Q2 2024 Mr Cooper Group Inc Earnings Call

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Operator: Good day, and thank you for standing by. Welcome to the Mr. Cooper Group Q2 2024 Earnings Conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker at Mr. Cooper Group. Please go ahead.

Good day, and thank you for standing by.

Speaker Change: Welcome to the Mr. Cooper Group Q2, 2024 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on your telephone.

Speaker Change: You will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again, please be advised that today's conference is being recorded.

Speaker Change: And now like to hand, the conference over to your first speaker at Mr. Cooper Group. Please go ahead.

Kenneth A. Posner: Good morning, and welcome to Mr. Cooper Group's second quarter earnings column. 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.

Kenneth A. Posner: Morning, and welcome to Mr. Cooper group's second quarter earnings call. My name is Ken Posner and I am SVP of strategic planning and Investor Relations with me today are Jay Bray, Chairman and CEO, Mike Wind back President and Curt Johnson Executive Vice President and CFO.

Kenneth A. Posner: You can find the slides on our Investor Relations webpage 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 I'll now turn the call over to Jay.

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 Dot com.

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: So 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.

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

Jay Bray: Thanks, Ken. Good morning, everyone, and as you saw from our press release this morning, we've got a lot to cover, including super strong second quarter results and some exciting news, the acquisition of Flagstar's mortgage operator. We'll take you through the materials as we always do, making sure to leave plenty of time for your questions. But before we get into the acquisition, let's start on slide three with a quick review of the quarter, which was quite strong.

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

Jay: As you saw from our press release. This morning, we've got a lot to cover including Super strong second quarter results and some exciting news the acquisition of Flagstar is mortgage operations.

Speaker Change: It will take you through the materials as we always do making sure to leave plenty of time for your questions.

Jay Bray: For the second quarter, pre-tax operating income came in at $219 million, which is up 46% year-over-year. Operating RO2CE was 15.3%, up nearly 400 basis points from a year ago. At the end of last year, we said we expected ROTC to be in a range of 14 to 18% in 2025.

Speaker Change: Before we get into the acquisition, let's start on slide three with a quick review of the quarter, which was quite strong.

Speaker Change: For the second quarter pre tax operating income came in at $219 million, which is up 46% year over year.

Speaker Change: Operating <unk> was 15, 3% up nearly 400 basis points from a year ago.

Speaker Change: At the end of last year, we said, we expected our OTC in a range of 14% to 18% in 2025.

Jay Bray: We're pleased to be in that range already, and we're feeling positive about our momentum heading into next year. I'm super excited about the 17% year-over-year increase in TBV, which reached $68.67 at the end of the quarter. This was a function of earnings plus stock repurchase, which has reduced the share count by 4% over the last year and by a cumulative 35% since inception. The board approved an additional $200 million for stock repurchase.

Speaker Change: We're pleased to be in that range already and we're feeling positive about our momentum heading into next year.

Speaker Change: I'm Super excited with the 17% year over year increase in <unk>, which reached $68 67 at the end of the quarter. This was a function of earnings plus stock repurchase which has reduced the share count by 4% over the last year and by a cumulative 35% since inception.

Speaker Change: The board approved an additional 200 million for stock repurchase I would add that despite stock repurchases and asset growth. We have maintained a rock solid balance sheet with our capital ratio still above our stated target range and ample liquidity.

Jay Bray: I would add that despite stock repurchases and asset growth, we've maintained a rock-solid balance sheet with our capital ratio still above our stated target range and ample liquidity. Turning to operations, the servicing team produced fantastic results with $288 million in pre-tax income, up a massive 58% from a year ago. These results reflect strong growth, with the portfolio ending the quarter at $1.2 trillion, together with exceptional efficiency.

Speaker Change: Turning to operations the servicing team produced fantastic results with $288 million in pre tax income up a massive 58% from a year ago.

Speaker Change: As a results reflect strong growth with the portfolio ending the quarter at one two trillion together with exceptional efficiency gains in fact, you couldnt ask for a better demonstration of operating leverage.

Jay Bray: In fact, you couldn't ask for a better demonstration of operating. Now, shifting to originations, where the environment remains challenging, pre-tax operating income was $38 million, which was at the high end of our guidance, thanks to strong execution in both our DTC and correspondent channels. Now, let's turn to slide four and take you through the transaction. With slide 4, we announce we're acquiring Flagstar's mortgage operation for $1.4 billion in cash This is a simple transaction structure in that it's an acquisition of assets, not a business combination.

Speaker Change: Now shifting to originations, where the environment remains challenging pre tax operating income was $38 million, which was at the high end of our guidance. Thanks to strong execution in both our DTC and correspondent channels.

Jay Bray: The assets include FlaxStar's MSRs and advances, which totals $1.2 billion, its subservicing business, with a total UPB of $270 billion, as well as a third-party lending platform. Additionally, we will subserve $9 billion in Flagstar loans remaining on their balance sheet. The total UPB is approximately $356 billion.

Speaker Change: Now, let's turn to slide four and take you through the transaction with flagstar.

Speaker Change: We announced work acquiring flagstar is mortgage operations for $1 4 billion in cash.

Speaker Change: This was a simple transaction structure and that it's an acquisition of assets not a business combination.

Speaker Change: Assets include Flagstar is msr's, and advances, which totals $1 2 billion at sub servicing business with total <unk> of $270 million as well as a third party lending platform.

Speaker Change: Additionally, we will sub service $9 billion in flagstar loans remaining on their balance sheet. The total <unk> has approximately 356 billion.

Jay Bray: The acquisition will be funded with cash on hand and MSR line draws. Blackstar servicing operations will be integrated onto our platform in a quick, efficient, and thoughtful manner. On this note, I'd like to say welcome to FLAGSTAR's team members who will be joining the Mr. Cooper family. And also, thank you for all the hard work you've put into growing your business and taking care of your customers.

Speaker Change: The acquisition will be funded with cash on hand, and MSR line draws.

Speaker Change: Flagstar servicing operations will be integrated onto our platform and our quick efficient and thoughtful manner.

Speaker Change: On this note I would like to say welcome to Flagstar team members, who will be joining the Mr. Cooper family and also thank you for all the hard work <unk>.

Speaker Change: Put into and to growing your business and taking care of your customers Flagstar is customer focused culture really lines up well with our core values and we are excited about the opportunities.

Jay Bray: Blackstar's customer-focused culture really lines up well with our core values, and we are excited about the opportunity. Now, if you'll pull up for a moment and think about what this transaction means, first, it's a collaborative win-win for us and Flagstar, which showcases Mr. Cooper's ability to provide a full-service solution. In this case, we helped Flagstar solve for its balance sheet goals by selling their MSR asset at a fair price to a credible partner in a single, quick, low-risk transaction. We also helped Flagstar simplify its operations by taking on their existing subservicing business, as well as providing servicing for some of their own lines.

Speaker Change: Now if youll pull up for a moment and think about what this transaction means first it's a collaborative win win for us and flagstar, which showcases Mr. Cooper's ability to provide a full service solution.

Speaker Change: In this case, we help flagstar solve for their balance sheet goals by selling their MSR asset at a fair price to incredible partner and a single quick low risk transaction. We also help flagstar simplify its operations by taking on their existing sub servicing business as well as providing servicing.

Speaker Change: For some of their own loans.

Jay Bray: From an economic perspective, this transaction provides us with excellent returns on capital thanks to the fee income from subservicing, which comes on top of the market yields on the MSR, and we get a major step up in scale and the opportunity to realize additional operating leverage. Now, if you'll turn with me to page five, I'd like to put this transaction in the context of Mr. Cooper's strategic journey. If you recall, we started talking about the dislocation in the MSR marketplace nearly 18 months ago.

Speaker Change: From an economic perspective. This transaction provides us with excellent returns on capital. Thanks to the fee income from sub servicing which comes on top of the market yields on the MSR and we get a major step up in scale and the opportunity to realize additional operating leverage.

Speaker Change: If youll turn with me to page five I would like to put this transaction in the context of Mr. Cooper's strategic journey.

Speaker Change: If you recall, we started talking about the dislocation in the MSR marketplace, nearly 18 months ago, specifically in our fourth quarter 2022 call. We highlighted a cycle wide opportunity to acquire Msr's and suggested tools would trade at extremely attractive yields if.

Jay Bray: Specifically, in our fourth quarter 2022 call, we highlighted a cycle-wide opportunity to acquire MSRs and suggested pools would trade at extremely attractive yields. If you go back and look at our slides or read the transcript, you'll see we pointed to financial pressure on originators and regulatory capital considerations for banks as the drivers of this dislocation, and we even shared with you our proprietary forecast for the bulk MSR market. We anticipated this dislocation.

Speaker Change: If you go back and look at our slides or read the transcript, you'll see reported to financial pressure on originators and regulatory capital considerations for banks as the drivers of this dislocation and we even shared with you our proprietary forecasts for the bulk MSR market.

Speaker Change: We anticipated the dislocation, we moved swiftly and decisively to capitalize on the opportunity and now you see the results with our portfolio, 79% from year end 2022 to one six trillion in mortgages and $6 6 million customers.

Jay Bray: We moved swiftly and decisively to capitalize on the opportunity, and now you see the result, with our portfolio of 79% at year-end 2022 to $1.6 trillion in mortgages and 6.6 million customers. What this shows you is that we are the fundamental best buyers of MSRs, and as a subservicer, we are the best operating partner, period. We have robust operational capacity, we carefully manage our capital liquidity, and we have years of experience in the bulk market, including proprietary data amassed over a decade's worth of acquisitions, which allows us to underwrite assets quickly and accurately.

Speaker Change: What this shows you is that we are the fundamental best buyers of Msr's and as a sub servicer. We are the best operating partner period, we have robust operational capacity, we carefully manage our capital and liquidity and we have years of experience in the bulk market, including proprietary data amassed over a decade's worth of acquisitions.

