicing additions in the last 24 months and our client commitments to board $29 billion and certain servicing <unk> in the first half of 2024.

We're targeting $69 million in Subservicing additions from all sources in 2024.

Our investor driven approached MSR purchases results and capital efficient growth helps manage our exposure to MSR valuation changes due to interest rates and introduces an added level of price discipline for the originations business.

Now please turn to slide eight.

Glen A. Messina: In 2023, we remain dedicated to disciplined MSR investment. Our enterprise sales team delivered solid performance in 2023. However, our origination volume is down roughly 27%, versus down 32% for total industry-rich nation size.

In 2023, we remain dedicated to disciplined MSR investment.

Our enterprise sales team delivered solid performance in 2023.

Our origination volume was down roughly 27%.

Versus down 32%.

Total industry origination volumes.

Glen A. Messina: Consistent with our strategy to drive capital-like growth, you can see the significant increase in MSR-rich nations funded with capital partners. It was a highly competitive market in 2023, and that's unchanged so far in 2024; market leaders and correspondent and co-issue channels continue to have what we believe is an aggressive view of MSR values. Notwithstanding, we remain disciplined in originating MSRs that meet or exceed our yield objectives, which resulted in an 18 percentage point increase in mix in total additions from higher margin channels and products versus 2022. Additionally, we remain committed to managing our own Demostar portfolio in a range of $135 to $115 billion, as we have done in the last three years.

Consistent with our strategy to drive capital light growth.

You can see the significant increase in MSR originations funded with capital partners.

It was a highly competitive market in 2023.

And that's unchanged so far in 2024.

Market leaders in correspondent and coalition channels do you have to have what we believe is an aggressive U S MSR values.

Notwithstanding we remain disciplined in originating msr's that meet or exceed our yield objectives, which resulted in an 18 percentage point increase in mix in total additions from higher margin channels and products versus 2022.

We remain committed to managing our own MSR portfolio and a range of $135 billion to $115 billion as we have done in the last three years.

Glen A. Messina: This helps us manage interest rate risks and supports our objective of opportunistically repurchasing debt as excess liquidity permits. We're also using excess servicing spread transactions to further mitigate interest rate risk as well as reduce exposure to high hedge costs and performance variation when interest rates in the financial markets are volatile. We continue to grow our subservicing UPB with the success of our enterprise sales team and intend to accelerate growth with our MSR Capital Partners in 2024. Now, please turn to slide 9.

This helps us manage interest rate risks and supports our objective of opportunistically repurchasing debt as excess liquidity permits.

We're also using excess servicing spread transactions to further mitigate interest rate risk as well as reduce exposure to high hedge cost and performance variation when interest rates in the financial markets are volatile.

We continue to grow our Subservicing you debate with the success of our enterprise sales team and intend to accelerate growth with our MSR capital partners in 2024.

Now please turn to slide nine.

Yes.

Glen A. Messina: We have been relentlessly focused on building one of the best performing servicing platforms in the industry while maintaining a highly competitive cost structure. Our platform delivers superior performance versus other servicers across numerous servicing performance metrics, and our capabilities have been recognized by Fannie Mae, Freddie Mac, and HUD with top-tier industry performance awards for several years. In previous quarters, we spoke about the improvement in customer experience we've delivered for clients, our ability to cure 60-plus-day delinquencies, our superior HUD points assignment performance, and our ability to maximize REO sales price Here again, you can see we also consistently achieve lower delinquency levels compared to the industry average, as reported by Insight Mortgage Finance.

We had been relentlessly focused on building one of the best performing servicing platforms in the industry, while maintaining a highly competitive cost structure.

Our platform delivered superior performance versus other servicers across numerous servicing performance metrics and our capabilities have been recognized by Fannie Mae Freddie Mac and HUD with top tier industry performance award for several years.

In previous quarters spoke about improving the customer experience we've delivered for clients.

Our ability to secure a 60 plus day delinquencies are superior claims assignment performance.

And our ability to maximize our REO sales price versus appraise value, while selling within the timeframe allowed by hub.

Here again, you can see we also consistently achieve lower delinquency levels compared to the industry average as reported by inside mortgage finance.

Glen A. Messina: In addition, since the fourth quarter of 2020, more of our borrowers have exited forbearance, either as current or paid in full with an active loss mitigation plan than the industry average as reported by the NBA. Our focus on continuous cost improvement has positioned us with a highly competitive cost structure. Based on the results of the NBA's Annual Servicing Operations Study for 2022, our fully loaded forward residential servicing costs in base points of UPB are 27 percent lower than our large bank peers and are favorable to our large independent mortgage banking peer group that has an average forward residential servicing UPB more than twice our size. Moreover, our servicing costs and base points of UPB are inflated compared to large servicer peers due to our relative high concentration of PLS servicing. If we compare cost per loan for performing and non-performing loans versus this group, we're materially lower in every comparison.

In addition, since the fourth quarter of 2020 more of our borrowers have exited forbearance interest current or painful was inactive loss mitigation plan than the industry average as reported by the MBA.

Our focus on continuous cost improvement has positioned us with a highly competitive cost structure.

Based on the results of the Nba's annual servicing operation study for 2022.

Our fully loaded for residential servicing cost and basis points of view P. R.

Our 27% lower than our large bank peers and are favorable to our large independent mortgage banking peer group that has an average forward residential servicing UCB more than twice our size.

Moreover, our servicing cost and basis points of view are inflated compared to large servicer peers due to our relative high concentration of pls servicing.

If we compare cost per loan for performing and nonperforming loans versus this group were materially lower and every comparison.

Our cost competitiveness comes from continuous process improvement strategic investments in technology, and our global operating capability.

Sean O'Neill: Our cost competitiveness comes from continuous process improvement, strategic investments in technology, and our global operating capability. With roughly 35% of our servicing cost structure fixed for semi-variable, we believe we can further improve our efficiency as we grow total servicing UPV. I believe this, along with the other metrics I discussed, demonstrate that we are one of the strongest operators in the industry. Now, we'll turn it over to Sean to discuss our results for the fourth quarter. Thank you, Glen.

With roughly 35% of our servicing cost center fixed or semi variable. We believe we can further improve our efficiency as we grow total servicing UBB.

I believe this along with the other metrics I discuss demonstrate that we are one of the strongest operators in the industry.

Now I'll turn it over to Sean to discuss our results for the fourth quarter.

