Onity Group Inc. (ONIT) Q3 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to the Ocwen Third Quarter Earnings Call. [Operator Instructions] Today's conference is being recoded. If you have any objections you may disconnect at this time. I would now like to introduce Mr. John Britti, Chief Financial Officer. Mr. Britti, you may begin.

Thank you operator. Good morning, everyone, and thank you for joining us today. My name is John Britti. I'm Executive Vice President and Chief Financial Officer of Ocwen Financial Corporation. 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 under Events and Presentations, you will see the date and time for Ocwen's Financial Third Quarter 2013 Earnings. Click on this link. Then when done, click on Access Event. As indicated on Slide 2, our presentation may contain certain forward-looking statements 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 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. Our presentation also contains references to normalized results and adjusted cash flow from operations, 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. For an elaboration of the factors I just discussed, 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 2012 Form 10-K and first, second and third quarter 2013 10-Qs. If you would like to receive our news releases, SEC filings and other materials, please email Linda Ludwig at linda.ludwig@ocwen.com. Joining me today for the presentation are Bill Erbey, our Chairman; and Ron Faris, President and Chief Executive Officer. Now I will turn it over to Bill Erbey. Bill?

Thank you, John. Good morning, and thank you for joining today's call. This morning, I would like to cover 4 areas in my prepared remarks. First, I will discuss our earnings; second, I will review Ocwen's quality of earnings and sustainable cash generation capability; third, I will share our thoughts on future growth, particularly in adjacent markets; and finally, I will describe our stock repurchase program. After my comments, Ron will provide an update on our operations including the acquisition, integration and cost reduction plans. And finally, John will provide additional detail on our liquidity position and third quarter normalized results. Slide 4 shows highlights of our third quarter earnings. We had record revenues despite having little benefit from the OneWest transaction. This quarter's earnings, however, were not as strong as we would've liked, primarily due to, one, an unanticipated delay in the closing of our OneWest transaction that created a shortfall versus our expectations. The good news is that our existing servicing portfolio is generating revenues in excess of our expectations. Two, costs well above our historical, as well as our long-term goals, as we are taking a cautious approach to transitioning the ResCap loans to the real servicing platform. Given the current environment, we retained redundant staffing on both servicing platforms in order that the transfer went smoothly. Additionally, we were fully staffed for the OneWest transaction months before the transfers occurred -- or are occurring. And three, to a lesser extent, underperformance in lending. With respect to the delays in revenues, that is largely resolved now that most of the remaining OneWest loans will transfer tomorrow. To put the delay in perspective, note that OneWest when fully boarded would generate about $75 million in quarterly revenue. The portion that did not board would've contributed about 2/3 of that amount or $50 million. Regarding costs, we've lots of work to do, but we have plans in place to get us where we need to be. Once ResCap and OneWest are boarded on real servicing, we expect to return to our historical margins. And as Ron will discuss later, we still believe that there is reasonable upside in our lending earnings in upcoming quarters. Most importantly, we do not expect these short-term issues to impact our stabilized returns or longer-term cash generation capability. As noted on Slide 4, we saw a meaningful decline in prepayment rates across our portfolio in the third quarter compared to the second quarter. These slower prepayments bode well for long-term servicing earnings and cash flow. The left-hand bar on Slide 5 shows the baseline forecast of free cash flow we expect to generate over the next 10 years, with no additional growth in our portfolio. Our baseline assumptions for prepayment rates assume the lower interest rates that existed at the time we priced the deals. So baseline average prepayments are at 16.7%. Delinquency reduction expectations are based on assumptions for low economic growth and a weak housing market comparable to what we experienced from 2010 through 2012. Even under these assumptions, we believe our portfolio can produce approximately $8.4 billion in free cash flow over the next 10 years. Note that this 10-year cash flow forecast does not capture the long tail of cash flow generation, as we still expect to be generating $300 million of cash flow in the 10th year. Again, this baseline forecast assumes 0 new acquisitions and simply a 5% return on reinvested cash. The middle bar on Slide 5 shows cash flow in a scenario where economic recovery drives down delinquencies by 50% by the end of 2014. In this scenario, we also assume both lower default-driven prepayments and higher market interest rates that combine to reduce CPR by 50%. This is starting to look more like a potential baseline scenario for the future. The impact of these changes would increase 10-year cash flow, largely from higher earnings, by 27% to $10.7 billion. And finally, assuming we could reinvest cash at a 15% return, which is still below the returns we've been able to generate in the last 3 years, cash flow generation jumps by another 25% to $13.4 billion, with more than $900 million of cash flow generated in year 10, suggesting a far more significant tail. Going back to current cash generation, Slide 6 shows our adjusted cash flow from operations. Because we sold most of Ocwen's advances at the beginning of the quarter to HLSS, adjusted operating cash flow is down from the prior quarters. On the other hand, we accelerated cash flow through the sale to enable us to close new business without adding equity. As you can see, Ocwen continues to generate cash flow substantially in excess of earnings, which demonstrates the high quality of our earnings. Many of our peers in the mortgage industry generate cash flows often negative, that trail rather than lead earnings. And as we have said many times, we believe our conservative accounting policies account for much of this difference. Slide 7 of our presentation details some of the specific accounting differences between Ocwen and its peers. First, with the exception of a small percentage, Ocwen carries its MSRs at lower of cost or market, or LOCOM, rather than at fair market value. As a result, Ocwen will never show an earnings write-up on about 95% of the owned MSR portfolio. Instead, we amortize these MSRs. Actually, we've been amortizing our nonprime MSRs at a rate of 18%, which is well above actual CPRs of 12% to 15%, creating excess value not shown in our earnings or on our balance sheet. Note that fair value accounting can also generate large changes in value simply by changing the model assumptions used for valuation. For example, if we had lowered the discount rate by 2.5% and loss assumptions by 7% on our credit-sensitive portfolio, we would've generated over $100 million of additional earnings in the third quarter, had we been on fair market accounting and made such adjustments to a valuation model. Second, Ocwen only recognizes servicing fees as collected rather than accruing delinquent servicing fees. At the end of the second quarter of 2013, Ocwen had over $500 million in delinquent servicing fees that, unlike many other servicers, have not been recognized as revenue and, therefore, are not on our balance sheet. Third, with respect to acquired advances, we believe our accounting policies are conservative