Good day. And welcome the Ocwen’s Financial Corporation Third Quarter Earnings and Business Update Conference Call [Operator Instructions]. At this time, I would like to turn the conference over Dico Akseraylian, Senior Vice President Corporate Communications. Please go ahead.

Good morning. And thank you for joining us for Ocwen’s third quarter earnings call. Please note that our earnings release and slide presentation are available on our Web site. Speaking on the call will be Ocwen’s Chief Executive Officer, Glen Messina; and Chief Financial Officer, Sean O’Neil. As a reminder, the presentation or comments today may contain forward-looking statements made pursuant to the safe harbor provisions of the federal securities laws. These forward-looking statements maybe identified by reference to a future period or by use of forward-looking terminology and address matters that are to different degrees uncertain. You should bear this uncertainty in mind and should not place undue reliance on such statements. Forward-looking statements involve assumptions, risks and uncertainties, including the risks and uncertainties described in our SEC filings, including our Form 10-K for the year ended December 31, 2021 and our current and quarterly reports since such date. In the past, actual results have deferred materially 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 statement, 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 adjusted pre-tax income and adjusted expenses, among others. We believe these non-GAAP financial measures provide a useful supplement to discussions and analysis of our financial condition, because they are measures that management uses to assess the financial performance of our operations and allocate resources. 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. A reconciliation of the non-GAAP measures used in this presentation to their most directly comparable GAAP measures as well as additional information regarding why management believes these measures may be useful to investors maybe found in the press release in the appendix to the investor presentation. Now I will turn the call over to Glen Messina.

Thanks, Dico. Good morning, everyone, and thanks for joining us. We’re looking forward to sharing our progress with you this morning. Today, we’ll review a few highlights for the third quarter, take you through our actions to address the market environment and discuss why we believe our balanced and diversified business model can deliver long term value. Now please turn to Slide 3. As you all know, with rising in rates the servicing environment has improved substantially, while the origination’s environment is quite challenging. Our balance and diversified business model is working well and we’ve made great progress in the third quarter. We’re delivering focused prudent growth, driving enterprise wide cost reduction and optimizing liquidity and allocating capital to deliver value to shareholders. We delivered strong net income, ROE, book value appreciation, and our adjusted pre-tax loss was substantially reduced versus the second quarter. MSR values increased during the quarter and our origination segment has returned to profitability. Our servicing portfolio was growing with total servicing and sub-servicing UPB both up versus the third quarter of last year. We’re reducing our cost structure enterprise wide and expect to exceed our cost reduction target with over $70 million annualized cost reduction in the fourth quarter versus our second quarter ‘22 baseline. Regarding our capital structure. Our share repurchase program is nearly complete. We completed the MAV upsize and we signed two additional capital light MSR partnership transactions outside of MAV. Many thanks to Oak Tree for their continued support of our business and many thanks to our two new MSR funding partners for putting their trust in us as an asset sourcing and management partner. As we look forward, I believe we are positioned very well to address the challenges and opportunities ahead. In originations, our priority is reducing cost, expanding…

Thanks, Sean. Now if we could please turn the Slide 16 for a few wrap up comments before we go to Q&A. We believe our balanced and diversified business, exemplary servicing performance, proven cost management and track record of execution position us well to navigate the market environment ahead. We’re executing a focused prudent growth strategy. We’re leveraging our superior operating capabilities to grow sub servicing across multiple investor and product types and we are positioned to deliver value to clients, investors and consumers in an economic downturn. We remain steadfast in our pursuit of industry cost leadership by driving continuous cost and process improvement. We’re on track to exceed our expense reduction target and we’ll continue to optimize expenses during 2023. Finally, we are prudently managing capital liquidity to maximize shareholder value. We’ve repurchased roughly $75 million in debt and shares, improved liquidity versus year end 2021, upsized MAV and delivered on our commitment to expand asset investor partnerships to enhance our capital allocation flexibility. Year to date, our balanced and diversified business model has delivered over a $100 million in net income, strong book value appreciation and an annualized gap return on equity of 27%. We believe with the [successful] execution of our business initiatives, we can deliver positive adjusted pre-tax income in the fourth quarter and we believe we’re taking the actions necessary to operate at our targeted ROE range before notable items once originations stabilize. I’m proud of how our team is executing. We have an experienced global operating team with an established track record of successfully navigating multiple mortgage cycles with a focus on prudent growth, cost management, operational excellence and customer experience. We’ll be unrelenting in this focus. With that, Elaine, let’s open up the call for questions.