Thank you Glenn Please turn to slide 10 for our financial highlights.

Sean O'Neill: Please turn to slide 10 for our financial highlights. I'm going to cover both our fourth quarter and full year 2023 results. Overall, I'm proud of our positive progress and results for both the quarter and the year and excited about our financial outlook for 2024. For the quarter, the headline is that both our servicing and origination businesses continued their profitable trend and collectively demonstrated yet another quarter of improving positive adjusted pre-tax income. Let's start with the fourth quarter first, the gray column in the middle of the page.

I'm going to cover both fourth quarter and full year 2023 results.

Overall, I'm proud of our positive progress and results for both the quarter and the year and excited about our financial outlook for 2024.

For the quarter. The headline is both our servicing and origination businesses continued their profitable trend and collectively demonstrated yet another quarter of improving positive adjusted pre tax income.

Let's start with the fourth quarter first the gray column in the middle of the page the decline in GAAP net income negative $47 million versus prior quarters positive $8 million was driven by interest rate impacts on our MSR net of hedge due to about an 80 basis point decline in rates the.

Sean O'Neill: The decline in GAAP net income, negative $47 million versus the prior quarter's positive $8 million, was driven by interest rate impacts on our MSR net of hedge due to about an 80 basis point decline in rates. The adjusted pre-tax income is up from Q3 to $11 million for the quarter, driven by servicing with a small contribution from origination. This resulted in an adjusted pre-tax ROE in line with our prior guidance of 9.4%. The fourth quarter was also up year over year by $7 million due to both higher revenue and lower costs.

The adjusted pre tax income is up from Q3 to $11 million for the quarter driven by servicing with a small contribution from originations.

This resulted in an adjusted pre tax ROE in line with our prior guidance of nine 4%.

Fourth quarter was also up year over year by $7 million due to both higher revenue and lower costs.

Sean O'Neill: For the full year 2023, please go to the far right to the blue column where we recognize a gap net income loss of $64 million, primarily driven by MSR fair value changes and hedging performance. Our full year adjusted pre-tax income of $49 million illustrates the strength of our year, bringing our adjusted ROE back to low double digits at 10.1%. Finishing off the table to the left, I'd note liquidity ended the fourth quarter higher than normal due to cash inflows from the MSR hedges and seasonally lower origination volumes. Our portfolio of tax net operating loss carry forwards continued to have a positive effect as the NOL saved us over $3 million in cash by mitigating our 2023 tax expense.

For the full year 2023, please go to the far right into the Blue column, where we recognized GAAP net income loss of $64 million, primarily driven by MSR fair value changes and hedging performance.

Our full year adjusted pre tax income of $49 million illustrates the strengths strength of our year, bringing our adjusted ROE back to low double digits at 10, 1%.

Finishing off the table to the left I'd note liquidity ended the fourth quarter higher than normal due to cash inflows from the MSR hedges and seasonally lower origination volumes are.

Our portfolio of tax net operating loss carryforwards continued to have a positive effect as the Nols saved us over $3 million in cash by mitigating our 2023 tax expense.

Sean O'Neill: Our expectation of an adjusted pre-tax income ROE of 12 plus percent in 2024 builds on the 10 plus percent we delivered in 23. There will be more guidance for 2024 in a few pages. For a more detailed view of the interest rate impacts on the MSR valuation, please turn to page 11. The chart on the left shows the movement in our owned MSR portfolio from year-end 22 to year-end 23. As a reminder, we obtain our MSR marks from independent valuation experts and benchmark the experts' mark against other outside marks, external surveys, and our own market observations. Over the year, the fair value declined by five basis points, from 136 to 131 basis points.

Our expectation of an adjusted pre tax income ROE of 12 plus percent in 2024 builds on the 10 plus percent. We delivered in 2003, there will be more guidance for 2024 and a few pages.

For a more detailed view of the interest rate impacts on the MSR valuation. Please turn to page 11.

The chart on the left shows the movement in our owned MSR portfolio from year end 'twenty two to year end 'twenty three as a reminder, we obtain our MSR marks from independent valuation experts and benchmark the experts mark against other outside marks.

External surveys and our own market observations.

Over the year, the fair value declined by five basis points 136 down to 131 basis points.

Sean O'Neill: This reflected market pricing. In addition to market pricing, the calibration of the book was impacted by the increasing note rate of the portfolio, which grew by 50 basis points as we added new origination at higher current rates and also sold MSRs with relatively lower note rates to MSR capital partners. Typically, higher note rate MSRs are more susceptible to prepayment risk as rates decline, and all else being equal, this can lower the value of a higher note rate MSR compared to a lower note rate MSR.

This reflected market pricing.

In addition to market pricing the calibration of the book was impacted by the increasing note rate of the portfolio, which grew by 50 basis points as we added new origination at higher current rates and also sold msr's with relatively lower note rates to MSR capital partners.

Typically higher note rate msr's are more susceptible to prepayment risk as rates decline and all else being equal this can lower the value of a higher note rate MSR compared to a lower net rate MSR.

Sean O'Neill: The right chart shows the impact of interest rates on our own MSR book for all four quarters in 2023, along with the hedge offset and the net result. As you can see, Q1 and Q4 were both quarters where interest rates declined, driving down MSR values as they're more likely to prepay. Interest rates are shown by the solid line showing the 10-year swap.

The right chart shows the impact of interest rates on our owned MSR book for all four quarters in 2023, along with the hedge offset and the net result.

As you can see.

Q1, and Q4 were both quarters, where interest rates declined driving down MSR values as they are more likely to prepay interest rates are shown by the solid line showing the 10 year swap. This Q1 and Q4 resulted in declines in the MSR value. That's the gray bar offsetting improvements in the hedge which is the light.

Sean O'Neill: Thus Q1 and Q4 resulted in declines in the MSR value, that's the gray bar, offsetting improvements in the hedge, which is the light blue, and a resulting net loss or gain. The magnitude of the hedge offset is driven by our hedge coverage ratio, which is shown here as both a target and an actual result in the table below the graph. Even a 100% hedge coverage ratio that is perfectly efficient, meaning no basis difference between the asset and the hedge, will still have other offsets, such as negative carry or option volatility in pricing.

Blue and a resulting net loss or gain the.

The magnitude of the hedge offset is driven by our hedge coverage ratio, which is shown here is both the target and an actual result in the table below the graph.