in that they do not pull earnings forward. For example, when we purchase advances at a discount, say at 95% of face value, we do not book the discount into earnings as those advances are collected and then put new advances on the books at 100% of face value. Rather to the extent we acquire advances at a discount, we amortize the earnings over the life of the MSRs. For all of these reasons, our actual cash flow has consistently exceeded earnings. And over time, deferred earnings should appear as net income. Moreover, Ocwen's debt-to-equity level is overstated relative to peers that mark MSRs to market, record deferred servicing fees and recognize advance recoveries. I'll discuss more on this later regarding our corporate leverage. Now let's turn to our current outlook on growth. We continue to see a sizable pipeline of potential opportunities with a near-term pipeline of about $400 billion. We expect resolution on at least 25% of this pipeline by year-end. Note that the actual volume of deals we are pursuing is much larger. Also, note that many deals that we have won never made it into our quarterly pipeline estimate because they evolved very rapidly. Moreover, we continue to believe the overall size of the opportunity is at least $1 trillion over the next 2 to 3 years, including both large and small transactions. We continue to see strong indications that large and regional banks are accelerating plans to reposition their mortgage servicing portfolios, shed legacy assets, and sell off or subservice noncore servicing assets. Also, as we have seen in the past, smaller subscale specialty servicers may view a sale and exit as their highest return alternative, especially given the implementation of new servicing rules by the CFPB starting in 2014, which will likely increase fixed costs for many smaller servicers. On previous calls, we've covered in more detail how an improving economy and the reemergence of a private mortgage market would generate additional potential long-term growth. While this remains true in our view, on this call instead, I would like to discuss opportunities for Ocwen in adjacent lending markets. For obvious reasons, I cannot provide specifics about the handful of industries we're evaluating. I can say that we're focused on financial services, where we believe we can create a competitive advantage through the application of our core strengths, including innovative use of technology, low-cost operations and development of efficient funding vehicles that involve limited prepayment and interest rate risk. We've been actively evaluating investments for over a year and have elected not to pursue some interesting opportunities because we did not believe that they -- we could achieve our hurdle rate of return on investment due to price or other factors. We will continue to be measured in our approach, but we would expect to make an announcement in the next 12 to 14 months. Discussing returns on equity provides a good segue to my last topic on Ocwen's plans to more efficiently manage our balance sheet and generate higher returns on equity. As you can see on Slide 8, we have been increasing our returns on equity since the end of 2011. Our ability to continue to grow assets and earnings capacity without substantial dilution to our shareholders is an important component of how we create shareholder value. We have closed 3 very large transactions in a period of less than 12 months, and yet we have only issued a small amount of new equity as part of the Homeward purchase because the seller wanted to invest with us, not because we needed additional equity. Our balance sheet strength and relatively low leverage, combined with our substantial cash flow, means that we can both fund substantial growth and repurchase stock to maximize returns on equity. As we have mentioned previously, Ocwen is substantially under-levered, as shown on Slide 9. As you can see on the chart, our debt to tangible net worth is far below our public peers. Note however, that for accounting reasons I previously discussed, our tangible net worth is understated. If we adjust our net worth to account for just 2 things, the fair value of our MSRs and for deferred servicing fees, the GAAP and leverage becomes even more substantial. In addition, our stronger cash flow provides greater interest coverage ratios as well. To provide a picture of how our conservative accounting policies overstate our actual leverage, let me refer you to Slide 10. As of September 30, 2013, the book value of our MSRs was about $1.8 billion. If we were to mark our MSRs to market, as our peers do, the carrying value of our MSR is based on third-party broker marks, would increase by $685 million. This would all show up as earnings and increased equity on our balance sheet. By the way, this market valuation also understates the value to Ocwen, as the fair market value is estimated using average industry cost to service that are more than 3x higher than Ocwen's cost on nonperforming loans. If we were to use our actual servicing cost, ignoring our resolution performance advantage, our MSR value would be another $863 million higher. Note that we did not use this last adjustment for analysis on the prior slide. Nevertheless, there was almost $1.5 billion of value not currently being reflected in the book value of our MSRs. This excess value not only provides additional opportunity for leverage, but also provides potential access to additional cash through asset sales that increase overall returns to Ocwen's shareholders. Ocwen has already generated almost $2 billion of investment capital from sales of advances and rights to nonprime MSRs to HLSS. We have also been making progress on our strategy to lay off the risk and reduce the cost associated with funding prime MSRs, where most of the excess value resides. We recently completed the sale of $2.5 billion in prime MSRs, while taking back a subservicing contract. This transaction generated total net proceeds of $35 million and a gain on sale profit of $5.2 million, excluding the benefit of the subservicing agreement. This gain on sale earnings will be deferred over the estimated life of the subservicing agreements or just under 9 years. Ocwen continues to make progress on its structure that we believe will provide them even more efficient mechanism to distribute prime IR risk in selling the MSRs and keeping the subservicing. We hope to have more to announce before year end. In any case, when we fully monetize the prime MSR portfolio, it will add significantly to our potential liquidity and substantially lower our prepayment exposure. For all these reasons, we believe Ocwen has substantial access to liquidity that we can use to fund growth and increase value to shareholders. We intend to deploy excess liquidity in the following order of priority: first, to support the growth of our core servicing business; second, to expand into adjacent or complementary businesses that meet our return on capital requirements and where we can develop a competitive advantage utilizing our core strengths; and third, repurchase shares. With regard to share repurchases, we are pleased that the Board of Directors has authorized a $500 million stock repurchase program. This program may be amended at any time and may utilize both market and privately negotiated transactions. The $500 million does not include repurchase of any stock issued as a result of conversion of our Series A perpetual convertible preferred stock. As previously announced in late September, we completed the purchase of over 3 million shares of converted preferred shares at a price of $50.19. We view this repurchase agreement as consistent with our overall approach to optimize capital management. It reduced future preferred stock dividend payments and bought back stock at a level we deem advantageous to shareholders. I'll now turn the call over to Ron to talk more about our commitment to quality service, operational and segment level performance and cost management initiatives. Ron?

