Altisource Portfolio Solutions S.A. (ASPS) Q1 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Altisource First Quarter Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Mark Kearns, Chief Accounting Officer. Sir, you may begin.

Thank you, operator. Let me begin by introducing myself. My name is Mark Kearns. I am Altisource's Chief Accounting Officer. While Michelle Esterman, our Chief Financial Officer, would like to be here today, she's on maternity leave, which is required under Luxembourg law. Michelle will be back for next quarter's call. We first want to remind you that the earnings release, Form 10-Q and the quarterly slides are available on our website at www.altisource.com. These provide additional information investors may find useful. Our presentation today contains forward-looking statements, made pursuant to the Safe Harbor provisions of the federal securities law. Statements in this conference call and in our press release issued earlier today which are other than historical fact, are forward-looking statements. Factors that might cause actual results to differ materially are discussed in our earnings release, as well as our public filings. The company disclaims any intent or obligation to publicly update or revise any forward-looking statements, regardless of whether new information becomes available, future developments occur or otherwise. Joining me today for today's call are Bill Erbey, our Chairman; and Bill Shepro, our Chief Executive Officer. I would now like to turn the call over to Bill Erbey.

Thank you, Mark, and good morning, and thank you for joining today's call. This morning, I would like to discuss an issue that has been raised by a number of our shareholders: Altisource's ability to continue to grow its revenue and earnings. Granted the default and origination markets are a challenging environment, however, we believe we are well-positioned to grow through the cyclical changes anticipated in each of these markets. From inception, Altisource's strategy has been to grow its long-term earnings by 15% per year, as the capital-light company, generates sustained to operating cash flow, irrespective of the economic cycle we're in. As you can see on Slide 4, even with limited benefit from Ocwen's acquisition of the Homeward Residential servicing platform and no benefit from Ocwen's acquisition of the ResCap servicing platform and Ally Bank servicing rights, we grew service revenue by 18% in the first quarter of 2013 compared to the first quarter of 2012. Profit margins did not improve proportionally due to the technology and corporate investments we are making to support our future growth and that carrying of Mortgage Services employees and facilities expense in anticipation of the near doubling of the number of non-GSE loan serviced by Ocwen on REALServicing by the fourth quarter of 2013. As you can see from Slide 6, our growth has significantly outpaced our plan, fueled in large part by Ocwen's continued expansion. The success that we've experienced in our default related services has matched the meaningful success we've had in our other businesses. Since inception, service revenue from non-default related Mortgage Services has grown 104% per year, while our default related Mortgage Services have grown by 67%. To some degree, we're a victim of our own success. To provide other avenues of growth beyond default-related services, we are primarily focused on 3 revenue initiatives: First, growing our originations-related services; second, providing asset management services to the single-family revenue market; and third, explaining how to do to the non-distressed home sale market. To build these other businesses, we're applying the same disciplined approach that we apply to our default-related services. Also important to our earnings goal is margin expansion, which I will cover later in the presentation. Turning to the originations markets. The growth of our origination-related services has outpaced the growth in the origination market, generally due to the growth in the Lenders One membership and our development roll out of new services to the members of Lenders One. We're just beginning to roll out many of our services to the members of Lenders One, as well as Ocwen's origination operation, and believe our growth will continue, irrespective of the overall volume originations. With the potential slowdown in the origination volume and declining origination margins, Lenders One members are beginning to focus on the cost side of the profitability equation, and we believe that this will serve us well. We are currently providing origination related services to the members at a lower -- at a low cost to help them save money. Given the expected decline in origination volume, we're also working on establishing relationships with investors to provide additional sales channels for our members. These products could include jumbo, reverse and non-prime mortgage loan. Secondly, we enhanced our property management, lease management and renovation management capabilities in 2012 to position us to provide services to the single-family rental market. Altisource Residential has begun to acquire portfolios of nonperforming loans, and we expect to see growth from this vertical in the coming years. Third, with regard to Hubzu, we have demonstrated that home owners will purchase their homes on Hubzu. We believe over 50% of homes acquired through Hubzu in 2012 were purchased for personal use. To develop Hubzu as a marketplace for non-distressed home sales, we normally want homeowners to be willing to purchase their homes on Hubzu, but also for homeowners and their agents to list their homes for sale on Hubzu. Today, we're focused on attracting real estate brokers and agents to list their homes for sale on Hubzu, and in time, we will target individual homeowners to use our real estate brokerage to list their homes for sale as well. Over $40 billion per year is spent on real estate brokerage commissions in the United States. If we capture just a small percentage of this incredibly large market, we can substantially accelerate our growth. Given the growth we've seen in the above initiatives, unless one is extremely