Even a 100% hedge coverage ratio that is perfectly efficient, meaning no basis difference between the asset and the hedge we will still have other offsets such as negative carry to wear off.

Option volatility in pricing most firms refer to this collectively as hedge costs.

Sean O'Neill: Most firms refer to this collectively as hedge cost. Thus, the end result for the year is the combination of asset movement, hedge offset, and hedge cost. As you can see, we have been increasing our hedge coverage ratio throughout the year and, most recently, we have adopted a hedge coverage ratio of 100% as of December 2023. We expect this to reduce the volatility of our MSR value in both up and down rate markets, but it comes at a higher cost overall than a lower HCR hedge approach. Page 12 gives some perspective on our desire to deploy excess liquidity to continue to de-leverage the company. Starting with the top graph, this shows liquidity growing year over year, and from the third quarter onwards, some of this liquidity is reserved for a higher hedge coverage ratio than prior quarters, as well as higher seasonal disbursements.

So the end result for the year is the combination of asset movement hedge offset and hedge costs. As you can see we have been increasing our hedge coverage ratio throughout the year and most recently have adopted hedge coverage ratio of 100% as of December 2023.

We expect this to reduce the volatility of our MSR value in both up and down right markets, but it comes at a higher cost overall than a lower HCR hedge approach.

Page 12 gives some perspective on our desire to deploy excess liquidity to continue to deleverage the company.

Starting with the top graph shows liquidity growing year over year and from the third quarter. Some of this liquidity is reserved for the higher hedge coverage ratio than prior quarters as well as higher seasonal disbursements in the first quarter.

Sean O'Neill: We executed a repurchase plan to retire debt in Q4 and early Q1, but since we had to set the debt price in advance of execution, the improvement in our debt price kept our plan bid outside the range where sellers were active, and no debt was retired. We are currently approved to retire up to $40 million of debt by our board and intend to execute another plan shortly. We expect to remain committed to using excess liquidity to retire debt. The lower graph shows our current debt-to-equity ratio and where we intend to target a lower ratio by the end of the year through a combination of better earnings and debt retirement. We believe this will facilitate any future transactions to refinance our remaining corporate debt with an objective to execute on that refi sometime in the next five quarters.

We executed the repurchase plan to retire debt in Q4, and early Q1, but since we had to set the debt priced in advance of execution the improvement in our debt price kept our plan bid outside the range, where sellers were active and no debt was retired we.

We are currently approved to retire up to $40 million of debt buyer board and intend to execute another plan shortly and expect to remain committed to using excess liquidity to retire debt. The lower graph shows our current debt to equity ratio and where we intend to target a lower ratio by the end of the year through a combination of better earnings and debt retirement.

We believe this will facilitate any future transactions to refinance our remaining corporate debt with an objective to execute on that refi sometime in the next five quarters.

Sean O'Neill: We also plan to opportunistically pursue subservicing retained MSR sale opportunities where appropriate, as this will reduce MSR hedging and valuation exposure, as well as provide immediate liquidity. Finally, we have begun plans to launch a separate legal entity to hold our Ginnie Mae forward assets to meet the new Ginnie Mae risk-based capital ratio requirements and have had preliminary discussions with Ginnie Mae to vet this approach.

We also plan to Opportunistically pursue sub servicing retained MSR sale opportunities where appropriate as this will reduce MSR hedging and valuation exposure as well as provide immediate liquidity.

Finally, we have begun plans to launch a separate legal entity to hold our Ginnie Mae forward assets to meet the new Ginnie Mae risk based capital ratio requirements and have had preliminary discussions with Ginnie Mae divert this approach.

Sean O'Neill: Please turn to page 13 for an overview of our servicing segment, both forward and reverse. Servicing continued to improve its contribution to net income for both year over year and trailing quarters. You can see this in the upper left graph that shows adjusted pre-tax income improvement.

Please turn to page 13 for an overview of our servicing segment, both forward and reverse.

Servicing continued to improve its contribution to net income for both year over year and trailing quarters.

Can see this in the upper left graph that shows adjusted pre tax income improvement.

Sean O'Neill: This was driven by higher revenues and lower operating expenses in the forward servicing space. The reverse phase remains strongly profitable, but it declined slightly quarter over quarter due to a declining reverse portfolio balance. Continuing a capital-light approach, we grew subservicing volumes by 6% year over year, measured in UPB due to transactions with existing and new capital partners, as well as winning new clients. Already in 2024, we have signed contracts with counterparties to board over $29 billion of UPB in the first six months of the year. This amount is one and a half times the entire full year 2023 subservicing volume ads. So we're off to a good start. The other driver was continued cost improvement with technology, continued migration away from paper, and other process improvements.

This was driven by higher revenues and lower operating expenses and the forward servicing space. The reverse space remains strongly profitable, but declined slightly quarter over quarter due declined due to declining reverse portfolio balances.

Continuing a capital light approach, we grew sub servicing volumes by 6% year over year measured in U P. B due to transactions with existing and new capital partners as well as winning new clients.

Already in 2024, we have signed contracts with Counterparties to board over $29 billion of <unk> in the first six months of the year.

This amount is one five times the entire full year 2023, some servicing volume adds so we're off to a good start.

The other driver was continued cost improvements with technology continued migration away from paper and other process improvements. Please.

Sean O'Neill: Please turn to page 14 for a snapshot of profit and liquidity drivers enabled by special and reverse servicing skill sets. We lowered advances on our legacy asset book year-over-year by 14% as we reduced the UPB of these assets by 10%. This improvement results in lower borrowing costs on servicing advances, which helps our net income and allows us to divert liquidity to other areas. Whether it is our own book that we're servicing or a client's book, our goal is to improve returns via better performance of the assets. Each special servicing portfolio is unique, and we have a broad range of skills and expertise to manage different legacy pools. On the reverse side, our existing reverse servicing insight and valuation expertise helped us to execute a transaction in the second quarter of 2023 that generated significant excess liquidity and pre-tax income, and we're expecting to leverage this expertise for more transactions in 2024. Please turn to page 15 for an overview of the origination segment, both forward and reverse.

Please turn to page 14 for a snapshot of profit and liquidity drivers enabled by special and reverse servicing skill sets.

We lowered advances on our legacy asset book year over year by 14% as we reduce the <unk> of these assets by 10%.

This improvement results in lower borrowing costs and servicing advances, which helps our net income and allows us to divert liquidity to other areas.