[Operator Instructions] We will take our first question from Derek Sommers from Jefferies.

Could you describe the activity you’re seeing in the bulk MSR market, volume of deals, pricing, depth of bids, characteristics like that?

Bulk market is active. There’s a lot of transactions that we’ve seen this year, and it continues to be an active market. MSR prices are up, that’s not a surprise to anybody, because interest rates are up. But we are seeing returns improve, so yields are improving. I would say for both GSE as well as Ginnie Mae, bulk packages for I would say, unlevered yields -- look everybody’s got their own valuation model, so I’ll give you what our models would say, but other people’s models may produce a different result. But look, we’re seeing high single digit, low double digit pre leverage return on asset levels. Obviously, you put leverage against it, it’s a much better return. And in terms of who is selling, it’s largely who you’d think, it’s independent mortgage bankers, primarily focused people with origination centric origination’s focus models, who over the last couple of years have been holding onto MSRs. And in this part of the cycle given where the originations market is, they need to sell to create cash flow to support their operations. But overall, again, we expect the market be robust for the foreseeable future with very attractive returns.

We’ll now move to Bose George from KBW.

Actually, just to follow up on the bulk MSR market. I mean you noted the low single or high single low double digit yields. Can you just break that out a little more just on Ginnie Mae versus GSE?

I’d say, Ginnie Mae’s are running higher, right? So just generally speaking, I’d say, probably 200-ish basis points higher round numbers, and which is pretty typical. I mean obviously the risk profile in Ginnie’s is higher than the GSE production as noted in my comments. So I think is generally understood across the industry. So the Ginnie Mae’s do commend a bit of a premium from a return perspective, that as well as there’s fewer buyers for Ginnie.

And then actually just on your book value growth this quarter, so is up $10. And I was just trying to do the roll forward, like the GAAP earnings looks like it was up four and change. So I was just to figure out the difference there?

Sean? Sean O’Neil: Are you talking about the difference between EPS and book value?

Just book value per share change quarter-over-quarter. So the two large factors you’d have to consider, one is operating or net income, the other one is the reduction in share count, because we have been repurchasing shares. Maybe Sean, you can work with Bose offline.

Yes, okay, that would be great. Yes the EPS was 4 and the other was 10, so yes, that would be helpful, thanks. That’s all I had, thanks very much.

We will take our next question from Matthew Howlett from Riley.

Just a question on the upsize in the MAV and those two other capital light vehicles. I mean, when you did the first round of MAV you gave some numbers in terms of potential accretion. It was pretty significant, I think it was $40 million at the time. Just curious how we should think about returns on the upsizing, and again you go over returns like on those two other capital light vehicles?

So I’ll start with MAV. Look MAV has had, we’ve had really strong returns in MAV. So again, I think Sean, you had outlined double digit returns. We’ve received some returns of capital, distributions of earning some profits. Obviously, the returns in MAV will be a function of interest rate levels and where assets are being acquired. But look, we’re excited about the results we’ve had year to date with MAV. Oak Tree’s really excited about the results year to date we’ve had with MAV, and we’re excited to put more capital behind it.

And Glen, that’s a -- the capital requirement will be 15% or so, just so I understand that correctly.

Matt, the capital ratios between the partners has not changed, right? So it’s 85/15, 85% Oak Tree, 15 Ocwen.

And then those two other vehicles, will you put up any capital on those or are those just going to be straight just sub servicing vehicles?

No, those two other relationships are different than MAV. So our goal was to try to diversify investors, because each investor has a different appetite for assets. So you want to make sure you can get broad market coverage with broad investor appetite. So you bring in different investors. The structures are different as well too. So in the two other partnership transactions, we do not have a retained equity ownership percentage. We are purely just the sub-servicer for the assets and that portfolio recapture services provider.

