Q1 2024 Mr Cooper Group Inc Earnings Call

Kenneth A. Posner: Good morning, and welcome to Mr. Cooper Group's first quarter earnings call. My name is Ken Posner, and I'm SVP of Strategic Planning and Investor Relations. With me today are Jay Bray, Chairman and CEO, Mike Weinbach, President, and Kurt Johnson, Executive Vice President and CFO. As a reminder, this call is being recorded.

Good morning, and welcome to Mr. Cooper group's first quarter earnings call. My name is Ken Posner and I met VP of strategic planning and Investor Relations with me today are Jay Bray Chairman.

Speaker Change: And CEO, Mike wind back President and Curt Johnson Executive Vice President and CFO.

Speaker Change: As a reminder, this call is being recorded you can find the slides on our Investor relations webpage at investors that Mr. Cooper Group Dotcom.

Kenneth A. Posner: You can find the slides on our investor relations web page at investors.mrcoopergroup.com. During the call, we may refer to non-GAAP measures, which are reconciled to GAAP results in the appendix to the slide deck. Also, we may make forward-looking statements, which you should understand could be affected by risk factors that we've identified in our 10-K and other SEC filings. We are not undertaking any commitment to update these statements if conditions change. And with that, I'll now turn the call over to Jay.

Speaker Change: During the call we may refer to non-GAAP measures, which are reconciled to GAAP results in the appendix to the slide deck.

Speaker Change: Also we may make forward looking statements, which you should understand could be affected by risk factors that we've identified in our 10-K and other SEC filings.

Speaker Change: We're not undertaking any commitment to update these statements if conditions change and.

Speaker Change: With that I'll now turn the call over to Jay.

Jay Bray: Thanks Ken, and good morning everyone, and welcome to our call. This morning I plan to talk about Mr. Cooper's technology strategy, which has been a major driver of our growth and which is the key to sustaining higher returns. But first, let's review the quarterly highlights on slide 3. Operating ROTC hit 14.5%, which was a great way to start the year as this gets us into our guidance range of 14 to 18%.

Jay: Thanks, Ken and good morning, everyone and welcome to our call.

Jay: This morning, I plan to talk about Mr. Cooper's technology strategy, which has been a major driver of our growth and which is the key to sustaining higher returns.

Jay: But first lets review the quarterly highlights on slide three.

Jay: Operating our OTC hit 14, 5%, which was a great way to start the year as this gets us into our guidance range of 14% to 18% and.

Jay Bray: And we continue to see opportunities to progress higher into this range by executing on our strategy. We were pleased to report tangible book value up 15% year over year to $65.48, of Turning to Servicing, the portfolio hit $1.1 trillion, as we acquired $54 billion in MSRs with double-digit yields and completed onboarding a $90 billion portfolio from an important new subservicing client. On a year over year basis, the portfolio is up 33%. At this point in the cycle, we are clearly pulling away from competitors in terms of building scale.

Jay: And we continue to see opportunities to progress higher end of this range by executing on our strategy.

Jay: We were pleased to report tangible book value up 15% year over year to $65.48.

Jay: Now turning to servicing the portfolio hit 1.1 trillion as we acquire our 54 billion in Msr's with double digit yields and completed Onboarding, a 90 billion portfolio from an important new sub servicing client.

Jay: On a year over year basis, the portfolio was up 33% at.

Jay: At this point in the cycle, we are clearly pulling away from competitors in terms of building scale.

Jay Bray: Thanks to fast portfolio growth and impressive operating leverage, servicing income reached $273 million. Michael will comment more on the pipeline in a minute, but I'll steal a little bit of this thunder and tell you we're continuing to see super attractive opportunities in the bulk market, which we believe reflects the shakeout going on in the industry with banks pulling back from the asset class and originators seeking a source of liquidity. Turning to Originations, our team did a great job generating $32 million in pre-tax income while continuing to be an industry leader in retention. As you recall, during the quarter, we issued $1 billion in high-yield notes at a price-to-yield of $7.25, which I would add represents the highest spread in the company's history.

Jay: Thanks to the fast portfolio growth and impressive operating leverage servicing income reached 273 million.

Jay: Mike will comment more on the pipeline in a minute, but are still a little bit of his thunder and tell you, we're continuing to see super attractive opportunities in the bulk market, which we believe reflects the shakeout going on in the industry with banks pulling back from the asset class and originators seeking a source of liquidity.

Jay: Turning to originations our team did a great job generating $32 million in pre tax income or <unk>.

Jay: Continuing to be an industry leader in retention.

Jay: As you'll recall during the quarter, we issued $1 billion in high yield notes priced to yield seven in a quarter, which I would add represents the tightest spreads in the company's history.

Jay Bray: That was a nice vote of confidence from the high-yield community, and we were also encouraged to see Moody's upgrade our corporate credit rating by two notches and S&P upgrade our Outlook deposit. We finished the quarter with record liquidity and a very strong capital ratio, as Kurt will take you through, while also continuing our share repurchases, albeit at a slightly lower level given the strong returns we saw in the bulk MSR market.

Jay: That was a nice vote of confidence from the high yield community and we were also encouraged to see Moody's upgraded our corporate credit rating by two notches and S&P upgraded our outlook to positive.

Jay: We finished the quarter with record liquidity and a very strong capital ratio as Kirt will take you through while also continuing our share repurchases, albeit at a slightly lower level given the strong returns we saw in the bulk MSR market.

Jay Bray: Now let's pull up and spend a moment on technology. If you'll turn to slide four, we've built our business model around a series of self-reinforcing competitive advantages. A great customer experience leads to strong retention, which maximizes returns and makes us the best bid for acquiring MSRs. Growing scale, in turn, gives us the resources to invest in technology, which is how we've delivered operational and cost leadership which has propelled the company over nearly 30 years to become the nation's largest service provider. Let's turn to slide five and talk about our strategy.

Jay: Now, let's pull up and spend a moment on technology, if youll turn to slide four we built our business model around a series of self reinforcing competitive advantages.

Jay: Great customer experience leads to strong retention, which maximizes returns and makes us the best bid for acquiring Msr's.

Jay: Growing scale in turn gives us the resources to invest in technology, which is how we've delivered the operational and cost leadership, which has propelled the company over nearly 30 years to become the nations largest servicer.

Jay: Let's turn to slide five and talk about our strategy.

Jay Bray: AI is in the headlines, as it should be, but to implement AI, you need a state-of-the-art platform. So let's start by talking about the cloud, which we embraced much earlier than our peers. In fact, we built our servicing platform to be cloud-native from the start, which is why we were able to sell the ITS agent in early 2022 for a 20% interest in their firm. Sagent is now integrating our technology onto a cloud-native core to create a new platform called Dara, which will offer real-time, anytime, end-to-end processing and will be the first to benefit.

AI is in the headlines as it should be but to implement AI you need a state of the art platform. So let's start by talking about the cloud, which we embraced much earlier than our peers. In fact, we built our servicing platform to be cloud native from the start which is why we were able to sell the Itu to stage. It in early 2022.

Jay: For our 20% interest in their term.

Jay: Asia is now integrating our technology onto a cloud native core to create a new platform called Dara, which will offer real time anytime end to end processing and will be the first to benefit.

Jay Bray: But more importantly, by picking the right partner for cloud-native servicing technology, we were able to reallocate resources to other strategically important projects. These include building proprietary tools for customer retention, loan modification, and onboarding portfolios. We've also devoted resources to further digitizing processes in originations and servicing and improving our foundation. And, of course, a top priority for us for several years now has been machine learning and AI. Let's turn to slide six and talk about Pyro, our patented mortgage-centric AI platform which we've been actively developing since 2019 in partnership with Google.

Jay: But more importantly by picking the right partner for cloud Native servicing technology, we were able to reallocate resources to other strategically important projects. These.

Jay: These include building proprietary tools for customer retention loan modification and Onboarding portfolios.

Jay: We've also devoted resources to further digitizing processes, and originations and servicing and improving our foundation and.

Jay: And of course, a top priority for us over several years now has been machine learning and AI.

Jay: Let's turn to slide six and talk about pyro, our patented mortgage centric AI platform, which we've been actively developing since 2019 and partnership with Google.

Jay Bray: Initially, we focused PYRO on document extraction and classification, which is a huge project for servicers since we deal with vast quantities of documents, including lots of nonstandard forms. In 2020, we used Pyro to process 150 million pages of data. And today, we are running at well north of 600 million pages per year. How does Pyro help us? When we buy a portfolio of MSRs, we typically ingest hundreds of thousands of

Jay: Initially we focused pyro on document extraction and classification, which is a huge project for servicers since we deal with vast quantities of documents, including lots of non standard forms.

Jay: In 2020, we use pirated process 150 million pages of data and today, we are running at well north of 600 million pages per year.

How does pyro help us when we buy a portfolio of Msr's, we typically ingest hundreds of thousands of documents.

Jay Bray: Pyro scans and reads these documents using mortgage-specific learning models, harnessing AI to recognize and classify the data and populate it directly into our system. In addition to capturing standard loan and customer attributes, our technology also detects unstructured content such as signatures and stamps.

Jay: <unk> scans and read these documents using mortgage specific learning models harnessing AI to recognize and classify the data and populate it directly into our system.

Jay: And in addition to capturing standard loan and customer attributes are technology also detects unstuck content, such as signatures and stamps.

Jay Bray: Pyro is fast, typically processing a new portfolio within 24 hours, and now that it's been trained on hundreds of millions of documents, it's very accurate, with accuracy rates of 97% or higher without any humans in the loop. When it comes to bidding on portfolios, Pyro gives us a massive advantage because we can respond to sellers with great speed and confidence. For example, think of the complexity that goes into modeling advances for a pool of MSRs. Before Pyro, we'd spend months reconciling invoices and filing claims with sellers. And for large portfolios with missing files, this process sometimes dragged on for years.

