Ocwen Monetary (OCN) This autumn 2021 Earnings Name Transcript

Date:


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Ocwen Monetary ( OCN -8.98% )
This autumn 2021 Earnings Name
Feb 25, 2022, 8:30 a.m. ET

Contents:

  • Ready Remarks
  • Questions and Solutions
  • Name Contributors

Ready Remarks:

Operator

Greetings, and welcome to Ocwen Monetary Company’s full yr and fourth quarter earnings and enterprise replace convention name. Presently, all individuals are in a listen-only mode. An issue-and-answer session will comply with the formal presentation. [Operator instructions] As a reminder, this convention is being recorded.

I might now like to show the convention over to your host, Mr. Dico Akseraylian, SVP, company communications.

Dico AkseraylianSenior Vice President, Company Communications

Good morning and thanks for becoming a member of us for Ocwen’s full yr and fourth quarter 2021 earnings name. Please word that our earnings launch and slide presentation can be found on our web site. Talking on the decision will likely be Ocwen’s chief govt officer, Glen Messina, and chief monetary officer, June Campbell. As a reminder, the presentation or feedback as we speak might comprise forward-looking statements made pursuant to the secure harbor provisions of the Federal Securities legal guidelines.

These forward-looking statements could also be recognized by reference to a future interval or by use of forward-looking terminology and handle issues which might be to totally different levels unsure. You need to bear this uncertainty in thoughts and shouldn’t place undue reliance on such statements. Ahead-looking statements contain assumptions, dangers and uncertainties, together with the dangers and uncertainties described in our SEC filings, together with when filed, our Type 10-Okay for the yr ended December 31, 2021 in our present and quarterly experiences since such date. Prior to now, precise outcomes have differed materially from these prompt by forward-looking statements and this will likely occur once more.

Our forward-looking statements communicate solely as of the date they’re made, and we disclaim any obligation to replace or revise any forward-looking assertion, whether or not on account of new data, future occasions, or in any other case. As well as, the presentation and our feedback comprise references to non-GAAP monetary measures, reminiscent of adjusted pre-tax revenue and adjusted bills, amongst others. We consider these non-GAAP monetary measures present a helpful complement to discussions and evaluation of our monetary situation and an alternate method to view sure facets of our enterprise that’s instructive. Non-GAAP monetary measures ought to be seen along with and never in its place for the corporate’s reported outcomes underneath accounting ideas typically accepted in the USA.

A reconciliation of the non-GAAP measures used on this presentation to their most immediately comparable GAAP measures could also be discovered within the press launch and the appendix to the investor presentation. Now I’ll flip the decision over to Glen Messina.

Glen MessinaChief Government Officer

Thanks, Dico. Good morning, everybody and thanks for becoming a member of us. We’re excited to share our progress with you this morning. So let’s begin with Slide 4 and we’ll evaluation just a few highlights for the complete yr and the fourth quarter.

We delivered full yr GAAP web revenue of $18 million and adjusted pre-tax revenue of $59 million. 2021 was our first full yr of constructive GAAP web revenue since 2013. Fourth quarter adjusted pre-tax revenue of $10 million is per our third quarter efficiency, excluding the decision rights transaction and our fourth quarter web lack of $2 million contains $14 million in pre-tax notable objects. Excluding these notables, we delivered an annualized adjusted ROE of 12% within the fourth quarter and that is per our focused return goals.

Within the fourth quarter, I am actually happy with the group, we delivered document whole servicing additions, double-digit progress in our highest margin channel, stable operational execution. We achieved our recapture fee goals in client direct and value discount and servicing was forward of goal. Our servicing group was acknowledged for his or her superior working efficiency and working execution by each GSEs, we obtained the Freddie Mac SHARP Gold Award as their finest performing servicer of their prime tier servicing group. And we additionally obtained the Fannie Mae’s STAR Award for excellence in all three classes of efficiency, and people embody normal servicing, resolution supply and timeline administration.

So congratulations and plenty of due to all of our servicing associates. In October, we closed our acquisition of the RMS reverse mortgage servicing platform, per prior disclosures, we anticipated the RMS acquisition to initially be dilutive. Our fourth quarter adjusted pre-tax revenue features a $4 million pre-tax loss in reverse servicing. And that is largely associated to staffing actions to assist including 60,000 loans by the tip of the third quarter of 2022.

This may roughly double our reverse subservicing portfolio. Assuming the present mortgage boarding schedule and topic to investor approval, we venture run fee adjusted pre-tax revenue for reverse servicing will enhance by roughly $7 million by the third quarter of 2022 versus the fourth quarter of 2021. Wanting forward, our rates of interest have risen increased and sooner than what {industry} forecast prompt just some quick months in the past. Because of this, we anticipate a smaller, extra aggressive and customarily more difficult originations market.

That stated, rising MSR values and decrease prepayments are additionally anticipated with rising rates of interest. Our balanced enterprise mannequin is working, we’re seeing decrease quantity in January, however that’s offset by MSR honest worth positive aspects and decrease MSR amortization. In response to market circumstances, we proceed to give attention to increasing our consumer base and better margin services and products. We’re intensifying our focus in reverse and client direct and driving steady price enchancment.

We’re taking the chance to selectively harvest MSR positive aspects at strong valuation ranges to mitigate uneven danger in our MSR portfolio. And we consider our balanced enterprise mannequin, exemplary servicing efficiency, confirmed price administration and observe document of execution are key benefits in navigating the market surroundings forward. Let’s flip to Slide 5 for some highlights on originations. Our originations group once more delivered stable outcomes in opposition to our working goals for the complete yr of 2021, whole servicing additions of $152 billion is up 166% from 2020 ranges.