Whether it is our own book that we're servicing or clients book. Our goal is to improve returns via better performance of the assets. Each vessel servicing portfolio is unique and we have a broad range of skills and expertise to manage different legacy pools.

On the reverse side, our existing reverse servicing insight and valuation expertise helped us to execute execute a transaction in the second quarter of 2003 that generated significant excess liquidity and pre tax income and we're expecting to leverage this expertise for more transactions in 2024.

Please turn to page 15 for an overview of the origination segment, both forward and reverse.

Sean O'Neill: In Originations, we continue to maintain profitability despite seasonally slower fourth-quarter volume. The main driver was again our correspondent and co-issue channels, which overcame small losses in the reverse and consumer direct channels. While volumes were lower, quarter over quarter, in all three channels, the right graphs demonstrate robust margin management and focus on MSR cash yields to maintain margins in correspondent and reverse, and only suffered a slight deterioration in the CD channel. Although we remain a top 10 correspondent lender and a top 5 reverse lender, we are committed to profitable growth versus rank. Page 16 gives a view on our stock price, which is now performing in line with the Russell 2000 but slightly underperforming a group of our peers. The discount to book just prior to this earnings release was around 55 percent.

In originations, we continued to maintain profitability, despite seasonally slower fourth quarter volume.

Main driver was again, our correspondent and co issue channels, which overcame small losses in the reverse and consumer direct channels.

While volumes were lower quarter over quarter in all three channels. The right graphs demonstrate robust margin management and focus on MSR cash yields to maintain margins in correspondent and reverse and only suffered a slight deterioration in the <unk> channel.

Although we remain a top 10 correspondent lender and a top five reverse lender, we are committed to profitable growth versus rankings.

Page 16 gives a view on our stock price, which is now performing in line with the Russell 2000, but slightly underperforming a group of our peers.

The discount to book just prior to this earnings release was around 55% and as a reminder, while we may trade in line with some originators. We are primarily a servicer and the bulk of our profits and book value improvement have come from the servicing business for the last seven quarters.

Sean O'Neill: And as a reminder, while we may trade in line with some originators, we are primarily a servicer, and the bulk of our profits and book value improvement have come from the servicing business for the last seven quarters. The discount to book in the lower graph is measured as the share price following our earnings release versus our quarter-end book value, with the exception of the fourth quarter bar on the right. We continue to believe in our positive growth trends and adjusted pre-tax income. The growth in our servicing book, our ability to run originations at a profit during a difficult market period, as well as our ability and willingness to reduce our senior secured debt all support a stronger share price than we currently have.

The discount to book in the lower graph is measured as the share price following our earnings release versus our quarter end book value with the exception of the fourth quarter bar on the right.

We continue to believe our positive growth trends in adjusted pre tax income.

The growth in our servicing book, our ability to run originations at a profit during a difficult market period as.

As well as our ability and willingness to reduce our senior secured debt all support a stronger share price than we currently have.

Sean O'Neill: There is a road map on page 17 that gives guidance on profitability targets in 2024. I won't go through the details other than reaffirm our target of 12 plus percent adjusted ROE for the full year. Before I turn the mic back to Glen, I wanted to point out to investors a few additional data points in our appendix. We continue to provide data on fully diluted shares in equity. We have a page on MSR valuation assumptions that is incredibly transparent and can be used versus pure data and surveys where we show many valuation parameters.

There is a road map on page 17, it gives guidance to profitability targets in 2024 I won't go through the details other than reaffirm our target of 12 plus percent adjusted ROE for the full year.

Before I turn the mic back to Glen I wanted to point out to investors a few additional data points in our appendix.

We continue to provide data on fully diluted shares and equity.

We have a page on MSR valuation assumptions that is incredibly transparent and can be used versus pure data and surveys, where we show many valuation parameters.

Sean O'Neill: With respect to our balance sheet, we provide a more granular view titled Condensed Balance Sheet Breakdown, which delineates assets that require matching, asset, and liability gross ups under GAAP treatment. I invite you to look at these and other pages in the appendix to help you with your analysis. Back to you, Glen.

With respect to our balance sheet, we provide a more granular view titled condensed balance sheet breakdown, which delineates assets that require matching asset and liability grow subs under GAAP treatment.

I invite you to look at these and other pages in the appendix to help you with your analysis.

Back to you Glenn.

Glen A. Messina: Thanks, Sean. Please turn to slide 18 for a few wrap-up comments before we go to Q&A. I'm excited about how we're entering 2024 and believe we are well-positioned to navigate the market environment ahead and deliver long-term value for our shareholders. Our balanced and diversified business creates opportunities, mitigates risks, and supports our ability to perform across multiple business cycles. We're executing a focused, prudent, capital-like growth strategy, leveraging our superior operating capabilities to grow subservicing across multiple investor and product types. You've expanded our client base, grown our Originations volume mix from higher-margin channels and products, and continued to improve ReCap's performance, and believe our Originations platform is positioned to take advantage of declining interest rates. We have a strong pipeline of subservicing boarding commitments, and we've expanded our MSR Capital Partner relationships to accelerate subservicing growth.

Thanks, Sean please.

Please turn to slide 18 for a few wrap up comments before we go to Q&A.

I am excited about how we're entering 2024 and believe we are well positioned to navigate the market environment ahead, and deliver long term value for our shareholders.

Our balanced and diversified business creates opportunities mitigates risks and supports our ability to perform across multiple business cycles.

We're executing a focused prudent capital light growth strategy, leveraging our superior operating capabilities to grow sub servicing across multiple investor and product types.

We've expanded our client base grown our originations volume mix from higher margin channels and products and continue to improve recapped performance and believe our originations platform is positioned to take advantage of declining interest rates.

We have a strong pipeline of sub servicing boarding commitments and we've expanded our MSR capital partner relationships to accelerate some servicing growth.

Our servicing platform delivers top tier operational performance levels, resulting in measurable improvements for our clients.

Ours and investors.

Glen A. Messina: Our servicing platform delivers top-tier operational performance levels, resulting in measurable improvements for clients, borrowers, and investors. Through our investment in technology, global operating capability, and process improvement, we've built a scalable servicing platform with a best practice cost structure and capacity for growth that delivers improved borrower and client satisfaction. Lastly, we're prudently managing capital and liquidity for economic and industry volatility and deleveraging our balance sheets as excess liquidity permits to further improve financial performance and mitigate capital structure risk. Overall, we're excited about the potential for our business and do not believe our recent share price is reflective of our financial position, growth opportunities, or the strength of our business. And with that, Joelle, let's open up the call for questions. Thank you. Ladies and gentlemen, we will now begin the question and answer session together, starting with the star followed by the one on your touch tone. You will hear a three-tone prompt acknowledging your request, and your questions will be pulled in order. Climb from the polling post. Press Star, followed by the number. If you are using a speaker phone, please lift the handset.