pessimistic regarding Ocwen's ability to acquire additional mortgage servicing rights and extraordinary optimistic regarding the growth of personal disposable income required to reduce delinquencies, Altisource's long-term growth prospects are very bright. We believe Ocwen's anticipated servicing portfolio of growth will continue to provide a meaningful contribution to our revenue even as delinquency rates decline. Delinquencies are not going to go away. According to Moody's, CreditForecast.com, even pre-financial crisis, non-GSE delinquency rates average 6.7%. As delinquencies and the opportunities for Ocwen to acquire this servicing, our large non-performing loan portfolios return to a more normal level, we may experience a flattening in our revenue in the short-term. In the long-term, however, the expansion of our other services and the redeployment of the operating cash generated from our businesses should provide for ongoing growth. Slide 10 provides Moody's historical and projected delinquency rates. In our view, Moody's estimates are overly optimistic as we don't believe there's going to be a sustained reduction in delinquencies until the American labor force realizes sustained increases in disposable personal income. In fact, as you can see on Slide 11, the total number of delinquent loans in REO today is only $400,000 lower than average number of delinquent loans in REO for the past 4 years. Slide 12 sets forth graphically a reasonable path to revenue growth for Altisource under 2 scenarios with the number of non-agency or private label security loans acquired by Ocwen, representing the only assumption we changed in each of these scenarios. Each of the key revenue driver assumptions used for the 2 scenarios are set forth on Slide 13. In order to provide a conservative approach, we assume the delinquency rate declines at the same rate as Moody's estimate, which we believe is overly optimistic. Additionally, we have not assumed that any of the cash generated by Altisource is reinvested in the business. In scenario 1, we assume that Ocwen does not acquire any additional private label servicing rights beyond those that have already been announced. And in scenario 2, we assume that Ocwen acquires $100 billion of private label servicing rights per year for the next 3 years. Each of these scenarios generate meaningful service revenue growth and substantial operating cash flow for Altisource. Assuming we generate between 25% and 35% of operating cash flow from our servicing revenue for 2013 through 2017, we will generate operating cash flow between 82% and 114% of our current market capitalization in scenario 2 and between 59% and 83% of our current market capitalization in scenario 1. As you can see in these 2 scenarios, with the near doubling of the non-GSE loans within Ocwen's servicing portfolio in the fourth quarter of 2013 compared with the fourth quarter of 2012, we anticipate that we will experience substantial revenue growth in 2014. What is interesting is that under each scenario, the runway for our default-related services still remains long. In addition, the slope of the decline in default-related services from the high watermark is reduced as a result of the growth of our newer default-related services. Of course, any major servicing acquisition Ocwen beyond the amounts we included in our scenarios will serve to increase the high watermark. This is a high-class problem to have -- as this is very high margin business that generates substantial operating cash flow. We could use this cash flow to buy back shares and/or make acquisitions that meet our growth and return objective. Ocwen has stated that they believe $1 trillion of additional servicing will be sold into the market. With Ocwen's competitive advantages as the premier servicer of high-touch loans, we believe Ocwen will continue to experience very strong servicing portfolio growth, as the shift in servicing from bank to non-bank services continues. Ocwen's anticipated growth, coupled with our development of new default-related services like mortgage modification and insurance, short sale services and mortgage charge-off collections, will serve to partially offset the impact of the decline in delinquencies. We believe we have presented reasonable and attainable targets for each of our growth initiatives. There are opportunities for our growth initiatives to perform considerably better than is illustrated here. Now that we've discussed the revenue side of the business, let's spend a minute on margins. As we discussed with you last quarter, we expect the margins in our default-related services to increase by 7 percentage points on a run-rate basis by the end of 2013, even after the amortization of the intangible assets associated with the Homeward and ResCap transactions. We're very pleased that our gross profit margins at our Mortgage Services segment improved from 46% in the first quarter of 2012 to 47% in the first quarter of this year to a more efficient work for processes and transition in certain services from vendors to in-house employees at lower total costs even after incurring the carrying cost of employees at a facility to support Mortgage Services' anticipated growth. On a consolidated company basis, we expect our overall 2013 margins to remain relatively flat, as we invest in hiring U.S. technology employees to complete the development of our next-generation technology and as we grow certain corporate functions to support our continued expansion. We would not be making these investments in our technology and corporate functions if we did not believe we were going to continue to grow. We expect the technology and overhead expenditures to stabilize in 2014, leading to increased profit margins. We believe that we have the right revenue engines and the long-term sustainable competitive advantages to accomplish our growth objective. To a large degree, it's now all about execution. As you can see on Slide 14, Altisource's leadership team has demonstrated their ability to develop and grow new services. We need to continue to apply the same skills to our other growth engines. I will now turn the call over to Mark for our financial update. Mark?