Within the fourth quarter, we closed $43 billion in whole servicing additions, and that is up 63% over the third quarter. Whole servicing additions contains $33 billion in subservicing additions and $11 billion in MSR additions, which have been down 5% from the third quarter stage. Our enterprise gross sales method and TCB acquisition have allowed us to develop our vendor base to over 3 times versus year-end 2020 ranges and we’re persevering with to develop, and our fourth quarter recapture fee of 31%, barely exceeded our goal for the fourth quarter. We proceed to develop in increased margin channels, per our technique.

Fourth quarter client direct quantity was up over 20% from the third quarter, and we have roughly doubled client direct quantity yr over yr. Finest effort to non-delegated deliveries greater than doubled within the fourth quarter versus the third quarter, and reverse originations have been up over 16% in This autumn versus Q3, and up 60% yr over yr. In This autumn, in keeping with Reverse Market Insights, we elevated our market share in reverse by three factors to 9.4%. And now with the RMS acquisition, we’re the one end-to-end service supplier within the reverse {industry}.

General, our originations group made terrific progress in opposition to their goals for 2021. Let’s flip to Slide 6 for a progress replace on servicing. Servicing as effectively made nice progress in 2021, driving decrease price, sustaining sturdy operational execution and enhancing the shopper expertise. We have made substantial investments in transformational know-how to cut back price, enhance execution and enhance the borrower expertise.

We have automated over 140 processes in 2021 to drive automation and enhance buyer connectivity and extra self-service choices for purchasers. We anticipate these investments will proceed in 2022, as we consider our actions to enhance consumer, borrower and investor expertise are important components to assist our progress goals over the long term. General, servicing working prices are down over 4 foundation factors yr over yr and we have exceeded our yr finish price discount goal. When it comes to scale, we have elevated our whole servicing UPB by over 41% yr over yr, and our proportion of product servicing has grown to 68% of whole servicing UPB.

When it comes to portfolio composition, rising the proportion of company loans helps to extend common mortgage steadiness and reduce delinquencies. And each these traits will assist enhance our ratio of working bills as a % of UPB. We consider we now have large working leverage in our servicing platform, and we’re excited concerning the progress alternative for servicing, significantly in subservicing, which I will cowl in just a few moments. Now let’s flip to Slide 7 to evaluation our servicing working execution.

In 2021, our servicing platform obtained the Freddie Mac SHARP Gold Award as their finest performing servicer of their top-tier servicing group, and we’re additionally considered one of two servicers to obtain the Fannie Mae’s STAR Award for excellence in all three classes of efficiency administration, normal servicing, resolution supply and timeline administration. These awards are a testomony to the dedication and dedication of our group, the excessive ranges of customer support they ship, and the general energy and high quality of our servicing capabilities. Our servicing operations proceed to carry out effectively in a number of areas as in comparison with MBA reported metrics for the {industry}. Common velocity of reply was higher than the MBA common and our abandonment fee as effectively was lower than half the MBA common.

We’re continued to be laser-focused on supporting debtors who’re exiting forbearance and serving to them perceive their choices. And we do consider the most effective path for owners and traders is to search out what works inside investor tips to maintain the patron of their dwelling. As you possibly can see, we outperformed the {industry} as reported by the MBA regarding the proportion of debtors with an company mortgage who exit forbearance with the reinstatement or loss mitigation resolution in place. Moreover, the proportion of GSE debtors on forbearance plans paying present is six factors increased in our portfolio than the MBA common.

With our servicing efficiency and recognition by the GSEs, there ought to be little question that our platform is delivering finest apply ranges of efficiency for traders and owners. Many, many due to our servicing group who proceed to ship nice efficiency for owners, communities and traders. Now let’s flip to Slide 8 to debate our progress in driving an improved buyer expertise. Per our technique to supply the service expertise that delivers on our commitments, we have put vital efforts towards enhancing our Web Promoter Rating or NPS.

Our servicing NPS is up 12 factors, even with quite a few bulk MSR purchases and subservicing boardings in 2021, in addition to a really centered effort to assist debtors emerge from for forbearance. Shopper direct NPS scores are up 56 factors, and that was whereas we doubled quantity in 2021 in that channel. Even in reverse, of their wholesale channel, the place we now have an extremely excessive rating of 91, we have improved by three factors as effectively. NPS is a key a part of the efficiency administration in addition to reward and recognition techniques at Ocwen.

NPS is measured for each perform and division regardless in the event that they serve inside or exterior clients. We do present steady coaching, monitoring, teaching and empowerment to our groups to allow them to drive our CARE, that CARE service philosophy and requirements, the acronym care stands for caring, correct, responsive, and empowered. Expertise and course of simplification elevated our self-service choices, have additionally been a key a part of our buyer expertise enchancment journey. We have made quite a few enhancements to our net portal and cell app, together with video-based tutorial sources to additional allow client self-service.

For 2022, we now have a highway map of 27 tasks, which cowl over 500 particular person modifications in our operations to additional enhance buyer expertise, price construction and working execution. Now let’s flip to Slide 9 to debate our method to subservicing. We consider we have constructed a best-in-class servicing platform for each performing and particular servicing with the capability for progress that may provide a compelling worth proposition for brand new and potential shoppers. With the closing of the RMS reverse servicing platform acquisition, we at the moment are positioned to compete in each reverse and ahead subservicing.