Speaker Change: Which allows us to underwrite assets quickly and accurately.

Jay Bray: We have relationships with sellers who trust us to close on time and take care of their customers. And we have special tools like Pyro, which is our proprietary, patented AI system, which we use for document extraction and classification.

Speaker Change: We have relationships with sellers, who trust us to close on time and take care of their customers and we have a special tools like Tyro, which is our proprietary patented AI system, which we used for document extraction and classification.

Michael Weinbach: And this gives us a major advantage in due diligence, negotiations, and onboarding. As we think about the industry strategically, it's clear that the servicing sector has entered a phase of rapid consolidation. While financial pressure and regulatory capital rules are recent catalysts, what's ultimately driving consolidation is the power of technology to create massive-scale economies, which is the same trend you see in many other sectors of the financial, fintech, payments, and processing industries, where the leaders control very significant markets.

Speaker Change: And this gives us a major advantage and due diligence negotiations and onboarding.

Speaker Change: As we think about the industry strategically it's clear that the servicing sector as interface of rapid consolidation, while financial pressure and regulatory capital rules. Our recent catalysts, what's ultimately driving consolidation is the power of technology to create massive scale economies, which is the same trend you see.

Speaker Change: And many other sectors of the financial Fintech payments and processing industries, where the leaders control very significant market share.

Michael Weinbach: Our strategy at Mr. Cooper is to position ourselves for a highly concentrated in-state and mortgage service. We have a strong position today, but we are not pausing to celebrate. Instead, we're going to stay focused on building out the industry's most efficient and scalable platform. We will work even harder to provide an amazing experience for our customers and our clients. And we are committed to playing a constructive leadership role in the industry, earning the continued support of all our stakeholders. And with that, I'll turn the call over to our president, Mike Weinbach, to take you through our operational results in more detail.

Douglas Michael Harter: Our strategy at Mr. Cooper is to position ourselves for a highly concentrated in stay in mortgage services, we have a strong position today, but we're not pausing to celebrate instead, we're going to stay focused on building out the industry's most efficient and scalable platform.

Speaker Change: He will work even harder to provide an amazing experience for our customers and our clients and we are committed to playing a constructive leadership role in industry, earning the continued support of all our stakeholders.

Douglas Michael Harter: And with that I'll turn the call over to our President Mike Wind back to take you through our operational results in more detail.

Michael Weinbach: Thanks Jay, and good morning everyone. Let's spend another minute on slide five, and I'll give you a little more color on the second quarter just so you're clear on where we stand today prior to adding the Flagstar portfolio. We ended the quarter at $1.2 trillion in mortgages, with close to $100 billion in additions during the quarter, reflecting both MSR deals and subservicing growth. With respect to subservicing, I did want to make a point about client selection, since we've deliberately partnered with the leaders among banks, investment companies, and originators.

Michael Kay: Thanks, Jay and good morning, everyone.

Michael Kay: Let's spend another minute on slide five and I'll give you a little more color on the second quarter, just so you're clear on where we stand today prior to layering on the flagstar portfolio.

Speaker Change: We ended the quarter at one two trillion in mortgages with close to $100 billion in additions during the quarter, reflecting both the MSR deals and sub servicing growth.

Speaker Change: With respect to sub servicing I did want to make a point about client selection since we've deliberately partnered with the leaders among banks investment companies and originators as they've grown we've grown and this played out nicely in the quarter.

Michael Weinbach: As they've grown, we've grown, and this played out nicely in the quarter. Also, I'll share that we're quite pleased with our Rushmore team's performance in growing our special servicing business, which is solidly profitable, has a roster of important blue chip clients, and represents a very important capability for the point when the cycle eventually turns. In total, once the Flagstar deal closes, subservicing will account for 52% of the total portfolio, and owned MSRs will be 48%, which is closely in line with the 50-50 mix that we believe optimizes our profitability and balance sheet.

Speaker Change: Also I'll share that we're quite pleased with our rushmore team's performance and growing our special servicing business, which is solidly profitable has a roster of important blue chip clients and represents a very important capability for the point, where the cycle eventually turns.

Speaker Change: In total once the flagstar deal closes sub servicing will account for 52% of the total portfolio and owned MSR will be 48%, which is closely in line with the 50 50 mix that we believe optimizes, our profitability and balance sheet.

Michael Weinbach: Looking ahead, we're totally focused on providing Flagstar's customers with a smooth and seamless onboarding experience, as well as welcoming our new team members onto the Cooper platform. Our plan is to complete this process by early 2025. During this period, we aren't constrained from considering other growth opportunities. However, these would be a distant second priority to delivering on our commitments in this transaction.

Speaker Change: Looking ahead, we're totally focused on providing flagstar as customers with a smooth and seamless onboarding experience as well as welcoming our new team members onto the Cooper platform.

Speaker Change: Our plan is to complete this process by early 2025.

Speaker Change: During this period, we are unconstrained from considering other growth opportunities. However, these would be a distant second priority to delivering on our commitments in this transaction.

Michael Weinbach: Turning to slide six, let's dig into servicing earnings. We reported pre-tax income of $288 million, up 58% year-over-year, reflecting the benefits of growth and operating leverage, while CPR speeds came in slightly below expectations. Now, the key theme for us is operating leverage, and it's worth spending a moment on this topic, given that Flagstar will add considerably more scale to our operation. For better perspective, let's look at the numbers over the last 12 months.

Speaker Change: Turning to slide six let's dig into servicing earnings.

Speaker Change: We reported pretax income of $288 million up 58% year over year, reflecting the benefits of growth and operating leverage four CPR speeds came in slightly below expectations.

Speaker Change: Now the key theme for US is operating leverage and it's worth spending a moment on this topic given that flagstar will have considerably more scale to our operations.

Speaker Change: For better perspective, let's look at the numbers over the last 12 months.

Michael Weinbach: Servicing revenues were up $162 million year over year, or 37%, which is very much in line with the growth of the portfolio. In contrast, expenses were only up 24 million year-over-year, or 16%. 37% revenue growth with 16% expense growth resulted in 58% growth in EBT, which we hope you'll agree is a pretty compelling demonstration of operating leverage.

Speaker Change: Servicing revenues were up $162 million year over year, or 37%, which is very much in line with the growth of the portfolio.

Speaker Change: In contrast expenses were only up $24 million year over year or 16%.

Speaker Change: 37% revenue growth was 16% expense growth resulted in a 58% growth in EBT, which we hope you'll agree is a pretty compelling demonstration of operating leverage.

Speaker Change: Now, let me clarify something.

Michael Weinbach: Operating leverage results in part from growth because we do have a certain level of fixed costs, but that's not the major driver. Rather, what you're seeing is the result of process improvement in technology investments, which has been an unremitting focus for years and years, really going all the way back to the company's formation. Let's talk about our digital first strategy, which is designed to improve the customer experience by anticipating their needs and proactively providing the information they're looking for so they don't have to pick up the phone and call us.

Speaker Change: Operating leverage results in part from growth because we do have a certain level of fixed costs, but thats not the major driver.

Speaker Change: Rather what youre seeing as a result of process improvement and technology investments, which has been an unremitting focus for years and years really going all the way back to the Companys formation.

Speaker Change: Let's talk about our digital first strategy, which is designed to improve the customer experience by anticipating their needs and proactively providing the information they're looking for so they don't have to pick up the phone and call us.

Michael Weinbach: As you can see from the chart in the lower left, our call volumes have been slowly and steadily drifting lower. In fact, the ratio of calls per loan has fallen by 50% over the last three years. Let me give you a few examples of what we're doing here.

Speaker Change: As you can see from the chart in the lower left our call volumes have been slowly and steadily drifting lower in fact, the ratio of cost per loan has fallen by 50% over the last three years.

Speaker Change: Let me give you a few examples of what we're doing here.

Michael Weinbach: First, we're having lots of success with chat technology, which for many of our customers is their preferred means of engaging with us. A second focus area has been our IVR, which we're constantly fine-tuning to get customers where they need to go as quickly as possible. And third, we've had very encouraging results from new self-serve tools. For example, we have a subset of customers who frequently make more than the required payments each month, which in the past led to lots of phone calls about how they wanted those extra funds applied. We recently rolled out a very simple online tool that allows customers to tell us their preference with a few clicks, and we're seeing significant customer adoption.

Speaker Change: First we're having lots of success with chat technology, which for many of our customers as their preferred means of engaging with us.

Speaker Change: Our second focus area has been our IPR, which we're constantly fine tuning to get customers, where they need to go as quickly as possible and third we've had very encouraging results from new self serve tools. For example, we are a subset of customers, who frequently you make more than the required payments each month, which in the past led to lots of phone calls about how they wanted those X.

Speaker Change: <unk> funds applied.

Speaker Change: We recently rolled out a very simple online tool, which allows them to tell us their preference with a few clicks and we're seeing significant customer adoption. Thanks.

Michael Weinbach: Thanks to this and other initiatives, payments-related calls are down 57% year over year. But at the same time, let me stress that when our customers do need to talk with someone, we're here for them. Based on recent benchmark data, we're comfortably outperforming the industry in terms of standard call center metrics like average speed to answer and abandonment rate. Before moving on, let's talk for a second about the macro environment.

Speaker Change: Thanks to this and other initiatives payments related calls are down 57% year over year.

Speaker Change: At the same time, let me stress that when our customers do need to talk with someone that we're here for them.

Speaker Change: Just on recent benchmark data, we're comfortably outperforming the industry in terms of standard cost on our metrics like average speed to answer and abandonment rate.

Speaker Change: Before moving on let's talk for a second about the macro environment I'd.