Jay: <unk> fast typically processing of new portfolio within 24 hours and now that it's been trained on hundreds of millions of documents, it's very accurate with accuracy rates of 97% or higher without any human vindaloo.

Jay: When it comes to bidding on portfolios Pyro gives us a massive advantage because we can respond to sellers with great speed and confidence for.

Jay: For example, typically.

Jay: The complexity that goes into modeling advances for our pool of them Msr's.

Jay: <unk> pyro, we'd spend months reconciling invoices and filing claims with sellers and for large portfolios with missing.

Jay: This process, sometimes dragged on for years.

Jay Bray: Today, with Pyro, we get a crystal-clear understanding of advances within hours of reviewing the deal tape, which allows us to price the deal quickly and accurately while the seller doesn't need to worry about a tail of liability. Pyro also helps us provide our new customers with a seamless onboarding experience since we have all their data properly recorded. Now, to be sure, thanks to Pyro, we've definitely trimmed expenses, with fewer people dedicated to data entry, indexing, and reconciliation. But more importantly, with four years of experience, we're now ready to roll out Pyro in many other areas. If you'll turn to slide 7, let's talk about where we're taking pyro from here.

Jay: Today with Pyro, we get a crystal clear understanding of advances within hours of reviewing the deal.

Jay: Which allows us to price the deal quickly and accurately while the seller doesn't need to worry about a tail of liabilities.

Jay: <unk> also helps us provide our new customers with a seamless onboarding experience since we have all their data properly recorded.

Jay: Now, let me share thanks to para we've definitely trimmed expenses with fewer people dedicated to data entry indexing and reconciliations.

Jay: But more importantly, with four years of experience, we're now ready to rollout pyro and many other areas.

Jay: If youll turn to slide seven let's talk about where we're taking pyro from here.

Jay Bray: Over the next few years, AI will radically transform our operations in many ways. For example, we're starting to apply supervised learning techniques to solve unstructured problems. The way this works in the call center is that Pyro continually gathers diagnostic information by listening to calls in real time, monitoring agent actions, and tracking the outcome. Then, the platform uses this information to optimize the flow of calls by recognizing patterns, anticipating issues, routing calls to the right team, and prompting agents with the information the customers need.

Over the next fears AI will radically transform our operations in many ways for.

Jay: For example, we're starting to apply supervised learning techniques to solve unstructured problems.

Jay: The way this works on the call Center is at Pyro continually gathers diagnostic information by listening to calls and real time monitoring agent actions and tracking the outcomes.

Jay: And then the platform uses this information to optimize the flow of calls by recognizing patterns anticipating issues and routing calls to the right teams and prompting agents with the information the customers need.

Jay Bray: Supervised learning in the call center will mean fewer, faster calls and happier customers whose needs are solved quickly. Now, this won't happen overnight, and you can't implement these kinds of solutions without a robust digital platform. But over time, these applications will result in massive efficiency. We're already taking the first steps on this journey, for example, by using Pyro to automatically summarize calls and trigger follow-up action. The summaries free up agents from note taking, allowing them to focus on their customers.

Jay: Supervised learning in the call centre will mean fewer faster calls and happier customers, whose needs are solved quickly.

Jay: Now this won't happen overnight and you can't implement these kinds of solutions without a robust digital platform, but over time. These applications will result in massive efficiency gains.

Jay: We're already taken the first steps on this journey for example by using pyro to automatically summarized calls and trigger a follow up actions.

Jay: The summary is free up agents from low taking allowing them to focus on their customers and we're finding this application shaves roughly 40 seconds off the average call which were in operation with thousands of calls per day adds up to millions of dollars in savings.

Jay Bray: And we're finding that this application shaves roughly 40 seconds off the average call, which for an operation with thousands of calls per day adds up to millions of dollars in savings. Now, as with any new technology, AI brings risks. That's why we and other companies operate under a rubric of responsible AI, which includes controls to ensure that AI applications are unbiased, compliant, and secure. To wrap up, I'll leave you with a final point, which is that our technology strategy has benefited from our balanced business, which shelters us from the extreme swings in profitability of origination-focused peers and which has allowed us to invest in technology on a consistent basis year in and year out as we work on the never-ending goal of perfecting our platform.

Jay: Now as with any new technology AI brings risk that's why we and other companies operate under a rubric of responsible AI, which includes controls to ensure the applications are unbiased compliant and secure.

To wrap up I'll leave you with a final point, which is that our technology strategy has benefited from our balanced business model, which shelters us from the extreme swings in profitability of origination focus peers, and which has allowed us to invest in technology on a consistent basis year end and year out as we work on are never end.

Jay Bray: Today, given our momentum and the challenges facing the rest of the industry, we have an opportunity to take our competitive advantages and make them decisive. In other words, we'll use the cloud AI and other applications to provide world-class service to our customers, operate as the trusted partner for our agency and investor stakeholders, and drive unmatched costs and operational leadership, which will translate into the rising ROTCE we're guiding you to expect. With that, I'll turn the call over to President Mike Weinbach to take you through the operation.

Jay: The goal of perfecting our platform today, given our momentum and the challenges facing the rest of the industry, we have an opportunity to take our competitive advantages and make them decisive.

Jay: In other words, we will use the cloud AI and other applications to provide world class service to our customers operate as the trusted partner for our agency and investors stakeholders and drive unmatched costs and operational leadership.

Jay: Which will translate into the rising our OTC, we're guiding you to expect.

Jay: With that I'll turn the call over to President Mike Wind back to take you through the operating results.

Mike Weinbach: Thanks Jay, and good morning everyone. I'd like to start by saying how thrilled I am to be a part of the Mr. Cooper team and how excited I feel to be playing offense in an industry that has such an important customer mission. I'm going to start on slide eight and discuss the servicing portfolio, where we're clearly enjoying a period of rapid growth. As of March 31st, the portfolio reached $1.1 trillion, which is up 33% from a year ago. We now have over 5 million customers whom we look forward to serving for many years to come.

Mike Wind: Thanks, Jay and good morning, everyone I'd like to start by saying, how thrilled I am to be a part of the Mr. Cooper team and how excited I feel that the playing offense in an industry, which has such an important customer mission.

Mike Wind: I'm going to start on slide eight and discuss our servicing portfolio, where we're clearly enjoying a period of rapid growth.

Mike Wind: As of March 31, the portfolio has reached one one trillion, which is up 33% from a year ago. We now have over 5 million customers and we look forward to serving for many years to come.

Mike Weinbach: Growth in the first quarter was split between MSR acquisitions and subservicing. In the MSR market, we've seen very robust volumes so far this year, reflecting the two key trends which are reshaping the servicing industry. First, originators are selling MSRs for liquidity if they can deal with nearly two years of negative margins in what is one of the most difficult markets in memory. Second, banks are reassessing their exposure to SARS due to regulatory capital concerns and the technology investments required to stay competitive relative to their reduced market share.

Mike Wind: Growth in the first quarter was split between MSR acquisitions and sub servicing.

Mike Wind: And the MSR market, we've seen very robust volume so far this year, reflecting the two key trends, which are reshaping the servicing industry.

Mike Wind: First our originators are selling MSR as for liquidity as they deal with nearly two years of negative margins in what is one of the most difficult markets in memory.

Mike Wind: And second.

Banks are reassessing their exposure <unk> due to regulatory capital concerns and the technology investments required to stay competitive relative to the reduced market share.

Mike Weinbach: These trends are translating into very strong supply in the bulk market. In the first quarter, our pipeline hit a record level, as we evaluated 52 bulk transactions, which is up nearly 50% from the level a year ago. These include deals brought to market by the MSR broker community, where we have excellent relationships, as well as the considerable volume of transactions which sellers bring us directly. For many sellers, Mr. Cooper is the preferred buyer.

Mike Wind: These trends are translating into very strong supply in the bulk market.

Mike Wind: In the first quarter, our pipeline at a record level as we evaluated 52 bulk transactions, which is up nearly 50% from the level a year ago.

Mike Wind: These include deals brought to market by the MSR broker community, where we have excellent relationships as well as a considerable volume of transactions, which sellers bring us directly.

Mike Wind: For many sellers Mr Kuipers the preferred buyer.

Mike Weinbach: That's because of our hard-earned reputation for timely closing and smooth onboarding. And, as Jay just explained, Pyro means we can respond to sellers with even greater speed and accuracy. This was also a great quarter for our subservicing business, where Mr. Cooper is rapidly becoming the platform of choice. In addition to the new client we onboarded, we're benefiting from portfolio growth at many of our existing partners. Our team is actively talking with various MSR owners, including investors, originators, and regional banks, and we're optimistic that we'll be able to win new clients.

Mike Wind: That's because of our hard earned reputation for timely closing and smooth onboarding.

Mike Wind: And as Jay just explained pyro means we can respond to sellers with even greater speed and accuracy.

Mike Wind: This was also a great quarter for our sub servicing business, where Mr. Cooper's rapidly becoming the platform of choice.

Mike Wind: In addition to the new client we on boarded we're benefiting from portfolio growth at many of our existing partners.

Mike Wind: Our team is actively talking with various MSR owners, including investors originators and regional banks and we're optimistic that we'll be able to win new clients.

Mike Weinbach: Subservicing is central to our growth strategy because it adds to our scale advantages and generates fee income without requiring capital or liquidity and is thus an important lever for raising ROTC into that high teens range. Looking ahead to the second quarter, the momentum should continue with approximately another $100 billion in UPBs scheduled to board, again split between MSRs and subservicing. After that, growth will depend on the yields available in the market.

Mike Wind: <unk> servicing are central to our growth strategy, because it adds to our scale advantages and generates fee income without requiring capital or liquidity and is thus an important lever for raising our OTC in to that high teens range.

Mike Wind: Looking ahead to the second quarter the momentum should continue with approximately another 100 billion in <unk> scheduled to board again split between MSR and sub servicing.

Mike Wind: After that growth will depend on the yields available in the market.