The investments we have made in our platform are being acknowledged with over $56 billion in subservicing additions in 2021 and our subservicing pipeline has by no means been extra strong. We’re centered on delivering finest apply ranges of efficiency for shoppers throughout the 6Cs of what we name, key servicing deliverables. These embody competency, placing the consumer first, buyer centricity, know-how enabled capabilities, a well-staffed financial institution grade danger and compliance mannequin and a powerful value-based tradition that underpins all the pieces we do. We proceed to evolve and refine borrower and consumer dealing with know-how to handle the wants of shoppers and customers to streamline our enterprise and enhance the flexibility for buyer and consumer self-service.

We will provide swift onboarding, responsive service to our shoppers and customers and as we coated on Pages 6 and seven, we do consider we ship industry-leading working efficiency that is been acknowledged by our traders.  We’re coming into 2022 with buyer commitments in ahead and reverse subservicing for over $35 billion in UPB additions and that’s topic to investor approval. We’ve $76 billion of potential alternative with our prime 10 prospects and a complete prospect pipeline of over $240 billion within the ahead enterprise and for the reason that first of the yr, we have additionally constructed a prospect pipeline of over $57 billion in reverse subservicing alternatives. Once more, actually happy with what our group has been capable of construct right here and achieve and particularly, our enterprise gross sales group for constructing such a strong pipeline. And whereas subservicing has an extended gross sales cycle, we’re nonetheless very excited concerning the alternative we now have right here to develop subservicing.

Now let’s flip to Slide 10 to debate our ideas on the working surroundings for 2022. The common of the January and February origination forecast from the GSEs and the MBAs venture whole origination quantity declined over 30% for 2022. Rates of interest are up sharply the beginning of the yr with each the ten yr treasury fee and the 30 yr mortgage fee up increased and sooner than the {industry} consensus forecast final quarter and possibly extra intently matching the expectations at year-end for the prior quarter forecast. We do consider the speedy run-up in charges and long-term outlook for even increased charges will drive a extremely aggressive surroundings in originations.

We consider margin pressures and ahead will persist till extra capability might be eradicated. Nevertheless, increased rates of interest are good for servicing values up to now this yr, MSR values are up considerably, prepayments have slowed, and we consider if rates of interest maintain and go even increased, prepayments can sluggish even additional. We’re seeing a large view of MSR values available in the market and numerous commerce journals have commented on rising bulk MSR gross sales and the potential for elevated M&A exercise. Lastly, we’re seeing the companies buyback shift with increased mortgage limits assist for first time and low to reasonable revenue homebuyers, restrictions on trip and rental properties, and disciplined pricing for third-party originations.

Nevertheless, we consider our technique of balanced diversification, sturdy working execution and a give attention to low price is the fitting technique for this market surroundings. Our administration group has a observe document of efficiently navigating a number of mortgage cycles with a give attention to prudent progress, price administration, operational excellence, and buyer expertise. We intend to be disciplined in originations, and we’ll proceed to give attention to increasing our consumer base and addressable markets the place we will develop increased margin services and products. Clearly, we’ll proceed to drive price optimization, which is a part of our DNA to reinforce our competitiveness.

And with respect to servicing, the speedy rise in values creates a little bit of uneven danger in low coupon MSRs with extra draw back than upside. And with the fitting vary of views on MSR values, we anticipate to selectively harvest MSR positive aspects the place market worth exceeds ours and MAVs, whereas persevering with to spend money on new MSRs. As we noticed on the earlier web page, we have a really strong subservicing pipeline, so we intend to aggressively pursue our subservicing alternatives, together with reverse subservicing. And lastly, we anticipate to prudently method bulk purchases with MAV and as effectively consider M&A alternatives to reinforce scale and capabilities.

Because it pertains to MAV, we had a really profitable 2021 and we’re working with Oaktree to doubtlessly upsize the capital dedication to MAV. Now let’s flip to Slide 11 to debate our working goals for 2022. In 2022, we’re focusing on roughly $100 billion in whole servicing additions, that is down roughly one-third from 2021 ranges. We’re taking a number of actions to offset in a part of the decline in {industry} quantity and margins.

General, we’re beginning to develop our mixture of client direct, reverse, finest efforts in non-delegated, that is what we name our increased margin merchandise, companies and channels from roughly 11% of whole quantity in 2021 to 23% of whole quantity in 2022. In correspondent lending, the place our consumer base continues to be roughly half of different rivals with extra mature platforms. So we’re focusing on so as to add one other 150 to 200 new sellers with a continued give attention to rising finest efforts, non-delegated deliveries in addition to Ginnie Mae and non-agency merchandise the place we now have grown in 2021, however nonetheless have a really small presence as we speak. In client direct, we’re focusing on to keep up recapture charges at over 30% with the long-term goal of {industry} finest apply ranges by investor kind.

In client direct, we now have been transitioning to cash-out mortgage merchandise, which within the fourth quarter accounted for over 65% of our client direct funded quantity, and we anticipate that proportion will proceed to extend in 2022. We’re centered on enhancing general conversion in client direct conversion of results in funded quantity by know-how, information analytics, improved processes, and coaching. And in reverse, we’re focusing on over 30% progress general, together with 30% progress in retail quantity, which was up 38% in 2021 from 2020 ranges. Steady price enchancment is a part of our DNA.

