Onity Group Inc. (ONIT) Q4 2011 Earnings Report, Transcript and Summary

Welcome to the Ocwen Fourth Quarter Year End 2011 Earnings Conference Call. [Operator Instructions] Today’s conference is being recorded; if you have any objections you may disconnect at this time. After the presentation, we will conduct a question-and-answer session. I’d now like to turn the meeting over to your host, Mr. John Van Vlack.

Thank you. Good morning, everyone, and thank you for joining us today. My name is John Van Vlack and I’m the Executive Vice President and Chief Financial Officer of Ocwen. Before we begin, I want to remind you that a slide presentation is available to accompany our remarks. To access the slides, log onto our website at www.ocwen.com, select Shareholder Relations, then under Events and Presentations you will see the date and time for the Ocwen Financial Fourth Quarter 2011 Earnings. Click on it and register. When done, click on Access Event, click on how you wish to listen to the event, Adobe Flashplayer or Windows Media. Each viewer will be able to control the progression of the slides during the presentation. To move the slides ahead, please click on the grey button on the bottom of the page pointing to the right. As indicated on Slide 2, our presentation may contain certain forward-looking statements pursuant to the Safe Harbor provisions of Federal Securities Laws. These forward-looking statements may be identified by reference to a future period or by use of forward-looking terminology. They may involve risks and uncertainties that could cause the company’s actual results to differ materially from the results discussed in the forward-looking statements. For an elaboration of the factors that may cause such a difference, please refer to the Risks Disclosure statement in today’s earnings release as well as the company’s filings with the Securities and Exchange Commission, including Ocwen’s Form F3, first, second and third quarter 2011 Form 10-Qs, and 2010 Form 10-K. If you’d like to receive our news releases, SEC filings or other materials via email, please contact Linda Ludwig at linda.ludwig@ocwen.com. Our presentation also contains references to normalized results, which are non-GAAP performance measures. We believe these non-GAAP performance measures may provide additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures should be viewed in addition to, and not as an alternative for, the company’s reported results under accounting principles generally accepted in the United States. As indicated on Slide 3, joining me for today’s presentation are Bill Erbey, Chairman of Ocwen; Ron Faris, President and Chief Executive Officer of Ocwen; and John Britti, Executive Vice President. Now, we will turn the call over to Bill Erbey. Bill?