Mike Weinbach: While we're optimistic about a continued robust supply of MSRs, we're also seeing some signs of aggressive pricing, especially for portfolios that are closer to the money. You should expect us to remain disciplined in how we deploy our capital. We have no problem taking a pause from growth if conditions warrant it.

Mike Wind: While we are optimistic about our continued robust supply of MSR is we're also seeing some signs of aggressive pricing, especially if our portfolios that are closer to the money.

Mike Wind: You should expect us to remain disciplined in how we deploy our capital we have no problem, taking a pause from growth as conditions warrant.

Mike Weinbach: Turning to slide 9, let's spend a moment on servicing earnings, which were quite strong at $273 million this quarter, up from $229 million in the fourth quarter. There were several factors driving this strong performance, of which the most important was portfolio growth, which drove a $70 million sequential lift in operational revenues. Additionally, servicing earnings benefited from very low CPRs, which came in at 4.2% during the first quarter, minimizing our amortization expense. Finally, we did an outstanding job generating positive operating leverage with expenses up only $6 million sequentially despite our rapid growth.

Mike Wind: Turning to slide nine let's spend a moment on servicing earnings which were quite strong at $273 million this quarter up from $229 million in the fourth quarter.

There were several factors driving strong performance of which the most important with portfolio growth, which drove a $70 million sequential lift and operational revenues.

Mike Wind: Additionally, servicing earnings benefited from very low CPR, which came in at four 2% during the first quarter minimizing our amortization expense.

Mike Wind: Finally, we did an outstanding job generating positive operating leverage with expenses up only $6 million sequentially. Despite our rapid growth.

Mike Weinbach: This leverages the payoff from the intense focus on technology and operations that Jay discussed. Now, please don't project this level of operating leverage every quarter, as you should expect ongoing investments in new applications, as well as ensuring we have the right number of people to take care of our customers. That said, we expect continued operating leverage even as we continue to invest in the platform. Looking ahead to the second quarter, we guide you to servicing income being flat to up in a range of $270 to $290 million, depending on the impact of CPRs from the recent uptick in mortgage rates.

This leverages the payoff from the intense focus on technology and operations that Jay discussed.

Mike Wind: Now please turn projected level of operating leverage every quarter as you should expect ongoing investments in new applications as well as ensuring we have the right number of people to take care of our customers that said, we expect continued operating leverage even as we continue to invest in the platform.

Mike Wind: Looking ahead to the second quarter, We guide you to servicing income being flat to up in a range of $270 million to $290 million, depending on the impact of <unk> from the recent uptick in mortgage rates.

Mike Weinbach: Now let's turn to slide 10 and discuss originations, where we reported pre-tax earnings of $32 million, which came in slightly above guidance. As you recall, when mortgage rates dipped toward the end of last year, our direct-to-consumer team was very nimble in helping customers take advantage of the opportunity to save money. As a result, we saw a slight uptick in rate and term refis, which made up 12% of funded volumes in the first quarter.

Mike Wind: Now, let's turn to slide 10, and discuss originations, where we reported pretax earnings of $32 million, which came in slightly above guidance.

Mike Wind: As you recall when mortgage rates dip towards the end of last year, our direct to consumer team was very nimble and helping customers take advantage of the opportunity to save money.

Mike Wind: As a result, we saw a slight uptick in rate and term refis, which made up 12% of funded volumes in the first quarter.

Mike Weinbach: Otherwise, the mix remains dominated by cash out purchase and second liens, which are the products that provide the most value for our customers in this environment. You'll notice our refi recapture rates dipped slightly to 70%, and the industry dropped from 20% to 18%. Now, this was partly due to a lower mix of cash-out refis, which provides some lift to the ratio since a new cash-out loan has a higher UPB than the payoff. Overall, our recapture remains strong at almost four times the industry average.

Mike Wind: Otherwise the mix remains dominated by cash out purchased in second liens, which are the products that provide the most value for our customers in this environment.

Mike Wind: You'll notice our refi recapture rates dipped slightly to seven 8% in the industry dropped from 20% to 18% now.

Mike Wind: This was partly due to a lower mix of cash out refis, which provide some lift to the ratio since a new cash outflow and has a higher <unk> than the payout.

Mike Wind: Overall, our recapture remains strong at almost four times the industry average.

Mike Weinbach: To maximize value for our customers, we're continuing to invest in our DTC platform. Last year, we talked about how Project Flash helped us realize 20% unit cost savings in processing by digitizing those workflows, which means breaking them down into discrete steps, which can then be automated. Well, now we're applying flashed underwriting with similar productivity goals. We're also investing in a range of enhancements designed to make the application experience quicker and easier.

Mike Wind: To maximize the value for our customers, we're continuing to invest in our DTC platform <unk>.

Mike Wind: You'll recall last year, we talked about how project fast helped us realize 20% unit cost savings in processing by digitizing, those workflows, which means breaking them down into discrete steps, which can then be automated.

Mike Wind: Well now we're applying flagstone underwriting with similar productivity goals. We're also investing in a range of enhancements designed to make the application experience quicker and easier.

Mike Weinbach: And we're starting to use AI and originations as well, such as in automating income verification. We're beginning to see a return on these investments in the form of faster cycle times, higher pull through, and lower cost per loan to originate. As we look ahead, the origination environment remains difficult, but as we continue to grow our servicing portfolio, that means more opportunities to help customers save money or access the equity they have built in their homes.

Mike Wind: And we're starting to use AI in originations as well such as in automating income verification.

Mike Wind: We're beginning to see a return on these investments in the form of faster cycle times higher pull through and lower cost per loan to originate.

Mike Wind: As we look ahead, the originations environment remains difficult, but as we continue to grow our servicing portfolio that means more opportunities to help customers save money or access the equity they built in their homes for the second quarter. We guide you to expect originations earnings before tax to be flat to up in the range of 30.

Mike Weinbach: For the second quarter, we'd guide you to expect Originations Earnings Before Tax to be flat to up in the range of $30 to $40 million. Now I'll turn the call over to Kurt, who will take you through our financial performance.

Mike Wind: <unk> to $40 million.

Mike Wind: Now I'll turn the call over to Kurt who will take you through our financial performance.

Kurt G. Johnson: Thanks, Mike. Good morning.

Kurt: Thanks, Mike and good morning.

Kurt G. Johnson: I'll start on slide 11 with a brief recap of our finances. To summarize, net income was $181 million, which includes a positive $42 million mark, $199 million in pre-tax operating earnings, and adjustments of $7 million. In addition to the servicing and operating results that Mike just took you through, Zome continued to operate around break-even with a $1 million loss in the quarter.

Kurt: I'll start on slide 11, with a brief recap of our financials.

Kurt: To summarize net income was $181 million, which includes a positive $42 million Mark.

Kurt: Hundred $99 million in pre tax operating earnings and adjustments of $7 million.

Kurt: In addition to the servicing and operating results, which Mike just took you through zoom continued to operate around breakeven with a $1 million loss in the quarter.

Kurt G. Johnson: Adjustments consisted of $2 million in trailing expenses associated with HomePoint and other acquisitions last year and a $4 million loss associated with equity investment. During the quarter, we marked up the MSR by $164 million due to higher interest rates and expectations for lower CPRs, leading to a quarter-end valuation of 155 basis points of UPB or a 5.3 multiple of the base servicing fee strip. This was offset by $122 million in hedge losses, which equated to 74% coverage, which is pretty much right on top of our target ratio of 75%.

Kurt: Adjustments consisted of $2 million in trailing expenses associated with home point and other acquisitions last year.

Kurt: And a $4 million loss associated with equity investments.

Kurt: During the quarter, we marked up the MSR by $164 million due to higher interest rates and expectations for lower <unk>.

Kurt: Leading to a quarter end valuation of 135 basis points of <unk> or $5 three multiple of the base servicing fee strip.

Kurt: This was offset by $122 million hedge loss, which equated to <unk>, 74% coverage, which was pretty much right on top of our target ratio of 75%.

Kurt G. Johnson: I'll add that with a weighted average coupon of only 4.1%, our portfolio has significantly less duration and convexity risk than an at-the-money MSR, which makes hedging a relatively simple exercise. Our deferred tax asset declined by $46 million this quarter and now totals $426 million.

Kurt: I'll add that with a weighted average coupon of only four 1% our portfolio has significantly less duration and convexity risk that an at the money MSR, which makes hedging a relatively simple exercise.

Kurt: Our deferred tax asset declined by $46 million.

Kurt: Quarter now totals $426 million.

Kurt G. Johnson: We continue to utilize our DTAs to offset taxable income and minimize our cash tax payments, which strengthens our cash flow. Tangible book value per share increased 15% year-on-year to $65.48. You may have noticed that our ending share count ticked up slightly in the quarter from 64.6 to 64.7 million shares. This was due to the issuance of 0.7 million shares relating to the investing of employee stock incentives, which is something that typically happens in the first quarter of every year.

Kurt: We continue to utilize our DTA is to offset taxable income and minimize our cash tax payments, which strengthens our cash flow.

Kurt: Tangible book value per share increased 15% year on year to $65 48.

Kurt: You may have noticed our ending share count ticked up slightly in the quarter from $64 six to $64 7 million shares.

Kurt: This was due to the issuance of two 7 million shares relating to divesting of employee stock incentives, which is something that typically happens in the first quarter of every year.

Kurt G. Johnson: Slide 12 gives you an update on asset quality, which continues to be a very good story for Mr. Cooper. Last year, the markets were concerned about a recession lying just around the corner. And this year, while those concerns have abated, we all know that the cycle eventually turns.

Kurt: Slide 12 gives you an update on asset quality, which continues to be a very good story for Mr. Cooper.

Kurt: Last year the markets, we're concerned about a recession like just around the corner and this year, while those concerns have abated, we all know the cycle eventually turns.