Thank you, Bill. This morning, we reported first quarter 2013 service revenue of $127.6 million, net income attributable to shareholders of $27.5 million, and diluted earnings per share of $1.10. Slides 4 and 5 provide highlights of our results from current quarter compared to prior periods. We're very pleased with our operating results, given the limited benefit in the quarter from the Ocwen acquisition of the Homeward platform, and no benefit from the ResCap servicing platform and the Ally servicing rights. Further, the Mortgage Services segment is almost fully staffed to support the near doubling of the number of non-GSE loans on REALServicing by the fourth quarter of 2013. Compared to the fourth quarter of 2012, service revenue increased 5% to primarily to residential valuation services and modest increases in referrals from Ocwen's servicing portfolio, as a result of Ocwen's Homeward servicing platform acquisition, along with existing customer growth and new customer wins and our customer relationship Management business lines within financial services. The majority of the revenue from the Homeward portfolio was generated following the boarding of the loans on REALServicing during the second half of the first quarter. As you can see on Slide 15, service revenue per delinquent loan for non-GSE loans, the primary driver of our default-related services revenue increased from $346 in the fourth quarter of 2012 to $354 in the first quarter of 2013. The increase was due to a heightened level of valuation services, primarily in connection with the Homeward portfolio boarding. Service revenue per delinquent loan in both the fourth quarter and the first quarter was constrained by a higher percentage of delinquent loans and foreclosure that were on hold during both quarters. Net income attributable to shareholders in the first quarter of 2013 was slightly lower than the fourth quarter of 2012, primarily from higher interest expense, income tax expense, investments in our corporate and Technology Services segment to support our growth, and a carrying of Mortgage Services employees and facilities expenses in anticipation of the near doubling of the number of non-GSE loans serviced by Ocwen on REALServicing by the fourth quarter of 2013. These expenses were partially offset by higher service revenue and improved operating income margins in the Mortgage Services segment, our highest-margin segment. Interest expense is higher because we incurred a full quarter of interest expense on the senior secured term loan compared to 1 month of interest expense on the loan in the fourth quarter of 2012. In the fourth quarter of 2012, we reported an effective income tax rate of less than 1%, as we adjusted the annual tax rate down to 7%, driven primarily by the jurisdictional mix of income between the countries where we have operations. In the first quarter of 2013, we recognized income tax expense at an effective tax rate of 7%. Additionally, our corporate and Technology Services expenses were higher as we invested in Altisource's growth. If we normalize for one-time fourth quarter tax benefits, as well as eliminated the interest expense net of interest income from the Ocwen loan recognized in the first quarter, our net income attributable to shareholders would have improved by approximately 1% in the first quarter over the fourth quarter of 2012. Turning to our operating profit margins. Our first quarter 2013 operating profit, as a percentage of service revenue, was 26% compared to 27% in the fourth quarter of 2012. The modest decline in operating profit margin was primarily attributable to higher compensation costs in the Technology Services segment, as we continued to invest in the development of our next-generation