That’s certainly interesting. I look forward to, you know, hearing more hopefully some guidance on the potential accretion from all three. Last question, Glen, on the share repurchases, I mean just 34% of book. I mean, clearly highly, highly accretive. It sound like you did any debt repurchases this quarter, but I’m assuming those would be accretive as well. I mean, I think you’re up to the authorization window. What’s the appetite to use this [liquidity] to continue to repurchase stock and debt?

The Board and management are evaluating our capital allocation process. As I mentioned, look, I think there’s a number of things we want to consider here. So obviously, there’s debt, there’s equity, there’s a ton of high yield investing opportunities that we’re seeing come into the market, and I think the yields are only going to improve as time goes on. We obviously got to consider our share floats, our debt covenants, restricted payments baskets, all those kinds of things, right? So there’s a ton of things we’ve got to consider. Obviously, capital allocation is front and center for the Board and management, and we’ll update the market on our thinking as we move forward.

We will take our next question from Eric Hagen from BTIG.

Another one on MAV, with the increased capacity that you have at MAV, you have the flexibility to effectively sell MSRs that you currently own outright into the MAV structure in the form of capital relief, if you will. So how you guys think about exploring that optionality and especially with respect to your liquidity?

Yes, we do have the optionality to sell MSRs off our books into MAV. We actually could do that with our other MSR investment partners as well too. I think as we’ve talked about historically, look, we do have a certain amount of corporate debt on the books, and we need earning assets to pay the interest expense on that corporate debt, right? So that’s what we’re trying to target between that $100 billion to $130 billion of MSR UPB, which we think is the right level to earn off that provide earnings to recoup that corporate debt. Now to the extent that we take action to lower the corporate debt, then the requirement to hold that MSRs could go down as well. As you noted Matt, look that -- and I think as Sean has said -- Eric, as Sean has said, we have a number of different options as we think even about the Genie Mae risk based capital requirements, one of them is reducing MSRs through a capital vehicle and getting MSRs off our books is one of the ways we could do that.

I’m also wondering in case where you split the economics in MAV, can you pledge the MSRs that you keep as financing, or do you not have that flexibility because we only own a fraction of the asset? And then maybe just one more if I can, the consolidation of the forward and reverse that you guys are talking about on the same platform. What are you saying will be the financial impact of that change?

So the MSRs, when they’re transferred to MAV are owned by MAV. So we can’t independently put secured financing against those assets. But in theory, I guess our investment in MAV is leveraged consistent with the Ocwen total overall corporate leverage. So there is some leverage against that investment. But we can’t separately put or haven’t looked to put secured financing up against those assets. It’s all done within the joint venture, within MAV itself. Look, regarding the impact of integrating forward and reverse, the initial cost reduction that we did receive is part of the $70 million. We did not break that out separately and we’re probably not going to. But I actually think there’s two benefits associated with integrating those platforms, particularly on the origination side of the business. In originations, I would say one of the challenges the reverse industry has always faced was product distribution. By integrating the forward platform and in particular the sales teams that we have supporting the correspondent and wholesale channels, we get, I think, tremendous distribution leverage by distributing that product across all of our forward clients who are interested in selling the product, as well as our existing reverse clients. I could tell you from, coming back from the MBA conference we were just at two weeks ago, a lot of interest on the part of our forward clients about the reverse product. We have a group called Liberty Academy, which trains people on how to sell the reverse product. And again, having the capability to buy the asset as well as service it or sub service it, as the case may be, really allows us to be in a position providing an end to end solution to those forward providers who are looking to get into the reverse space. So we’re excited about the cost reduction opportunity, more work to do there. We’re just at the early stages of the integration and really excited about the go to market impact of that integration, which has been well received by our existing forward clients.

[Operator Instructions] We will take our next question from Lee Cooperman from Omega Family Office.

Congratulations on a nice quarter. I’m trying to figure out, there’s so many moving parts. Do you have a view of your normalized earnings and normalized ROE over a cycle, the way you want to run the business?

Lee, the way we want to run the business, again, I think, Sean covered this in his topics. Look, we still are in that low double digit to mid teen return on equity range. And again, that will vary across the cycle, as you noted, there are peaks and valleys. We do believe our actions that we’re taking to adjust our cost structure, our growth strategy and again our capital allocation plans should enable us to achieve that target. I mean, look GAAP ROE is right now off the charts, as you would expect, with MSR valuation appreciation, which is part of the economic model. And we are -- based on our actions, expecting to turn a corner to adjusted pre-tax profitability in the fourth quarter. So we’re excited about being able to make that change.