Thank you, Bill. This morning, I will cover 4 topics in my prepared remarks. First, I will discuss our success in generating sensible home retention and loss mitigation solutions. Second, I will give a quick regulatory update. Third, I will provide an update on our recent integration efforts and implementations for our transition expense and overall cost structure. And finally, I will cover our servicing and origination operations before turning the call over to John Britti. Let me begin by restating that we take our business very seriously because we know that our success as a company is not just measured in dollars collected for mortgage investors, but also by the number of families we helped stay in their homes through difficult times. We know that doing a better job can have a significant impact on the lives of the families we serve. In this regard, we are extremely proud of Ocwen's success in providing non-foreclosure options to distressed homeowners. Slide 11 shows the growth over time in our modifications, especially over the past 15 months. So far in 2013 alone, Ocwen has helped over 84,000 families receive sensible modifications, providing an opportunity to stabilize their lives and keep their homes. Since 2009, the number is over 370,000 families. Ocwen has also been successful in driving other non-foreclosure resolutions, especially short sales. So far this year, Ocwen has facilitated almost 22,000 short sales. Short sales are generally a much better outcome than foreclosure for borrowers that cannot afford or don't want a modification. And Ocwen is working on programs that we believe will generate even more short sales in appropriate circumstances. In early October, Moody's published a study where it tracked over 1 million loans that were delinquent in December 2008 through July 2013. Their analysis found Ocwen's performance to be the best in class. The results speak for themselves. Ocwen consistently achieved more modifications than its peers with lower rates of re-default. Our success is rooted in several factors. We have a rich history of utilizing technology, along with innovations in mortgage servicing. Ocwen was the first company to introduce statistical models to improve loss mitigation, and we have led the market in the adoption of psychological principles to facilitate our interactions with borrowers. We know that we cannot help every borrower in every situation with a modification, but we want to try in every case that it makes sense. Even in situations where a modification is not an option, Ocwen has enhanced its programs of assisted short sales and cash for relocation assistance to ease the transition for those families that simply cannot afford to stay in their existing home. Such programs are also extremely cost-effective for mortgage investors, as they ultimately lower losses. Moving on to the regulatory front. Earlier this month, the CFPB provided guidance to mortgage servicers for implementing new rules announced earlier this year and scheduled to take effect in 2014. As we have stated before, we support efforts by the CFPB and other state and federal regulatory agencies to support -- to provide more clarity with regard to mortgage servicing and origination rules and requirements. Greater clarity reduces risk for the industry and allows us to plan appropriately for any necessary changes. Ocwen is well positioned to comply with all the new requirements. In most cases, we have already been following similar rules under subservicing or purchase agreements related to settlements by the large banks. More broadly, these new procedures should level the playing field across the servicing industry, as smaller servicers will now need to meet the same requirements as larger servicers such as Ocwen. With regard to the settlement we disclosed earlier this year, in the second quarter of 2013, we established a reserve, which we believe covers Ocwen's exposure for a probable settlement with state and federal agencies. At this time, we have no additional information to provide. We remain in discussions and will provide more details at the appropriate time. Next, let me update you on our recent transaction activity. In the second quarter, we announced our acquisition of OneWest servicing portfolio. Approximately $30 billion of the agency loans closed and transferred in August and September. The non-agency portfolio was delayed, as the consent process took longer than usual. About 80% of the approximately $42 billion of largely non-agency loans will transfer tomorrow, as Bill mentioned. The remainder will likely transfer by year end. Also, as we announced in the second quarter, we signed an agreement with GreenPoint to acquire their $8.3 billion servicing portfolio. We currently expect to close this transaction in stages over the next few months. The majority of that portfolio is also private-label or non-agency. Throughout the quarter, we boarded an additional $5 billion of subprime loans from a large bank under a subservicing agreement. We expect to continue to see a flow of high-risk subservicing or nonperforming loan special servicing from large banks, and we believe that the use of specialty servicers will become the norm for the mortgage market in the future, as large banks have come to recognize that they can achieve lower cost and superior outcomes outsourcing nonperforming loans to a specialists with strong operations, efficient scale and flexible capacity. Moving on to our integration of recent acquisitions. As we said last quarter, our Homeward integration was complete in the second quarter, and we are now focused on improving delinquencies on that portfolio. With regard to the ResCap portfolio integration, the transition to the Ocwen platform began in the third quarter, with the transfer of most of the private-label securities loans. Through the end of the quarter, we transitioned 22% of the ResCap portfolio, the non-agency portfolio represents about 1/3 of the delinquent loans, which will accelerate our ability to apply Ocwen's superior loss mitigation to the loans that most need it. We plan to transfer the remaining loans to our platform in stages, stretching into the second quarter of next year. Integration costs have been somewhat higher than expected, as we have been careful to assure excellent customer service and strong compliance throughout the transfer process. ResCap integration costs are likely to continue at a high level through the end of the year and then taper in Q1 and Q2 of next year. We also anticipate incurring a contract breakage expense when we finally exit the ResCap servicing platform of about $19 million. Nevertheless, we expect the long-term returns on the acquisition to be better than originally modeled