Kurt G. Johnson: And we've put a lot of thought into constructing a portfolio that can perform in bad times as well as in good. As you may recall, Mr. Cooper's growth really took off in the aftermath of the global financial crisis. When we took on large troubled portfolios from institutions that didn't have the capacity to manage losses or effectively help their customers, agencies, MBS investors, and other stakeholders expected a servicer to perform in these conditions, which is arguably one of the most important ways in which we contributed to the health and stability of the mortgage and housing market.

Kurt: And we've put a lot of thought to constructing a portfolio that can perform in bad times as well as Greg.

Kurt: As you May recall, Mr. Cooper's growth really took off in the aftermath of the global financial crisis. When we took on large troubled portfolios from institutions that didn't have the capacity to manage losses are effectively help their customers.

Kurt: Agencies, MBS investors and other stakeholders expect a servicer to perform in these conditions, which is arguably one of the most important ways in which we contribute to the health and stability of the mortgage and housing market.

Kurt G. Johnson: In the first quarter, delinquencies in our MSR portfolio dropped to an all-time low of 1.1 percent, down from a previous record low of 1.3 percent in the fourth quarter and 2.3 percent in the first quarter a year ago, with declines in both conventional and government.

Kurt: In the first quarter delinquencies in our MSR portfolio dropped to an all time low of one 1% down from our previous record low one 3% in the fourth quarter and two 3% in the first quarter a year ago with declines in both conventional and government loans.

Kurt G. Johnson: Now, clearly, the strong credit environment is a major driver of these results. But also, we have, by design, constructed a high-quality book with weighted average FICO scores at a record high, while the weighted average LTV continues to decline. This is not accidental.

Kurt: Now clearly the strong credit environment as a major driver of these results, but also we have by design construct and the high quality book with weighted average FICO scores at a record high while the weighted average LTV continues to decline. This is not accidental we've been deliberately acquiring seasoned bulk portfolios where the <unk>.

Kurt G. Johnson: We've been deliberately acquiring seasonal bulk portfolios where the customer's note rates are well below market and where customers have substantial equity built up in their homes. We've also been working to help our customers take advantage of the latest generation of modification programs offered by Fannie Mae, Freddie Mac, FHA, and VA. During the first quarter, we implemented 24,000 workouts at 50% year over year. Rolling out these programs at scale is another example of the power of our digital platform.

Kurt: Customers note rates are well below market and where customers have substantial equity built up in their homes.

Kurt: We've also been working to help our customers take advantage of the latest generation of modification programs offered by Fannie Mae Freddie Mac FHA and VA.

Kurt: During the first quarter, we implemented 24000 workouts up 50% year over year.

Kurt: Rolling out these programs at scale is another example of the power of our digital platform and it also demonstrates our commitment to keeping the dream of homeownership alive.

Kurt G. Johnson: And it also demonstrates our commitment to keeping the dream of homeownership alive. To wrap up, our balance sheet remains exceptionally strong, as you can see on slide 13. Liquidity reached another record high of $3.3 billion, thanks to $1 billion in senior note issuance during the quarter, which we used to pay down our MSR line. Liquidity consisted of $578 million in unrestricted cash, with the remaining amount in MSR line capacity, which is fully collateralized and immediately available.

Kurt: To wrap up our balance sheet remains exceptionally strong as you can see on slide 13.

Kurt: Liquidity reached another record high of $3 3 billion, thanks to $1 billion senior note issuance during the quarter, which we used to pay down our MSR lines.

Kurt: Liquidity consisted of $578 million in unrestricted cash with the remaining in MSR line capacity, which is fully collateralized and immediately available.

Kurt G. Johnson: We did draw on our MSR lines for purchases during the quarter, but this brought us new collateral, and we were able to upsize our borrowing capacity by $200 million during the quarter and another $250 million after quarter end. Additionally, we began renegotiating existing MSR lines to extend maturities to 2026.

Kurt: We did draw on our MSR lines for purchases during the quarter.

Kurt: But this broad new collateral and we were able to upsize, our borrowing capacity by $200 million during the quarter and another $250 million after quarter end.

Kurt: Additionally, we began renegotiating existing MSR lines to extend maturities to 2026.

Kurt G. Johnson: Our capital ratio, as measured by tangible net worth to assets, ended the quarter at 29%, down 30 basis points due to asset growth, but still above our target range of 20 to 25%, as we continue to deploy our capital in a measured, thoughtful, and disciplined manner. As Mike mentioned, we're anticipating boarding another $100 billion in UPB in the second quarter, split between owned and subservice. Just to anticipate the question, at that point, we would have capacity for another 50 to 55 billion in owned UPV while still remaining comfortably in compliance with all our capital and liquidity policies.

Kurt: Our capital ratio as measured by tangible net worth to assets ended the quarter at 29% down 30 basis points due to asset growth, but still above our target range of 20% to 25% as we continued to deploy our capital in a measured thoughtful and disciplined manner.

Kurt: As Mike mentioned, we're anticipating boarding another $100 billion in UBB in second quarter split between owned and sub servicing.

Kurt: Just to anticipate the question at that point, we would have capacity for another 50 to 55 billion in <unk>, while still remaining comfortably in compliance with all our capital and liquidity policies.

Kurt G. Johnson: And with our servicing portfolio now generating well in excess of $1 billion per year, we can continue to grow with a combination of cash generated from our business, along with secured and unsecured debt. As you know, we're also pursuing asset-light growth strategies, including subservicing and the launch of a commingled MSR fund and separate managed account. Raising LP capital in this environment is not a fast process.

Kurt: And with our servicing portfolio now generating well in excess of $1 billion per year. We can continue to grow with a combination of cash generated from our business along with secured and unsecured debt.

Kurt: As you know, we're also pursuing asset light growth strategies, including sub servicing and the launch of a co mingled MSR fund and separate managed accounts.

Kurt: Raising LP capital in this environment is not a fast process, but we're having very positive discussions with sovereign wealth funds pension plans and other asset managers, who view the double digit uncorrelated that returns available from msr's as an attractive opportunity within their private credit allocations.

Kurt G. Johnson: But we're having very positive discussions with sovereign wealth funds, pension plans, and other asset managers who view the double-digit uncorrelated net returns available from MSRs as an attractive opportunity within their private credit allocations. Let me echo Jay's comments about how pleased we are with operating ROTC already at 14.5%. However, obviously, it will take not just a single quarter but strong performance over time to demonstrate what we believe the business model is capable of.

Kurt: Let me Echo Jay's comments about how pleased we are with operating our OTC already at 14, 5%.

Kurt: Obviously, it will take not just a single quarter, but strong performance over time to demonstrate what we believe the business model is capable of.

Kurt G. Johnson: The 14 to 18 percent guidance does not assume lower interest rates or higher leverage but merely that we continue to execute on our technology strategy in both servicing and originations and that we grow asset-light strategies like subservice. Last quarter, we shared guidance in excess of $10 in operating EPS for 2025. And given our execution on plan, we continue to be extremely confident in our expectations. With that, I'd like to thank you for joining us on today's call and for your interest in Mr. Cooper. I'd now like to turn the call back over to Ken for Q&A.

The 14% to 18% guidance does not assume lower interest rates are higher leverage but merely that we continue to execute on our technology strategy and both servicing and originations and that we'd grow asset light strategies like sub servicing.

Kurt: Last quarter, we shared guidance in excess of $10 in operating EPS for 2025 and.

Kurt: And given our execution on plan, we continue to be extremely confident in our expectations.

Speaker Change: With that I'd like to thank you for joining us on today's call and for your interest in Mr. Cooper and <unk>.

Speaker Change: Now I'd like to turn the call back over to Ken for Q&A.

Kenneth A. Posner: Thanks, Kurt. And Michelle, we'd like to start the Q&A now, please. Thank you.

Ken: Thanks, Kurt and Michelle we'd like to now start the Q&A. Please.

Thank you very much.

Operator: Thank you. As a reminder, to ask a question at this time, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. One moment while we compile our Q&A roster. And our first question is going to come from the line of Crispin Love with Piper Sandler. Your line is open. Please go ahead.

Ken: To ask a question at this time, please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, one moment, while we compile our Q&A roster.

Ken: Okay.

Ken: Okay.

Ken: And our first question is going to come from the line of Crispin Love with Piper Sandler. Your line is open. Please go ahead.

Crispin Love: Thanks, and good morning, I. Appreciate you taking my questions. Just first can you discuss a little bit what youre seeing competition wise in the origination segment.

Crispin Love: Thanks and good morning. I appreciate you taking my questions. Just first, can you discuss a little bit what you're seeing competition-wise in the origination segment as you've seen a solid improvement in margins and then also a pickup in volumes in the quarter? And do you think that you can hold margins steady, or they might pull back a bit from the LLDA level they were at in the first quarter?

Crispin Love: <unk> seen a solid improvement in margins and then also a pick up in volumes in the quarter and do you think that you can hold margins steady or are they might pull back a bit from the elevated levels you had in the first quarter.

Mike Wind: Yeah, Hi, it's Mike.

Mike Wind: As we look across the originations market, obviously with rates up it continues to be a challenging market.

Mike Weinbach: Yeah, hi, it's Mike. And the, you know, as we look across the originations market, obviously, with rates up, it continues to be a challenging market. But at the same time, as our portfolio grows, we have more opportunities to help customers take advantage of the equity they have in their homes, find ways to have a lower rate, or, if they're looking to move, help them with a purchase in a new home. So, you know, we don't give specific guidance on margins, but we feel good about the opportunities we've had to be consistently profitable in this space and to continue to take great care of our customers.

Mike Wind: But at the same time as our portfolio grows we have more opportunities to help customers take advantage of the equity they have in their homes.

Mike Wind: Find ways.

Mike Wind: Have a lower rate or if they are looking to move to help them with a purchase and a new home.

Mike Wind: So.

Mike Wind: We don't give specific guidance on margins, but we feel good about the opportunities we've had to be consistently profitable in less space.

Mike Wind: And to continue to take great care of our customers. So we expect it to continue to be a competitive market. If rates are higher obviously that'll change if rates come down but.