technology to support our growth, as well as carrying Mortgage Services employee and facility expenses in anticipation of the near doubling of the number of non-GSE loans on REALServicing by the fourth quarter of 2013. These impacts are partially offset by revenue growth and improved margins in the Mortgage Services segment, driven by workforce and vendor efficiencies. From a cash perspective, we generated $9.6 million in operating cash flow in the first quarter of 2013. This represents $0.07 for every $1 of service revenue. If you include the collection of accounts receivable through April 1, 2013, the day we received a large payment on our receivables, we generated $34.6 million in operating cash flow or $0.27 of operating cash flow for every $1 of service revenue. This primarily -- we primarily deployed first quarter 2013 operating cash and our beginning cash balance by purchasing the Homeward fee-based businesses for $87 million, repurchasing $22 million of Altisource's common stock, representing 266,295 shares at an average purchase price of $82.58 per share and investing $7 million in facilities and technology to support our growth. With very limited exceptions, our strategy for the Homeward fee-based businesses acquisition is to shut down the businesses acquired and manage the Homeward businesses through Altisource's existing platform. We are in the process of finalizing the purchase price allocation of the Homeward fee-based businesses. We currently estimate that approximately $80.4 million of the purchase price will be attributable to intangible assets that will be amortized over the expected life of the Homeward mortgage servicing accrual in proportion to the anticipated revenue recognized on the Homeward portfolio. We currently expect that more than 90% of the intangible asset will be amortized over the next 7 years. In developing your models, there are 2 ways to look at the amortization of the intangible asset, both of which come to the same answer. First, an internal rate of return perspective. Based from a -- first, from an internal rate of return perspective, we expect we will generate an unleveled -- unlevered internal rate of return of 20% on the purchase price of the Homeward fee-based businesses after recognition of amortization expense. The 20% return is before considering any of our margin improvement initiatives or the benefit from the development of our new short sale service. Second, you could project the revenue and margins you expect us to make from the Homeward portfolio, the same way you've done in the past: Incorporating a new expense item amortization, which we expect to be approximately $12 million for the remaining 9 months of 2013. With regard to share repurchases, we believe the purchase of our shares provides a tax-efficient way to return value to our shareholders, particularly at the current trading price. During the first quarter, as you can see on Slide 17, we purchased the maximum amount permitted under our senior secured term loan agreement. Slide 17 provides a summary of our share buyback restrictions that include the loan agreement, Luxembourg law and shareholder authorization. We intend to borrow $200 million in the second quarter under the accordion feature of our loan agreement. As part of our borrowing under the facility, we also intend to amend the loan agreement to provide additional share buyback capacity. We anticipate that we will use the proceeds to fund the remaining $48.8 million payment of the ResCap fee-based business transaction to repurchase shares and to support general corporate purposes, including potential acquisitions. I will now turn the call over to Bill for a discussion of the progress we've made on our growth initiatives. Bill?