Thank you, John. On today’s call, in addition to reviewing our financial and operating results for the past year and quarter, we will also provide updates on the Litton acquisition, discuss our plans for managing new growth, describe the impact to Ocwen of the expected sale of assets to Home Loan Servicing Solutions or HLSS, and provide some thoughts on the regulatory environment. Ron and John Britti will discuss our financial results in more depth later, let me start by reviewing year-over-year growth in revenue and net income as reflected on Slide 4. Ocwen servicing portfolio grew from $74 billion of unpaid principal balance or UPB at the end of 2010 to $102 billion on December 31, 2011. With a pending Saxon and JP Morgan Chase transaction, the servicing portfolio is expected to increase to approximately $130 billion. The 2011 growth pushed our annual revenues from $360.4 million in 2010 to just under $500 million in 2011. Net income more than doubled year-over-year to $78.3 million. Similarly, earnings per share for 2011 were up substantially over 2010, increasing 98% to $0.71 per share. Last quarter, I reviewed our business model. Slide 5 shows historical and projected performance on 4 deals. As we discussed, Ocwen generates increasing returns on invested capital by driving down delinquency primarily through its profitable loan modifications. As loans return to paying status, we increase our servicing revenue by capturing deferred servicing fees and generate cash by lowering servicing advances. We’re in the enviable position of being able to do what is good for our shareholders, while simultaneously helping American families and providing better returns to investors in mortgage-backed securities. Families win by staying in their homes and resuming affordable payments, investors receive greater cash flow by avoiding lengthy foreclosure processes and the sale of distressed properties. As Ron will discuss later in more detail, I’m pleased to say that the early results of the Litton portfolio are meeting or exceeding expectations. By way of reference, the Litton transaction is represented by Deal 1, which is the blue line. In particular, modifications are ramping up as planned, additionally delinquencies which typically rise a bit in the first couple of months after a transfer have instead declined. As you can see on Slide 6, we’re seeing our typical pattern of increasing revenue from the Litton transaction as was the case for HomEq and the earlier Saxon portfolios. The transaction of each portfolio further reinforces our confidence in the scalability and performance of our platform which will enable us to achieve our objectives on future transactions. With respect to new business, we expect to close our purchase of Saxon Mortgage Services from Morgan Stanley in the next few days and Ocwen will likely complete our purchase of mortgage servicing rights from JP Morgan Chase in the next several weeks. These 2 transactions will add approximately $31 billion of additional UPB to our servicing portfolio and convert about $11 billion of subservicing to owned servicing. In anticipation of the Saxon and Chase boardings, we have ramped up operations. As a result, our actual and normalized financial performance in the fourth quarter was lower than what it would have been in a steady state. The same will be true for the first quarter. I would point out that we do not normalize for such costs as we do for transition related expenses. Even though Ocwen’s unique technology enables us to more quickly train and deploy world-class home resolution specialists than any servicer in the industry, we have adopted an operating strategy of investing ahead of growth given the very strong new business environment. This relates, for example, to hiring in advance of need, building out similar larger facilities and running lower staff to manage the ratios that we might otherwise. We believe this is prudent as we continue to see a large pipeline of new opportunities. On February 10, 2010, Ocwen entered into an agreement to sell HLSS the right to receive the servicing fees related to approximately $16 billion of UPB. In addition, HLSS will take ownership and responsibility for the associated servicing advances and match funded liabilities. Ocwen will continue to service the loans receiving a subservicing fee and ancillary income. We expect the sale to close when HLSS completes its initial public offering. As valued on December 31, 2011, Ocwen will receive approximately $181 million in cash from the transaction; 25% of the proceeds will pay-down the Senior Secured Term Loan as required by the terms of the loan. The remaining cash will be available for future acquisitions. For further information regarding this transaction, please refer to our 8-K filing dated February 10, 2012. For additional information regarding HLSS, you may also refer to its Form S1 on files with the Securities and Exchange Commission. Completing the initial sales to HLSS will be an important milestone and a strategy to make Ocwen into an equity-light fee-for-services business. In the near-term, HLSS should provide us additional capital for growth, without dilution to existing shareholders, and make Ocwen more competitive on future transactions. Over time, we would hope to move most of Ocwen's MSRs and advances to HLSS. The impact of this should be higher returns on equity than we could achieve by keeping the assets on Ocwen's balance sheet. The effective cost of capital for HLSS is 8%, at the midpoint of the pricing range, whereas Ocwen acquired these assets at a projected 25% return on capital. Finally, I’d like to note that we continued to make progress on our longer-term growth strategy of acquiring servicing on SHA and GSE servicing. Correspondent One continues to progress having begun to acquire newly originated loans, we have also attracted additional top management talent of Correspondent One. Nevertheless, we do not expect Correspondent One to have a significant impact on Ocwen’s volume this year. Given the large pipeline of high return servicing acquisitions that are cash flow positive, we do not see the urgency of adding lower returns gain on sale newly originated client servicing. I will now turn the call over to Ron, who will cover our operating results, including the Litton integration in more detail. Ron will also discuss the recent federal and state settlements by the top 5 bank servicers, including its likely impact on Ocwen. Ron?