Mike Weinbach: So we expect it to continue to be a competitive market if rates are higher. Obviously, that'll change if rates come down, but we mostly focus on being there to serve our customers regardless of the rate environment.

Mike Wind: We mostly focus on being there to serve our customers regardless of the rate environment.

Speaker Change: Alright, I appreciate the color there and then you also you mentioned that the MSR bulk purchase market remains attractive and you put some numbers around that as well, but can you just dig a little bit deeper there and discuss won the competition Youre seeing and then two what types of portfolio. You are most interested in that higher coupon lower coupon more agents.

Crispin Love: I appreciate the color there. And then you also mentioned that the MSR Bull purchase market remains attractive, and you put some numbers around that as well. But can you dig a little bit deeper there and discuss, one, the competition you're seeing, and then, two, what types of portfolios you're most interested in? Is it higher coupon, lower coupon, more agency, or just any other color?

Speaker Change: And just any other color. Thank you and I appreciate you taking my questions.

Speaker Change: Sure Andrew This is Jay.

Jay: The bulk market is extremely attractive I think as Mike pointed out we looked at over 50.

Jay: Opportunities in the quarter.

Jay Bray: Thank you, and I appreciate you taking my question. Sure. Hey, this is Jay. Look, we think the book...

Jay: It's a mix, it's a blend of legacy portfolios as well as at the money kind of newly originated portfolios and our approach is just to maintain our discipline like we look at all of these portfolios.

Jay Bray: Sure. Hey, this is Jay.

Jay Bray: Look, we think the bulk market is extremely attractive. I think, as Mike pointed out, we looked at over 50 opportunities in the quarter, and, you know, it's a mix. It's a blend of, you know, legacy portfolios as well as at-the-money, kind of newly originated portfolios. And our approach is just to maintain our discipline. Like, we look at, you know, all these portfolios, we run them, we have more data and more information probably than anybody in the industry around, you know, how certain sellers are going to perform, how the collaterals perform from a prepayment standpoint, a default standpoint, etc.

Jay: We run them, we have more data and more information probably than anybody in the industry around how certain sellers are going to perform how the collateral as go forward.

Jay: Born from a prepayment standpoint, default standpoint, et cetera, and we just exercise.

Jay: Our consistent discipline and hitting our targeted returns so I won't say we're indifferent.

Jay: With respect to what the portfolios look come out or what's in the market, but we will just continue to exercise our disciplined and hit our targeted returns, but we're very very bullish on the opportunity and we just actually bought some additional portfolios. This week. So we think the market is there.

Jay Bray: And we just exercise, you know, our consistent discipline in hitting our targeted returns. So, I won't say we're indifferent with respect to what the portfolios look like, you know, come out or what's in the market, but we will just continue to exercise our discipline and hit our targeted returns. But we're very, very bullish on the opportunity, and we just actually bought some, you know, additional portfolios this week. So, we think the market is there, and it's going to continue to be there.

Jay: There and its going to continue to be there.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: And our next question is going to come from the line of Bose George with <unk>. Your line is open. Please go ahead.

Bose Thomas George: Hey, everyone. Good morning can.

Bose Thomas George: Can you talk about it in both the longer term growth potential longer term growth in the servicing portfolio I mean could we see two trillion at some point in and.

Bose Thomas George: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Bose George with KBW. Your line is open. Please go ahead.

Bose Thomas George: With regulators see that as a concern or as a plus.

Bose Thomas George: Missing moves towards larger well capitalized servicers like you.

Bose Thomas George: Yeah, Hey, Bose, it's Mike.

Bose Thomas George: Hey everyone, good morning. Can you talk about the longer-term growth, the potential longer-term growth in the servicing portfolio? I mean, could we see, you know, $2 trillion at some point? And would regulators see that as a concern or as a plus as servicing moves towards larger, well-capitalized servicers like you?

Mike Wind: Happy to start with that one and <unk> can chime in as well.

Mike Wind: Yes.

Mike Wind: In the past, we have a target of reaching a trillion dollars in servicing I think as we move forward, what you're going to hear us talking a lot more about targeted returns. So we're not targeting a certain size, we look at what the market offers.

Mike Weinbach: Yeah, hey, Buzz. It's Mike. Happy to start with that one. And Jay and Kurt can chime in as well.

Speaker Change: And as J J talked about we're disciplined in terms of the way we price opportunity is and so the market will really dictate what our future growth as we felt good about the ability to.

Mike Weinbach: In the past, we had a target of reaching $1 trillion in servicing. I think as we move forward, you're going to hear us talking a lot more about targeted returns. We're not targeting a certain size.

Mike Weinbach: We look at what the market offers. As Jay just talked about, we're disciplined in terms of the way we price opportunities. The market will really dictate what our future growth is, but we feel about the ability to continue to earn good returns for our shareholders. The only thing I'd add, though, is that if you look at the market overall, there are about $14 trillion in mortgages outstanding and actually over $30 trillion of equity in homeowners' homes.

Speaker Change: To continue to earn good returns for our shareholders.

Speaker Change: Only thing I'd add though is if you look at the market overall, there's about 14 trillion dollars of mortgages outstanding and actually over $30 trillion of equity and.

Speaker Change: In.

Speaker Change: The homeowners homes so.

Mike Weinbach: That's probably grown probably from $10 trillion a decade ago. There's been some slow and steady growth in the market, and you'd expect that to continue.

Speaker Change: And that's growing probably from 10 trillion decade ago. So there's been some slow and steady growth in the market you would expect that to continue in addition.

Mike Weinbach: In addition, it's a challenging business. It requires making sure you're making the investments to stay compliant with federal, state, and local laws and rolling out new programs that investors ask you for. We're continually investing back in the business. Part of the reason you're seeing us grow is because there are a lot of other people in the mortgage ecosystem who are focused on something other than servicing, helping homeowners get into new homes, and leading investment management platforms.

Speaker Change: It's a challenging business it requires.

Speaker Change: Making sure you're making the investments to date to stay compliant with federal state and local laws.

Speaker Change: And rolling out new programs that investors ask for for your.

Speaker Change: We're continually investing back in the business and I think part of the reason Youre seeing us grow is because there's a lot of other people in the mortgage ecosystem, who are focused on something other than servicing helping.

Speaker Change: Homeowners getting to new homes, leading investment management and platforms and people have been able to partner with us either through.

Mike Weinbach: People have been able to partner with us either through us offering subservicing where they could focus on what they do best or focusing on originations and selling what they originate to be able to fund their business, which has allowed us to grow. But, a long way of saying, even with our growth in servicing, it's still a single-digit share of the overall market. We think there are a lot of reasons for the market to continue consolidating so the rest of the ecosystem can focus on what they do best.

Speaker Change: The last offering sub servicing where they can focus on what they do best.

Speaker Change: We're focusing on originations and selling what they what they originate to be able to fund their business, which has allowed us to grow so a long way of saying it.

Even with our growth in service, saying, it's still a single digit share of an overall market and we think theres a lot of reasons for the market to continue consolidating so the rest of the ecosystem can focus on what they do best.

Jay Bray: Yeah, the only thing I would add, Bose, is that if you look at our performance on the scorecard, I mean, we're consistently number one, you know, number two from all of our stakeholders. And so I think there's a lot of confidence in Mr. Cooper as a servicer.

Speaker Change: Yes, the only thing I would add Bose is that if you look at.

Speaker Change: Our performance scorecard standpoint, I mean, we're we're consistently number one.

Speaker Change: In our number two from all of our stakeholders.

Speaker Change: So I think theres a lot of confidence in Mr. Cooper as a servicer and it's just natural to Mike's point.

Jay Bray: And it's just natural, to Mike's point, it's a big scale matters, technology matters, investment matters, you know, if you look at other financial services, you know, types of companies, market share can grow considerably. And so we don't see any impediment to growth from here. The last comment I would make is that about half of our portfolio is subservicing, right? And so we don't really have the capital risk or, you know, it's a completely capital light business. So a long answer to your question, but that's how we think.

Speaker Change: Large scale matters technology matters investment matters.

Speaker Change: If you look at other financial services.

Speaker Change: Types of companies market share can grow considerably and so we don't see any impediment to growth from here. The last comment I would make is about half of our portfolio of sub servicing right and so we don't really have the.

Speaker Change: The capital risk or it's.

Speaker Change: It's completely capital light business, so long answer to your question, but thats, how we think about that.

Bose Thomas George: That's great. It's very helpful. Thanks.

Bose Thomas George: And then, actually, just a question on the corporate segment outlook there. Just, actually, what's the, is this quarter's number a reasonable run rate going forward? I mean, there were a couple of little blips, but is this kind of a reasonable level?

Speaker Change: Great. That's very helpful. Thanks, and then actually just a question on the corporate segment outlook beverages actually whats this.

Speaker Change: This quarter's number reasonable run rate going forward I mean, there are a couple of little blips, but is this kind of a reasonable level.

Jay Bray: No, I think we've actually made some investments in the corporate segment to look to reduce it going forward. We think there's an opportunity in the coming quarters to actually reduce expenses in the corporate segment. So you shouldn't think, you should really look at that as an investment that we made to actually identify some future savings.

Speaker Change: No I think we've actually made some investments in the corporate segment to to look to reduce it.

Speaker Change: Going forward, we think there's an opportunity in the coming quarters to actually renew.

Speaker Change: <unk> expenses in the corporate side of the argument. So you Shouldnt think you should really look at that as an investment that we made.

Speaker Change: To actually identify some future savings.

Jay Bray: So some of the just specifically there's some of the expenses in the first quarter were the investments, so you see kind of trending down from here Exactly. Although...

Speaker Change: So some of the two.

Speaker Change: Specifically there is some of the expenses in the first quarter, where the investments so.

Speaker Change: You're kind of trending down from here.

Speaker Change: Exactly.

Kurt G. Johnson: But, Bose, it's Kurt. I just wanted to comment that the debt expense... had only two out of three months right, so on the new billion dollar issuance, so that will tick up slightly, but it's pretty close to a run rate, and we do call that out separately. Okay, perfect. Thanks a lot.