As I stated earlier than, we’re focusing on one other 1 foundation level lower in servicing and overhead opex from fourth quarter 2021 ranges. We’re additionally focusing on to drive roughly 20% working productiveness in our originations channels to assist offset margin strain. Trade-leading working execution and delivering on our feedback to shoppers and debtors is a important part of our worth proposition. That can proceed to be an emphasis for our enterprise in 2022 and past.

In servicing, our balanced enterprise mannequin is working. Our MSR valuation was up $18 million web of hedges in January. We additionally noticed CPR declines, and we do consider CPR will decline from 21% in 2021 to 13% in 2022, which may additionally assist enhance servicing profitability. Contemplating our alternative pipeline in subservicing and our relationship with MAV, we’re focusing on to roughly double our subservicing portfolio, excluding the NRC subservicing.

And lastly, with the speedy improve in rate of interest ranges, we expect 2022 EBO and name charges revenue will likely be down roughly 75% from 2021 ranges. Contemplating the transitioning mortgage market, we anticipate first half 2022 earnings will likely be pushed by MSR honest worth changes, offsetting origination headwinds and the build-out of our reverse servicing platform. We’re focusing on low double-digit to mid-teen after-tax ROEs earlier than notable objects within the second half with the anticipated advantages of efficiently executing our enterprise initiatives. And now I will flip it over to June to debate our monetary efficiency in additional element.

June CampbellChief Monetary Officer

Thanks, Glen. Please flip to Slide 12. Within the fourth quarter, we reported $10 million of adjusted pre-tax revenue, that is our ninth consecutive quarter of constructive adjusted pre-tax. You’ll be able to see on the highest proper of the slide, a quarter-over-quarter stroll.

Our fourth quarter outcomes have been largely per the third quarter, excluding name proper positive aspects and prices related to constructing out our RMS subservicing platform, which did influence our reverse servicing enterprise, and I will speak extra about RMS in just a few slides. Web revenue within the quarter was a $2 million loss, together with $14 million of principally RMS integration and worker incentive plan notables. We achieved a 12% annualized after-tax ROE, excluding notable objects. On the underside proper bar chart, you possibly can see that we’re delivering on our progress goals and value management.

Income elevated 26% yr over yr, largely on account of increased servicing charges and a further $79 billion in UPB, and we proceed to exhibit distinctive price self-discipline. Our earnings per share was $1.56, which exceeded analyst consensus and e-book worth per share elevated $1 to $52 per share. Please flip to Slide 13. This slide demonstrates that our balanced enterprise mannequin is working as anticipated and can serve us effectively in a risky market.

On the left aspect of the slide, you possibly can see that adjusted pre-tax revenue yr over yr was impacted by decrease revaluation positive aspects on MSR money window and movement purchases and decrease originations margins. As Glenn talked about, we’re anticipating a mixture shift to increased margin merchandise and segments, which we consider will assist offset margin strain as {industry} quantity ranges contract. Our enterprise gross sales method specializing in subservicing and the strategic acquisitions we made final yr have positioned us effectively to maximise efficiency. On the fitting aspect of the slide, you possibly can see the outcomes of our Servicing section.

Servicing adjusted pre-tax revenue of $10 million was largely pushed by increased servicing charges from the $79 billion in increased UPB yr over yr and working prices being down as you noticed on the prior slide. Remember that the Servicing section outcomes included a $4 million loss in our reverse servicing enterprise associated to the RMS platform acquisition, which I will discuss on the subsequent slide. Going ahead, we’re anticipating slower prepayments, decrease MSR amortization and better MSR honest worth positive aspects. Please flip to Slide 14.

We’re enthusiastic about our reverse subservicing platform, it uniquely positions our reverse servicing enterprise for accelerated progress this yr. You’ll be able to see on the left aspect of the slide, we anticipate $11 million in increased reverse mortgage income from boarded and dedicated quantity this yr, $25 billion of the $27 billion in UPB are underneath a 5 yr subservicing settlement. With scale and optimized price construction, we anticipate the acquisition to be accretive to our reverse servicing enterprise within the second half of the yr, reaching $5 million in adjusted pre-tax revenue by the fourth quarter. Some key metrics on the underside of the slide present you the estimated progress trajectory of the platform.

Please flip to Slide 15. That is our working framework for 2022, assuming a steady rate of interest surroundings for the steadiness of the yr and no antagonistic modifications in market circumstances over the authorized or regulatory surroundings. The web page is damaged down by our working goals within the origination, servicing and company segments. We anticipate the primary half earnings to be pushed by MSR honest worth changes, offsetting origination market headwinds and the reverse servicing platform build-out.

We’re focusing on low double-digit to mid-teen after-tax ROE earlier than notable objects within the second half of the yr. In originations, we anticipate a mixture shift to increased margin merchandise and segments from 11% to twenty% plus as Glenn talked about. Servicing, we plan to proceed to develop performing subservicing by MAV, the reverse servicing enterprise and including new shoppers. We anticipate EBO and different income diversification within the vary of $8 million to $10 million.

And as traditional, we anticipate all segments to proceed to attain productiveness targets. Now I will flip it again over to Glen.

Glen MessinaChief Government Officer

Thanks, June. And when you may now, please flip to Slide 16. 2021 was our first full yr of GAAP profitability since 2013 and our ninth consecutive quarter of constructive adjusted pre-tax revenue. The investments we have made in company tradition, worker engagement, range, and inclusiveness have enabled the group to thrive in a largely distant work mannequin.