So our investment in technology global operating capability and process improvement, we have built a scalable servicing platform with the best practice cost structure and capacity for growth that delivers improved borrower and client satisfaction.

Lastly, we are prudently managing capital and liquidity for economic and interest rate volatility and deleveraging our balance sheet is as excess liquidity permits to further improve financial performance and mitigate capital structure risks.

Overall, we're excited about the potential for our business is and I believe our recent share price is reflective of our financial position growth opportunities or the strength of our business.

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

Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press star followed by the one on your Touchtone phone, you'll hear a three pronged acknowledging your request and your questions will be pulled in the order. They are received should you wish to decline from the polling process. Please press star followed by the two if you are using.

A speaker phone please lift the handset before pressing any Keith one moment. Please for your first question.

Your first question comes from Bose George with <unk>. Please go ahead.

Operator: One moment. The question comes from Bullock George with K... Everyone, good morning. I wanted to ask just about the new 100% hedge ratio. Does that also hedge the escrow income components? So, like if the curve, if the Fed cuts and the curve steepens, you know, with long rates remaining somewhat, so somewhat elevated, you know, how does that look in terms of the hedge? Yeah, good morning, Boaz.

Everyone. Good morning.

I wanted to ask just on the new the 100% hedge ratio.

Does that also hedged the escrow income components, so like if the curve if the fed cuts and the curve steepens.

With long rates remaining somewhat so somewhat elevated how does that look in terms of the hedge effectiveness.

Yeah. Good morning Bose at any short answer is yes, we are hedging all components of MSR fair value change do you think as you may know is well, there's two ways in which the escrow can impact the P&L. There's the initial day, one mark to market as interest rates change that's covered in our hedge coverage ratio of 100.

Glen A. Messina: And the short answer is yes, we're hedging all components of MSR, the fair value change. I think, as you may know as well, there are two ways in which the escrow can impact the P&L. There's the initial day one mark to market as interest rates change, and that's covered in our hedge coverage ratio, the 100 percent hedge coverage ratio target. But on an ongoing basis, obviously, if interest rates, the short end of the curve, dropped, we'd have less float earnings that accrete into our P&L. And that's really hedged on an ongoing basis with our floating rate debt. Right. So if the short end of the curve comes down, our floating rate interest expense would come down with it as well, too. So we've got both components effectively. Okay, great. Thanks.

Hedge coverage ratio target, but on an ongoing basis, obviously, if interest rates. The short end of the curve drops we'd have less Luke earnings that on an ongoing basis accretive to our P&L.

And that's really hedged.

On an ongoing basis with our floating rate debt right. So short end of curve comes down our floating rate interest costs would come down with it as well too. So we've got both components effectively.

Okay, great. Thanks, and then actually switching over to the debt repurchases.

<unk>.

You've got the PMC and you've got the two senior debts, which ones are you repurchasing and when you talk about the refinancing is that the 2026 that you focused on I assume.

Sean O'Neill: And then switching over to the debt repurchases. Can you, you've got the PMC, and you've got the, you know, the two senior debts. Which ones are you repurchasing? And when you talk about refinancing, is that the 2026 that you're focused on, I assume? Hey, Boz, it's Shawn here.

Hey, Bose its Sean here.

We can actually repurchase either debt currently we've been repurchasing the PHH debt.

And that's because we can buy that at a discount and generate a gain as well as that is maturing a year earlier than the OFC that and yes, when I referred to a debt refinance I was referring to the earlier maturity, which is $360 million of principal balance, which matures in three of 26.

Sean O'Neill: We can actually repurchase either debt. Currently, we've been repurchasing the PHH debt. And that's because we can buy that at a discount and generate a gain, as well as because it's maturing a year earlier than the OFC debt. And yes, when I referred to a debt refinance, I was referring to the earlier maturity, which is $360 million of principal balance, which matures in 3 of 26. Okay. Okay, great. Thanks a lot.

Okay.

Okay, great. Thanks, a lot.

Your next question comes from Derrick Summers with Jefferies. Please go ahead.

Hi, Good morning, I was wondering if you could walk through the puts and takes of better industry participation in the reverse market on one hand.

Obviously more competition on the upper there might be increased customer awareness of the reverse product and better secondary market liquidity just wanted to get your thoughts on that.

Operator: Thank you. Bye bye. Your next question comes from Derek Summers with Jeffries. Please go ahead. Hi, good morning.

Yes, good morning, Derrick So look I mean, one of the.

Glen A. Messina: I was wondering if you could walk through the puts and takes of better industry participation in the reverse market. On the one hand, there would obviously be more competition, but on the other, there might be increased customer awareness of the reverse product and better secondary market liquidity. Just want to get your thoughts on that. Derek.

Our firm view has been the reverse mortgage product has really suffered from a lack of distribution.

It has been a small niche based industry on players who focus principally on reverse products.

And we think that's limited the growth potential of the product.

In our view so yeah, we were named as one of the partners of the year by the National Association of mortgage brokers for our efforts to educate the broker community on reverse mortgages.

Glen A. Messina: So look, I mean, one of the things we've found in our firm view has been that the reverse mortgage product has really suffered from a lack of distribution. It has been a, you know, small niche-based industry with players who focus principally on reverse products. And we think that's limited the growth potential of the product, in our view.

And we're supporting a number of our clients correspondent clients in a forward space and their distribution of your reverse mortgage product.

Glen A. Messina: So, you know, we were named one of the partners of the year by the National Association of Mortgage Brokers for our efforts to educate the broker community on reverse mortgages. And, you know, we're supporting a number of our clients, correspondent clients in the forward space, in their distribution of your reverse mortgage product. You know, look, because we participate in all segments of the reverse industry from an origination perspective, so Director Consumer, Wholesale, and Correspondent.

Yes look because we participate in all segments of the reverse industry from an originations perspective so.

Direct to consumer wholesale and correspondent.

We tend to we would expect to benefit the most in our correspondent channel by growing.

We're seeing a growth in forward originators moving into the reverse product space and then obviously assay.