Michael Weinbach: I'd be remiss if I didn't point out that amortization increased by $47 million sequentially, reflecting both portfolio growth and seasonality. For the third quarter, we'd guide you to expect servicing income to be roughly flat in the $280 to $300 million range if CPRs will likely hit their seasonal highs for the year. Looking further ahead, as we all know, CPRs are at record low levels today, with likely nowhere to go but

Speaker Change: I'd be remiss, if I didn't point out that amortization increased by $47 million sequentially, reflecting both portfolio growth and seasonality.

Speaker Change: For the third quarter, We guide you to expect servicing income to be roughly flat in the $280 to $300 million range. A CPR is will likely hit the seasonal highest for the year.

Speaker Change: Looking further ahead as we all know CPR is are at record low levels today with likely nowhere to go but up.

Michael Weinbach: This means that we expect amortization expense to be a headwind in 2025. Also, we're expecting Fed rate cuts, possibly starting in September, to put pressure on our interest income. These are macro forces which are obviously outside of our control, and we just want you to be conscious of them as you work on your models for 2025.

Speaker Change: This means that we expect amortization expense will be a headwind in 2025.

Speaker Change: Also we're expecting fed rate cuts, possibly starting in September to put pressure on our net interest income.

Speaker Change: These are macro forces, which are obviously outside of our control and we just want you to be conscious of them as you work on your models for 2025.

Michael Weinbach: What is under our control is portfolio growth, the customer experience, and operating leverage. And those are the areas where we're working to drive continued strong results. Now, let's turn to slide seven and discuss origination.

Speaker Change: What is under our control is portfolio growth the customer experience and operating leverage and those are the areas, where we're working to drive continued strong results.

Speaker Change: Now, let's turn to slide seven and discuss originations.

Michael Weinbach: Our team generated a pre-tax income of $38 million, coming in at the high end of our guidance. Reply Recapture was back up at 73% this quarter as we adjusted some of our pricing and marketing strategies. Purchase loans accounted for 28% of total volumes, and second liens remained strong at 14%, demonstrating the versatility of our platform, where we've evolved the product set to keep pace with changing customer needs. Turning to Correspondent, volumes picked up to $2.1 billion as we focused on deepening our relationships with key sellers.

Speaker Change: Our team generated pre tax income of $38 million coming in at the high end of our guidance.

Speaker Change: Refi recapture was back up at 73% this quarter as we adjusted some of our pricing and marketing strategies.

Speaker Change: <unk> loans accounted for 28% of total volumes and second liens remained strong at 14% demonstrating the versatility of our platform, where we've evolved the product set to keep pace with changing customer needs.

Speaker Change: Turning to correspondent volumes picked up to $2 1 billion as we focused on deepening our relationships with key sellers.

Michael Weinbach: Now that we have passed the halfway point of the year, I think it's safe to say that 2024 will go down as one of the most challenging originations markets in recent history. However, as we look ahead to 2025, as mentioned, we'd expect CPRs to start rising, which given the size of our portfolio should translate into more meaningful recapture volume. We've been putting a lot of work into our DTC platform to get ready for a bigger market.

Speaker Change: Now that we passed the halfway point of the year I think it's safe to say that 2024 will go down as one of the most challenging originations markets in recent history.

Speaker Change: However, as we look ahead to 2025 as mentioned, we'd expect CPR to start rising, which given the size of our portfolio should translate into more meaningful recapture volumes.

Speaker Change: We've been putting a lot of work on our DTC platform to get ready for a bigger market.

Michael Weinbach: This includes continued investment in workflow automation, the customer experience, and scalability. The benefits of this work will show up in 2025, and we'll give you more color on the outlook as we get closer to year end. For now, as we look to the third quarter, we guide you to expect Originations EVT in the range of $35 to $45 million. And, as always, this guidance assumes the current level of mortgage rates.

Speaker Change: This includes continued investments in workflow automation and the customer experience and scalability.

Speaker Change: The benefits of this work will show up in 2025, and we'll give you more color on the outlook as we get closer to year end.

Speaker Change: For now as we look to third quarter. We guide you to expect originations EBT in the range of $35 million to $45 million and as always this guidance assumes the current level of mortgage rates.

Kurt G. Johnson: If you'll turn to slide eight, I'd like to make one more comment on originations related to the 2025 outlook by walking you through the coupon stack in our MSR portfolio. Over the last two years, we've found some of the best OAS yields on deep out-of-the-money collateral, and you've heard us comment on the high-quality, stable cash flow those pools will provide us for years to come. But that's not all we've been buying.

Speaker Change: If youll turn to slide eight I'd like to make one more comment on originations related to the 2025 outlook by walking you through the coupon stack and our MSR portfolio.

Speaker Change: Over the last two years, we've found some of the best OAS yields on deep out of the money collateral and you've heard us comment on our high quality stable cash flow those pools will provide us for years to come but that's not always been buying as you can see today, 18% of the portfolio has coupons of 6% or higher this is a big <unk>.

Kurt G. Johnson: As you can see, today, 18% of the portfolio has coupons of 6% or higher. This is a big change from where we were in 2022, when only 3% of the portfolio was in that bucket. The MSR we're acquiring from Flagstar has a similar distribution of coupons. On a pro-forma basis, we'll have $132 billion of mortgages with coupons above 6%, which again points to the opportunity to scale up Originations in 2025. With that, I'd like to turn the call over to Kurt to take you through the company's financials.

Speaker Change: From where we were in 2022, when only 3% of the portfolio is in that bucket.

Speaker Change: The MSR, we're acquiring from Flagstar has a similar distribution of coupons.

Speaker Change: On a pro forma basis, we will have $132 billion of mortgages with coupons above, 6%, which again points to the opportunity to scale up originations in 2025.

Speaker Change: With that I'd like to turn the call over to Kurt to take you through the Companys financials.

Kurt G. Johnson: Thanks, Mike, and good morning, everyone. I'll start on slide nine with some comments on adjustments in the MSR. Adjustments totaled $8 million this quarter and included a $4 million purchase price adjustment related to final tax calculations on the HomePoint acquisition and $4 million representing our share of losses at SAGE. Turning to the MSR, we marked up the asset to reflect higher rates and lower expected lifetime CPRs, resulting in a quarter-end valuation of 153 basis points of UPB and a multiple of 5.3 times the base servicing fee. Offsetting the markup, we incurred hedge losses of $103 million, equating to 72% realized coverage. The target hedge ratio remains at 75%.

Kurt: Thanks, Mike and good morning, everyone.

Kurt: I'll start on slide nine with some comments on adjustments in the MSR.

Kurt: Adjustments totaled $8 million this quarter and included a $4 million purchase price adjustment related to final tax calculations on the home point acquisition and $4 million, representing our share of losses of <unk>.

Kurt: Turning to the MSR, we marked up the asset to reflect higher rates and lower expected lifetime CPR is resulting in a quarter end valuation of 153 basis points of UBB at a multiple of five three times the base servicing fee.

Kurt: Offsetting the markup, we incurred hedge losses of $103 million equating to 72% realized coverage.

Kurt: Hedge ratio remained at 75%.

Kurt G. Johnson: The mark line also includes the $27 million gain from selling the excess servicing strip on our Fannie Mae and Freddie Mac MSRs. As you may recall, in recent quarters, we retained a larger servicing strip from securitized pools above the 25 basis point contractual minimum to optimize capital market execution. With this transaction, we've monetized that trade, and in addition to the gain, the sale generated $222 million in cash.

Kurt: The Mark line also includes a $27 million gain from selling the excess servicing strip on our Fannie Mae and Freddie Mac Msr's.

Kurt: As you may recall in recent quarters, we retained a larger servicing strip from securitized pools above the 25 basis point contractual minimum to optimize capital market execution.

Kurt: With this transaction, we monetize that trade and then in addition to the game the sale generated $222 million in cash.

Kurt G. Johnson: Bear in mind, by selling the excess strep, we do lose that recurring revenue in the servicing segment, which is part of the reason we're getting to relatively stable servicing EBT in the third quarter of $280 to $300 million. Slide 10 gives you an update on asset quality, which remains a real strong point for Mr. Cooper. In the interest of time, I won't comment beyond pointing out that our MSR delinquencies declined to 1.0%, which is a new record low.

Kurt: Bear in mind by selling the extra strep, we do lose that recurring revenue in the servicing segment, which is part of the reason, we're guiding to relatively stable servicing EBT in third quarter of $280 million to $300 million.

Speaker Change: Slide 10 gives you an update on asset quality, which remains a real strong point for Mr. Cooper.

Speaker Change: In the interest of time, I won't comment beyond pointing out our MSR delinquencies declined to 1.0%, which is a new record low.

Kurt G. Johnson: This is a function of thoughtful portfolio construction, which you can see in the rising FICO scores and declining LTV ratios for our customers, as well as our ongoing loss mitigation efforts, evident in a 34% year-over-year increase in loan modifications and workouts, which is a very important part of our mission to keep the dream of homeownership alive. The Flagstar MSR has a similar high-quality credit profile and will not materially affect these results.

Kurt: This is a function of thoughtful portfolio construction, which you can see in the rising FICO scores and declining LTV ratios for our customers as well as our ongoing loss mitigation efforts evident in a 34% year over year increase in loan modifications and workouts, which is a very important part of our mission to keep the dream of homeownership alive.

Kurt: The Flagstar MSR has a similar high quality credit profile, and we will not materially affect these results.

Kurt G. Johnson: Now turning to slide 11, I'll comment that our balance sheet was in strong shape at quarter end. Before considering the Flagstar acquisition, liquidity remained near record levels at $3.2 billion, and our capital ratio, as measured by tangible net worth to assets, was still well above our target range at 28.4%, reflecting a strong pace of internal capital generation and discretionary cash flow. With the transaction, we will add $1.1 billion in MSRs and $85 million in advance.

Speaker Change: Now turning to slide 11, I'll comment that our balance sheet was in strong shape at quarter end.