And in consequence, we met or exceeded all our working targets for 2021.We consider our balanced enterprise mannequin, exemplary servicing efficiency, confirmed price administration and observe document of execution are key benefits in navigating the market surroundings forward. We stay centered on delivering prudent progress by persevering with to develop our consumer base and rising our presence in increased margin channels, services and products and driving steady price enchancment. Our servicing platform delivers industry-leading efficiency on a number of mortgage varieties, a extremely aggressive price construction and is relentless in its pursuit of delivering on commitments. We’re investing to assist buyer commitments in ahead and reverse for a further $35 billion in subservicing additions and have a subservicing alternative pipeline of over $300 billion.

We’re investing in enabling know-how with proprietary COEs driving automation and lean course of reengineering. Our balanced enterprise mannequin is working. Our MSR valuation and is up and CPRs are declining, which ought to assist enhance profitability and servicing. And lastly, I’m happy with how our group is executing.

Our administration group has a observe document of efficiently navigating a number of mortgage cycles with a give attention to prudent progress, price administration, operational excellence and buyer expertise, we will likely be unwavering on this focus. We’re working in a risky and unsure surroundings. We’re actively monitoring the monetary markets, financial surroundings and {industry} circumstances intently. We’re dynamically managing our operations, plans and targets and can regulate as crucial to handle rising market dangers.

I would wish to thank and acknowledge our Board of Administrators and the worldwide enterprise group right here at Ocwen for his or her laborious work and dedication to our success. I am grateful for his or her laborious work and happy with what our group has achieved in 2021. And with that, Peter, let’s open up the decision for questions.

Questions & Solutions:

Operator

Thanks. Presently, we will likely be conducting a question-and-answer session. [Operator instructions] Our first query is from the road of Bose George with KBW. Please go forward.

Bose GeorgeKeefe, Bruyette and Woods — Analyst

Everybody, good morning. Truly, I needed to ask nearly achieve on sale traits for the — that you just’re seeing now versus what you noticed within the final quarter, each on the ahead, but additionally on simply the reverse. Is the reverse a bit of extra type of agnostic to a few of the points which might be occurring by way of fee?

Glen MessinaChief Government Officer

Yeah, Bose. Thanks for the query. We’re seeing achieve on sale margins in all channels, yeah, we do anticipate them to contract in 2022. I feel it may be a troublesome surroundings in originations with charges up and a shrinking mortgage market.

That stated, we do not anticipate to see the identical strain in reverse. Truly, we anticipate reverse margins to be flat and perhaps even up a bit of bit through the course of 2022. For us to fight the margin compression we anticipate to see throughout the ahead enterprise, it’s all about combine shift. We’ve a really small presence in client direct and finest efforts and non-delegated, and once more, a small shift in combine, once more, going from 11% of our whole enterprise to 23% of our whole enterprise, which Bose, as is comparatively small in comparison with a few of our friends.

It does present a fairly large carry in common margins for the originations channel. Definitely, the reverse enterprise, once more, is an efficient portion of our achieve on sale margins. We predict that chance in reverse to proceed to develop that enterprise, it is a rising market, 12,000 new individuals flip age 65 daily. And that group has about $10 trillion in dwelling fairness.

As well as, continued dwelling value appreciation in addition to the rise within the most declare quantity to over $970,000, I feel will assist gas progress within the reverse mortgage market regardless of increased rates of interest. So we’re very optimistic concerning the reverse enterprise, and we see that’s being a key a part of our margin growth initiatives in 2022.

Bose GeorgeKeefe, Bruyette and Woods — Analyst

OK. Nice. Thanks. After which simply by way of returns on MSRs, are you able to simply discuss the place unlevered returns are at the moment? After which additionally, how does the return differ from the ahead MSR versus the reverse MSR?

Glen MessinaChief Government Officer

Bose, look, we’re seeing returns in MSRs, once more, for the pre-leverage returns in MSRs for the ahead enterprise. And I might say that is actually GSE within the, name it, 8%-ish vary, 8% to eight.5% vary, Ginnies are within the — definitely north of 8.5%, name it, 8.5% to 9.5%, it has gotten extra aggressive. As I discussed earlier than, there may be — we’re seeing a little bit of value discovery occurring, there’s a pretty wide selection of values on MSRs. Definitely, as charges spiked up fairly a bit throughout January and February timeframe.

We’re seeing the value curve on MSR slowdown. And as effectively, mortgage charges will not be actually monitoring with treasuries, we’re seeing some disconnect there. So mortgage treasury spreads have widened and mortgage charges have simply not responded decrease with treasuries as they’ve bought off a bit. On the reverse aspect, our all-in returns on reverse MSRs are increased than even Ginnie’s, proper? So we’re speaking within the 10% to 11% vary.

So once more, the reverse enterprise has simply very engaging attributes from each an originations perspective and a servicing perspective. And now with us being positioned as the one end-to-end supplier within the reverse mortgage enterprise, we have an ideal alternative to develop the subservicing aspect of that enterprise, which, once more, is extra worthwhile than ahead subservicing.

Bose GeorgeKeefe, Bruyette and Woods — Analyst

OK. That is useful. Thanks. After which really only one follow-up.

The advance charges on levering reverse MSR, are they beautiful much like ahead MSR?

Glen MessinaChief Government Officer

Truly, no. Reverse MSRs have — that market has not matured to the subtle kind of advancing we see for the ahead market. So advance charges for financing or reverse MSRs just isn’t as effectively developed or as excessive. So there’s a pure purpose as to why the returns are increased.

Bose GeorgeKeefe, Bruyette and Woods — Analyst

Yeah. OK. Nice. Thanks rather a lot.

Glen MessinaChief Government Officer

Thanks.