Speaker Change: Although.

Speaker Change: Bose, it's Curt I just wanted to comment.

The debt expense.

Kurt G. Johnson: <unk> had only two out of three months rates on the new billion issuance. So that will tick up slightly but it's pretty close to a run rate we did call that out separately.

Bose Thomas George: Okay, perfect. Thanks a lot.

Speaker Change: Okay, alright, thanks, a lot.

Douglas Michael Harter: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Doug Carter with UBS. Your line is open. Please go ahead.

Speaker Change: Thank you one moment as we move on to our next question.

Speaker Change: And our next question is going to come from the line of Doug Harter with UBS. Your line is open. Please go ahead.

Jay Bray: I'll start and let these guys come in. Hey, Doug.

Douglas Michael Harter: Thanks can you talk about the outlook for cost per loan on the servicing side.

Jay Bray: I mean, I'll just give you an example of the power of the platform. You know, we earned $130 billion in the first quarter, and our actual compensation expense went down. And we think we can, you know, board a $100 billion portfolio today and add less than 50 people. And so we've got incredible scale, incredible power in the platform. And I think we're still in the middle innings of what's possible from a cost per loan standpoint, which is why we spent some time today talking about AI and the investments there.

Douglas Michael Harter: As you think can you continue to drive that lower and does that come from.

Douglas Michael Harter: Technology investments because they come from continued scale or both.

Speaker Change: I'll start and let these guys Hey, Doug.

Speaker Change: I mean I'll just give you an example of the power of the platform, we boarded 130 billion.

Speaker Change: In the first quarter and our actual compensation expense went down.

Speaker Change: And we think we can.

Speaker Change: Four to 100 billion portfolio today, and add less than 50 people and so we've got incredible scale incredible power in the platform and I think we're in still the middle innings of what's possible from a cost per loan standpoint, which is why we spend some time today talking about AI and the investments there, but we've been <unk>.

Jay Bray: But we've been investing, you know, in data and technology for years. And, you know, AI is just now another arrow in the quiver to continue to drive costs down. So we really are bullish on continuing to take costs out there. So I don't know, Mike, if you would add anything. Yeah, nothing to add. That's the plan.

Speaker Change: <unk> and data and technology for years and now another arrow in the quiver to continue to drive costs down so.

Speaker Change: We really are bullish on kantar.

Speaker Change: Continuing to take cost out there. So I know, Mike if you would add anything yes, nothing to add Thats the plan.

Mike Weinbach: Yeah, nothing to add. That's the plan.

Speaker Change: Okay.

Speaker Change: Great. Thank you.

Kyle Joseph: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Kyle Joseph with Jeffries. Your line is open. Please go ahead.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: And our next question is going to come from the line of Kyle Joseph with Jefferies. Your line is open. Please go ahead.

Kyle Joseph: Hey, good morning. Thanks for taking my questions. Um, just looking at slide 12, I wanted to dig a little bit more into industry DQs, you know, particularly on the Jenny side. You're seeing, um, DQs even come down in that segment. What's driving that dynamic? Have you been able to refi those into Fannie or Faye products?

Kyle Joseph: Hey, good morning, Thanks for taking my questions.

Kyle Joseph: Just looking at slide Slide 12, I wanted to dig in a little bit more on the industry.

Kyle Joseph: Particularly on the Ginnie side Youre seeing.

Kyle Joseph: DTE has even come down in that segment, what's driving that dynamic have you been able to refi those into Fannie Mae products.

Kurt G. Johnson: Hey, Kyle. It's Kurt.

Kyle Joseph: Yeah.

Kurt G. Johnson: I'll take a stab at that question. You can see, obviously, FHA is coming down a lot faster than VA and USDA. FHA has done a really great job from a modification standpoint of just putting programs in place that are easy for the servicer to implement and really attractive for the customer as well. So the customer, once they recover from their temporary hardship, is able to go into these, keep the same mortgage rate, and really kind of continue to perform.

Kurt G. Johnson: Hey, Kyle it's Curt.

I'll take a stab at that question.

Kurt G. Johnson: Our you can see obviously FHA coming down a lot faster than via an USDA FHA.

Kurt G. Johnson: He's done a really great job from a modification standpoint, I'm just putting programs in place that are easier for easy for the service servicer to implement and really attractive for the customer as well so.

Kurt G. Johnson: They have programs that allow the customer to stay in their low rate mortgages and capitalize sort of all of the railroads on the backend of the mortgage and we've actually seen them perform quite well as well so.

Kurt G. Johnson: Customer once they recover from their temporary hardship is able to go into these keep the same mortgage rate.

Kurt G. Johnson: And that's why we're seeing sort of a drop off in FHA. Now, VA hasn't had the same programs historically, and so that's why you've seen sort of a slower decline, particularly around customers that are coming off of forbearance. But VA just introduced a new program this last week where customers can get a modification with a 2.5% rate and a 30- to 40-year amortization. So we do think that VA in the near term will probably have some good opportunities as well, but that's really what's driving it.

Kurt G. Johnson: And really kind of continue to perform and Thats why were seeing sort of the.

Kurt G. Johnson: Drop off in FHA VA hasn't had the same programs historically and so thats why <unk> seen sort of a slower decline.

Kurt G. Johnson: Particularly around customers that are coming off of a forbearance, but VA just introduced a new program this last week where customers.

Kurt G. Johnson: A modification with a two 5% rate and a 30 to 40 year amortization. So we do think that.

Kurt G. Johnson: In the near term, we will probably have some good opportunities as well, but that's really what's driving it and yes. We are seeing an industry wide. If you look at kind of the FHA outperformance youll see that theyre delinquencies have dropped overall.

Kurt G. Johnson: And yes, we are seeing it industry-wide. If you look at the FHA performance, you'll see that their delinquencies have dropped overall over the last couple of months, and I think you'll continue to see them decline as servicers are able to implement these programs.

Kurt G. Johnson: Over the last couple of months and I think you'll continue to see them.

Kurt G. Johnson: Decline.

Kyle Joseph: Got it. And then kind of a tangential follow-up, just in terms of zone, you know, was that the first quarter, is that a decent revenue run rate for, obviously, the lower DQs would impact that business, but just give us a sense for how that business is performing given the declines in

Kurt G. Johnson: Servicers are able to implement these programs.

Speaker Change: Got it and then kind of a tangential follow up.

Speaker Change: In terms of down.

Speaker Change: Is that was the first quarter is that a decent revenue run rate.

Speaker Change: Laura.

Speaker Change: What impact that business.

Speaker Change: Or how that business is performing in <unk>.

Jay Bray: I mean, I think Zome's performing as expected, right? We're not expecting anything terribly exciting from Zome in this market. I mean, delinquencies are at all-time lows, and we don't see that changing anytime soon. Given Kurt's point, the government continues to roll out programs to keep borrowers in their homes, which is obviously very, very positive for the servicing business. But, you know, I think until the cycle changes and you start to see more meaningful foreclosures, I don't think you should expect a lot out of Zome. But, again, we're patient. It's a very valuable asset. You know, we've got a great platform there. We continue to win market share. And, you know, we'll be patient.

Speaker Change: Climbed into here.

Laura: I mean, I think zones performing as expected right, we're not expecting anything terribly exciting from zone. In this market I mean delinquencies are at all time lows, we don't see that changing anytime soon given curt's point. The government continues to rollout programs to keep borrowers in their homes, which is obviously very very positive for the servicing business.

Laura: But I think until the cycle changes and you start to see more foreclosures meaningful.

Laura: I don't think you should expect.

Laura: A lot out of them.

Laura: But again, we're patient it's a very valuable asset.

Laura: We've got a great platform there we continue to win market share and we will be patient.

Kyle Joseph: Got it. Thanks very much for taking my questions.

Got it thanks very much for taking my questions.

Giuliano Jude Anderes Bologna: Thank you, and one moment as we move on to our next question. Our next question is going to come from the line of Giuliano Bologna with Compass Point. Your line is open, please go ahead.

Speaker Change: Thank you and one moment as we move onto our next question.

Speaker Change: Our next question is going to come from the line of Giuliano Bologna with Compass point. Your line is open. Please go ahead.

Giuliano Jude Anderes Bologna: Good morning. Congratulations on the continued execution. Thanks.

Giuliano Jude Anderes Bologna: Good morning, congratulations on the continued execution.

Giuliano Jude Anderes Bologna: One thing I'd be curious about is, you know, you've obviously grown the portfolio a lot, and you obviously have another $100 billion, you know, projected for next quarter. Is there any preference for, you know, your balance portfolios are at the money portfolios going forward. And, you know, is there any kind of preference for the different different products out there?

Giuliano Jude Anderes Bologna: Thanks, Jim.

Giuliano Jude Anderes Bologna: One thing I'd be curious about as you've obviously grown the portfolio.

Giuliano Jude Anderes Bologna: Yes.

Giuliano Jude Anderes Bologna: You, obviously have another 100 billion.

Speaker Change: Projected for next quarter is there any preference for.

Speaker Change: Balanced portfolios or at the money portfolios going forward.

Speaker Change: <unk>.

Speaker Change: Is there any kind of preference for the different different products out there.

Jay Bray: Again, I think the way we think about it is we're always going to be a market participant and we're always going to look at what's in the market and stick with our kind of disciplined approach to hit our targeted returns. And so today, I would say we're buying more conventional than Ginnie.

Speaker Change: Again, I think the way, we think about it as well.

Speaker Change: We're always going to be.

Speaker Change: A market participant and we're always going to look at.

Speaker Change: What's in the market and stick with our disciplined approach to hit our targeted returns and so we today I would say are buying more conventional.