Thanks, Mark. Turning to our 2013 strategic growth areas, our initiatives are, one, supporting Ocwen's growth; two, expanding origination-related service revenue; three, deploying Hubzu to the non-distressed home sales market; four, providing property management, REITs management and renovation management services to Altisource Residential; and five, growing revenue and improving the earnings in our financial services segment. Our first initiative and primary focus is providing services to Ocwen's growing servicing portfolio and on boarding the loans from Ocwen's acquisition of the Homeward Residential, ResCap and Ally servicing portfolios. Through April 1, 2013, all of the Homeward non-GSE loans were boarded on REALServicing, with the majority boarded toward the end of the quarter. We anticipate boarding the ResCap non-GSE loans on REALServicing before the end of the third quarter. We expect the Homeward, ResCap and Ally GSE loans to be boarded on REALServicing during the first quarter of 2014. As you are aware, we closed on the purchase of the ResCap fee-based transaction with Ocwen on April 12 for $128.75 million, with $80 million paid at closing and the remaining $48.75 million payable over up to the next 5 months. With regard to margins, we are continuing to execute against our plan to increase margins in our default-related services business. We are very pleased with our fourth quarter results, particularly given that our Mortgage Services segment is almost fully staffed to support the near doubling of the non-GSE loans and REALServicing by the fourth quarter of 2013. Our plan also includes improving our efficiency and the provisioning of our default-related services business, and bringing certain services provided by vendors in-house at a lower total cost. We continue to anticipate the default services margins to increase by 7 percentage points over 2012 by the end of this year after amortizing the intangible assets associated with the Homeward and ResCap transactions. Turning to Slide 19. Our second initiative is expanding the Mortgage Services platform to provide the services typically outsourced by a mortgage loan originator. We will do this by providing services to Ocwen's origination platform and by providing services to the Lenders One members and their estimated 11% share of the first quarter 2013 residential loan origination market. We believe we can enhance the profitability and competitive position of the Lenders One members and Ocwen's origination platform through the retention of Altisource as their service provider. While we have taken a very deliberate approach in rolling out origination-related services, we continue to be pleased with initial progress we have made. In the first quarter, we grew our origination-related service revenue by the 33% over the first quarter of 2012. In addition, during the first quarter, we added 11 new members to the Lenders One cooperative and signed an additional 7 master agreements with the members. As a result, over 65% of the members have now signed master service agreements with Altisource. As Bill mentioned, we are also working on establishing relationships with investors to provide other origination-related sales channels to our members. These products could include jumbo, reverse and non-prime mortgage loans. Turning to Slide 20. Our third 2013 initiative is to deploy Hubzu, our online real estate transaction website, to the distressed and non-distressed home sales market by leveraging our real estate agent relationships, our high-traffic website and our unique transaction processing approach to the sale of real estate online. Our 2013 efforts to grow Hubzu are centered on offering Hubzu to other servicers and asset managers to sell their REO and providing Hubzu to individual listing agents and brokers. We are making progress in our conversation with servicers and asset management companies to add them to our marketplace and further expand our leadership position in online home sales. Additionally, to lay the foundation for a broader entry into the non-distressed home sale market, we recently completed a successful pilot of Hubzu's direct-to-broker program. The program was designed to test new system functionality, gather agent feedback and prepare for a broader rollout in late April. During the pilot, over 4,000 agents directly expressed an interest in the program, and we selected 100 individual agent to list homes on the site. The agents have since begun to sell the homes that were listed on Hubzu. Based on agent feedback and overall performance, we are moving forward with the full rollout of the direct-to-broker program over the next couple of weeks. Slide 21 provides information on our efforts to expand our property inspection, preservation and real estate sales business to provide services to the home rental business. We have a 15-year agreement tagged as the exclusive provider of property management, lease management and renovation management services to Altisource Residential. Altisource Residential began acquiring loans in the first quarter of 2013 and as of April 5, 2013, owned 1,410 loans substantially all of which were nonperforming. As these nonperforming loans moved through the foreclosure process and as Residential continues to acquire assets, we expect the number of rental assets in our revenue to grow accordingly. In time, we also intend to offer our services to other single-family property owners. Lastly, as Slide 22 outlines, we are focused on transitioning the financial services business from a low-growth, lower-margin business into a modest-growth and higher-margin business by expanding our higher-margin customer relationship management and charged-off mortgage businesses. In this regard, we began providing services for a new customer relationship management client in the first quarter and expect to start providing services to another client early in the third quarter. In addition, we continue to expand our relationship with 2 existing customer relationship management clients. With respect to the charge-off mortgage business, in April, we executed a service agreement with Ocwen to perform these services and have just begun to receive referrals. In closing, we believe we are well-positioned for long-term growth and strong cash flow generation. At this time, we would like to open the call up for questions. Operator?