Operator

Thanks. Our subsequent query is from Matthew Howitt with B. Riley. Please go forward.

Matthew HowittB. Riley Monetary — Analyst

Hello, Glen and June. Thanks for taking my query. Simply first on MAV. On the UPB foundation, the place does it stand now? Glen, you talked about upsizing it, doubtlessly, what would that appear like? Would Ocwen contribute one other 15%, if it was upsized?

Glen MessinaChief Government Officer

Yeah. So look, MAV proper now has — we have deployed roughly 60%-ish, 58%, 60% of our whole dedicated capital in MAV, that is UPB balancing across the $30 billion vary. However once more, we’re seeing continued alternatives to buy available in the market going ahead. So we’re having preliminary discussions with Oaktree concerning the deserves of accelerating that.

Look, we — I do not assume we’re at some extent the place we will talk about phrases and circumstances simply but. However definitely, given it is a materials transaction, if one thing occurs there, we’ll remember to replace the market.

Matthew HowittB. Riley Monetary — Analyst

Are you — it sounds such as you’re forward of schedule on rising that. However that will — the upsize of that’d be a second half ’22 dialog?

Glen MessinaChief Government Officer

We’re forward of schedule. We deployed — we had structured MAV with an preliminary time period of about three years to ramp up our funding there. And once more, we have put in about 60% of our funding within the first yr of operation of MAV. So it’s monitoring forward of schedule.

So yeah, I imply, if there may be an upsize in place, it in all probability could be one thing that will be a second half initiative.

Matthew HowittB. Riley Monetary — Analyst

Nice. Thanks. After which after I speak concerning the dynamic of promoting some MSRs after which nonetheless being actually lively within the bulk market, I imply what are you seeing, simply there may be some pockets of your portfolio which might be simply overpriced or bid? And are you continue to seeing typically alternatives to amass bulk?

Glen MessinaChief Government Officer

Yeah. We’re seeing — look, I feel there may be — simply typically stepping again, I feel within the mortgage enterprise, simply typically, it’s essential to be keen to be a purchaser and a vendor as value and market circumstances dictate. We have — we have constructed a diversified originations functionality. So we now have the flexibility to replenish property into our servicing portfolio.

However look, charges ran up very excessive, very quick. And that created what we noticed was a reasonably extensive view of values of MSRs. And significantly for decrease coupon servicing what we consider was uneven danger. So a price of an MSR can solely recognize a lot as a result of prepayment speeds can solely sluggish a lot.

And when you attain the highest of that prepayment S curve, the worth for MSR is just about on the max the place it may be, and there may be in all probability extra draw back than there may be upside in worth. So look, we took the chance to check the market. And look, we expect there may be opportunistically, when costs are excessive and better than our view of worth and MAV’s view of worth, particularly if you wish to reduce the uneven danger in your portfolio, you are in all probability going to look to take some danger off the desk, take some cash off the desk and redeploy it into MSRs which might be nearer to market pricing, the place you could have symmetrical danger publicity up and down, it is simpler to hedge and clearly creates refinancing incentives if charges go down, however clearly, worth appreciation if charges go up. So look, I feel on this transitioning mortgage market, you must be dynamic, and that is simply prudent enterprise administration, for my part.

Matthew HowittB. Riley Monetary — Analyst

And also you talked about $18 million web of hedges in January for the portfolio whole.

Glen MessinaChief Government Officer

Sure, sir.

Matthew HowittB. Riley Monetary — Analyst

OK. Nicely nice, OK. Final query on simply normal capital wants. When you take a look at your retaining capital, clearly, you are seeing alternatives you may unencumber some capital from gross sales.

And customarily, Glen, while you take a look at — you are very, I might say, you are very busy with integration, however while you take a look at capital wants for Ocwen, alternatives on the market within the bulk market, rising MAV, perhaps different platform, it is clearly taking a lead in reverse. What are you able to inform us by way of capital wants and what the capital outlay plan now could be this yr?

Glen MessinaChief Government Officer

Yeah. So I feel in June’s presentation, she had the form of the roadmap for the enterprise by way of the place we’re anticipating monetary outcomes. So look, we expect to originate $100 billion of enterprise, whole servicing additions subsequent yr. We’re planning to be lively in all our channels and develop our increased margin enterprise.

We consider we now have entry to the capital sources to assist our enterprise going ahead. MAV, we have had preliminary discussions with MAV round upsizing MAV. They have been busy. We — typically, we noticed near $90 billion of UPB commerce within the bulk markets within the month of January and February up to now.

MAV, primarily based on its strike zone, so to talk, it is urge for food. They’re bidding about $20 billion in UPB and $19 billion in January. So we’re on the market with MAV actively bidding within the bulk market. And for offers that match our funding standards and MAV’s funding standards.

And we will proceed to drive growth of our correspondent vendor base and develop reverse. So yeah, I feel we’re positioned with the capital we have to function our plan and obtain our commitments.

Matthew HowittB. Riley Monetary — Analyst

And I will simply sneak one in. And when you do not thoughts. Simply on know-how, considered one of your friends had a partnership with the cloud tech supplier. Ocwen has all the time been a pacesetter in know-how.

You all the time highlighted each quarter, Glen. Simply something to speak about there, effectively positioned on this new surroundings? Yeah. We took the time by the mixing to replatform the know-how in our enterprise entrance to again. So new origination system, new telephony system, new web sites and portals, new servicing system, new capital market system, new normal electrical, new HR system.

