David Gunter - Senior VP, CFO and Treasurer Bill Erbey - Chairman and CEO Ron Faris - President Bill Shepro - Senior Vice President of Ocwen Recovery Group

Welcome to the Ocwen's Fourth Quarter and Year End 2007 Earnings Call. All participants will be in a listen-only mode for the duration of today's conference. Today's conference is being recorded. If you have any objections, you may disconnect at this time. Now, I will turn the meeting over to Mr. David Gunter, Senior Vice President, CFO and Treasurer. Sir, you may begin.

Thank you. Good morning, everyone and thank you for joining us today. Before we begin, I want to remind you that a slide presentation is available to accompany our remarks. To access the slides, log on to our website at www.ocwen.com; select Shareholder Relations, then Calendar of Events, then Click Here to Listen to Conference Call. Then under Conference Call, Fourth Quarter 2007 earnings, select Click Here to Listen and View Slides. Each viewer will be able to control the progression of the slides during the presentation. To move the slides ahead, please click on the gray button pointing to the right. As indicated on slide 2, our presentation may contain certain forward-looking statements that are made pursuant to the Safe Harbor provisions of the federal securities laws. These forward-looking statements may be identified by a 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 risk disclosure statement in today's earnings release, as well as the company's filings with the Securities and Exchange Commission, including Ocwen's 2006 Form 10-K. If you would like to receive our news releases, SEC filings, and other materials via e-mail, please contact Linda Ludwig at linda.ludwig@ocwen.com. As indicated on slide 3, joining me for today's presentation are Bill Erbey, Chairman and CEO of Ocwen; Ron Faris, President of Ocwen; and Bill Shepro, Senior Vice President in charge of Ocwen Recovery Group. In light of the recently announced and still pending 'Going Private' Proposal which Bill will address in his remarks, legal council has advised that we not include a question-and-answer period in this earnings call. And now, we'll turn the call over to Bill Erbey. Bill?

Thank you, Dave, and thanks to all of you for attending Ocwen's fourth quarter conference call. I would like to cover three topics in my remarks today. First, an overview of our fourth quarter earnings; second, the realignment of our business segments to position us for growth in 2008 and beyond; and third, as Dave just mentioned, my proposal together with Ocwen management and funds managed by Oaktree Capital Management and Angelo, Gordon & Co to acquire Ocwen for $7 in cash per share. During the fourth quarter of 2007 we recorded $23.6 million of unrealized losses to write down residuals at estimated market values. As a result of these unrealized losses, residuals with the caring value of $32.1 million, at September 30, 2007 are reflected on our December 31, 2007 balance sheet at $7.4 million. These write downs were largely based on projected loss assumption recently published by Standard and Poor's. SMPS projecting cumulative losses on RMBS securities, RMBS transaction for which Ocwen is the residual holder ranging from 13.9% to 21.3%. Our historical residential origination services segment, which benefited from the strong performance of our fee-based businesses, as well as the shutdown earlier this year of our former subprime loan origination operation. Slide six shows fourth quarter of 2007 revenues of $123.4 million, an increase of $9.4 million over the fourth quarter of 2006, reflecting the inclusion of NCI in our 2007 results. Excluding NCI, revenue decreased by $6 million. This decrease was primarily due to lower float income as custodial balance averaged $474 million for the fourth quarter of 2007, compared to $972 million for fourth quarter of 2006. Rise in delinquencies kept servicing fees flat, despite a 7% increase in average UPB, because servicing fees are recognized when they are collected. As shown on slide 7…