[Operator Instructions] And our first question comes the from the line of Carter Malloy from Stephens.

Actually, given that you've laid out some revenue scenarios over the next 3, 4 years, could you actually give us a little bit of sensitivity, what that means for the current year in terms of how to model 2013? In other words, rather than me having to get a protractor and a ruler trying figure this out, just what you guys are implying, you think, 2013 revenues will be?

Carter, this is Bill. I think you could see we're forecasting 2013 to be better than 15% growth service revenue over 2012. And we weren't planning on giving a specific revenue numbers for each year, but just to give you some sense, by 2017, we're estimating that under scenario 1, we'd have roughly $950 million of service revenue; and under scenario 2, about $1.45 billion of service revenue.

That's very helpful. And then on the buyback, I'm just a little unclear here. So the $40 million Luxembourg law allows you -- that's for the remainder of the year?

No, that's as of today or as of the end of the year, our first quarter, Carter. We have the ability under Luxembourg law to buy back about $40 million worth of shares. That increases each month by roughly our retained earnings in Luxembourg, which would not include the modest earnings we have in U.S. and in India unless those earnings are, of course, dividend up to Luxembourg. So that will increase each month in Luxembourg, less, of course, to any share buybacks we do during the quarter.

And then -- but you're saying that the senior secured term loan does not allow you to buy back any further?

There's some baskets there. We used up the baskets in the first quarter, Carter. Those begin to rebuild I believe in the third quarter, but we're asking for an amendment. In fact, we have a lenders call later today for this, the -- for the -- pulling the $200 million on the accordion on our senior secured term loan. And as part of that amendment, we're going to ask to increase our share buyback capacity.

Okay. So maybe -- but it's safe to say you guys -- anticipation obviously is that you'll continue buying back at this type of a pace.

Yes.

Okay, great. And then one other thing on the origination business, just given the depredation [ph] going forward for that, what was the blip and the sequential downtick form fourth quarter to first quarter on the revenue?

Yes, there's a little bit of decline in the origination market from the fourth quarter to first quarter. So some of the stabilized services, Carter, that we are providing historically as opposed to our new services that we're developing and growing even though they're growing very quickly didn't quite offset some of the stabilized services that were already rolled out to the members on a more stabilized basis.

Okay. I never realized it was like $500,000. It's not -- certainly not a big deal there. And then lastly, on the financial services, you guys referred to one new CRM customers, another one coming on in the third quarter plus the charged-off mortgage business. And that's enough, you think, to drive the 20-something percent growth going from negative in 1Q to 25% overall that you have in your scenario assumptions?

Sorry, I'm not -- Carter, I'm not sure what you're...

Sorry. So if I look at Slide 13, the financial services annual growth rate implied for 2013 is...

Yes, we're very comfortable with the numbers we provided on Page 13. The charged-off business is a very exciting opportunity for us. ResCap was providing those services, they had a business unit that was providing the services on the ResCap loans. Those employees now work for Altisource, and we also signed a service agreement to do the work on Ocwen's legacy portfolio. We feel pretty good about that business.

And can you explain the revenue mechanics of that business to Altisource?

Yes. We are on a -- and I don't want to go into too much detail but we are on a contingency fee based on percentage of what we collect. And it's -- the margins in that business should be at the same or higher level than our Mortgage Services margins.

Our next question comes from the line of Mike Grondahl with Piper Jaffray.

Could you repeat the cash flow numbers again that went with Slide 13? Those were just spoken quickly, and I just didn't get some of them.

Sure. And you're talking about the percentage of operating cash as a percentage of our market cap, Mike? Or you're thinking about the revenue number we expect to generate in 2017?

No, the cash flow as a percent of market cap, based under 1 and 2.

That was in your section, I think, Bill.

It is. In scenario #1, we will generate between 82% and 114% of our current market capitalization. That's scenario 2, I'm sorry. We'll generate between 82% and 114% of our current market capitalization in scenario 2. And between 59% and 83% of our current market capitalization in scenario 1. And then also, the difference between 82% and 114% is between 25% and 35% operating cash flow as a percentage of service revenue.

Got you. Okay. So that would be over 2013 to 2017?

That's correct. We still have -- we still need -- means we still have a business that's growing fairly rapidly at that point and in addition to this [ph].

Yes. No, it's great. And the detail on a lot of those, let's call them corporate initiatives or growth initiatives is very helpful. In terms of Hubzu and outside distressed business, you guys mentioned other servicers and asset management. How close are you to signing somebody up there? I mean, are you talking to more than one party? Or just -- can you give us a sense for that?