Thank you, Bill. Before I start, I want to mention that this will be John Van Vlack’s last earnings call as CFO of Ocwen. As we announced almost a year ago, it has been our plan that Mr. Van Vlack, who stepped down as CFO upon the launch of HLSS and turn over the reins to John Britti, who has been our Executive Vice President of Finance since January of last year. As we expect HLSS to complete its IPO in the next couple of weeks, I want to take this opportunity to thank John for his contributions to Ocwen and say that we look forward to working with him in his new role as President of HLSS. As Bill mentioned, the progress of our integration of Litton continues to meet or exceed our expectations. In the fourth quarter of 2011, Litton contributed over $42 million in revenue. We also incurred $31 million in transaction related expenses for Litton as we consolidated operations. The total Litton transaction expenses incurred through the end of December were $50 million. We expect to incur most of the remaining transaction expenses in the first quarter of this year. We continue to expect total cost to be in line with prior guidance of about $54 million. Particularly gratifying has been our solid delinquency management performance to date on the Litton loan and across our broader portfolio. In the fourth quarter, we were able to reduce overall delinquencies by 0.8% to 27.9%. We completed 18,633 modifications in the quarter, an increase of 18.5% over the prior quarter. We anticipate further progress in coming months as our modification programs take hold in the Litton portfolio. We’re seeing the early indications of this as our modification offers rose to 21,566 in the fourth quarter. This is a 23% increase over offers in the third quarter. As these offers are accepted and finished their trial period, we would expect further growth in modifications. For the first quarter of 2012, we expect modifications to be between 20,000 and 22,000. For all of 2011, Ocwen completed a total of 76,205 modifications, amp represented 16.5% of these modifications and our new share depreciation medication or SAM accounted for 9.9%. I’m very proud of our team’s ability to produce these results at a time of robust growth. Ocwen’s success in scaling up its operations and modifying loans is attributable to the experience of our team and Ocwen’s industry leading technologies. We remain committed to reducing losses on the loans we service and helping families stay in their home through sensible loan modifications. More detail on our fourth quarter and full year 2011 results are available in today’s earnings release and our 2011 10-K which we expect to release early next week. John will discuss the overall company’s normalized Q4 and full year 2011 results in more detail shortly. As shown on Slide 7, we continued our progress in reducing advances. In the third quarter, net advances declined by $142 million. The rate of decline has slowed on existing portfolios as we had few opportunities to care delinquencies as portfolios become more current. We expect greater declines in future quarters as we begin to reduce the Litton advances. This tends to occur on newly-boarded portfolios as it takes a few months for new modification to go through the process of contact, offer, acceptance, trial and completion. I’d like to conclude my remarks with some observations regarding recent government actions in areas that affect our business. We believe the federal and state settlements with the 5 large banks announced earlier this month could provide business opportunities for Ocwen as requirements imposed on the banks play to our strength in modifications, particularly principal reduction modification where we have been the industry leader. Ocwen is well positioned to provide cost effective solutions to the banks that are parties to the settlement. In addition, the settlement provides additional clarity around government intention for servicing standards. We have carefully analyzed all of the known requirement and are confident that we either already meet these standards or can readily do so. Even though the servicing requirement in the settlement do not apply directly to Ocwen, it is our intention to treat them as de facto industry standards. In late January 2012, the federal government announced that it has extended the HAMP program through December 2013. In addition, the new HAMP 2.0 increases incentives for principal reduction modification, extends the program to re-enter occupied investment properties and makes the program more flexible for borrowers with certain large non-mortgage debt such as medical obligations. Again, we view these changes as positive for Ocwen. In the fourth quarter of 2011, HAMP modifications were 16% of our total modifications. We would expect this percentage to grow under the new program rules, so we have not finalized our estimate of the likely impact. Now, I’d like to turn the call over to John Britti. John?

Thank you, Ron. I’d like to walk through our normalized pretax income shown on Slide 8. The largest number of transaction related expenses, the largest item on this is our transaction related expenses of $31.3 million. All but $200,000 of these relate to the Litton transaction, the remainder for the pending deals. The other item is $3.6 million of the $4.1 million loss Ocwen incurred against several foreign currency forward exchange contract that we entered into in 2011, the hedge against the effects of changes in the value of the Indian rupee. Early this year, we cancelled these contracts after determining that the cost of maintaining the hedge was likely to be greater than the operating exposure. As a result of reversing these hedges, we expect to book a $3.6 million gain in the first quarter of 2012, which we include in our normalized results. Backing these costs out of our pretax income result to normalize pretax income from continuing operations of $53.4 million for the fourth quarter of 2011. This is a 57% improvement over Q4 2010 and a 12% improvement versus Q3 2011. These improvements are attributable to growth in our servicing portfolio and our ability to reduce delinquencies and unit costs. On our last earnings call, we said that we would book an additional non-cash loss of $23 million related to the write-down of the Litton platform that appraised for higher than expected amount. Instead, GAAP required that we treat it as a purchase accounting update increasing goodwill. At the end of December 2011, Ocwen maintained $551 million of liquidity, including $144 million in cash and $407 million of unused fully collateralized advanced borrowing capacity. Our relatively large liquidity position is in preparation for the Saxon and JP Morgan Chase closing. Cash flow from operations was $982 million for all of 2011, which is very strong and should continue strong in 2012. Cash flow from operations along with cash from sale of assets to HLSS should enable us to acquire new portfolios or reduce high cost debt throughout 2012. Thank you very much. We would now like to open up the call to questions. Operator?

