Thank you for standing by. This is the conference operator. Welcome to the Ocwen Financial Third Quarter Earnings Conference Call. As a reminder, all participants are in listen-only mode, and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Hugo Arias, Senior Vice President, Treasurer and Head of Investor Relations. Please go ahead.

Good morning, and thank you for joining us for Ocwen’s third quarter 2019 earnings call. Please note that our third quarter 2019 earnings release and slide presentation have been released and are available on our website. Speaking on the call will be Ocwen’s Chief Executive Officer, Glen Messina; and Chief Financial Officer, June Campbell. As a reminder, the presentation and our comments today may contain forward-looking statements made pursuant to the Safe Harbor Provisions of the Federal Securities laws. These forward-looking statements may be identified by reference to a future period or by use of a forward-looking terminology. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Our business has been undergoing substantial change, which has magnified such uncertainties. You should bear these factors in mind when considering such statements and you should not place undue reliance on such statements. Forward-looking statements involve several assumptions, risks and uncertainties that could cause actual results to differ materially. In the past, actual results have differed from those suggested by forward-looking statements, and this may happen again. Our forward-looking statements speak only as of the date they are made, and we disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, the presentation and our comments contain references to non-GAAP financial measures such as expenses, excluding MSR valuation adjustments net and expense notables; and pre-tax loss, excluding income statement notables and amortization of NRZ, lump sum cash payments, among others. We believe these non-GAAP financial measures provide a useful supplement to discussions and analysis of our financial conditions. We also believe these non-GAAP financial measures provide an alternate way to view certain aspects of our business that is instructive. Non-GAAP financial 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. For an elaboration of factors I just discussed, please refer to our presentation and today's earnings release as well as the Company's filings with the Securities and Exchange Commission, including Ocwen's 2018 Form 10-K, and once filed, its third quarter 2019 Form 10-Q. Now, I will turn the call over to Glen Messina.

Thank you, Hugo. Good morning and thank you for joining us. Today, I'll provide an update regarding our progress in executing our key business initiatives and the actions we are to reposition Ocwen for profitability and long-term value creation. Our CFO, June Campbell, will follow with the review of our third quarter 2019 financial results. I will then close the call with some brief remarks before opening it up for questions. Please turn to slide four. During the third quarter, we made substantial progress against our key business initiatives while proactively addressing a more volatile and uncertain and straight environment. With integration activities winding down, we are intensifying our focus and resource allocation on growth and continuous cost improvement. I continue to be encouraged by our high level of execution. Our integration efforts are largely complete. And in the fourth quarter, we expect to finalize our facilities consolidation and begin the final phase of our legal entity simplification. In the third quarter, we realized $268 million of annualized expense savings excluding net MSR valuation adjustments and expense notables compared to the second quarter of 2018 adjusted expenses for the combined Ocwen NPA change. We remain on track to achieve at least $300 million of annual adjusted -- run rate expense savings by the fourth quarter 2019. At approximate our current servicing UVB levels, we are increasing our annualized total cost reengineering target to $400 million and expect to achieve this objective by the third quarter 2020. Volume for our lending channels was up 29% over the same quarter last year, despite the loss of HARP and NRZ recapture volume. We believe we can originate up to $10 billion of funded volume from our lending and flow MSR trials in 2020 as soon as we execute on our plan and there…

Thank you, Glen. My comments today will focus on our third quarter results as compared to the prior quarter. As previously noted, our third quarter investor presentation includes more details on our results and is available on our website. Please turn to slide 13. Our third quarter 2019 reported net loss of $43 million was impacted by $18 million of reengineering costs, $6 million of unfavorable net valuation impacts, and a $5 million gain on repurchase of senior secured notes, among other items. Third quarter net loss compares favorably to net loss of $90 million in the second quarter of 2019, largely driven by lower unfavorable net valuation impacts. The positive pre-tax earnings impact from the amortization of the lump sum cash payments received from NRZ in 2017 and 2018 was $24 million in the third quarter and $31 million in the prior quarter. The amortization of these lump sum cash payments will have a $61 million positive impact to our pre-tax income over future period April 30, 2020. Revenue of $284 million increased by $9 million from the prior quarter. This included $5 million less of favorable reverse portfolio of fair value change compared to the prior quarter. Non-MSR expenses of $179 million was $5 million lower than the prior quarter as we continue to make progress on our cost reengineering actions, which remain ahead of our expectations. The favorable MSR valuation adjustment of $135 in the quarter is primarily due to a $252 million favorable valuation adjustment to our non-agency MSRs associated with continued improved collateral performance, which was confirmed by our third-party valuation provider and recent market trading activity. This favorability was partly offset by a $63 million unfavorable adjustment, primarily due to a 40 basis points decline in the 10-year swap rate and other valuation updates.…