as revenues are trending ahead of expectations. To put the ResCap transition cost in perspective with past platform acquisitions, note that our transition-related cost for the much smaller HomEq and Litton platforms were ultimately $45 million to $55 million each. The transition off the ResCap platform is larger and longer than these other transactions, and we built these expectations into our pricing of the deal. The normalization of transition costs represents various transfer-related expenses including our best estimate of known redundancies and excess expenses we have specific plans to eliminate, once we are servicing all the assets on a single platform. The normalization does not account for broader programs or projects we have underway to improve productivity on our existing platform. Over the past 2 years, many of our productivity gains through improvements in processes and technology have been offset by increasing regulatory burdens. Moreover, our rapid growth has not given us time to consolidate some of our gains and scale. Once we have consolidated onto a single platform, we are confident that we can make further productivity gains and overhead cost reductions. We also believe that several technology projects that have been delayed in support of integration efforts should come online that will reduce further our already industry-leading unit cost. With regard to our unit costs, let me remind listeners that Ocwen's platform has substantial cost advantages over the rest of the market. As we have shown in the past, our cost of servicing a delinquent nonprime loan is 70% lower than the industry average for nonperforming loans. This operating cost advantage is even greater when we take into account our superior performance. This is because the cost of a performing loan is substantially lower than a nonperforming loan, so our higher cure rates lead to even lower costs. Speaking of higher cure rates, let's move on to discuss operating performance, starting with loss mitigation in the third quarter. Ocwen's overall 90-plus delinquency rate at September 30, 2013, was 14.6%, representing a 0.2 percentage point increase in delinquencies compared to June 30, 2013. As I will discuss in a moment, portfolios owned at the start of the quarter all improved during the quarter. The increase in delinquency overall in the quarter was driven by mix changes, as loans boarded had higher delinquency rates and loans that deboarded had lower delinquency rates. As shown on Slide 12, our trend for delinquencies on recently acquired portfolios continues to improve in line with prior experience. After a 3-percentage-point improvement in nonperforming loans for the Homeward portfolio in the second quarter, we were able to achieve a further 1.3 percentage point improvement in delinquent loans in the third quarter. Indeed, all portfolios recorded improvements ranging from 0.2 percentage points for older portfolios to 1.4 percentage points for the Chase portfolio. Total modifications for the quarter were 32,051 across all portfolios, representing a 14% increase over last quarter. This is also a quarterly record for Ocwen. HAMP modifications were nearly half of the total, which bodes well for future revenue. In the quarter, 48% of the modifications completed included some principle reduction, with about 1/4 of those modifications being our proprietary shared appreciation modification. Constant prepayment rate, or CPR, dropped 5 percentage points across all loan types, averaging 15.8% in the third quarter as compared to 20.8% in the second quarter. The CPR on nonprime loans averaged 13.1% for the third quarter, which is down from 13.4% in the second quarter. Slide 13 shows nonprime CPR trend, including a CPR breakdown between voluntary, nonvoluntary and regular amortization. Prime loan CPR fell most dramatically to 18% in the third quarter from 26.1% in the second quarter. Slide 14 shows prime CPR broken into its components. Moving on to originations, the highlights are on Slide 15. Let's start with our forward lending operations. Our Homeward forward lending business funded $1.4 billion of loans in the third quarter of 2013, which is off from last quarter's $1.5 billion as the rate environment slowed our correspondent lending production. Nevertheless, our originations overall outperformed in a market that was off almost 30% over the same period. Lock volume for our own direct lending channel grew substantially quarter-over-quarter. This is a direct result of increased volume in HARP and FHA/VA streamlined refinances. Overall, pretax profitability of our forward lending operations was $8.9 million in the third quarter, which is up from last quarter's forward pretax profitability of $5.8 million. This increase was a function of a larger mix of overall volume in higher-margin HARP refinance volume. Our Liberty reverse mortgage subsidiary maintained its position as the top reverse mortgage lender year-to-date, with a 17% market share through September. The reverse lending business has changed substantially in the past few months, so I will spend a little bit of time describing the impact of recent changes. Effective April 1, HUD placed a moratorium on their fixed rate standard product. That product had been about 80% of the market. With the moratorium and higher rates, demand shifted to their variable rate LIBOR-based product. That product now represents about 90% of new production. The new product has a lower average loan-to-value ratio of about 43% compared to 49% on the fixed rate standard product. The lower LTV has lowered average loan balances and reduced gains on sale as fixed products tended to trade at a higher premium. As a result, overall, Liberty is generating a negative pretax income of about $1 million per month. This product, however, should generate higher future draws than the fixed rate product, which means the product has embedded future income streams that more than make up for the loss on origination. For originations in the third quarter, we estimate that the future cash flows, net of expenses, will be approximately $7.8 million. These cash flows should largely come in the first 3 to 4 years. Year-to-date, we estimate pretax income deferred to be about $13.7 million. As we have said in the past, we view this as a long-term investment, and the changes in the reverse program put it on a sounder footing. So we view the HUD changes as generally positive. Overall, we expect our lending segment to contribute about $18 million to $22 million to pretax income in the fourth quarter, assuming no change in interest rates. The forward lending business and increased recapture volume drive this expected increase. Now I would like to turn the call over to John Britti. John?