[Operator Instructions] Our first question comes from Bose George.

First had a question on HAMP, do you think the changes in HAMP will increase the overall level of modifications or do you think basically it moves modifications from non-HAMP into HAMP?

Bose, this is Ron, I think it mostly will just move modifications from non-HAMP into HAMP. I think most of the expansions in the program would be covered by our non-HAMP programs today. So I don’t think the overall number increases, but I do think the percentage that are HAMP will increase.

And then switching, I think you guys said little earlier on the call that the share depreciation mortgages, it was 9.9% of 2011 modifications. So I was curious what it was for the last quarter, just for 4Q ’11?

I don’t know if any of us have the exact number there, but in the latter part of the year it was running at closer to 20% of the modifications that we were doing.

And then just 1 last thing, the comment that John Britti made on liquidity, did he give a number for just in terms of current available liquidity to deploy into new assets?

I’m sorry, I’m not sure I understand your question.

Just in terms of available cash et cetera to purchase assets, you guys got the $200 million extra capacity now in the line, so total available for the investable capital?

That’s the $551 million of liquidity.

This is John Van Vlack, I just might add the other way of looking at it is that we expected after closing the Saxon and JPM acquisitions that we will still have a substantial cash in available credit balance in excess of $100 million.

Our next question comes from Michael Grondahl.

Two questions. One, Bill, could you kind of comment on the $300 billion pipeline, you sort of in terms of timing and how you think that plays out over ’12 and ’13? And then secondly, any expected charges related to the Saxon closing, I seem to remember, I thought there was about $50 million to run through, but if you could remind us that that’d be great.

We estimated $51 million for the transaction related costs for Saxon and those will start shortly after the close.

Have you broken that out between 1Q and 2Q yet, John?

It will mostly be in the second quarter.

And the first question Mike, we really don’t give guidance on when transactions will be completed. The $300 million, if anything gotten more robust since we had our last quarterly call, so there is an enormous amount of activity going on in the market and that really relates to transactions in the space that we like to focus on. If you think about the loans out there as a continuum from a portfolio that’s fully current, the 1 that is fully delinquent which is obviously hyperbolic in terms of what you would actually see, we like to focus on those portfolios that are more heavily delinquent primarily because it focuses on our - plays to our strength of low operating costs on non-performing loans and our industry leading ability to get delinquent loans current. There is even more than that product available in the marketplace today, I would say it’s probably close to $1 trillion of products that various people are looking at.

And any - I mean, I know it’s only a couple of weeks old, but any change in tone or inbound calls since the Robo settlement?

This is Ron, I am not aware of any change in customer behavior or activity, since then, I mean I think you are right that anytime there is public announcements about something going on in the industry whether it’d be the new HAMP program or something like a settlement of this nature, it can sometimes create additional customer inquiries. I think the fact that this was fairly well publicized that it only impacted if - accounted service by the five banks probably has limited that for our particular portfolio, so I’m not aware of anything.

Our next question comes from Douglas Kass.

I was following up on Mike’s question; I think you answered my first question whether it was possible to quantify the actual dollar size of the current universe of available servicing portfolios for sale and the amount that’s likely to be made available for sale in the next several years. And the second question was what is your best guess as to the anticipated change in the direction of the cost of future portfolio acquisitions and you could use any metric you like?