Glen A. Messina: You know, look, we tend to, we would expect to benefit the most in our correspondent channel by growing or seeing a growth in forward originators moving into the reverse product space. And then, obviously, as one of the only originators who services and subservices reverse MSRs as well as originates, that creates, you know, additional growth opportunities for us in the servicing and in the MSR portfolios. So, you know, look, we're excited about forward players getting into this industry. We think there is a large untapped potential out there that needs distribution. I got it.

One of the only originators, who services and sub services reverse msr's as far as originates now creates additional growth opportunity for us on the servicing and owned MSR portfolio. So.

We're excited about forward players getting into this industry, we think.

There is a large untapped potential out there that needs distribution.

Got it. Thank you and then just looking at slide 17.

Your 2000 and for guidance can you talk about what kind of interest rate environment is embedded into that guidance.

Yes.

Hey, Derek Yes, we are.

We forecast our volumes and most specifically origination activity.

Sean O'Neill: Thank you. And then, just looking at slide 17 with your 24 guidance, can you talk about what kind of interest rate environment is embedded in that guidance? Hey Derek.

A flat.

Non flexing interest rate view, so if interest rates decline from where they finished the year that will help this forecast if they increase it could slow down on the origination side with.

Sean O'Neill: Yes, we forecast our volumes and, you know, most specifically origination activity on a flat, you know, non-flexing interest rate view. So if interest rates decline from where they finished the year, that will help this forecast; if they increase, it could slow it down on the origination side with, you know, inverse effects on the servicing. Got it. Thank you. Very helpful.

Adverse effects on the servicing.

Got it. Thank you very helpful. That's all for me.

Operator: That's all from me. Your next question comes from Matthew Howlett with B Riley. Please go ahead.

Your next question comes from Matthew Howlett with B Riley. Please go ahead.

Operator: Oh, hey, good morning. Thanks. And, you know, I love the guidance and congratulations. I just want to circle back to the 26th.

Oh, Hey, good morning. Thanks.

The guidance congratulations I just wanted to circle back to the 26 I think Sean you said next five quarters you think.

Sean O'Neill: I think, Sean, you said the next five quarters. You think? You can look at the term market here. My first question is, one, where are the bonds trading? Where do you think you can buy back the bonds today in terms of what implied yield? I mean, you had a nice write-up from S&P. Where do you think you could enter the market? We've talked about five-year and 10-year debt. We've obviously seen Cooper do deals at 7%.

You can look at the.

Term market here at <unk>.

First question is one where we're the bonds trading where do you. What do you think you can buyback the <unk>.

And today in terms of what what's implied yielded.

You had a nice ride up from S&P, what do you think you could.

Enter the market for five year tenure that we've always seen kimco Purdue deals at 70% Youre down there yet, but just talk a little bit about market color, where your bonds are trading so forth.

Sean O'Neill: I don't think you're down there yet, but just talk a little bit about market color, where your bonds are trading, so forth. Sure. Good morning, Matt.

Sure Good morning, Matt.

So right now our bonds the high yield bonds. The 360, <unk> balance I mentioned a minute ago to Bose is trading somewhere between 91% 92, So that's a rough yield to maturity of call. It 12, 5%.

Sean O'Neill: So right now, our bonds, the high-yield bonds, the 360 balance I mentioned a minute ago to Bose, are trading somewhere between 91 and 92. So that's a rough yield to maturity of, call it, 12.5%. We think that as the bonds shorten and tenor and get closer to maturity, typically in the high-yield market, that drives up the yield to maturity.

We think that as the bonds shorten in tenure and get closer to maturity.

Typically in the high yield market that drives up the yield to maturity and.

In addition, if we continue to demonstrate an ability to pay down the existing debt that improves our leverage ratios, which should also improve the coupon at which we can refinance these so.

Sean O'Neill: In addition, if we continue to demonstrate the ability to pay down the existing debt, that improves our leverage ratios, which should also improve the coupon at which we can refinance these. So I think we'll be competitive for, say, five to seven-year non-call-to-type high-yield products when it comes time to refinance. But I think we also need to demonstrate to the debt investors an ability to reduce the existing leverage prior to that transaction. Is there a ratio you could get to where you could possibly get upgraded, or have I read the S&P report? It sort of outlined a few metrics where you could get upgraded.

I think we'll be competitive for say five to seven year non call too tight high yield product. When it comes time to refinance and I think we also need to demonstrate to the debt investors an ability to reduce the existing leverage prior to that transaction.

Is there a ratio you could get to where you could get possibly upgraded or read the S&P report said sort of.

One to two metrics, where it could get upgraded.

Sean O'Neill: Yeah, so that report specifically referenced debt to EBITDA, which we think will be inside or lower than their projected target for the end of the year 2024. And then we do show that our, we intend that our debt to equity ratio measure, just a kind of pure gap balance sheet metrics, is going to continue to improve throughout 2024. So it should come in better; the debt to equity ratio should come in, you know, better than the 3.9 that we have as a high watermark there. That would be terrific.

Yeah. So that report specifically referenced debt to EBITDA, we think will be inside or lower than their projected target for the end of year 2020 for NAND, we do show that our.

We intend that our debt to equity ratio a measure just on kind of pure GAAP balance sheet metrics is going to continue to improve throughout 2024. So it should come in better the debt to equity should come in better than the three nine that we have on kind of a.

High high watermark there.

So that would be terrific.

Glen A. Messina: They're just moving to... Glen, I missed the comments on selling the owned MSR book. I see the guidance between... assuming the low end, some owned MSRs, but What's the case for against selling today more owned MSRs to one of your managed funds and deleveraging that one? That would improve your credit profile, I mean, obviously, it'll lower the earnings. I'm the owner of the sub, walk me through it. Why wouldn't you start on that immediately? What's holding you back?

Then just moving to Glen I missed the comments on the selling the owned MSR book the way I see the guidance between $1 15 to 145, assuming the low end of that guidance assumes you'll sell.

Owned MSR, but.

What's the case for against selling today more owned MSR as to one of your managed funds.

And deleveraging that way.

Would that improve your credit profile I mean, all here to listen to the earnings.

From the OEM to start with just.

Walk me through why wouldn't you started that immediately or what's holding you back a.