Kurt: Before considering the flagstar acquisition liquidity remained near record levels at $3 2 billion and our capital ratio as measured by tangible net worth assets was still well above our target range of 28, 4%, reflecting our strong pace of internal capital generation and discretionary cash flow.

Kurt: With the transaction, we will add $1 $1 billion in MSR is $85 million in advances on.

Kurt G. Johnson: On a pro-forma basis, our capital ratio would have been approximately 26% at quarter end, still somewhat above the upper end of our target. We expect to pay for the acquisition by drawing down on our MSR line, which will utilize some of our excess liquidity, although we will still be comfortably in compliance with our internal guidelines. Also, we continue to see favorable conditions in the high-yield market and are evaluating the prospects for new issuance as we'd like to continue increasing the mix of unsecured debt in our capital stack to keep upward pressure on our ratings.

Kurt: On a pro forma basis, our capital ratio would've been approximately 26% at quarter end still somewhat above the upper end of our target range.

Kurt: We expect to pay for the acquisition by drawing down on our MSR lines, which will utilize some of our excess liquidity, although we will still be comfortably in compliance with our internal guidelines.

Kurt: Also we continue to see favorable conditions in the high yield market and are evaluating the prospects for new issuance as wed like to continue increasing the mix of unsecured debt in our capital stack to keep upward pressure on our ratings.

Kurt G. Johnson: To wrap up, I'll reiterate Mike's comment about macro headwinds, namely rising amortization and lower deposit yields, and the offset, which is potentially higher origination. Having said that, the Flagstar deal clearly provides us with additional momentum on top of our very strong execution. Thanks for the transaction, I would guide you with respect to the outlook for ROTC in 2025, saying that we now feel comfortable at the midpoint of our 14 to 18% rate. 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.

Kurt: To wrap up I'll reiterate mikes comment about macro headwinds, namely rising amortization and lower deposit yields and the offset which is potentially higher origination earnings having.

Michael Kay: Having said that the flagstar deal clearly provides us with additional momentum on top of our very strong execution.

Speaker Change: Thanks to the transaction I would guide you with respect to the outlook for <unk> in 2025 that we now feel comfortable at the midpoint of our 14% to 18% range.

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

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

Kenneth A. Posner: Thanks Kurt. Siobhan, if you could now start the Q&A process please? Thank you. At this time, we will conduct it.

Ken: Thanks, Kurt Siobhan, if you could now start the Q&A process. Please.

Operator: Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A list. Our first question comes from the line of Terry Ma from Barclays. Your line is open.

Speaker Change: Yes.

Speaker Change: Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced soon.

Speaker Change: Your question. Please press star one one again, please standby, while we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Terry MA from Barclays. Your line is open.

Terry MA: Hey, thanks. Good morning. Maybe just a little bit more on the rationale for the deal, as you kind of evaluated it, what were some of the key, I guess, attractive points? Was it mainly just size and scale, or are there kind of aspects of the MSR book, both subserved and owned, that kind of attracted you to it?

Terry MA: Hey, Thanks, good morning.

Terry MA: Maybe just on a little bit more on the rationale for the deal as you kind of evaluated what was.

Speaker Change: Some of the key I guess.

Terry MA: Attractive points was it mainly just size and scale or are there kind of aspects of the MSR book, both subsurface knowing that.

Speaker Change: We're kind of attracted you to it.

Jay Bray: Yeah, look, I think, very strategically, this deal just makes perfect sense for us, right? It's right up the middle of the fairway.

Speaker Change: Yes look I think very strategically there's still just makes perfect sense for US right. It's right up the middle of the fairway I think of it as two pieces and you said it one is the acquisition of the MSR. The MSR is very similar to our portfolio overall as we discussed.

Jay Bray: Think of it as, you know, two pieces, and you said that one was the acquisition of MSR. MSR is very similar to our portfolio overall, as we discussed. We like it, and we like the value. And the subservicing is just additional subservicing, you know, on our platform. So it just made a ton of strategic sense, and we're super excited about it.

Speaker Change: Like it.

Speaker Change: We'd like to value and then the sub servicing is just additional sub servicing on our platform. So it just made a ton of strategic sense and we're super excited about it.

Jay Bray: Got it. Now your capital levels are toward the high end of your range. As you kind of look for additional opportunities that may present themselves, like, what are you looking for? Does this kind of raise the bar in terms of other deals? Well, look, I mean...

Speaker Change: Got it.

Speaker Change: Now your capital levels are towards the high end of your range.

Speaker Change: As you kind of look for.

Speaker Change: As additional opportunities may present themselves like I guess, what are you looking forward does this kind of raise the bar in terms of.

Speaker Change: Other deals.

Speaker Change: Yes.

Jay Bray: Look, I mean, first and foremost, we're going to take care of this deal, right? And we're going to take care of these customers and these homeowners, and that will be the first priority. And we're, you know, the best company, candidly, to do that.

Speaker Change: Well look I mean first and foremost most we're going to take care of this deal and we're going to take care of these customers and these homeowners and that will be the first priority.

Jay Bray: I think as we think about other opportunities, we'll be measured, we'll be thoughtful, and, you know, we'll stay consistent with our capital deployment, you know, themes. And so we will be very, very disciplined as we look at other opportunities. We still think there's going to be a lot of opportunity in the marketplace. We still think there will be a lot of MSRs coming to market. But again, as always, we're going to be disciplined, and we're going to take care of this transaction first.

Speaker Change: We're the best company candidly to do that I think as we think about other opportunities we will.

Speaker Change: We'll be measured will be thoughtful.

Speaker Change: We will stay consistent with our capital deployment.

Speaker Change: Themes and so we will be very very disciplined as we look at other opportunities. We still think there's going to be a lot of opportunity in the marketplace. We still think there's going to be a lot of MSR has come into market, but again as always we're going to be disciplined and we're going to take care of this transaction first.

Speaker Change: Okay, great. Thank you.

Speaker Change: Okay.

Speaker Change: Thank you.

Mark Deveries: And our next question comes from the line of Mark Deveries of Deutsche Bank. Your line is now open.

Speaker Change: And our next question comes from the line of Mark Devries of Deutsche Bank. Your line is now open.

Mark Deveries: Yeah, thanks. You know, I see that pro forma, this still keeps you above your kind of target range for, for tangible net worth assets. Just wanted to confirm that there's not going to be any need to raise any equity as part of this transaction.

Mark Devries: Yes. Thanks.

Speaker Change: I see the pro forma this this still keeps you above your kind of target range for.

Mark Devries: For tangible net worth assets just wanted to confirm that there is not going to be any need to raise any equity as part of this transaction.

Jay Bray: No, absolutely not.

Speaker Change: No absolutely not.

Jay Bray: And Mark, we continue, as we did this quarter, to actually repurchase stock. We've indicated that we'd be repurchasing about $50 million a quarter. We've been a little bit light the last couple of quarters, but we still see value in our stock at where it's trading.

Mark Devries: Okay.

Mark Devries: Mark.

Mark Devries: We continue as we did this quarter to actually repurchase stock.

Mark Devries: We've indicated that we'd be repurchasing about $50 million a quarter, we've been a little bit like the last couple of quarters, but.

Mark Devries: We still see value in our stock.

Mark Devries: At where its trading.

Jay Bray: Okay, that's helpful. Is there any guidance you can provide us on how to think about the kind of earnings accretion you expect to generate from this transaction?

Mark Devries: Okay.

Speaker Change: That's helpful.

Speaker Change: Is there any guidance you can provide us on how to think about kind of the earnings accretion you expect to generate from this transaction.

Jay Bray: I mean, I think, and Kurt, you can jump in. Again, you have to think of it in two ways. One, on the MSR, it's consistent with the way we have acquired MSRs in the past. So, you know, a nice kind of mid to high team return there. And then on the subservicing, you know, think of that as our existing subservicing book. So, combined, you know, I think we think this transaction will be at the high end of our ROTCE range. That's how we're thinking about it. Yeah, I think that makes perfect sense.

Speaker Change: I mean, I think you can jump in again, you have to think of it in two ways one on the MSR, it's consistent with the way we.

Speaker Change: And acquired MSR as in the past so.

Speaker Change: Nice kind of mid to high teen return there.

Speaker Change: And then on the sub servicing think of that as our existing Subservicing book So blended.

Speaker Change: Blended I think we think this transaction will be at the high end of our OTC range.

Kurt G. Johnson: I think that that makes perfect sense. And, you know, we finished the quarter with an ROTC of 15.3%. I think we've guided 2025 to be a little higher, and I think Flagstar is a contributing factor to that. Yeah.

Mark Devries: Is how we're thinking about it.

Speaker Change: That makes perfect sense.

Speaker Change: We finished the quarter with <unk>, 53% I think we've guided.

Speaker Change: 25% would be a little higher than I think black stars contributing factor to that.

Michael Weinbach: Okay, got it. And how should we think about this impacting your operating expenses in 2020?

Speaker Change: Okay got it.

Speaker Change: How should we think about this impacting your operating expenses in 2025.

Michael Weinbach: Yeah, it's we'll have some new team members joining us from Flagstar, so that will add some additional expenses. But it's, you know, we We continue on our relentless quest to invest in the platform and become more efficient, and nothing changes. So, you know, we're excited about the opportunity to continue to realize operating leverage in the business. But as we get larger, we'll be adding expenses, we'll have new team members, and, first and foremost, as Jay indicated, our top priority is making sure that we do this with excellence for our customers, for our subservicing partners, and for our team members.

Speaker Change: Yes.

Speaker Change: We'll have some new team members joining us from flagstar, so that will add some additional expense, but it's.

Speaker Change: We continue on our relentless quest.

Speaker Change: <unk> in our platform and become more efficient.