Jay Bray: Historically, I've bought more out of what I would call out-of-the-money portfolios. But as the market evolves and changes, I think you'll see more out-of-the-money portfolios coming to market, especially from originators. And so we're going to be active, but we're going to be disciplined. And we don't see really any change in the velocity of what's coming to market, just given where the banks are at and where the origination market's at. We'll just continue to focus on what we do, and we have a real competitive advantage from a loan boarding standpoint, cost standpoint, and recapture standpoint. So we feel good about the opportunity.

Speaker Change: Then Jenny.

Speaker Change: And historically have bought more out of what I would call out of the money portfolios, but as the market evolves and changes.

Speaker Change: I think you'll see more at the money portfolios coming to market.

Especially from the originators and so we will we're going to be active, but we're going to be disciplined and.

Speaker Change: We don't see really any change in the velocity of what's coming to market, just given where the banks are at and where the origination markets.

Speaker Change: Discontinued.

Speaker Change: Focus on.

Speaker Change: What we do and we have a real competitive advantage.

Speaker Change: Loan boarding standpoint cost standpoint, recapture standpoint, so we feel good about the opportunity.

Mike Weinbach: The only thing I'd add is that we do look at all the transactions on an option-adjusted spread basis, and so we price with the optionality on at-the-money portfolios, and where we see value, you know, we will buy. And to Jay's point, we're relatively indifferent.

The only thing I'd add is that we do look at all of the transactions on the option adjusted spread basis, and so we we price with the Optionality on the mining portfolios.

Speaker Change: Where we see value.

Speaker Change: We will buy in today's point, we're relatively indifferent, we just wanted to make sure that we're adding value to our shareholders with every single purchase that we do we do think our recapture is best in class.

Mike Weinbach: We just want to make sure that we're adding value to our shareholders with every single purchase that we do. We do think our recapture is best-in-class, and so as there are opportunities for at-the-money, I think that there are some good opportunities for DTC and to leverage that platform a little bit more. So you may see us a little bit more active at closer to at-the-money and giving our portfolio a little bit of room for growth from an originations perspective.

As there are opportunities around the money I think that there is some good opportunities for DTC and to leverage that platform a little bit more so you may see a little bit more active at closer to out the money.

Speaker Change: And given our portfolio a little bit of room for growth from an originations perspective, but again discipline around the price and we said we looked at 52 portfolios.

Mike Weinbach: But again, discipline around the price, and we said we looked at 52 portfolios. You know, we didn't win anywhere close to 52, so it's still a competitive marketplace, and where we think we see value and where we see an additive to our earnings potential, that's where we're going to be a winning bettor.

Speaker Change: We didn't weren't anywhere close to 52, so it's still a.

Speaker Change: Competitive marketplace, and where we where we think we see value and where we see additive to our earnings potential that's where we're going to be a winning better.

Giuliano Jude Anderes Bologna: That's very helpful. And then, you know, one that the, hopefully, it's not too early to bring up, but you know, Freddie Mac has a proposal out, still in the proposal stage, not, you know, hasn't been approved yet, but around, you know, insuring and enabling second mortgages that would be fixed-rate for 20 years of term instead of, you know, key locks for, you know, current I'm curious if you think about that type of product, obviously it's only proposed for Freddie so far, you know, and to be able to see if it goes for, if it ends up being proposed for Fannie as well.

Speaker Change: Got it that's very helpful.

Speaker Change: That would be.

Speaker Change: Hopefully not too early to bring up but.

Speaker Change: Freddie Mac has a proposal out.

Speaker Change: So on the.

Speaker Change: So a proposal.

Speaker Change: Improved yet but around yes.

Speaker Change: Ensuring an enabling second mortgages that'd be fixed rate and 20 years of term instead of kiosks for current Freddie Mac.

Speaker Change: <unk>.

Speaker Change: Curious if you think about that type of a product obviously, it's all equal goes for Friday, so far.

Speaker Change: And to be able to see.

Speaker Change: If it goes for.

Speaker Change: That ends up being poster Fannie as well, but im curious if theres any opportunity around that product or you've thought about the potential opportunity because it could obviously bring in.

Giuliano Jude Anderes Bologna: But I'm curious if, you know, there's any opportunity around that product, or if you've thought about the potential opportunity because it could obviously bring in another wave of, you know, origination or kind of, you know, quasi cash out rebuy volume that could be, you know, additive to the origination platform and also to the servicing platform. Just curious if you've thought about what that opportunity could look like. I realize it's fairly early days.

Speaker Change: Another wave of origination.

Origination or kind of a quasi cash out revised volume that could be.

Speaker Change: Additive to the origination platform and also to the servicing platform I'm just curious if you've thought about what that opportunity could look like I realize et cetera, it's fairly early days.

Mike Weinbach: Yeah. Hey, Giuliano. It's Mike.

Speaker Change: Yeah, Hey, Julien it's Mike.

Mike Weinbach: You said a lot of the answer in your question, which is that it's relatively early days, but we think it's very interesting. And we exist to serve homeowners, and if there are more tools that give us opportunities to help homeowners take advantage of the equity in their homes, it's great for our customers, and it's great for us. As this market's developing, I mean, if you think back to the Hewlock market before the financial crisis, obviously, that didn't end very well. And so since then, it's been much more responsible, and we appreciate that, and support that, and want to continue to see that. And it's still in the early innings of evolving.

Mike Wind: <unk> set a lot of answering your question.

Mike Wind: It's relatively early days, but we think it's very interesting and.

Mike Wind: We exist to serve homeowners and if there are more tools to give us opportunities to help homeowners take advantage to the equity in their home.

Mike Wind: Great for our customers and it's great for us.

Mike Wind: Is this market's developing and if you think back to the.

Mike Wind: Uh huh.

Mike Wind: The HELOC market before the financial crisis.

Mike Wind: Obviously that did very.

Mike Wind: Very well and so.

Mike Wind: Since then it's been much more response to ball and we.

Mike Wind: We appreciate that and support that and want to continue to see that.

Mike Wind: And.

Mike Wind: It's still in the early innings of evolving so the vast majority of them.

Mike Weinbach: So the vast majority of Americans with a mortgage have a mortgage at a much lower rate than where loans are being originated today. Go back to some of the stats I threw out earlier, over $30 trillion of equity available in homes against $14 trillion of mortgages. So the LTV of the market as a whole is in the low $30s.

Mike Wind: <unk> with a mortgage have a mortgage at a much lower rate than where loans are being originated today.

I go back to some of the stats I threw out earlier over $30 trillion of equity available on homes against 14 trillion mortgages. So the LTV of the of the market as a whole is in the low thirties.

Mike Weinbach: So there's a lot of opportunity there, and we'd love to see products come out that are simpler for homeowners. And Freddie is in a great position.

Mike Wind: So there's a lot of opportunity there.

Mike Wind: And we'd love to see products come out that are simpler for homeowners and Freddie is in a great position. They have the first lien and they know a lot about that customer they know a lot about the value of the loan they know a lot about the.

Mike Weinbach: They have the first lien. They know a lot about that customer. They know a lot about the value of the loan. They know a lot about the security of the instrument. And so we're really excited to see that they're looking at ways to innovate to make things easier for customers and their servicers and their investors to help customers take advantage of the equity in their homes.

Mike Wind: The security of the instrument and so.

Mike Wind: We're really excited to see they're looking at ways to innovate to make things easier for customers and their services and their investors to help customers take advantage of the equity in their homes.

Jay Bray: Yeah, the only thing I'd add is we're doing second liens today, right? When you look at our platform, it's not an insignificant percentage of what the Origination platform is funding today. So we have the operational capability to roll this out. So, you know, we're excited about it, and I think it'll be a real opportunity.

Mike Wind: And the only thing I'd add is we're doing second liens today right. When you look at our platform it's not.

Mike Wind: Not an insignificant percentage of what.

Mike Wind: The origination platforms is funding today, so we have the operational capability.

Mike Wind: To roll this out so we're excited about it and I think it will be a real opportunity.

Giuliano Jude Anderes Bologna: That's very helpful, and I appreciate it, and I'll jump back in the queue.

Speaker Change: That's very helpful and I appreciate it I'll jump back in the queue.

Terry MA: Thank you, and one moment as we move on to our next question. And our next question is going to come from the line of Terry Ma with Barclays. Your line is open. Please go ahead, do one thing.

Speaker Change: Thank you and one moment as we move on to our next question.

Speaker Change: And our next question is going to come from the line of Terry MA with Barclays. Your line is open. Please go ahead.

Terry MA: Hey, thanks. Good morning.

Terry MA: I just want to follow up on the MSR opportunity, maybe to ask it a slightly different way. Maybe, like this quarter, out of 52 deals, can you give us a sense of how many of those deals actually hit your return hurdles or were in your wheelhouse? And then, out of that, maybe how many did you win due to pricing and competition?

Terry MA: Hey, Thanks, Good morning, I, just wanted to follow up on the MSR opportunity maybe to ask it a slightly different way.

Terry MA: Maybe like this quarter at 52 deals can you give us a sense of how many of those deals actually hit your return hurdles are or where in your wheelhouse and then.

Terry MA: Does that maybe how many did you win.

Terry MA: Missing in competition.

Jay Bray: Look, I think it's, uh... We're still winning, you know, a pretty small percentage in the grand scheme of things. We don't really comment on specifics around that process, but, you know, we looked at it all alone. We have a very tight investment committee process, investment committee process around that. And, you know, we're still winning a fairly small percentage, which, again, we're okay with because we want to make sure we're hitting the returns for our shareholders.

Look I think it's.

Terry MA: We're still winning a pretty small percentage in the Grand scheme of things. So we don't really comment on specifics around.

Terry MA: That process, but we looked at all of them. We have a very tight investment committee process investment committee process around that and.

Terry MA: We're still winning a fairly small percentage, which again, we're okay with because we want to make sure firmware.

Mike Weinbach: The only thing I'd add, to reiterate what Jay said, we lose more than we win, we bid on almost all of them, and we think we get to see almost everything that's in the market because people know our ability to very quickly evaluate a portfolio against our return hurdles and come back with a price. We like that we continue to see everything, we're going to remain disciplined, we're going to be an active participant in the market, and even losing more than we win, it's helped us be able to grow.