I believe the cost is going to go up for most servicers pretty materially. In terms of just taking 1 item alone, which is with the single point of contact, Ocwen about 2 to 3 years ago started developing technology to deal with our contact management with our borrowers and we went to what is called an appointment model so that in fact our borrowers can set an appointment when it’s convenient for them either through the phone and through the Internet, and that enables our people to be well prepared, they know what they have to bring to the meeting or to the phone call and we think that works very well. The rest of the industry operates on what was called mathematically a kiosk model, it’s really the same as an emergency room model where people basically don’t set appointments, they show up whenever they show up. That has a pretty significant impact when you have single point of contact, because as you can imagine, one of the problems is no matter how hard I try, I can’t get all of our employees to work 24/7, so a lot of our people call at times when there is no single point of contact is not there, they leave messages that results in callbacks, a whole series of calls get generated out of that and basically not a very favorable borrower experience. The second problem is that it’s sort of like the party gain where you ask how many people have to be in the same room to have - for two of them to have the same birthday, it is very interesting that same math applies here. If you have any sort of - like I say the industry operates at 240 borrowers per loss mitigator, there is a very high probability that that loss mitigator will get many simultaneous calls, again resulting a lot of callbacks, missed calls, and when the loss mitigator calls back, it’s highly likely that person won’t be available. So it doesn’t lead to a high quality customer experience. So I estimate that we’ll probably have 3 to 4 times of cost just dealing with delinquent loans as a result of the new servicing standard. So I think that’s also a contributory factor to some of the servicing portfolios that are available for sale. We don’t think it will impact, we actually think with our appointment technology, our costs will be the same or ultimately come down, because we’re able to - we’re very focused on first call resolution in order to be able to get the person on the phone and resolve their issue on the first call to increase the customer satisfaction and it drastically reduces our operating costs.

Our next question comes from Henry Coffey.

Bill, all you have to do to get people to work 24/7 is make them CFO. A couple of questions, just quick on the numbers, so it looks like the total cost for Litton in terms of one-times were right around $50 million, do you expect additional charges from that?

Yes, what we’d indicated is we do expect to the ultimate number to be around the $64 million number that we had given guidance on a while back and we expect that most of that additional amount will be incurred in the first quarter.

And then in terms of loan mods, how does that 20,000 to 22,000 number compare to the year ago quarter, first quarter of ’11?

I think it’s a little bit higher than what we had in the first quarter of ’11, our portfolio is a little bit bigger.

And then revenue impact, just sort of a modest boost in mod related revenues then or would that number be a lot higher?

I think it’d be a modest boost.

And then finally just sort of a big picture question, as you look at this evolving picture of struggling bank servicers, how do you step in to play a role, do you continue to buy servicing, or do you see yourselves partnering with a bank to manage the servicing or how specifically do you think you’ll engage around the AG settlement?

I think it’s, and I'll let Bill fill in if he wants, but I think it’s all of the above. I think potentially even different banks go about different ways, I think the banks are currently in heavy discussions internally about what’s the best way to manage the new world environment and I do think they are looking at their alternatives on how to use quality third party providers like ourselves. And I would expect we’ll see a combination of some sales of MSRs, some subservicing type arrangements or even almost component type arrangements. So I think it will be all of the above.

Our next question comes from DeForest Hinman [ph].

I had a few questions; maybe this 1 is for John. Can you break down the $31.3 million from the Litton charge on a line by line basis through the income statement?

Yes, let me give you just round numbers, it’ll be about $20.6 million in comp and benefits, about $600,000 in the servicing origination line, about $3.4 million in technology and communications, about $2.9 million in professional services, $3.7 million in occupancy equipment and then about $300,000 in other operating expenses.

And can you kind of help us think about the big picture from a perspective of this $1 trillion of UPB that you just mentioned. In the past, we’ve done more platform transactions and more recently we did an MSR purchase with JP Morgan, is there a bigger growth opportunity from subservicing at this point than there has been in the past?

First of all, let me clarify that across the entire array of all products. We wouldn’t be interested in the lower return more current portfolios, we don’t view that as our available market, just because it’s very difficult to - we don’t like the prepayment risk where the return parameters of the more performing portfolios. I think that what we’re seeing right now is very heavily sales of servicing, but I do concur with Ron, that I think that with the AG settlement and the focus on principal reductions, there maybe increased level of activity in the subservicing space there. There are fairly significant penalties associated with not meeting those goals set for the 5 large banks. And I would point out, I think we believe we’ve done more principal reduction mods than the rest of the industry. So we would hope that we’d be a prime supplier for providing those services should banks elect to outsource that.

And in terms of - I know the ink is still drying on the settlement here, but is there any mechanism in our discussions with the bank where they have to make a decision as to what they’re doing, if we go back to your commentary regarding the single point of contact, this is going to be a major expense for some of these banks and potentially they can save some money if they do some sort of subservicing transaction or MSR, I mean, how soon do you think that they make this type of decision?