Speaker Change: And nothing changes so we're excited about the opportunity to continue to realize operating leverage in the business.

Speaker Change: But as we get larger we'll be adding expense will have new team members.

Speaker Change: And first and foremost as Jay indicated our top priority is making sure that we.

Jay: Execute this lift excellence for our customers for our sub servicing partners and for our team members.

Michael Weinbach: But make no mistake, we'll 100% continue to drive costs per loan down. I mean, we are maniacally focused on the investments we're making that we discussed in the last call from an AI perspective, etc. We'll drive costs per loan down. And so you should expect to see that. Okay, got it. Thank you.

Speaker Change: But make no mistake.

Jay: 100% continue to drive cost per loan down I mean, we are maniacally focused on the investments we're making.

Speaker Change: We discussed in last call from an AI perspective, et cetera, we will drive cost per loan down and so.

Speaker Change: You can see you should expect to see that.

Speaker Change: Okay got it thank you.

Speaker Change: Okay.

Speaker Change: Thank you.

Bose Thomas George: And our next question comes from the line of Bose George from KBW. Your line is now open.

Speaker Change: And our next question.

Speaker Change: Comes from the line.

Speaker Change: Of Bose George from <unk>. Your line is now open.

Bose Thomas George: Hey guys, good morning. Just one more on the flag star. The $1.4 billion that you're paying, how much of it is equity? How much of it is debt that advances the funding lines? And then how much goodwill is going to be created?

Bose Thomas George: Yes, good morning, just one more on <unk>.

Bose Thomas George: <unk> of the $1 4 billion that you are paying how much of it is.

Bose Thomas George: As equity how much of it is is that true.

Speaker Change: Fences.

Speaker Change: I guess the funding lines and then and then how much goodwill is going to be created.

Kurt G. Johnson: So, Bose, I think we broke it out. It's about a little over $1.1 billion on the MSR, about $85 million in advances, so about $1.2 billion of that was for the purchase of the MSRs. It's all utilizing advance lines for the advances, but MSR lines, so it's all debt. It's not an equity deal for us at all. We have the available liquidity as we've reported in prior quarters. In terms of Goodwill, I think we're still finalizing that, but I think depending on kind of where we see the asset board, you can expect some level of intangibles to be added once the deal closes at the end of the year.

Speaker Change: So bose.

Speaker Change: I think we broke it out it's about a little over $1 1 billion on the MSR about $85 million of advances.

Speaker Change: So we're about $1 $2 billion of that.

Speaker Change: Was the purchase of Msr's, it's all utilizing.

Speaker Change: Advance lines for the advances, but MSR lines. So it's all about it's not an equity.

Speaker Change: Deal for us at all we have the available liquidity as we have reported in prior quarters.

Speaker Change: In terms of goodwill I think we're still finalizing that but.

Speaker Change: I think depending on kind of where we see the asset boarding.

Speaker Change: You can expect.

Speaker Change: Some some level of intangibles to be added in.

Speaker Change: Once the deal closes at the end of the year.

Bose Thomas George: Okay, great. Thanks. And then actually just going back to the question on accretion. So, I guess as a way to think about it, your ROE would have been, you know, more like 15. So it could add like a point or a point and a half of ROE, something like that.

Speaker Change: Okay, great. Thanks, and then actually just going back to the question on accretion.

So I mean, I guess is the way to think about ROE would have been.

Speaker Change: More like 15, so it could add like a point or point and a half of Roe or something like that.

Bose Thomas George: Yeah, I don't think we want to give anything overly specific, but you're thinking about it the right way. Okay, great. Thanks.

Speaker Change: Yes, I don't think we want to give anything overly specific but.

Speaker Change: Thinking about it directionally correctly.

Crispin Elliot Love: Okay, great, thanks.

Speaker Change: Okay, great. Thanks.

Speaker Change: Okay.

Speaker Change: Thank you.

Crispin Elliot Love: And our next question comes from the line of Crispin Love from Piper Sandler. Your line is now open.

Speaker Change: And our next one our next question comes from the line of Christian Love from Piper Sandler. Your line is now open.

Crispin Elliot Love: Thanks, good morning, appreciate you taking my questions. Just, yeah, starting on the FlexR transaction, just looking at NYCB's balance sheet today, they have the MSR marked at roughly $1.1 billion, and you mentioned that value as well, but can you just talk a little bit about how you think of the value of the MSR under the COOP platform? You have tremendous scale, a low cost of service, and a team, so I'm curious how you think about that, to scale this as an efficiency you can incorporate into the deal as well.

Crispin Elliot Love: Thanks, Good morning, I appreciate taking my questions just yes, just starting on the Flagstar transaction just looking at <unk> balance sheet today at the MSR Mark to add roughly $1 1 billion and you mentioned that value as well, but can you talk a little bit about how you think of the value of the MSR under that platform.

Speaker Change: You have tremendous scale low cost of service and it teams, but curious on how you think about that scale. This adds inefficiency.

Speaker Change: Corporate from the deal as well.

Jay Bray: Yeah, it's a great question, and I appreciate it. Look, I think the answer is we probably value it a little bit higher for all the reasons you talked about, right? We are the low-cost producer, so that factors into our MSR valuation. We have a high recapture rate, and as Mike pointed out in his commentary, 20% of this portfolio has an above 6% coupon rate, so we do think there are some attractive refinance opportunities here. I think you would see us value it probably a little bit higher than the New York community.

Speaker Change: Yes, it's great question I appreciate it.

Crispin Elliot Love: Okay, great. That's helpful.

Speaker Change: Look I think the answer is we probably value at a little bit higher for all the reasons, we've talked about right.

Speaker Change: Are the low cost producers about factors into our MSR valuation.

Speaker Change: We have a high recapture rate and as Mike pointed out in his commentary at 20%.

Michael Kay: This portfolio has an above 6% coupon rates and we do think there are some attractive refi finance opportunities here.

Speaker Change: No.

Speaker Change: You would see us value and probably a little bit higher than New York community.

Michael Weinbach: And also, the deal is going to meaningfully increase your subservicing portfolio. So as you look forward to the complexion of the company, how do you expect to own versus subservicing to trend to the roughly pro forma 50-50 complexion with this deal? And and just what makes you most excited about adding substantial subservicing with Flagstar in the current environment right now?

Speaker Change: Alright, great. That's helpful. And then also the deal's going to meaningfully increase their sub servicing portfolio. So as you look forward.

Speaker Change: Complexion of the company, how do you expect one versus sub servicing to trend to the roughly pro forma $50 50 complexion with the CLS and just what makes you most excited about adding substantial sub servicing with flagstar in the current environment right now.

Michael Weinbach: Yeah, I think we've long talked about seeing a 50-50 mix between owned and subservicing as the ideal mix for managing the business and capital deployment and earnings. So we're excited about this.

Speaker Change: Yes, I think we've long talked about seeing a 50 50 mix between the owned and sub servicing is the.

Speaker Change: Ideal mix for managing.

Speaker Change: The business and capital deployment and earnings. So we're excited about this this is a big step for us in the sub servicing business.

Michael Weinbach: This is a big step for us in the subservicing business, but it's part of the continued progress we've been making. And we really like the subservicing business. It's a capital-lighter business.

Speaker Change: But it's part of the continued progress we've been making and we really like the sub servicing business.

Speaker Change: Capital lighter business.

J: And I talked about is a little bit of upfront J did as well, but we have some awesome partners and this allows us to.

Michael Weinbach: And I talked about this a little bit up front, Jay did as well, but we have some awesome partners. And this allows us to develop even deeper partnerships with some of our most important partners and develop new partnerships with some others. And we think it works really well because we get to focus on what we do best, so our partners can focus on what they do best. And this has really been a winning combination for our partners and ourselves that's led to steady growth in the subservicing business. So we're excited about this big step, and we're excited about continuing to win with our partners.

J: To develop even deeper partnerships with some of our most important partners and develop new partnerships with some others.

J: And we think it works really well because we get to focus on what we do best So our partners can focus on what they do best and this is really been a winning combination for our partners and ourselves.

J: Led to steady growth in our sub servicing business. So.

J: We're excited about this big step and we're excited about continuing to win with our partners.

Crispin Elliot Love: Great. Thank you. I appreciate you taking my questions.

Speaker Change: Great. Thank you I appreciate taking my questions.

Speaker Change: Thank you.

Douglas Michael Harter: Our next question comes from the line of Doug Harder from UBS. Your line is now open.

Speaker Change: Our next question comes from the line of Doug Harter from UBS. Your line is now open.

Douglas Michael Harter: Thanks, Jay. You talked about expecting to see continued opportunities for consolidation and servicing. Do you expect it to be kind of larger platform transactions like Flagstar or kind of bulk pools like you have been kind of doing over the past, you know, past year plus?

Douglas Michael Harter: Thanks, Jay you talked about expecting to see continued opportunity for consolidation in servicing do you expect it to be kind of larger platform transactions like flagstar or kind of bulk pools like Europe.

Speaker Change: And kind of doing over the past kind of surplus.

Jay Bray: Yeah, I think Doug, it'll be a combination, right? Look, we've been acquiring bulk MSRs for 20 years. And I think that's going to continue for years and years to come. And then there will be opportunities, you know, that present themselves like Flagstar over time. And I just, you know, when you think about our platform, you think about the investments we've made, and continue to make, I think we, and this is a perfect example, I think we are the best partner for folks that really want to enter into a strategic transaction like Flagstar did. So I think it'll be a combination. But you know, you're going to always see MSRs trading, and we'll expect to be part of that going forward.

Speaker Change: Yes, I think Doug it'll be a combination right.

Speaker Change: We've been acquiring bulk MSR for 20 years and.

Speaker Change: I think thats going to continue for years and years to come and then there will be opportunities.

Speaker Change: That present themselves like flex or.