Thank you, Ron. Today on the call, I will cover 2 areas. First, I'll review our normalized results and quarter-to-date changes in more detail; second, I will discuss our funding and liquidity position at the end of the quarter. First, let's start with a more detailed review of our normalized results on Slide 16. Normalized pretax earnings for the third quarter of 2013 were $147 million, an 82% increase over the third quarter of 2012. Ron discussed earlier the largest normalizing item, that is $48 million in transition-related operating expenses. We've broken out separate from these transition-related expenses the component related to the July 1 HLSS transaction. This expense is comprised of 3 main parts: acceleration of expenses as a result of shutting down advance facilities; recognition of losses associated with hedges against the advance facilities; and incremental interest expense incurred in advance of closing OneWest. This last component is about $7.9 million of the total $17.9 million. The next item is a $5.1 million legal reserve for settlement of a few outstanding issues. The final normalizing item is a small adjustment for the loans that moved to Quicken in August related to the previously announced Ally transaction. When comparing most recent normalized earnings with second quarter 2013 results, it's worth noting 4 components that we do not normalize for and may have differed versus expectations. First, is the impact of the relatively small fair value MSR we have on our books. This $7.9 billion portfolio generated a gain of $12.6 million in the second quarter versus a loss in the third quarter of about $200,000. The second component is related to Ginnie Mae servicing. While there was no major change in the Ginnie Mae portfolio in the quarter, timing differences in claim filings and gain on sale of modifications generated an $8.5 million quarter-to-quarter incremental loss. These 2 items, together, thus generated a negative swing in earnings to approximately $21 million. As noted earlier, origination earnings were also down by over $4 million, largely as a result of our reverse mortgage business. Lastly, as discussed earlier also, OneWest was delayed. Had that deal fully boarded in the middle of the quarter and the above components remained flat, we estimate normalized earnings would've been between $185 million and $190 million. On Slide 17, we provide more detail related to Ginnie Mae Servicing. The revenue difference was generated by a $10.8 million change in gain on sale related to Ginnie Mae modifications. Ginnie Mae loans that are modified must be purchased out of the Ginnie Mae pool and then can be redelivered once the loan is reperforming. The timing for these modifications and margins at redelivery to Ginnie Mae fluctuate somewhat quarter-to-quarter, though such loans that generally a net positive for income, especially compared to loans that get a claim. On the other hand, loans that do go to claim generate substantial additional expense in the period when the claim is filed. Again, these flows tend to fluctuate somewhat quarter-to-quarter. The change in Ginnie Mae expense increased earnings quarter-over-quarter by $2.3 million, resulting in a net difference that I mentioned earlier of $8.5 million. Also note that we have reclassified these Ginnie Mae items from other income and other expense categories to gain on sale for revenue and servicing and origination expenses for the expense. See our 10-Q, which we expect to file on Monday, for more details. With respect to our UPB for the quarter, let me help you reconcile the ending balance of $434.8 billion. The big moving parts were the OneWest boarding of about $30 billion of new UPB, another $5 billion in subservicing from a large bank, lending altogether accounted for about $1.7 billion. Quicken completed boarding of their portion of the Ally portfolio, leading to a loss of approximately $20 billion in servicing that we will continue to subservice some loans on their behalf. Runoff accounted for most of the remainder, though there were some other small transfers. With regard to specific financing transactions completed in the quarter, the largest is on July 1, we sold $2.4 billion of servicing advances and the rights to receive the servicing fees on UPB of approximately $83.3 billion to HLSS. Ocwen's net proceeds were $662 million. On October 25, Ocwen sold rights to receive servicing on another $10 billion of UPB for proceeds of $309.4 million. The increase in proceeds relative to UPB sold is primarily because the advances sold in October had a much lower match funding efficiency rate. Through the third quarter of 2013, we have sold over $192.5 billion of UPB for rights to mortgage servicing rights to HLSS and about $3.5 billion in advances, freeing up capital to continue to grow without issuing new common equity. This has proven to be efficient funding for Ocwen. In the third quarter of 2013, interest expense pertaining to HLSS was $74.2 million. After considering the advance financing costs that Ocwen would've borne, absent the asset sale to HLSS, the net increase to Ocwen's interest expense is $30.1 million, which represents a cost of capital of approximately 6.2%, taking into account acceleration of deferred tax assets. We expect to continue to look for opportunity to sell servicing rights in situations where it makes sense for Ocwen shareholders. Turning to liquidity. Ocwen entered the quarter with $357 million in cash on the balance sheet, which is down from $440 million at the end of the second quarter. Ocwen ended the quarter fully borrowed against advance line in anticipation of further closings. As Bill discussed, our balance sheet is extremely strong, with significant flexibility and ample access to multiple sources of capital. As a result, we believe we have substantial funding capacity for new business at Ocwen. We expect that through a combination of asset sales and debt financing, Ocwen can deploy up to $6 billion in new capital to fund acquisitions without diluting existing shareholders. To summarize some key points we've made. First, delays in closing OneWest resulted in lower revenue than we expected, but we are largely back on track as of November 1. Moreover, lower prepayments should generally improve long-term revenue, relative to original expectations. Second, we have work to do on the cost side, but we have very specific action plans to return to the levels that we have achieved historically. And we have a solid track record of delivering on cost. Third, we have a strong pipeline of opportunities including several near-term opportunities and longer-term growth potential in adjacent markets. Finally, our strong balance sheet positions us to fund this growth and return cash to shareholders through a stock repurchase program.