I’ve been decidedly unsuccessful in predicting those items, unfortunately, so I really don’t know when that will happen. I expect that a lot of it will depend on how successful the banks are initially in meeting their goals and as the time ticks by, it maybe, if they’re not meeting their goals, there maybe more incentive for them to do it. But I would go back to Ron’s comments about I think there is - people are actively considering doing some outsourcing here.

Okay. My final question is just on the tax rate, can you just explain the increased level in the fourth quarter and can you help us what kind of rate we should be using for 2012?

So I think when you look at the deferred tax assets, you’ll see that there was a significant amount realized, over $30 million of ETA that was realized, that was a result of a project that we had engaged in to kind of go through the details of all of that. When you do an update at the end of the year, we’ve been kind of - we’ve been booking our quarterly tax results using a high level estimation process and when you do quarterly true ups at the end of the year, you tend to go back and look at all the accruals. So I think that the effective tax rate that we’re seeing for the full year 2011 maybe a little bit higher than what we’re going to see going forward, but it’s a pretty good indication.

In terms of that project on the deferred tax assets, that was to convert that into a receivable, tax receivable was returning the cash in Q1 or Q2.

Our next question comes from Ryan Zacharia.

First question is on the tolerance for the proceeds from HLSS kind of staying idle, I think, at $180 million pay-off to SSTL with part of those proceeds and does it come for some period of time. How long are you willing to wait, because obviously there will be a drag on earnings and ROE in terms with the proceeds?

The cash won’t be idle in the sense that we can forego borrowing on our advanced facilities. The savings from doing that obviously are less than the coupon rate on the term loan. So there is not a specific time frame in terms of number of months, but there is a period beyond which if we didn’t think we had growth coming within the next 6 months or so, then we would be more inclined to pay down the term loan with those funds. But that is not our current plan.

And maybe I’m not sure if you can answer this, but thinking what’s kind of HLSS, how active is HLSS going to be in seeking out its own MSR deal? Is it going to rely on Ocwen to do that or is it going to contact JP Morgan and see if there are any MSRs that could purchase?

I don’t think we’re permitted to speak on behalf of HLSS on this call.

Is it Ocwen’s expectation that HLSS might do things on its own to increase its own servicing portfolio and that Ocwen might get additional subservicing from that perspective?

I think Ocwen certainly would like to work with HLSS to become the subservicer on additional portfolios that HLSS may acquire.

I mean, Ryan, speaking from Ocwen’s standpoint, I mean, clearly there is going to be no less activity on the Ocwen side from a sales and marketing standpoint trying to find the right opportunities. So there will be no change in our approach or resources to finding new opportunities. To the extent that HLSS is able to find opportunities as well, from an Ocwen standpoint we would more than welcome that, but our efforts will continue to be as strong as they have been in the past.

And then the 1 other question was can you quantify what the incremental overhead was attributable to kind of the ramp up of - anticipation of Saxon and JP Morgan?

We described, I don’t have an estimate for the impact of how much additional resources we laid on in anticipation of that readily available.

It would actually be a little bit higher in the first quarter than it was in the fourth quarter, because the first quarter is where fully ramped up in anticipation of these new deals, so it will be a little bit more of an impact in the first quarter than it was in the fourth quarter. But I think kind of - probably that’s the information we can give at this point.

I mean, to the extent that we could get that I think would be helpful for modeling purposes, just to understand what the incremental profitability of Litton was in the quarter and what it will be in the first quarter?

Okay, we understand your point, Ryan.

Our next question comes from Jeff [indiscernible]

My question is kind of along the same lines here that I think you made a comment there that you said over time most of the MSRs you would expect would be moved to HLSS. I think that’s what I heard, and you can correct me if I’m wrong, but I’m curious how you see that over the next several years sort of that transition or that evolution and obviously there are opportunities right now that are presenting themselves, and you have capital, so as we’re looking into 2012, I’m sure we’re going to see Ocwen put that capital to work, but how do you see that transition and evolution to HLSS having most of those MSRs?