The quantity of change within the know-how area through the integration course of was profound. However I consider we have an ideal set of foundational know-how within the enterprise. It is trendy, it is cloud-based, it is updated. Additionally throughout that integration course of, we — despite the fact that we have been chopping prices and we diminished our price construction from the pre-acquisition — 2Q 2018 pre-acquisition baseline by about 40%.

We did put aside cash, we invested and constructed our personal robotics and automation middle of excellence and lean course of middle of excellence. And we have been investing in robotic course of automation, once more, buyer self-service know-how, video tutorials for our customers, we now have been investing in cell app, as a matter of reality, our servicing cell app might be one of many highest rated ones within the Apple App Retailer. And we’re now venturing into optical character recognition, cognitive AI and conversational AI. So I really feel nice concerning the strides we have made in know-how.

That stated, it is an ever altering surroundings. You’ll be able to by no means relaxation in your laurels because it pertains to know-how. So we’re persevering with to take a position. And as I stated, we have 27 tasks to drive automation throughout the servicing platform, which goes to the touch over 500 discrete components throughout our enterprise.

So it is a spot we’re enthusiastic about. We love how know-how allows low price, allows buyer expertise and allows operational effectiveness.

Thanks rather a lot, Glen. Thanks, June.

Glen MessinaChief Government Officer

Thanks, Matt.

June CampbellChief Monetary Officer

Thanks.

Operator

Thanks. Our subsequent query is from Marco Rodriguez with Stonegate Capital. Please go forward.

Marco RodriguezStonegate Capital Markets — Analyst

Good morning, and thanks for taking my questions. I used to be questioning if perhaps you may speak a bit of bit about the way you see what you are promoting place to succeed and what may very well be a fairly risky mortgage market add?

Glen MessinaChief Government Officer

Yeah. Marco, look, all of it begins I feel with individuals. Look, I am actually happy with what our group has been capable of execute right here. I feel we have top-of-the-line administration groups within the enterprise and having a extremely engaged workforce, sturdy tradition and a administration group with a observe document of navigating a number of mortgage cycles, it’s important to the surroundings the place you are going to undergo.

Second to that, we have spent numerous time constructing a balanced and diversified enterprise mannequin right here at Ocwen, it has been one thing we have been driving for the previous 2.5, three years. And to me, having that balanced and diversified enterprise mannequin is an absolute important ingredient to have the ability to navigate the transitional mortgage market we’re going into. Look, we have demonstrated the flexibility to handle our price construction. We have demonstrated the flexibility to develop in higher-margin services and products and channels the place we nonetheless have a really small share as we speak.

So once more, our plan is, I feel, clearly aggressive and aware of the market. We consider we will — given, our low place in increased margin channels, we may shift our combine from 11% of whole servicing additions to — or whole originations to 23% of whole originations. Our servicing platform has been acknowledged by the GSEs as being, fairly frankly, the most effective servicing platform from an investor perspective within the {industry}, interval, full cease. We’re rising in reverse, we have a powerful place there, a 9% market share in a market that is rising.

So look, I feel we have numerous attributes about our enterprise which have demonstrated resiliency. We have demonstrated the flexibility to navigate the pandemic. The mortgage {industry} is risky, it goes up and down. And we have constructed our enterprise mannequin assuming that that is in place.

And that is going to occur, and that is what we’re seeing as we speak. So I feel our group, our know-how, our platform and our technique of driving progress in increased margin channels, decreasing price, specializing in operational excellence, and proceed to supply a service expertise that delivers on our commitments to customers is the fitting one for this surroundings.

Marco RodriguezStonegate Capital Markets — Analyst

Bought it. After which form of a follow-up in regard to that. Perhaps when you may speak a bit of bit about the way you type of anticipate the general enterprise to carry out if we entered right into a recession.

Glen MessinaChief Government Officer

Ocwen traditionally — recessions have been good for Ocwen. We’re nonetheless one of many main default servicers within the {industry}. Typically, our superior default servicing capabilities, I feel, set us up effectively to carry out in a recession relative to friends with much less expertise in servicing defaulted loans. As we have demonstrated throughout — with serving to debtors emerge from forbearance, we have had extra — a larger proportion of our debtors emerge from the forbearance — company debtors that’s, emerge from forbearance with a loss mitigation resolution or reinstatement plan in place, these debtors who’re on forbearance, a larger proportion of ours are paying present.

So look, that, that is our energy. That is the core DNA of Ocwen. We didn’t lose that through the course of the mixing. And look, whereas advances have a tendency to extend throughout a recession, we now have discovered funding and availability and pricing to stay stable on advances even in instances of stress.

And the steadiness of getting in our servicing portfolio of getting owned servicing and subservicing. And proper now, a larger portion of our portfolio — servicing portfolio is in subservicing, that — revenues in that enterprise will have a tendency to extend as delinquencies improve. So we receives a commission for the extra price. So we expect we now have the resiliency and working functionality to navigate pretty effectively by a recession.

Marco RodriguezStonegate Capital Markets — Analyst

Bought it. And final one for me. Perhaps when you can speak a bit of bit concerning the progress you are seeing in subservicing. How is that form of progressing to your targets, your expectations? Thanks.

Glen MessinaChief Government Officer

Yeah. The expansion in subservicing, we’re actually enthusiastic about it. And I feel there may be actually two key components that is driving our progress in subservicing. First is our enterprise gross sales method.