Thank you. I'll now open it up for questions. Operator?

[Operator Instructions] Our first question comes from Ryan Zacharia of JAM.

I just want to understand a little bit more about the OneWest boarding timing difference? Because the Altisource presentation from Q2, which came out before your Q2 call, said that boarding would be in the back half of 2013, and then the first half of 2014. So it just didn't feel -- like in my model, I had expected a de minimis amount of OneWest coming on this quarter. So what am I missing?

Ryan, I can't really comment totally on Altisource, but we actually didn't refer to OneWest boarding, to the best of my knowledge. We made comments about the amount of product that would boarded over the remaining part of this year and next year, which I think included both OneWest as well as ResCap.

Right, I think OneWest was explicitly laid out as being boarded.

No, Ryan, I think that's wrong. I think they didn't -- we explicitly did not...

I'm talking about the Q2 presentation, not the Q3 presentation.

Oh, I don't recall, Ryan. I'm sorry.

So I guess from my vantage point, it seemed like this was expected. So I just didn't understand -- at least in my model didn't explain the revenue shortfall, which was just kind of a revenue yield issue as opposed to an average UPB issue. But I guess, from your vantage point, you always expected boarding OneWest in kind of Q3? And to a lesser extent, in Q4?

Yes, I mean our original -- the GSE component of the portfolio, which boarded in mid-August and September, boarded basically with our original expectations. The private-label component, which is a substantial portion and which is where the bigger revenue numbers are, we did expect to board in the third quarter. And it has, as we mentioned in our prepared remarks, been delayed. But we are now back on track starting tomorrow.

Okay. And then just finally on the pipeline. Are you guys at all surprised, internally, that more hadn't traded over the last kind of 3 months or so?

Not really. Because of just the magnitude of the transfers that have occurred across the whole industry, I think the sellers are very cognizant of what's available -- what impact putting large amounts of additional products through the system would cause. So I think they're very judicious as to how they basically deliver that product into the market.

Our next question comes from Steven Eisman of Emrys Partners.

Could we just talk a little bit more about the environment? You had a nice pipeline but not a lot of actual transactions have taken place this year for you or really for anybody, other than some stuff that took place in January and the OneWest. What's taking -- what's the delay, you think, in terms of banks actually pulling the trigger?

Well, I think it's the season. This is Bill. It differs from bank to bank. But I think the overall is the people in the industry understand the tremendous amount of movement and transition that has occurred. And I do believe they feel that they will get better execution as they parse this out. Now you have a number of publicly announced transactions in the market here on the fourth quarter. So I mean, it's not that there's not a lot coming behind it. I think it's just really one of spacing in terms of recognizing the best value.

Our next question comes from Henry Coffey of Sterne Agee. Henry J. Coffey - Sterne Agee & Leach Inc., Research Division: The $100 billion that you're sort of looking at as transactions that should close, obviously, not necessarily to Ocwen, can you give us some sense on what those transactions are all about? And where you see yourself in terms of winning potential business?

Henry, I appreciate the question, although I think I'm going to have to give you the same answer I think we've given in past quarters to similar questions, which is we are not at liberty to discuss in detail what -- deals in the pipeline generally because we're under NDAs, but also for competitive reasons. So I wish I could give you more information but I think we'll use discretion. Henry J. Coffey - Sterne Agee & Leach Inc., Research Division: Two other questions. Obviously, you've got the $500 million buyback number out there now. There are different philosophies on that. Some people look at it kind of from a value point of view, which is you'll buy back stock when it's cheap. Other people treat that as just a dividend and then just buy back stock with a reasonable amount of prudence but really do look at it as a return of capital measure. Can you give us some sense of your own philosophy and likely timing of additional share acquisition?

Certainly, Henry. It looked a lot like how Altisource behaves in the market. We tend to buy more shares back on a daily basis when the stock is lower and fewer when the stock is higher. And we will try to maintain some sort of balance with our earnings. As John Britti said, we have about $6 billion of capacity to make investments. To the extent that we diminish our tangible net worth, it will cut away additional dollars of leverage that we may not otherwise have. So we'll try to basically balance it in terms of earnings. The biggest problem we have is because our earnings are so -- accounting is so conservative, we actually generate more cash flow than we generate in earnings. So we have to be a little bit careful that we don't be conservative in accounting and then deteriorate our net worth so we would lose our dry powder to grow the business. But... Henry J. Coffey - Sterne Agee & Leach Inc., Research Division: What I mean is this. Are we going to see buybacks next year? Or do you think this is something that you will hold out into the long-term future?

Buybacks next year, I would -- we have a program starting this year. Henry J. Coffey - Sterne Agee & Leach Inc., Research Division: And do you think you'll start it this year, is I guess the way I would ask the question then?

Yes.

Our next question comes from Mike Grondahl of Piper.

The first 2 are on margins. Once you get everything boarded and begin to wring out a little bit of the cost, what do you think those medium to longer-term operating margins look like? And then secondly, when this OneWest revenue gets layered in from the $42 billion, it looks like the incremental margin on that revenue is going to be 80% to 90%. Will you just -- am I directionally right there? How do I think about that incremental margin when that revenue hits?

Mike, I think your calculation of the incremental margin is off. I think you probably would end up with the range closer to 60% if you compare it to what I -- the numbers we came up with. But I think the other thing we'd say is we don't give guidance on future margins. We do say that, I think, historical margins are a good guide. The biggest thing that is difficult for us sometimes to -- or certainly to forecast out further is our mix of business, which does substantially affect our overall margin. So our historical margins are based on our historical mix of business. To the extent that our mix shifted, the margins would change, but the returns on equity would still remain high or maybe even higher. So for example, subservicing tends to have somewhat lower margins but much higher returns on equity. So if our mix of business shifted in that direction, that would be the impact.