Well, if I take, say a 14% return on book, that would give you normalized -- as defined as normalized earnings, that’s about $10 a share. So your stock is like 3 times normal earnings. Why do you think yourselves as such a low multiple? And is there anything -- we’ve talked about an asset light model. I’m just wondering whether -- I’d rather be in Oak Tree’s position, they have a million warrants, I don’t know, what’s the strike price in their warrants. I mean, we have a very high cost of capital as a business. And I’m just wondering do I want to be in Oak Tree’s position or our position?

Frankly, I think both positions are good. So, Oak Tree obviously has made substantial investments in the business. They’ve got debt, equity and they’re committing more capital to MAV. So they obviously are in support of the business and they’ve been a great partner. And look, Lee, I think we’re doing all the right things for this part of the market cycle. I love how our business model is positioned for the cycle. I think our balance, our diversity and our roots to our core really is a servicing centric business model, and we’re playing into that part of the cycle. We’ll continue to evaluate capital allocation. Look, to the extent that there’s an opportunity to further drive a capital light model in our business, we certainly do favor that outcome. And look, we are frustrated with where our share price is. We don’t think the strength of our business is being recognized. We have been putting our money where our mouth is in terms of share purchases and debt repurchases. And again, I’d just reemphasize, like how we’re positioned for the cycle but I do think, unfortunately for the sector, there is a lot of uncertainty around mortgage these days.

Just two last questions. Just one, housekeeping. What was the price you paid for the $48 million worth of stock you bought back, what average price did you pay?

Sean? Sean O’Neil: Average is roughly 28-ish, 29-ish.

And is the book value a real number? In other words, can you liquidate the company for anything approaching book value?

Look, I think the biggest asset test for us is how we’ve been managing MSRs, right? So we’ve been an MSR buyer and seller throughout the course of the year. And as I said on the call, that provides an added level of discipline to our MSR evaluation process. And as we’ve sold MSRs, we’ve not sold MSRs below our acquisition price. So we use third party broker marks. We’ve got confidence in the process we use to mark our MSRs. We think it’s reflective of market value. So I think we’ve demonstrated the ability to, in a controlled and disciplined fashion, to monetize our MSRs for our book value.

So I would just say this, this is one person’s opinion. Typically, what a book value was worth in the market is a function of what the book value earns. In other words, a company with a book value earning 2% on book that book is not worth what it stated at. With a 14% ROE your book is real. And so I would say that if you can buy your stock back at 3 times earnings and a less than half of book value, that would be the best use of your capital and that would be my vote rather than getting involved in things where you’re taking risk, the business you’re buying back in the market is the business you know, and that seems to me to be the best use of capital at the current time. Just one person’s view. But good luck and you’re doing a good job. Thank you. Sean O’Neil: And Lee, we confirmed it, the average stock price buyback so far is $28.59 through the end of October.

I didn’t anticipate asking this question. How much excess capital do you have on the books today? Do you have any excess capital, are you capital constrained?

You know, Lee, we don’t really have a concept of excess capital in the business. We tend to manage our asset investment levels, leveraging MAV and others to create excess capital as needed. Sean O’Neil: We have pretty strong liquidity this quarter relative to where we’ve been.

Well, my hero in life was Dr. Henry Singleton who did eight self tender offerers, and he didn’t buy his stock back as cheaply as you have the chance to buy your stock back. So I would say the measure of the confidence you have in your book value should be a function of the aggressiveness, which you approached to repurchase issue. But you understand those issues, so that I won’t take any more of your time, I know we have another call later today. But thank you.

As there no further questions, I would now like to turn the call back over to Glen Messina for any additional or closing remarks.

Thanks Elaine. And look, thanks everybody for joining the call today. Really appreciate it. Again, our balanced and diversified business model is working as intended and we believe we’re well positioned to perform in this environment to deliver long term value. I’d like to thank and recognize our Board of Directors and global business team for their hard work and commitment to our success. And I look forward to updating you on our progress on our next quarter’s earnings calls. Thank you much.

This will conclude today’s conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.