Glen A. Messina: And a little bit. Why couldn't you even go lower than one? Yeah, I mean, I'll start here. And then, you know, Sean, you can jump in. So, look, one of the things that Sean talked about was maintaining the flexibility to, you know, if market conditions are appropriate, opportunistically sell MSRs with one of our capital partners, you know, to one of our capital partners and convert it to subservicing so we could pay down additional debt. You know, in those types of transactions, because we are, you know, bifurcating the MSR into an owned MSR and subservicing, we have to make sure there's no value leakage in the transaction. So, you know, that is going to be opportunity dependent. And look, we are keeping that as a lack of a determined arrow in our quiver to accelerate that reduction, if possible, you know, if opportunities permit. John, anything you want to add?

A little bit why couldn't even go lower than $1 15 on the owned MSR.

Yeah, I mean I'll start here and then Sean you can you can jump in so look one of the things that Sean talked about was maintaining the flexibility to.

If market conditions are appropriate opportunistically sell.

<unk> with one of our capital partners said to one of our capital partners and convert it to.

Sub servicing so we could we pay down additional debt.

Yes, and those type of transactions.

Cause we are bifurcated the MSR into an owned MSR and sub servicing we have to make sure theres no value leakage in the transaction.

So that is it is going to be opportunities ended.

And look we are keeping that as a lack of a better determined arrow in our quiver to.

Accelerate debt reduction.

Possible.

If opportunities permit John anything you want to add.

Sean O'Neill: Yeah, Matt, I'd just restate that, broadly speaking, as you noted, owned MSRs generate better cash flow and better earnings. And so we do a lot of analysis to look at our own book and ensure that the bottom range that we provide adequately covers not just our debt service coverage ratios but also ensures we have excess operating cash to run the company, comfortably hedge, and be prepared for extreme swings in interest rates. Yeah, look, look, I totally understand you have to evaluate all these factors. I guess where I'm going with this is you're growing the subservicing. I mean, you're you're over half.

Yeah, Matt and just restate that broadly speaking as you noticed as you noted.

Owned MSR is generate better cash flow and better earnings and so we do a lot of analysis to look at our own book and ensure then.

The kind of bottom range that we provide adequately covers not just our debt service coverage ratios, but also ensures we have excess operating cash to run the company comfortably hanjin be prepared for kind of extreme swings in interest rates.

Yes.

Yeah.

Help me understand here to evaluate all of these factors I guess, where I'm going with this is youre.

Youre growing the sub servicing and youre over half I mean tremendous youre keeping margin jurisdiction.

Glen A. Messina: I mean, it's tremendous. You're keeping margins. You're efficient. You've got it to 75, 80 billion. I mean, I think you said 24 billion in the first quarter alone. You know, I'm assuming you're being conservative for the ads, you know, for the 24 guidance. I guess my bigger question is, I mean, do you think Ocwen will eventually just be a subservicing business? They won't own any MSRs, just be capitalized, and completely subservicing. And just give me some clue as to where the wins are coming from.

You guided to $75 8 billion.

I think you said 24 billion in the first quarter alone.

Im assuming youre being conservative.

Ads.

For the 24 guidance I guess my bigger question is I mean, do you think ocwen eventual just be up.

Sub servicing visit though on that on any MSR should be capitalized.

<unk>, we think and I, just just give me a feel for where the wins coming from these I know you had the capital partners, but are you also doing them a bag of other people just just walking through directionally, where subscription because they do long term for the company.

Glen A. Messina: I know you have these capital partners, but are you also doing them on behalf of other people? Just walk me through directionally where subservicing is going to go long term for the company, why you're being conservative in the guidance in terms of ads in 24, and where the wins are going. Yeah Matt, there are two primary sources for our subservicing. So one is with our capital partners, and you know, obviously, that could be either newly originated MSRs that we fund with them at the time of origination. That's historically what we've called MSRX.

Why are you being conservative in the guidance in terms of adds in 'twenty, four and where the wins are coming from.

Yes, Theres two primary sources for our sub servicing so one is with our capital partners and obviously that could be either that could be.

Newly originated MSR is that we saw.

Fund with them at the time of origination that's historically, what we've called MSR acts.

Our portfolio of sales transactions that we've executed in the past, where we've sold existing msr's are seasoned msr's to them.

Glen A. Messina: There are, you know, portfolio sales transactions that we've executed in the past where we've sold existing MSRs or seasoned MSRs to them. And then our capital partners go out and buy bulk transactions, and we get that as well too. Matt, you know, is in the bulk market all the time, and they, you know, win deals, as do some of our other capital partners, and we get the benefit of adding that to our subservicing portfolio. The second group of clients is, you know, traditional independent and small regional community bank mortgage clients.

And then our capital partners go out and buy bulk transactions, we get that as well to mass.

The bulk market all the time and they wind deals as our some of our other capital partners and we get the benefit of adding that to our sub servicing portfolio.

The second group of clients is traditional.

Independent and small regional community bank mortgage clients. So that is guerilla warfare that hand to hand combat with all of the competitors in the sub servicing marketplace.

There are sub servicing contracts come up for bid or they are dissatisfied with their current provider. We participate are Kris we solicit them some of these.

Glen A. Messina: So, you know, that is guerrilla warfare; that's hand-to-hand combat with all the competitors in the subservicing marketplace. And as they, you know, their subservicing contracts come up for bid or, you know, they're dissatisfied with their current provider, you know, we participate in our appraisal, we solicit them, some of these potential subservicing clients, or even our correspondent clients in some cases, You know, in terms of, you know, guidance being conservative and aggressive, what we're focused on, you know, we've got $29 billion of, you know, commitments from clients to board subservicing with us in the first half of the year. Last year, we did see a number of clients, because of the difficult originations market, really tap the brakes on converting stuff, you know, switching subservicing providers, largely And in some cases, they actually sold MSRs, right?

Potential sub servicing clients or even.

Our correspondent clients in some cases, and we win business from them as well too.

In terms of.

Guidance being conservative or aggressive look we've we're focused on we've got $29 billion of commitments from clients to board sub servicing with us in the first half of the year last year. We yes, we did see a number of clients because of the difficult originations market.

No really tap the brakes on converting.

Switching sub servicing providers, largely because they add bigger fires to deal with on the origination side of their business and in some cases actually sold MSR right and while they had an opportunity that you needed to raise cash and they sold msr's completely so.

I think as we look forward into 2024, we're excited that we've got a robust.

Pipeline of committed boardings with us it's one five times.