Speaker Change: Over time, and then just when you think about our platform you think about the investments we've made and continue to May I think we and this is a perfect example, I think we are the best partner for folks that really want to enter into a strategic transaction like flagstar did so I think it'll be a combination.

Speaker Change: But you're going to always see MSR is trading and we will expect to be part of that going forward.

Michael Weinbach: Great. And then, um, can you give us an update as to how you're currently thinking about your origination capacity, you know, and the ability to handle increased recapture volume? And you know, what, what incremental costs might be needed to scale that up? Or, you know, will you see operating scale there as volumes?

Speaker Change: Great and then can.

Speaker Change: Can you give us an update as to how Youre currently thinking about your origination capacity and the ability to handle <unk>.

Speaker Change: Increase recapture volume.

Speaker Change: Whats what incremental costs might be needed to scale that up or will you see operating.

Speaker Change: Scale, there as those volumes increase.

Michael Weinbach: Yeah it's a great question and we you know we we talked a little bit earlier and showed you in the slides the the way the portfolio is changing so you know we still have more than 50% of our customers have less than 4% rate but we now have almost 30% over 5% and you know getting close to 20% over over 6% and you know we see we don't know exactly what's going to happen with rates but we're preparing for the point when the cycle turn and rates will come down and so we've been relentlessly investing in perfecting the platform on the direct to consumer origination side you know we've talked about project flash which is componentizing the the parts which helps us be able to ramp more quickly using our existing data that we have knowing our customers so well on the servicing side to be able to pull that data into the origination flow and make it more efficient we're rolling out better self-service tools and you know the goal is to get more scalable to be faster to react when rates move and more efficient and the only other thing I'll add is you know we have been adding staff we we hired close to a hundred LOs in the second quarter so you know we're carrying a little bit of extra capacity now and we don't know exactly when it's going to happen but but when it does we'll be ready

Speaker Change: Yes, it's a great question.

Speaker Change: We talked a little bit earlier and showed in the slides that the way the portfolio is changing so we still have more than 50% of our customers have less than 4% rate, but we now have almost 30% over 5%.

Speaker Change: Close to 20% over over 6%.

Speaker Change: And we see.

Speaker Change: We don't know exactly whats going to happen with rates, but we're preparing for.

Speaker Change: The point when the cycle will turn and rates have come down and so we've been relentlessly investing and perfecting the platform on the direct to consumer origination side, we've talked about project flash switches component <unk>.

Speaker Change: The parts, which helps us be able to ramp more quickly.

Speaker Change: Using our existing data that we have knowing our customers that while on the servicing side to be able to pull that data into the origination flow and make it more efficient.

Speaker Change: We're rolling out that our self service tools and the goal is to get more scalable to be faster to react when rates move and more efficient.

Speaker Change: And the only other thing I'll add is we have been adding staff, we hired close to 100 <unk> in the second quarter. So we're carrying a little bit of extra capacity now and we don't know exactly when it's going to happen, but when it does we'll be ready.

Michael Weinbach: The only thing I would add to that is that, from a unit count standpoint, we are actually doing a lot higher volume. If you see in our presentation, 14 percent of our origination volume in the past quarter was second liens, which have an average UPB of about a quarter of the amount of our first liens. And so in terms of unit count, we're actually doing a lot of production today, and obviously, that capacity can be utilized if there is a rate rally for first lien rate term refis.

Speaker Change: The only thing I would add to that is that we are actually doing from a unit count capacity standpoint.

Speaker Change: A lot higher volume or if you've seen our presentation, 14% of our origination volume in the past quarter was second liens, which has.

Speaker Change: On average <unk> of about a quarter of the amount of our first liens and so in terms of unit cow, we're actually doing a lot of production today, and obviously that capacity can be utilized if there is a rate rally for first lien rate term refis.

Michael Weinbach: Yeah, but to Mike's point, we've been very intentional in the last few quarters about adding capacity.

Speaker Change: But to Mike's point, we've been very intentional last few quarters about adding capacity.

Michael Weinbach: We're ready if something does happen on the right side.

Michael Kay: We're we're ready if something does happen on the rate side.

Michael Weinbach: And then I guess just on any of the subservicing, you know, how many recapture agreements do you have there, you know, either for a fee for the MSR owner or for your own benefit?

Speaker Change: And then I guess just on any of the sub servicing how much recapture agreements do you have there either.

Speaker Change #100: Fees for the MSR owner or or for your own.

Speaker Change #104: Your own benefits.

Jay Bray: We really don't comment on specifics around that, but you should think of it as a blend, like some of our clients want our recapture capability, and some have their own. So it's really a mix, depending on the client. I mean, our goal is to just maximize the service to them and maximize the service to their customers and their homeowners. So it's, it's, it's a blend of, you know, the economics as well as, you know, the different.

Speaker Change: We really don't comment on specifics.

Speaker Change: Around that but you should think of it as a blend.

Speaker Change: Some.

Speaker Change: Our clients.

Speaker Change: Our recapture capability.

Speaker Change: And some have their own recapture capability.

Speaker Change: So it's really a mix depending on the client I mean, our goal is to.

Speaker Change: Maximize the service to them and maximize the service to their to their customers and their homeowners.

Speaker Change: So it's a blend.

Speaker Change: On the economics as well as the.

Speaker Change: The different clients needs.

Douglas Michael Harter: Great. I appreciate the answers. Thank you.

Speaker Change #101: Great I appreciate the answers thank you.

Speaker Change: Okay.

Shanna Cui: Our next question comes from the line of Shanna Cui from Barclays. Your line is now open.

Speaker Change: Our next question comes from the line of Shannon Curry from Barclays. Your line is now open.

Shanna Cui: Hey guys, Thanks for taking my questions.

Shannon Curry: Hey, guys. Thanks for taking my questions.

Kurt G. Johnson: I know you guys are still within your targeted capital ratios of 20 to 25% following the transaction. Curious if you guys had any conversations with the rating agencies on the Flagstar transaction, and if they provided you with any indication on their view following the transaction.

Shannon Curry: I know you guys are still within your targeted capital ratio is 20% to 25%. Following the transaction curious if you guys had any conversations with the rating agencies on the flagstar transaction. They provided you any indication on.

Speaker Change: Thank you.

Speaker Change: Hugh.

Speaker Change: Following the transaction.

Kurt G. Johnson: Hey Shannon, it's Kurt. Thanks. Yes, absolutely. We had conversations with the rating agencies around the transaction during the quarter as well. I think, by and large, we received positive feedback. We have $360 billion in loan boarding. It will not be simple, and we're going to really, really focus on that. I think that that will allow us to build capital for the remainder of the year but will still allow us to be opportunistic.

Curt: Hey, Shannon it's Curt.

Curt: Thanks, Yes, absolutely we had conversations with the rating agencies.

Curt: Around the transaction around the quarter as well I think by and large.

Curt: We received positive feedback.

Speaker Change: Obviously can't comment on how theyre going to come out but.

Speaker Change: We received pretty pretty positive commentary around us as Jay said earlier, our first and foremost priority at this point in time is to take care of these customers we have.

Speaker Change: $360 billion.

Speaker Change: Loan boarding will not be simple and we're going to really really focus on that and I think that will allow us to build capital through the remainder of the year, but will still allow us to be opportunistic.

Shanna Cui: Great. Thanks, Kurt.

Speaker Change: Great. Thanks, Kurt and then.

Speaker Change: Follow up for me maybe.

Speaker Change #105: Maybe digging a little bit more on the valuation.

Shanna Cui: And then a follow-up question for me, you know, maybe digging a little bit more on the valuation. How much value are you guys attributing to the $1.4 billion to, you know, maybe the origination platform and subsurface versus, you know, the multiple that you paid on the MSR? I think if you look at, you know, attributing minimal value to the origination subservicing, you're kind of looking at a 5.6 times multiple on the MSR, which is kind of in line with what we've heard from MSR brokers in the past of what bulk sales are going for. So I just wanted to confirm and see if that was kind of the case.

How much value are you guys attributing of the $1 4 billion to maybe the origination platform and sub servicing versus.

The multiple that you paid on the MSR.

You look at.

Speaker Change: Yeah, attributing minimal value to the origination of servicing you're kind of looking at a five six times multiple on the MSR, which is kind of in line with what we've heard from MSR brokers in the past why bulk delta is calling for.

So I just wanted to confirm.

Is that what's kind of the case.

Kurt G. Johnson: So, you know, I think what we'd say, Shannon, and we haven't given specifics on this, obviously, but we did say the $1.2 billion is where Flagstar's carrying it. We're probably valuing it a little bit above that. You know, I think attributing zero to the remainder would be inaccurate, so, you know, the multiples that we paid may be a little bit lower than the $5.6 billion that you mentioned. And I think that we do see value in the subservicing and originations platforms as well.

So I think what we'd say Shannon, we haven't given specifics on this obviously.

Speaker Change #107: We did say the $1 $2 billion worth where flagstar is carrying out we're probably value, we got a little bit about that.

I think.

Speaker Change #102: Attributing zero to the remainder would be.

Speaker Change #106: Non non accurate so the multiples that we pay it may be a little bit lower than the five six that you mentioned.

And I think that we do see value in the sub servicing on originations platforms as well.

Shanna Cui: Okay, great. Thank you.

Speaker Change: Okay, great. Thank you.

Thanks.

Speaker Change: Yes.

Eric J. Hagen: Thank you. And our next question comes from the line of Eric Hagen from BP IG. Your line is now open.

Speaker Change: Thank you and our next question comes from the line of Eric Hagen from BP.

Your line is now open.

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

Hey, Thanks, good morning.

Eric J. Hagen: So will you hedge the MSR any differently as a result of the drawing on the MSR lines to fund the Flagstar deal and then after you borrow against the MSR to fund the deal how much headroom do you expect to have.