Terry MA: Hitting the returns for our shareholders.

Speaker Change: One thing I'd add is just to reiterate what Dave said, we lose more than we when we bid almost all of them.

Speaker Change: And we think we get to see almost everything thats in the market because people know our ability to very quickly evaluate our portfolio against our R. R.

Speaker Change: Return hurdles and come back with a price.

Good point, yes, we like that we continue to see everything we're going to remain disciplined we're going to be an active participant in the market and.

Speaker Change: Even losing more than we win.

Speaker Change: Got it.

Jay Bray: And the last piece I would add is that we do have sellers that consistently come to us directly because we've had a proven track record with them. We've been able to execute time and time again. And so, you know, obviously, we're gonna win those in most cases because we have a track record with that seller. So that's one other element of the process.

Speaker Change: It has helped us be able to grow the last piece I would add is we do have.

Speaker Change: Sellers that consistently come to us directly because we have a proven track record with them, we've been able to execute time and time again.

Speaker Change: And so.

There, obviously, we're going to win those in most cases, because we have a track record with that seller. So that's one other element of the process.

Terry MA: Got it. That's helpful. And then I may have missed this, but on the servicing pre-tax for the quarter, you guys had some pretty good operating leverage. Was there anything one time or seasonal in that? Now should we think about, I guess, maybe the margin going forward?

Speaker Change: Got it that's helpful. And then I may have missed this but on the servicing pretax for the quarter you guys had some pretty good operating leverage was there anything one time or seasonal in that how should we think about I guess, maybe the margin going forward.

Kurt G. Johnson: No, there really wasn't much in the way of one-timers in servicing, particularly not from an expense standpoint. So I think you can, as Mike said, you can't count on the operating leverage being that robust on a go-forward basis. But I think Jay pointed out, right, $100 billion of additions with less than 50 ads. From a headcount perspective, I think the operating leverage continues to exist, and you'll see that play out on a go-forward basis.

Speaker Change: No there really wasn't much in the way of one timers in servicing.

Speaker Change: Particularly not from an expense standpoint.

Speaker Change: So I think you can.

Speaker Change: As Mike said.

Speaker Change: Ken on the operating leverage sort of being that robust on a go forward basis, but I think J J pointed out $100 billion of addition, with less than 50.

Speaker Change: Ads from a head count perspective, I think the operating leverage continues to exist and you'll see that play out on a go forward basis and the only thing I'd add is obviously there is an element of rates there. So.

Mike Weinbach: The only thing I'd add is obviously there's an element of rates there. So with higher rates, CPRs were lower.

Speaker Change: With higher rates <unk> were lower.

Mike Weinbach: If the environment had been different, you might see what appears to be less operating leverage. But what underlies that, regardless of rate, is that we're continuing to invest in the platform, which has given us the capabilities that Jay talked about to bring on new loans without needing to add significant amounts of expense. So we feel great about the scalability of the platform, and we're going to continue to invest in it. But, as I said up front, we expect to see continued operating leverage going forward.

Speaker Change: If the environment had been different.

Speaker Change: Might see what appears to be less operating leverage, but what underlies that regardless of rate is we're continuing to invest in the platform, which has given us.

Speaker Change: Sure.

Speaker Change: The capabilities that Jay talked about to bring on new loans without needing to add significant amounts of expense. So we feel great about the scalability of the platform, we're going to continue to invest.

Speaker Change: To realize it.

Speaker Change: As I said upfront, we expect to see continued operating leverage going forward.

Terry MA: Thank you, and one moment as we move on to our next question. And our next question is going to be from the line of Eric Hagen with VTIG. Your line is open. Please go ahead. Hey, thanks, good morning.

Speaker Change: Okay, great. Thank you.

Thank you and one moment as we move on to our next question.

Speaker Change: And our next question is going to be from the line of Eric Hagen with <unk>. Your line is open. Please go ahead.

Eric J. Hagen: Hey, thanks. Good morning.

Eric J. Hagen: On the $50 billion of MSRs that you're onboarding this quarter, can you share how you're financing that? Is it all in cash? Are you using any debt? Was it competitively bid? And any recapture expectations you might expect for that portfolio? And then, a follow-up there, I mean, is it right to assume that the amortization expense that you expect as you onboard is sort of proportional to the amortization expense in the overall portfolio right now?

Eric J. Hagen: Thanks, Good morning on the $50 billion of MSR that you're Onboarding. This quarter can you share how you're financing that is it all in cash or using any debt.

Eric J. Hagen: Was it a competitively bid.

Speaker Change: And any recapture expectation as you might expect for that portfolio.

Speaker Change: And then a follow up there I mean is it right to assume that the amortization expense that you expect.

Speaker Change: As you onboard that is sort of proportional to the cameras.

Speaker Change: Amortization expense in the overall portfolio right now.

Kurt G. Johnson: Yeah, all good questions, Eric. Look, the 50 billion, and I'm trying to remember all the questions now, because there are a lot of components to it. The 50 billion was largely competitively bid. To Jay's point, there were a couple that probably came directly to us, but for the most part, it was competitively bid.

Speaker Change: Yes.

Speaker Change: Good questions Eric.

Speaker Change: Look the 50 billion.

Speaker Change: And I'm trying to remember all the questions now because there are a lot of components to it.

Speaker Change: The $50 billion was largely competitively bad to Jay's point there.

Speaker Change: There were a couple that probably came.

Speaker Change: Directly to us, but for the most part it was competitive.

Kurt G. Johnson: You know, I think, yes, you'll see sort of a pro-rata amortization expense, but as Mike pointed out, a lot of that is interest rate dependent. So, you know, if the rates stay kind of where they are in this higher range, I think you'll definitely see sort of a pro-rata amortization. If they increase a little bit, or, sorry, if they decrease a little bit, you'll see that go up, but I think you'll see a corresponding increase in our DTC performance as well.

Speaker Change: Sure.

Speaker Change: I think yes, youll see sort of a pro rata amortization expense, but as Mike pointed out a lot of that is interest rate dependent so.

Speaker Change: If the rates stay kind of where they are.

Speaker Change: And this higher range I think you'll definitely see sort of a pro rata amortization.

Speaker Change: <unk>, a little bit sorry, if a decrease a little bit you'll see that go up and I think youll see a corresponding increase in our DTC.

Kurt G. Johnson: So, again, the focus is on the balanced business model, and we do think that these returns are really interest rate agnostic, and that, you know, where you see a drop-off in servicing because of a rate rally, you'll see an increase in our DTC channel. Yeah.

Speaker Change: <unk> as well so.

Speaker Change: The focus is on the balanced business model and we do think that these returns are really interest rate agnostic.

Speaker Change: And that.

Speaker Change: Where you see a drop off in service because of a rate rally youll see an increase in our DTC channel.

Eric J. Hagen: Yep, yep. Okay, that's helpful.

Jay Bray: Good discussion on this call. I mean, we've seen the investor base for MSRs evolve, you know, very considerably over the last couple years. Do you feel that a more concentrated ownership of servicing from the non-bank community and mortgage REITs contributes to higher volatility for the asset class? How do you think about your footprint in light of the ownership base?

Speaker Change: Okay. That's helpful.

Good discussion on this call I mean, we've seen the investor base for MSR has evolved very considerably over the last couple of years do you feel like a more concentrated ownership of servicing.

From the nonbank community in mortgage rates contributes to higher volatility for the asset class. How do you think about your footprint.

Jay Bray: I mean, from our standpoint, when you look at the buyers that are out there today, typically, you know, strong, well capitalized, you've got the financial buyer segment, which we subserve for, and are, you know, strong counterparties, good, you have good operators like Mr. Cooper. And then you've got, you know, you look at someone like us, you know, clearly, we think our goal is to be, you know, the leader in the market, continue to provide stable, consistent earnings in our returns, and, you know, have a fortress balance sheet. I mean, that's the way we think about the business. To be a leader, you need those things.

The ownership base.

Speaker Change: I mean, I think the short answer is no I mean from our standpoint when.

Speaker Change: When you look at the buyers that are out there today typically strong well capitalized you've got the financial buyer segment.

Speaker Change: Which we sub service for.

Speaker Change: <unk>.

Speaker Change: Strong counterparties good good operators like Mr. Cooper, and then you've got you now.

Speaker Change: If you look at someone like us.

Speaker Change: Clearly, we think we're our goal is to be to.

Speaker Change: To be the leader in the market.

Continue to provide stable consistent earnings.

Speaker Change: Our returns.

Speaker Change: Have a fortress balance sheet I mean, that's the way we think about the business to be a leader you need those things so.

Jay Bray: So no, we certainly don't think that it's introduced more volatility into the system.

Speaker Change: We certainly don't think that its introduce more volatility into the system.

Mike Weinbach: And I would say that the banks are still there, right? They are still bidding against us, and we've seen them win a couple of portfolios in Q1. So it's not like they're entirely out of the marketplace either.

Speaker Change: I would say that the banks are still there they are still bidding against us and we've seen them when a couple of portfolios in Q1.

Speaker Change: So it's not like they're entirely out of the marketplace either.

Eric J. Hagen: Yep, got you. I appreciate you guys. Thank you. Thank you, and I'm

Speaker Change: Yeah got you I appreciate it guys. Thank you.

Speaker Change: Thank you Sir.

Operator: Thank you, and I'm showing no further questions at this time, and I'd like to hand the conference back to Jay Bray for any closing remarks. We appreciate everyone for joining the call. Have a great day. This concludes today's conference call. Thank you for participating, and you may now disconnect.

Speaker Change: Thank you and I'm showing no further questions at this time I would like to hand, the conference back to Jay Bray for any closing remarks.

Jay Bray: We appreciate everyone.

Speaker Change: Joining the call have a great day. Thank you.

Speaker Change: This concludes today's conference call. Thank you for participating and you may now disconnect.

Speaker Change: Okay.

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