And second is our — simply our servicing efficiency. So the enterprise gross sales mannequin that we now have leverages our capabilities throughout all of our originations. So the flexibility to do SMP — Fannie Mae, SMP originations, originate by Ginnie Mae pit, originate by the Freddie Mac Co-Concern money Xchange, correspondent obligatory finest efforts non-delegated and the flexibility to supply ahead, reverse and subservicing. Is only a very complete gross sales instrument.

And we discovered that, that is been one of many biggest differentiators we now have vis-a-vis promoting in opposition to conventional subservicing suppliers. As well as, we will provide portfolio recapture companies that a few of these of us can’t provide. So look, our enterprise gross sales method is, I feel, a key differentiator on the front-end. And extra importantly, on the servicing execution aspect, we — I consider we have a terrific worth proposition with our servicing platform.

Once more, our subservicing shoppers are recognizing, our efficiency that is been acknowledged by Fannie Mae and Freddie Mac. So we’re doing fairly effectively. I be ok with the expansion within the subservicing enterprise. Our pipeline has by no means been increased.

Once more, subservicing is a capital-light progress car for the corporate. And once more, we have been rewarded with over $50 billion of whole subservicing additions in 2021. We have $35 billion in dedicated backlog, topic to investor approval for 2022, with a really strong pipeline behind us. So actually excited concerning the subservicing enterprise, I feel our group there may be executing fairly effectively.

Marco RodriguezStonegate Capital Markets — Analyst

Thanks. I recognize your time.

Glen MessinaChief Government Officer

Sure, sir.

Operator

Thanks. Our subsequent query is from Drew Waterproof coat, an investor. Please go forward, sir.

Unknown speaker

Hello. Thanks and good morning. My query is on the reverse servicing enterprise, particularly on the aggressive panorama. You guys talked about you do not assume you may see margin compression in that space, however simply needed to get a bit of extra coloration on that with the opportunity of extra new entrants into that market.

Glen MessinaChief Government Officer

Positive. Drew, look, primary, if it is not coming by on the decision, we love the reverse enterprise, it’s a nice enterprise for us. Look, the {industry} is coming off a document yr, which was assisted by refinancing actions, endorsements grew 18% yr over yr. Hakam MBS issuance grew to $13 billion, which was a 23% improve over 2020, and truly a 21% improve of the earlier document yr of 2010.

So look, whereas charges could also be going up and competitors could also be coming into the market, we do consider that the market will proceed to develop in 2022. HPA, dwelling value appreciation and the rise within the most declare quantity as I stated earlier than to $970,800, we anticipate will proceed to gas new manufacturing and helps to offset the influence of upper charges. And once more, from a demographic perspective, 12,000 individuals are turning age 65 daily on this nation. And the fairness in — dwelling fairness held by this group of individuals over age 65 now tops $10 trillion.

So look, I feel there may be the potential for brand new entrants to come back into {the marketplace}. However once more, I feel we’re positioned effectively from a aggressive perspective. We’re the one participant or participant within the reverse {industry}, who can originate and concern and be a direct servicer. I feel this supplies us with a novel place vis-a-vis our competitors.

The reverse mortgage {industry} is admittedly dominated by 5 main Hakam issuers, together with Ocwen, accounting for about 93% of all issuance. Once more, our market share has been rising. We’re as much as barely over 9% as of the fourth quarter of 2021. And the highest 10 originators make up about 80%.So look, as the highest 5 firms stay largely unchanged, I feel — look, this can be a very specialised space of mortgage lending.

It isn’t a fast, quick transaction. It isn’t entering into and doing a fast refi. There is a borrower counseling interval you must undergo, of our qualification interval you must undergo. And the product has quite a lot of distinctive attributes and components.

So look, I feel the market progress is there to assist the competitors that we anticipate to see within the surroundings with margins holding comparatively steady. That stated, we’re, I might say, have some stage of concern that rational competitors coming in, whereas they could not essentially injury margins all that a lot, may they trigger further reputational danger as a result of they are not skilled effectively or not skilled sufficient or not skilled in any respect, and doubtlessly give the area a foul identify. However that stated, I feel it is an ideal product. I feel it is a area the place we intend to proceed to develop share and develop our presence.

Unknown speaker

Nice. Thanks rather a lot.

Operator

Thanks. Women and gents, we now have reached the tip of the question-and-answer session. And I want to flip the decision again to Mr. Glen Messina for closing remarks.

Glen MessinaChief Government Officer

Thanks, Peter. And to shut, I simply wish to thank all of our traders and our workers and our Board of Administrators in your continued dedication to Ocwen. I consider the investments we have made in tradition, worker engagement, range and inclusiveness have enabled the group to essentially thrive in 2021. And I consider our balanced enterprise mannequin, exemplary servicing efficiency, confirmed price administration and observe document of execution are key benefits for us in navigating the transitional and troublesome mortgage surroundings forward.

Thanks all, and look ahead to talking to you subsequent quarter.

Operator

[Operator signoff]

Length: 55 minutes

Name individuals:

Dico AkseraylianSenior Vice President, Company Communications

Glen MessinaChief Government Officer

June CampbellChief Monetary Officer

Bose GeorgeKeefe, Bruyette and Woods — Analyst

Matthew HowittB. Riley Monetary — Analyst

Marco RodriguezStonegate Capital Markets — Analyst

Unknown speaker

Extra OCN evaluation

All earnings name transcripts

This text represents the opinion of the author, who might disagree with the “official” suggestion place of a Motley Idiot premium advisory service. We’re motley! Questioning an investing thesis – even considered one of our personal – helps us all assume critically about investing and make choices that assist us grow to be smarter, happier, and richer.



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