Okay. And then just kind of a follow-up question. On the environment out there, you guys clearly have the lowest cost platform, which really means you can probably bid the highest. What do you think sellers are looking for besides price? And if you lost this $100 billion, why do you think you'd lose it?

I think, Mike, our competitive -- we have a substantial competitive advantage on highly -- on non-agency product, and also particularly those which are nonperforming. And the closer that you get to agency product, given our current less than -- we don't like to take as much prepayment risk as others might be willing to take, so we would tend to be less competitive on performing products than others might be. Obviously, that's one reason we're trying to get the -- whatever we want to call it here -- HLSS prime into the market, because then it would certainly more than level the playing field against other players in the prime and performing space. But that's -- we should not lose highly delinquent non-agency product simply because if our margins are say 58%, like they've been historically, and we're -- our costs are 1/3 of everyone else, that math doesn't work too well if you outbid us on that product.

Okay. And then on the $100 billion, I know you guys won't give details, but can you comment just -- I assume it's highly delinquent GSE or non-GSE papers. Can you just -- is it in your sweet spot of what you want?

Mike, I think we want to refrain from giving any details around our pipeline for reasons I cited earlier, as much as I understand the desire for us to give more detail. One thing I'd say is it is a mix of business, and it does include a substantial portion of non-agency.

Okay. And then last question, guys. The cash flow of $143 million, do I need to add back the $70 million of onetime expenses to that number?

If you were trying to get a run rate, yes, I think that would be appropriate.

Yes.

Our next question comes from Kevin Barker of Compass Point. Kevin Barker - Compass Point Research & Trading, LLC, Research Division: I have a quick question about the $2.5 billion of servicing that you sold for $35 million proceeds and you retained the subservicing related to those servicing assets. Could you help us explain the type of counterparty? Was it someone that was looking to hedge a portfolio or was it an investor in those MSRs?

It was a -- I would call them largely an investor in MSRs, but an investor that also has some servicing capabilities. But in this case, we are retaining the actual servicing as a subservicer. So I would categorize it as mainly an investment for the buyer. Kevin Barker - Compass Point Research & Trading, LLC, Research Division: Okay, and then considering that you were looking to create HLSS prime to do a similar type transaction, is that off the table now or how are you thinking about that?

No, I mean, of our overall agency portfolio, this was a relatively small sale. We thought that it was -- there was an opportunity in the market to test the market on a small scale, see what kind of execution was out there. I think the execution was as good or maybe even better than we had expected. As Bill mentioned, the -- our own, sort of, created vehicle is not yet fully there. And so I think the good news is if -- even though we are very confident that we're going to get that new vehicle off the ground, if it gets delayed further or whatever, it looks like there's still the ability to do almost similar type transactions in the market with other investors. Kevin Barker - Compass Point Research & Trading, LLC, Research Division: What would be the biggest impediment to actually having -- getting a vehicle off the ground right now, as you see it?

We'd prefer not to comment on that, because I think it will give a view as to what we're doing and we would like to at least have first mover advantage with regard to that. I still have to say the product that we sold was not the most profitable product we could have sold. In other words, it didn't have the highest potential gain for us, given our basis within the -- it had higher basis than most of our product. Kevin Barker - Compass Point Research & Trading, LLC, Research Division: So it's safe to say that was a legacy MSR, not newly created?

Well, no, it's just the other way around. If you look at the ResCap acquisition, those were extremely attractive multiples of MSR. It's like, I believe, John or Ron, you correct me, I think it was like 2.

Yes, in that range on the Ally. Kevin Barker - Compass Point Research & Trading, LLC, Research Division: Okay, and then back to the comment you made where you have $6 billion of capacity to make acquisitions. Could you walk through some of the components of that $6 billion outside of purely leverage? Are there certain -- you have servicing advances currently on your balance sheet that are not being financed. Are there some other aspects or different components of that $6 billion that you could walk us through?

I think that this -- maybe I misunderstand your question, so please ask it again if I did. I think the $6 billion represents, as we mentioned, an analysis of what we think we could deploy in incremental capital based on utilizing our current debt capacity, as well as potentially selling additional assets. So I think it's a combination of the 2 that gets us to the $6 billion. But maybe I'm not sure if that's responsive.

Right. You have about 2 -- in addition to the cash we have on the balance sheet, we have over $2 billion of assets we could sell. And then if we were just to lever at the same leverage ratio as the other players in the industry, we could generate another $3.8 billion of debt capacity.

Yes, actually, it would be -- it would actually indicate -- add a leverage ratio that will be below our peers, a little below our peers.

Right, right, right. You're correct. Yes, you're right, John, I'm sorry. Kevin Barker - Compass Point Research & Trading, LLC, Research Division: Would you ever be interested in reaching a leverage ratio close to your peers?

This was actually a little bit lower debt-to-equity ratio. It's a debt-to-equity ratio of -- what is it? It's 1:1 here, 1:1 debt equity ratio. Our peers are much higher than that. Kevin Barker - Compass Point Research & Trading, LLC, Research Division: Would you ever consider getting to that level or no?

Not at this time. It's $6 billion we have to invest, it will take us a while. We're not going to -- we've been through cycles for 25, 30 years. We are really not looking at extending the balance sheet to that extent.

Our next question comes from Bose George of KBW. Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: Actually, first, what's the average servicing fee on the $42 billion of non-agency from OneWest that you're putting on? And on the GreenPoint?

I think the contractual fee we've talked about is in the low 30s. Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: The -- and that's for both those portfolios?