Eric J. Hagen: So will you hedge the MSR any differently as a result of drawing on the MSR lines to fund the Flagstar deal? And then, after you borrow against the MSR to fund the deal, how much headroom do you expect to have on the remaining MSR financing lines? Thank you, guys.

On the remaining MSR financing lines. Thank you guys.

Okay.

Kurt G. Johnson: Hey Eric. So, you know, we still will have, obviously, this transaction will give us more capacity on MSR lines as well. Right. So call it 65% of the value of our MSRs will be an increase in our MSR facilities. We still think we will have, you know, fairly significant amounts of capacity and liquidity available to us afterwards. I think we will have around 3.3 billion at the end of the quarter. So pro forma, you know, you can expect to see it's still in the high, high two billion.

Hey, Eric.

So.

We still will have obviously this transaction will give us more capacity on MSR lines as well right so call it 65%.

The value of our MSR is will be an increase to our MSR facilities. We still think we will have fairly significant amounts of capacity and liquidity available to us afterwards.

We show.

$3 three roughly billion.

At the end of the quarters of pro forma.

Expect to see a stall in the high high to billions in terms of liquidity.

Kurt G. Johnson: and then the Hagen will be.

And then the hedging the.

There will be no different.

Kurt G. Johnson: I think we stated on the call that we continue to target a 75% hedge ratio, and I think we've been fairly accurate for the last few years, since we initiated it about six quarters ago, of right around plus or minus 10% of that target.

Yes.

I think we stated on the call, but we continue to target a 75% hedge ratio.

And I think we've been.

Fairly accurate for the last since we initiated it about six quarters ago of right around plus or minus 10% of that target.

Eric J. Hagen: I mean, following up on that point, I mean, with the Fed on the brink of cutting interest rates, how do you feel like that could affect the value of MSRs? Do you feel like the hedges that are in place will be effective in maybe offsetting some of the impact of the lower interest rates?

Right.

And then following up on that point I mean with the fed on the brink of cutting interest rates, how do you feel like that could affect the value of MSR.

Speaker Change: Do you feel like the hedges that are in place.

Speaker Change: We will be effective in may.

Maybe offsetting some of the impact of the fed cutting rates.

Kurt G. Johnson: Yes, yes, and I would say, you know, I think, to some degree, the forward curve already has projections of Fed cuts in place, right, for this year and an additional four cuts next year. And so, when the forward curve has that in place, the valuation of your MSRs already takes that into consideration. If the Fed's more aggressive, yes, the hedge will take care of it, and I would say that we are probably overhedged at the short end of the curve for exactly that reason.

Yes, yes, yes, and I would say.

I think to some degree the forward curve already has projections of fed cuts employers right.

Two this year.

Speaker Change: An additional four cuts next year and so when the forward curve has not been players evaluation of your MSR is already takes that into consideration if it perhaps more aggressive hedge will take care of it and I would say that we are probably overhead stood the short end of the curve for exactly that reason.

Michael Weinbach: and Eric, you know, we aim to have a balanced business model. So we want to be prepared for whatever happens with interest rates. Part of that is a 75% hedge. Part of it is being prepared in our direct-to-consumer business should rates go down. Obviously, if they do, it'll create some headwinds on servicing, but we think we'll be able to make it up in other places.

And Eric.

Ed.

Aimed to have a balanced business model. So we want to be prepared for whatever happens with interest rates part of that is a 75% hedged part of it is being prepared and our direct to consumer business should rates go down obviously, if they do it will create some headwinds on servicing but we think we'll be able to make it up in other places.

Eric J. Hagen: Thank you guys for the perspective. I appreciate it.

Thank you guys for the perspective.

Great.

Thank you.

Derek Somers: Thank you. And our next question comes from the line of Derek Somers from Jeffries. Your line is now open.

Thank you and our next question comes from the line of Derek Chalmers from Jefferies. Your line is now open.

Michael Weinbach: Good morning, everyone. Quick question on servicing OPEX. How much of the kind of expense efficiency there do you all attribute to declining delinquencies?

Hey, good morning, everyone.

Quick question on servicing Opex.

How much is the kind of expense efficiency. There do you all attribute to declining delinquencies.

I mean, that's.

Certainly a part of that because servicing delinquent loans as costs more than servicing performing loans, but thats whats really driving the story or the investments that we're making in the platform.

Michael Weinbach: I mean, that's certainly a part of it because servicing delinquent loans costs more than servicing performing loans. But what's really driving the story are the investments that we're making in the platform. So we talked extensively last quarter about some of the things that we're doing with AI. We talked about our Pyro platform, which allows us to consume documents and pull data out of that into our systems in a way that used to require a lot of people to do it.

No.

We've talked we talked last quarter extensively about some of the things that we're doing with <unk>.

AI, we've talked about our pyro platform, which.

It allows us to consume documents and pull data out of that into our systems in a way that used to require a lot of people to do it.

Michael Weinbach: We're developing technology that assists our agents. Think about it as, you know, a call to help a customer might take 10, 12 minutes. But part of that time is our agents having to search through our systems to find documents and find what the customer is looking for. We're developing technology that anticipates what customers are looking for and brings that directly to them. You know, we've talked about some of these things are really simple, but it is that kind of blocking and tackling that makes a difference, summarizing the agent calls, which people used to have to do, say, it was about 40 seconds off the call time.

We're developing.

Technology that assists, our agents that think about it as a.

Yes.

Our call to help a customer might take 10 to 12 minutes.

But part of that time, our agents having to search through our systems to find documents in.

Combined with customers looking for.

We're developing technology that anticipates, what customer is looking for and brings that directly to them.

<unk> talked about.

Some of these things are really simple but.

Is that kind of blocking and tackling that makes a difference.

Summarizing the agent calls, which people yes is to have to do to say it was about 40 seconds off the call time and then the one we just rolled out giving customers the ability to.

Michael Weinbach: And then the one we just rolled out, giving customers the ability to reapply payments that weren't applied exactly the way they want with a few clicks through our digital sites. All of those little things together are what end up making the big difference that drives operating leverage in the business.

Reapply payments that were and apply it exactly the way they want.

You click through.

Through our digital sites.

All of those little things together are what end up making the big difference that drives the operating leverage in the business, Yes, I would say post COVID-19 zero is due to delinquency levels, Firstly and it's all all the things that Mike just talked about.

Michael Weinbach: I would say, post-COVID, zero is due to delinquency levels, personally, and it's all the things that Mike just talked about. The operating leverage that we've achieved in the last four years has been due to those investments and the fantastic job that the servicing team has done and the technology team has done executing those initiatives.

The operating leverage that we've achieved in the last four years has been.

Due to those investments and the fantastic job that the servicing team has done and the technology team have done executing those initiatives.

Michael Weinbach: The only thing I'd add is, you know, we've actually done a significant volume of modifications. Really kudos to the housing policy agencies through the pandemic in terms of implementing policies that are really helping customers stay in their homes and are easy to implement and execute, not always incredibly easy to implement. I mean, there's definitely work to do there.

The only thing I'd add is.

We've actually done a significant volume of modifications.

Really kudos to.

The housing policy agencies through the pandemic in terms of implementing policies.

Are really helping customers stay in their homes and are easy to implement an extra or not.

Not always incredibly easy example, I mean, there is definitely work to do there.

Michael Weinbach: But for example, FHA just recently rolled out what they call a payment supplement partial claim program, which allows customers to utilize an interest-free loan to reduce their monthly principal and interest payment by 25 percent. We're rolling that program out this weekend. It's just allowing us to get streamlined modification programs to our customers, which is what's keeping the delinquency rates so low as well.

Hi.

For example, FHA just recently rolled out what they call payment supplement partial claim program, which allows customers to utilize.

Interest free loan too.

To reduce their monthly principal and interest payments by 25%, we're rolling that program out this weekend.

It's just allowing us to give a streamlined.

Modification programs to our customers, which is what's keeping the delinquency rates are low as well.

Derek Somers: got it in a very helpful color there. And then just to circle back to the kind of recapture implications on the subservicing portfolio. Is there any sort of mix or directional trend you provide on kind of the fee-based white label income versus kind of just true, you know, normal recapture origination?

Got it very helpful color, there and then just to circle back to the kind of recapture implications on the sub servicing portfolio is there any sort of.

Mix or a directional trend you can provide on kind of the key those white label income versus kind of just true.

Normal recapture originations.

Jay Bray: I mean, I think, look, the portfolio is, call it 50-50 right now on a pro-forma basis when subs are recently owned. So I'm not sure I completely understand your question, but from a reCAPTCHA standpoint, obviously all the owned is, you know, we capture all the economics there, and then for the 50% subservice, like I mentioned earlier, a portion of our clients use our reCAPTCHA services, and we collect, you know, fee-based income for that. So that's how I would think about it. Okay, I got it. Thank you.

I mean, I think look the portfolio is call. It 50 50 right now from a.

Pro forma on a pro forma basis between sub servicing.

And.

So I'm not sure I completely understand your question, but from a recapture standpoint, obviously all of the owned.

<unk>.

We capture all of the economics, there and then for the 50% that sub service like I mentioned earlier, our composition of our clients use our recapture services and we collect a fee based income.

For that so.

That's how I would think about it.

Okay got it thank you.

Yes.

Derek Somers: And our next question comes from the line of Giuliano Bologna of Compass Point. Your line is now open.

And our next question comes from the line of Giuliano Bologna of Compass point. Your line is now open.

Giuliano Jude Anderes Bologna: Well, good morning, and congratulations on continuing to execute extremely well. My first question is kind of related to the Flagstar acquisition. The release mentions that you're bringing on some of the third party origination capabilities from Flagstar. I'd be curious if you think about that kind of isolation. Is there a rough sense of how much volume that's doing and, you know, how the margins compare? to what you're originating from.

Good morning, and congratulations on continuing to execute extremely well.