Thank you, Bill. My remarks today will cover our Residential Servicing and Residential Origination Services segment. As shown on Slide 10, the Residential Servicing segment generated $10.3 million in pretax income from continuing operations for the fourth quarter of 2007. This represents a decrease of $10.3 million or 50% from the fourth quarter 2006 income of $20.6 million. This decrease is mainly the result of an $11.4 million increase in interest expense, primarily related to increased advanced funding requirement combined with decreased revenues due to lower float income and increase in levels of delinquent service fees. Pretax income for full year 2007 was at $66 million, a $14.5 million or 18% decrease as compared to income of $80.5 million for full year 2006. So, the pretax income decreased in 2007, our income from operation increased by $14.7 million or 13.2% as compared to the 2006 results. Residential Servicing revenues were $355.1 million for 2007, a 3.3% increase over the 2006 revenues of $343.6 million. Servicing and sub-servicing fees increased by $4.3 million or 1.3%, while processed management fees increased by $5.6million, a 61.8% improvement over 2006 fees. The increase in servicing and sub-servicing fees is primarily the result of higher servicing fees due a 16.1% increase in the average balance of loan serviced. We achieved year-over-year growth in servicing and sub-servicing fees, despite a $19 million decrease in float income due to lower custodial balances and $24.9 million increase in delinquent service fees. On the expense side, operating expenses for 2007 were $229.3 million, a $3.2 million or 1.4% decrease as compared to the 2006 results. Considering the facts that the average number of loans serviced in 2007 increased by 11.4% over 2006, we are very pleased with the continued progress we've made in controlling our costs, which results in…

Thank you, Ron. My remarks today will cover two topics. First NCI's financial performance for the fourth quarter and second Ocwen's progress on its plan to improve NCI's financial performance. As you all recall NCI is primarily a continuous [recollection] and customer service company that Ocwen acquired in June 2007. NCI has been combined with Ocwen Recovery Group. As shown on Slide 20, NCI generated $16.3 million in revenue for the fourth quarter of 2007. This represents a decrease of $581,000 compared to the third quarter. It is typical for collection agencies to experience this decline in fourth quarter revenue compared to our third quarter due to the holiday season. As shown on Slide 21, NCI generated a fourth quarter 2007 pretax loss of $2.8 million. Despite the 3.5% decrease in revenue in the fourth quarter over the third quarter, this pretax loss represents a $157,000 or 5.2% improvement over NCI's third quarter 2007 pretax loss of $3 million. The fourth quarter 2007 result includes $735,000 of the amortization of intangible assets, $596,000 of depreciation, and $410,000 of internal transfer pricing and interest expense. While NCI's fourth quarter 2007 financial performance remains below our expectations, NCI demonstrated a modest improvement over the third quarter of 2007. This is attributable to the progress we have made in executing our action plan to improve performance and in realizing some of the synergies from the merger. At the same time, we have continued to perform well for our customers. We rank among the top vendors for our largest customers and strive to rank among the top third for all clients. As you will recall from our third quarter earnings call; we have identified an action plan to improve NCI's financial performance by one; appropriately staffing collectors with a current and expected volume of…

Thank you, Bill Shepro. I would like to focus on three areas; changes in our balance sheet, operating results of our corporate segment, and our effective tax rate for 2007 compared to 2006. Our balance sheet reflects higher levels of servicing advances and associated borrowing, reductions in subprime mortgage assets due to evaluation adjustments, and our acquisition of NCI along with increased investments in unconsolidated asset management vehicles. Total servicing advances were $1.42 billion at December 31, 2007. This represents an increase of $282 million compared to September 30, 2007 and $522 million compared to December 31, 2006. These increases, which have been driven by rising delinquencies and declining prepayments fees, has led to an associated increase in advanced financing. Borrowings under match funded advanced facilities and lines of credit totaled $1.34 billion at December 31st, 2007, an increase of $227 million from the third quarter and $507 million from December 31st, 2006. We have been able to increase our borrowing capacity in anticipation of these increased levels of servicing advances. Maximum borrowing under advanced financing facilities and our senior secured credit agreement totaled $1.585 billion at December 31st, 2007, compared to $1.185 billion at September 30, 2007 and $865 million at December 31st, 2006. Valuation adjustments, coupled with the concerted effort to reduce our exposure to subprime mortgage assets are reflected in our balances of loans held for resale and subordinates and residuals, which totaled $82.6 million at December 31, 2007. This represents a decrease of $33.4 million, compared to September 30, 2007 and $81.7 million, compared to December 31st, 2006. With regard to residuals, the sale of our UK residuals, along with $29 million of unrealized losses during 2007 have left us with a balance of $7.4 million at December 31st, 2007. We have also dramatically reduced our…