Glen A. Messina: And while they had an opportunity, they needed to raise cash, and they sold MSRs completely. So, I think as we look forward into 2024, we're excited that we've got a robust pipeline of committed boardings with us. It's one and a half times the IMB boardings we had in 2023.

IMD boardings, we had in 2023, but we have to see how the environment unfolds.

And whether or not there's going to be more RMB selling selling msr's.

Yes make no mistake about it it's a priority for the business that we want to grow it and grow it aggressively.

And we certainly believe on an apples to apples comparison, we as a service provider in the sub servicing space compare very very well to any of our competitors.

Glen A. Messina: But we have to see how the environment unfolds and whether or not there's going to be more IMBs selling MSRs. Yeah, but make no mistake about it; it's a priority for the business, and we want to grow it, and grow it aggressively. And we certainly believe that in an apples to apples comparison, we as a service provider in the subservicing space compare very, very well to any of our competitors. Yeah, I would absolutely agree.

Yes, it would absolutely great I appreciate it and Glenn and John.

Thank you.

Ladies and gentlemen, as a reminder, should you have a question. Please press star followed by the one.

Your next question comes from Eric Hagen with <unk>. Please go ahead.

Hey, Thanks, Good morning, Hey, you guys talked about MSR advances dragging on earnings can you say, how dilutive to earnings it was last quarter or last year and it feels like the credit environment is priced to perfection to a degree I mean, where do you feel like we could see improved OCI portfolio from this point forward.

Glen A. Messina: I appreciate it. Thank you. Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the number. Your next question comes from Eric Hagen. Hey, thanks. Good morning.

Yes, so for servicing advances.

This is actually pretty pretty simple.

Sean O'Neill: Hey, you guys talked about the MSR advances dragging on earnings. Can you say how much they diluted earnings? It was, you know, last quarter and last year.

Got $458 million of advances.

Sean I don't know if we disclosed publicly what the average advance rate is four.

Glen A. Messina: And it feels like the credit environment is kind of priced to perfection to a degree. I mean, where do you feel like we could see improvement in this portfolio from this? Yeah, so for servicing advances, you know, the math is actually pretty, pretty simple. Yeah, we've got $458 million in advances. Sean, I don't know if we've disclosed publicly what the average advance rate is for servicing advances. That's probably going to be in the K, right?

Servicing advances, that's probably going to be in the K right. If you look at one of the tables in the K you can calculate the advance rate and actually the weighted average cost is going to be in there as well to see if we can go through the extended math.

And calculate that.

We assume an 8% borrowing cost and some advance rate times the balance that's just what the carrying cost is right. So.

$458 million.

It's a pretty meaningful number so everything we do.

Sean O'Neill: If you look at one of the tables in the K, you can calculate the advance rate. And actually, the weighted average cost is going to be in there as well, too. So we can go through the extended math and calculate that. It's, you know, if you assume an 8% borrowing cost and some advanced rate times the balance, that's just what the carrying cost is, right? So, you know, at $458 million, it's, you know, it's a pretty meaningful number.

To leverage our special servicing skills to drop that balance and we're proud of the progress. We've made we've got to continue that momentum and build that flywheel effect and continue to drive that balanced out.

Yes.

Okay. Thanks.

How do you feel like shorter term volatility in your MSR portfolio could change the way you think about buying back the debt.

What a big swing going the other way would that trigger you guys being in the market.

More frequently buying back your own debt.

So Eric are you are you, saying if MSR if interest rates dropped precipitously and we lose value will that alter our.

Glen A. Messina: So everything we do to leverage our special servicing skills to drop that balance, and we're proud of the progress we've made, we've got to continue that momentum and build that flywheel effect, and continue to drive that balance down. Okay. How do you feel like shorter-term volatility in the MSR portfolio could change the way you think about buying back the debt? I mean, with a big swing going the other way, would that trigger you guys being in the market? more frequently buying back your own debt.

Thought process on buying back to that I'm not sure I'm tracking your question.

Yes that is the question and then also going the other way.

Mark were to improve would that also changed.

I Wouldnt say broadly speaking no, which is why we like to hedge the MSR and or even moving up from 70 to closer to 100% hedge coverage ratio and the objective there is to.

Sean O'Neill: So Eric, are you saying if MSR, you know, if interest rates drop precipitously and we lose value, will that alter our thought process on buying back the debt? I'm not sure I'm following the question. Yes, that is the question. And then also going the other way, like if the mark were to improve, would that also?

Make us.

Less concern on a day to day basis with the interest rate and ensure that you have an offset with the hedge to cover.

Swings to the Prime award at the time.

Obviously with a very high hedge coverage ratio if rates go up you don't realize as much of the gains you would if you add in non hedged MSR.

Sean O'Neill: I would say, broadly speaking, no, which is why we like to hedge the MSR and, you know, or even move up from a 70 to closer to 100% hedge coverage ratio. And the objective there is to make us less concerned on a day-to-day basis with the interest rate and ensure that you have an offset with the hedge to cover swings to the pro or the con. Obviously, with a very high hedge coverage ratio, if rates go up, you don't realize as much of the gains you would if you had an unhedged MSR and said math conversely in the other direction.

Same math Conversely in the other direction.

I would say are our efforts to repurchase the debt.

Our contingent on liquidity, but we also hold an excess liquidity for.

Larger interest rate moves.

Okay, Alright, thank you guys.

Thank you thanks, Eric.

There are no further questions at this time I will now turn the conference over to Glen Messina. Please go ahead.

Thanks, Joelle for everyone, who joined look I want to thank our shareholders and key business partners for supporting our business I'd also like to thank and recognize our board of directors and global business team for their hard work and commitment to our success and I look forward to updating all of you on our progress of our next quarter earnings call. Thank you.

Sean O'Neill: But, you know, I would say our efforts to repurchase the debt are contingent on liquidity, but we also hold excess liquidity for larger interest rates. Okay. All right. Thank you, guys. Thank you. Thanks, Eric. No further questions at this time; I will. Thanks, Joelle. For everyone who joined us, look, I want to thank our shareholders and key business partners for supporting our business. I'd also like to thank and recognize our board of directors and global business team for their hard work and commitment to our success. And I look forward to updating all of you on our progress during our next quarterly earnings call. Thank you. Ladies and gentlemen, this concludes your conference call. We thank you for participating and ask. BF-WATCH TV 2021

Ladies and gentlemen, this concludes your conference call for today, we thank you for participating and ask that you. Please disconnect your lines.

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Thanks.

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Thank you.

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