Thank you, June. Please turn to slide 17. Since our last earnings call, we have continued to make substantial progress with respect to our key business initiatives to position the Company for profitability and growth. Our team is excluding well and committed to delivering on the objectives of our key initiatives. We're taking actions to grow our lending platform, diversify our MSR sources, further reduce costs, lower our cost of capital, and maintain a disciplined approach to capital allocation. We believe our actions and plans can result in a more diversified business that can deliver performance through the mortgage industry cycle and capitalize on growth opportunities. Our integration efforts are largely complete. In the fourth quarter, we expect to finalize our facilities consolidation and begin the final phase of our legal entity simplification. In the third quarter, we realized $268 million of annualized expense savings, excluding net MSR valuation adjustments and expense notables, compared to the second quarter of 2018 adjusted expenses for the combined Ocwen and PHH. We remain on track to achieve at least $300 million of the annualized adjusted run rate expense savings by the fourth quarter 2019. At approximately our current servicing UPB levels, we are increasing our annualized total cost reengineering target to $400 million and expect to achieve this objective by the third quarter 2020. Volume from our lending channels was up 29% over the same quarter last year, despite the loss of HARP and NRZ recapture volume. We believe we can originate up to $10 billion of funded volume from our landing and flow origination channels in 2020, assuming we execute our plans. Since the end of the second quarter, we've been awarded $3 billion and closed $1 billion in bulk MSR purchases. We continue to be prudent and patient in our capital deployment and bulk MSRs. We implemented a derivative based hedging program that partially hedges the exposure for interest rate sensitive MSR portfolio while we build a natural hedge through our lending channels. We continue to reduce our cost of debt and improve match funding through the implementation of MSR financing solutions and enhancements to our existing structured finance programs. And we continue to proactively engage our regulators and track our progress as it relates to our regulatory commitments. Our actions to-date have reduced the annualized pretax loss, excluding income statement notables and amortization of NRZ lump sum cash payments by nearly 50%. We expect pretax income excluding income statement notables, but including amortization of NRZ lump sum payments to approach breakeven in the fourth quarter of 2019. We also believe we are on track to achieve pretax profitability, excluding income statement notables and amortization of NRZ lump sum payments by the third quarter of 2020. I want to thank the Ocwen Board of Directors and our associates for their hard work and enduring commitment through our transformation. And with that, we are ready to take questions. Operator?

Thank you. [Operator Instructions] Our first question comes from Bose George of KBW.

Hey. Good morning. First, just, you gave your target hurdle rate for agency MSR, the 8.5%. And also, just on the Ginnie Mae side, do you guys have a target and similarly where do you see the market trading?

Good morning, Bose. So, yes, during the third quarter, as a result of lower interest rate environment, we have seen returns drift a bit lower on MSR returns. So, we historically have targeted a 9% to 11% range for agency MSRs, and then 11% to 13% range in Ginnie’s. We're seeing the market pricing on both asset levels -- asset level pricings go up, which means returns kind of down. And we are seeing returns in that 8.5% to 9% range, largely for agencies, and Ginnie’s hovering right around 9%. Now, for us, what that means -- I’m sorry, Bose. Go ahead.

Sorry. Go ahead, Glen.

I was going to say, yes, obviously we lever those returns as well with MSR secured financing. So, it produces after leverage return of about 13% for us at the 8.5% level.

Okay. And then, just given what you're seeing in the market, are you reasonably comfortable that you can keep your MSR servicing portfolio pretty stable over the next year?

Yes. We are focused on growing our leading channel in particular, part of the progress we made during the quarter, we have more work to do for sure. But, we are growing our lending channel rapidly. And our goal is to at least double the recapture rate in our portfolio retention platform, continue to grow our correspondent lending platform and achieve annualized volume through our lending channels plus our agency cash flow and flow relationships of $10 billion and then obviously we will continue to participate on our opportunistic basis in the bulk market to achieve our portfolio replenishment objectives.

Okay, great. Thanks. And then, on the cost cuts, obviously great work on that. Just the longer term in terms of attaining normalized profitability, is there a way to gauge what you need to do on the revenue side, so the level of UPB or volumes, et cetera?

Yes. Bose, I think, the roadmap that we laid out to give all the key assumptions to how we're thinking about the business. So, we want to maintain at least $200 billion of UPB. We want to achieve about 50-50 mix of own servicing and subservicing. And then, from a cost reduction perspective achieving our $400 cost savings objective. We’ll have some industry expense savings as a result of some of the corporate debt actions that we've taken, and then seeing about $30 million revenue growth from our lending activities, which is again laid out on that road map. We think that gets the business to a place where we're profitable in the third quarter of 2020.

That makes sense. But, I was thinking more of -- does that get to sort of breakeven or your whatever target normalized profitability, and speaking more what you need to get to whatever that target rate is?

So, again, as I think about the business from our framework perspective, we’re pricing our MSRs to achieve our levered return of around 13%. So, long-term, that's the earnings rate that in theories embedded into our assets, assuming that the pricing assumptions are materialized on a go forward basis. And then, we would expect our lending channels as we continue to grow them, particularly our portfolio retention channel will contribute positive earnings as well too through the cycle, obviously more earnings in down rate environment, less earnings in an up rate or a purchase market environment. We continue to believe our business has to return its cost of capital, which we expect to be in the low double digit range, high single digit low double digit range for the business.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Glen Messina for closing remarks.

Thank you, everyone, for joining the call today. We appreciate your continued interest in Ocwen, and I look forward to talking to you next call. Thank you.

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.