Yes. Mike, we're in active conversations with 3 or 4 different asset management companies and servicers to provide that service. So I would say we're in very active conversations.

Okay, good. In terms of any origination revenue from Ocwen's originations that came with the Homeward acquisition, have you started to recognize any ASPS revenue associated with those? And when could that start?

It's pretty modest, Mike. We are providing some work for Ocwen today, primarily around their directed -- their HARP program. And so we started generating some title insurance and closing revenue in the first quarter, but I would say that the work with Ocwen is still ramping up.

And because those are basically Ocwen originations, do you expect to get a decent chunk of that revenue per origination?

I think it -- Mike, it depends on the originations. It's certainly on the retail direct-to-consumer side, yes. On the other side, it depends on the correspondent side, it depends on the depths of the relationship that we have with that originator.

Okay. And then you mentioned how you're working with Lenders One to potentially offer them some jumbo, reverser. I think it was sub-prime mortgages. Can you just help us flesh that out of that? Is that a -- how would you do that? How does that work?

Lenders One has an enormous distribution capacity. We will basically work with basically investors/lenders to offer products that they find attractive through our members. I mean, our members today pretty much deliver Fannie, Freddie, Ginnie product. We would like to expand our market basket, particularly given the -- I think, the lower origination volume that's going to be occurring this year and at lower margins, generally, for our members. So we're trying to get them additional products to help them on the top line side, and also for higher-margin products and they can get with Fannie, Freddie, Ginnie.

And, Bill, do you basically need to find the buyers of that product? Meaning, Lenders One could originate it if they have an outlet for that jumbo paper or reverse paper. Is that the thought?

My view is it's not so much fronted to buyers. We think the buyers are there. As a matter fact, their -- people trying to create pipelines or conduits for those products. Ours is how do we, in fact, commercialize that. It's all about execution. How do we basically put a product together so it's easy for our members to distribute.

Say that last part, you kind of broke off.

Yes, I'm sorry, the catering service here is in a little noisy. It's more about execution. We know there are people out there who want to buy this product. The question then is, how do you package it up so you make it easy for our members to be able to distribute it to their client base.

Okay, okay. And then the boarding process, in general, is that going how you guys have sort of envisioned it? I guess, I'm a little curious why the GSE doesn't get boarded earlier than 1Q '14?

Yes, Mike. So the first answer is, yes. The process is going as we expected. On the GSE process, we just want to make sure that all the -- everything is from a compliance perspective, is in place to service the Fannie loans and to comply with all of ResCap's obligations before we service, transfer those onto REALServicing. And so that's all going along in accordance with our project plan and the type of timing.

Okay. And then lastly, if Ocwen was to announce another large acquisition sort of near-term, do you guys have the capacity to the be ready to process that?

Yes.

Our next question comes from the line of Steve Eisman with Emrys Partners.

My questions have been asked and answered.

[Operator Instructions] I'm showing our next question comes from the line of Ryan Zacharia from JAM.

First, one is just on Hubzu. When do you think, in your timeline, that will be ready to be spun?

Ryan, we don't think it will happen this year. We want to demonstrate that we can grow the non-distressed business and diversify our client base some more before we go forward with the separation there.

And with respect to the lenders meeting that you have today, I mean, what are -- what's the ask with respect to the repurchase? Is it similar to the authority you had exhausted in Q1?

We expect to be able to purchase, at least, an additional $80 million of shares. At least, have the ability to purchase, at least, an additional $80 million of shares this year, subject, of course, to the Luxembourg law limitation, which, again, that capacity will grow each month.

Right. And then just a final question, I guess, touching on Mike's question with respect to the boardings. So the GSE business will come in the first quarter of 2014. How should we think about the non-GSE business? How lumpy is that going to be? How much of it is going to come kind of in the second quarter versus the fourth quarter?

Yes. The non-GSE business from the ResCap portfolio will board during the third quarter, so we'll get the full run rate benefit of that in the fourth quarter.

I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Mark Kearns for closing remarks.

Thank you for joining today's call, and we look forward to speaking with you again next quarter.

Thank you.

Thank you. Bye.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.