Thank you.

Related to the Flagstar acquisition.

So the release mentioned that you are bringing on some the third party origination capabilities.

From Flagstar I'd be curious if you think about that kind of in isolation or as a rough sense of how much volume is doing and how the margins compare.

Two.

Giuliano Jude Anderes Bologna: And then kind of related to that, I'm curious, roughly speaking, what the replenishment rate looks like for kind of the acquired business when you think about the MSR subservicing and the origination platform that's coming along with it.

What youre originating and then kind of related to that I'm curious.

Roughly speaking how the replenishment rate looks like for kind of the acquired business. When you think about the MSR sub servicing.

The origination platform, that's coming along alongside with it.

Jay Bray: So I'll touch on the first portion of the question and then Mike can touch on the second. So the Flagstar TPO business, you know, they're a good business that's been around for a long time, has a really great client base, and I think, if you kind of look at their earnings releases, they're originating in excess of a billion dollars a month. So it's, you know, I think it will be good and complementary to our business in terms of margins. You know, we don't really break out our margins on the correspondent product, but we're seeing correspondent margins sort of in line universally across the industry, candidly. So we think it's probably pretty comparable.

So I'll touch on the first portion of the question and then Mark can touch on the second so the flagstar TBO business.

They're.

They are a good business, it's been around for a long time as a really great client base.

Originating I think if you kind of look at their earnings releases, they're originating in excess of $1 billion a month. So it's.

I think it will be good and complementary to our business.

In terms of the margins, we don't really break out our margins on the correspondent product, but we're seeing we see corresponding margins sort of in line are universally across.

<unk> the industry candidly, so we think its probably would probably pretty comparable.

Michael Weinbach: Yeah, I'll just add to that. First of all, you have to recognize that we just announced the deal this morning, so we're going to get the opportunity to talk to the team much more deeply and understand the relationships they have. The third-party origination business is about client relationships and personal relationships, and it's also largely about pricing, and it's a very competitive market. So the short answer is we don't have a long answer

And I'll just add to that.

First of all you have to recognize we just announced the deal. This morning, So we're going to get the opportunity to talk to the team much more deeply and understand the relationships they have the.

Third party origination business is about.

Yes.

Client relationships and personal relationships and it's also largely about pricing and it's a very competitive market. So.

The short answer is we don't have a long answer we're looking forward to getting to getting to know the business better.

Michael Weinbach: We're looking forward to getting to know the business better. It complements what we have already in this space, and we look forward to the opportunity to deepen relationships with our existing customers and develop new relationships that they have that we don't yet have.

It complements what we have already in this space.

And we look forward to the opportunity to deepen relationships with our existing customers and develop new relationships that they have that we didn't yet have.

Giuliano Jude Anderes Bologna: That is very helpful. And, you know, I guess I can kind of get there from the numbers you're providing. But, you know, if it's currently doing over a billion a month, obviously things might change a little bit as you bring it over and integrate and make some adjustments. But it seems like, at least on the owned MSR side, it's probably replenishing more than 100% of its runoff already. Is that a good way to think about, you know, that portfolio, kind of the way it looks? Yeah. Well, as you're acquiring it, that is.

Very helpful.

And I guess.

Kind of get there from the numbers you are providing better.

If it was currently doing over 1 billion a month.

Things might change a little bit as you bring it up.

Brian.

We'll make some adjustments.

But it seems like at least on the owned MSR side.

Probably replenishing more than 100%.

Run off already is that a good way to think about that portfolio kind of a way.

Yes, yes.

As you are acquiring it at better.

Michael Weinbach: Yeah, I think that is a good way to think about it, and as we've discussed on previous calls, when you look at our origination capabilities across the channels we're in, we're replenishing over a hundred percent today. We expect that to continue. That is very helpful.

Yes, I think that is a good way to think about it and as we've discussed on previous calls when you look at our origination capabilities across the channels. We're in we're replenishing over 100% today, we expect that will continue.

Giuliano Jude Anderes Bologna: That is very helpful. I really appreciate the time and congratulations, and I will jump back in the queue.

That is very helpful. I really appreciate your time on the congratulations and I will jump back in the queue.

Giuliano Jude Anderes Bologna: That's Giuliano. Thank you. Our next question comes from the line of Brian Violino.

Thanks Joanne.

Brian Violino: Thank you. Our next question comes from the line of Brian Violino of Wedbush Securities. Your line is now open.

Our next question comes from the line of Brian <unk> of Wedbush Securities. Your line is now open.

Great.

No question.

<unk> been asked and answered.

I wanted to confirm that doesn't.

Any real growth.

In the sub servicing our own portfolio over the next few quarters athletic lifestyle is that fair.

Kurt G. Johnson: So I think the question is, over the next couple of quarters, do we anticipate any growth in servicing and subservicing? You know, as Jay just pointed out, we replenish based on our origination volumes. And so we would anticipate, you know, continued replenishment and slight growth there. I think obviously this acquisition, which will close in the fourth quarter, is bringing on close to $360 billion, almost $80 billion of owned MSR and roughly $280 billion of subservicing.

So I think the question is over the next couple of quarters do we anticipate any growth in servicing and sub servicing.

As JJ pointed out.

We replenish based on kind of our originations volumes and so we would anticipate continued.

Plenish Mems and slight growth there.

I think obviously this acquisition, which will close in the fourth quarter.

Bringing on close to 360 billion almost $80 billion of owned MSR.

And roughly 280 billion of sub servicing so that's going to be the material component of our growth over the next couple of quarters.

Kurt G. Johnson: So that's going to be a material component of our growth over the next couple of quarters. But, you know, as opportunities present themselves, we will be opportunistic, but we're never going to kind of chase volume. Everything that we do is geared toward a return to our shareholders and our other investors. Yeah, and just to tie it all together, I mean, to reiterate

Sure.

As the opportunities presented themselves.

We will be opportunistic, but we're never going to kind of chase volume everything that we do is geared towards the return to our shareholders and our other investors.

Michael Weinbach: Yeah, and just to tie it all together, I mean, to reiterate the points that I think we've all made, our top priority is executing on this transaction and execution, and taking care of customers. But at the same time, with our strong capital position, it doesn't preclude us from being able to do other things. And the, you know, reason why we've been growing and have a little bit of a tailwind, which will, which has nothing to do with the transaction, will remain in place, are the investments that we've been making in the platform.

And just to tie it all together I mean.

Reiterate the points that I think we've all made our top priority is executing on that transaction and then executing.

Taking care of customers.

But at the same time with our strong capital position that doesn't preclude us from being able to do.

Other things and that.

The reason why we've been growing and have a little bit of a tailwind, which will which has nothing to do with the transaction I will remain in place.

Are the investments that we've been making in the platform and servicing is a challenging business and for a lot of originators it benefits them to focus on what they are doing best which is helping customers get into new homes and to have a partner that can help them realize the efficiency that comes with it.

Michael Weinbach: You know, servicing is a challenging business, and for a lot of originators, it benefits them to focus on what they do best, which is helping customers get into new homes, and to have a partner that can help them realize the efficiency that comes with the investments in servicing. And we do that through some of the ways that we buy servicing, and we do that through some of the ways we partner and provide subservicing.

Investments in servicing and we do that through some of the ways that we buy servicing and we do that through some of the ways, we partner and provide provide sub servicing.

Michael Weinbach: And the partners who've been utilizing us for that are able to focus more on what they do best, so they've been growing, and we've been growing along with them. And that's, you know, a little bit of the tailwind that'll be there, regardless of any bulk acquisitions, and why we think the portfolio will continue to grow. Great, thanks. And just one last one. Any update on the

And the partners, who have been utilizing us part of that are able to focus more on what they do best so they've been growing and we've been growing along with them.

A little bit of a tailwind that it'll be there regardless of any bulk acquisitions and why we think the portfolio will continue to grow.

Unknown Executive: Great, thanks, and just one last one.

Great.

Unknown Executive: Any update on the MSL fund?

Just one last one any update on the MSR fund.

Unknown Executive: Yeah, we continue to make progress there, actually. It's really good progress recently.

Michael Weinbach: Yeah, we continue to make progress there actually. We've made really good progress recently, so I think, as we've said, we've got some significant partners that we're working with and looking to continue to get commitments from them through, probably the last half of this year. But I would say the progress has been, we've got a lot of momentum right now, and I feel good about it.

Yes, we continue to make progress there actually.

Really good progress recently, so I think as we said.

Unknown Executive: So, you know, I think as we've said, you know, we've got some significant partners that we're working with and looking to continue to get commitments from them, you know, through probably the last half of this year is how I would think about it. But I would say that progress has been real; we've got a lot of momentum right now, and that's all good about it.

And we've got some significant partners.

We're working with and looking to continue to get commitments from them through probably the last half of this year is how I would think about it but I would say the progress has been.

Got a lot of momentum right now.

Good about it.

Great. Thank you.

Yes.

Unknown Executive: I'm showing no further questions at this time.

Jay Bray: I'm showing no further questions at this time. I would now like to turn it back over to Jay Bray for any closing remarks.

Yeah.

I'm showing no further questions at this time I would now like to turn it back over to Jay Bray for any closing remarks.

Unknown Executive: I would now like to turn it back over to Jay Bray for any closing remarks. We appreciate everybody joining the call and look forward to continuing chat.

Jay Bray: We appreciate everybody joining the call and look forward to continuing the chat. Thank you.

We appreciate everybody joining the call and look forward to continuing Chad. Thank you.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Jay Bray: Thank you.

Unknown Executive: Thank you for your participation in today's conference. This does conclude the program.

Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Unknown Executive: You may now disconnect.

Okay.

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Yeah.

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Jay Bray: Thank you, Jay Bray, for joining the call and look forward to joining the call and look forward to joining the call and look forward to joining the call.