We’re a little constrained about commenting on that because a lot of it relates to the capacity of HLSS to raise capital, so we do have a road show currently going on for HLSS, we would be more than happy to answer that as part of the road show, but I don’t think we should answer it on the Ocwen call, if I could defer that I'd appreciate it.

But I guess again from sort of Ocwen’s perspective, it would be the hope that eventually HLSS is able to raise more capital and you can become more capital light and assuming that was the case, is that something that you see transpiring over a 2 to 3 year time frame or faster, slower, just I guess from an investor standpoint, how do we think about that?

We haven’t given forecast as to how long that will take. You sort of in some cases - it relates to 2 forecasts, one how much more business will Ocwen acquire in the meantime versus how much capital can HLSS raise, so both of those are projections. We certainly at Ocwen are very open and decided to move in as much product as we can to HLSS given the relative cost of capital. It certainly enhances Ocwen’s ROE significantly and also enables us to grow and acquire new acquisitions that are actually fully accretive to earnings. So we will not be the governor on that, it will really depend on how fast HLSS is capable of raising capital in the marketplace. I think they would be happy to discuss that on the with respect to HLSS on the road show or after the road show, but I don’t feel comfortable giving projections for HLSS on this call.

Our next question comes from Mike Grondahl.

Just 2 follow-ups guys. On Litton, do you have the pretax contribution in the fourth quarter? And secondly, Bill, would you mind commenting on Robert Stiles’ resignation this morning at Altisource, I know there is a lot of people interested in the whole Ocwen ecosystem, it might be helpful.

I think first just, I’ll turn over to Bill, I think we’re not in a position that we feel where we’re going to report sort of earnings for particular deal, a lot of that has to do with how costs are allocated and everything. So I think we in my script gave some information on the amount of revenue that we received from the Litton deal. We talked about the expectations over time, we’ll get a 25% return on capital that we deploy on that deal and the deal is performing as anticipated or even a little bit better, but we’re not going to provide net income numbers by deal.

I agree. And Mike, I think the 1 commentary I can give without going through a forecast is if you look on Slide 5, we’re trying to give more and more transparency to the earnings model. If you look at Deal 1 as I said in my script, that was the Litton transaction. I think Ron you shared this view, we did better than we projected in the first quarter. If you look at the Litton transaction, it shows a loss. And as you’re well aware Mike, most of our existing portfolios, once they get boarded sort of goes through this ramp pattern, they are pretty predictable once they're boarded, so that gives you some insight into what happens with the old versus the new portfolio. We’re very pleased with the performance of the Litton portfolio in the first quarter that we have, it exceeded expectations. With respect to Robert Stiles, again same with HLSS without the source, I don’t feel comfortable commenting on this call. There is an 8-K out there. We wish Robert well and I think Michelle Esterman, we’re very excited about having her as the CFO of ASPS and Altisource. And since we’re happening to be in a road show today, if I can encourage all of you have any further questions, if you could call Bill Shepro that would be extremely appreciated.

Our next question comes from Bose George.

I just had a follow-up on the addressable market number you gave, you said it was about $1 trillion but including prime stuff that you wouldn’t look at, so in terms of the stuff that you would look at, should we still think about that your direct pipeline still think of that is in the $300 billion range?

Ron, I think you can comment or John, its every bit of that. There is an enormous amount of activity that’s going on in the market at the present time. I mean, you’re seeing, in my view, a complete reassessment on the part of people in the mortgage business where they want to be, I mean, if it’s not truly a core business for them many people are exiting the business, and I think even the people that have it as a core business for them are really assessing who are their core clients within that space. Do they have multiple relationships with the bank and I think many of these large banks, if it’s not a core customer of the bank are really assessing whether they really want to be providing services to that segment of the market. So I think ultimately it opens up an opportunity down the road as the market begins to heal itself, because I think the U.S. market is going to become a little more like the UK market, where many of the long-term holders often realize who were the largest originator and servicer of non-prime loans in the UK. So I think you’re going to have a much smaller portion of the population that can actually go to their bank and get a loan, I think there is growing opportunity for non-bank, non-prime originators and servicers over the next several years as the market begins to recover.

At this time, I have no questions in queue.

Okay, thank you.

Thank you everyone.

This concludes today’s conference. Thank you for participating. You may disconnect at this time.