No, no. I -- you said the $42 billion, which is the non-agency piece. It's in the low 30s. The actual revenues, as you've probably seen in prior PLS transactions, will be higher. Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: And so is it similar for that GreenPoint portfolio, as well?

Actually, I don't know offhand that number. Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. And then actually switching to the prime MSR. What is the size of your prime MSR that could be monetized or funded through HLSS prime?

Well, I think maybe a better way to think about it would be maybe in terms of the excess. I actually don't have the number immediately of the proportion of our MSRs in dollar-valued MSR. I think the...

Most of it now is prime MSR, with our sales to HLSS, right? Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: Okay. So the bulk of that is, basically, monetizable.

Right. If you look at the -- our UPB -- I'm sorry [indiscernible] Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: In terms of [indiscernible] when we think about monetize -- liquidize -- monetizing that and using that potentially for share repurchases. Should we think of that as an accretive transaction?

Say that again, Bose, I apologize. Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: If some of that cash goes towards share repurchase, I mean, would you see that as a good transaction to monetize that and use some of that for share repurchase?

Well we have more than enough. Yes, we have -- you mean to borrow that to use -- to buy share repurchase? We have just... Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: No, actually, I mean to monetize the MSR, and if some of that cash goes towards share repurchase?

Yes.

And Bose, just -- while I don't have the MSR value differential, I mean, it does represent more than half of our UPB. Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: Okay, great. And then just switching to prepayments, on the prime side, just the market, as a whole, clearly has slowed. So the 18% CPR you guys had on prime in the quarter, I'm assuming you look for that to come down a few points in the fourth quarter?

Do you know where interest rates are going in the fourth quarter, Bose? Bose T. George - Keefe, Bruyette, & Woods, Inc., Research Division: Assuming just based on what's happened in the last month that...

I think what I would say is, if interest rates stayed flat, given that it declined in each month during the quarter, yes. If it stayed flat, it would, on average, decline further in the fourth quarter. Given all of that, in other words, if it didn't move from the level it was in September. You would find fourth quarter levels falling still further. But I don't have a good...

Excuse me, Bose, there's one environmental thing you should consider, too. With the QM kicking in January 1, that's going to have a downward effect on originations, on prime originations.

Our next question comes from Brad Ball of Evercore.

Regarding the non-agency delay, the OneWest delay, you mentioned it was due to the consent process taking longer than usual. Could you talk a little bit more about what happened there? And do you have confidence that, that kind of problem won't arise again with future boardings?

I think we're -- I don't know that we want to get into much the details about what occurred. But I think that the process that the various consenting parties in Ocwen and the seller went through bodes well for future transactions. So every transaction is different. There is different players that may have to consent. So it's difficult to predict what a future transaction will look like. But I think the process that we went through here, although it took time, was productive and will actually be helpful in the future.

Is it typical that non-agency would take longer than an agency where you're dealing with the GSEs only?

Historically, it actually was the other way around. But on this OneWest transaction, we saw it where the GSE approval process worked much faster. So again I think it depends on the transaction, depends on who the seller is, depends on who the consenting parties are. So I don't know that there's any good way to predict it. I think that things like the Moody's report that we mentioned, where it comes out saying Ocwen performed -- outperformed the rest of the industry, it's helpful in paving the way for an easier consent process because, obviously, performance is one of the factors that goes into that.

Great. And then, Bill, could you clarify. When you talk about returning to historic margins, are you talking about the operating margins, which are in the sort of around 60% range versus this quarter, which was in the high-30s or 40% range?

Yes. And you should look at it by between prime and nonprime servicing and subservicing. We're just simply saying that we will return to those historic margins. And as Ron pointed out, I think it's important to understand that we've been able to maintain our margins, aside from these transition costs, in the face of rather large increases in regulatory costs up through improvements in technology and we get a lot of projects in place to try to continue to improve our efficiency and our -- both efficiency and effectiveness. So we feel very comfortable we'll be able to -- one thing we know -- I think we know how to do is to manage cost.

Okay, and then with respect to the buyback, and I think you said previously that you would have the ability to do $900 million of buybacks without any adverse tax consequences. So is there a reason why you went with $500 million this time rather than $900 million? Is it something that could be upsized, if you end up being more aggressive over the next year?

Well, 2 things. One of which, we think we're in a place too to also substantially -- almost substantially eliminate the $900 million cap. So that's one answer. The other one is that what we're trying to do is to come up with a number that we thought would be reasonable over the period here that we could actually use to -- that -- where we wouldn't deteriorate earnings -- I mean, net worth, rather. So in other words, we don't want to go out and do a huge buyback and drive our tangible net worth down, which would, in fact, reduce the amount of leverage that we could have. So we've got $500 million in those -- for this period of time is a reasonable number. Our -- we have a board that will meet at any time of the day or night, or any 24 -- 24/7. So if we were in a position where we felt we should increase or could increase, that's something that would not be -- assuming they would agree, and it's their decision. But we could easily adjust that.

Plus we also did some of the preferreds in the quarter so we also have -- took 1 step since the last time we talked as well.

Yes. And then just to clarify, the $900 million -- you're eliminating the $900 million cap, that's negotiating with the tax authorities? Is that what's driving that or...

No, it's just -- it's just structuring. And we believe there's that cap. It's not there yet, but we think we will be able to get there.

And actually, just to highlight that, the cap we're talking about was the transfer -- actual transfer of cash. There are a variety of mechanisms such as borrowing money that would enable us to exceed that amount if we desire to do it.

Excellent, excellent. And then my last question, John, just the breakout of the $435 billion in UPB between servicing and subservicing?

I think subservicing was a little over 16%, something like that -- 16% -- hang on a second. I think it's about 16%. It'll be in our Q, but I believe it's about 16.6% was the number though.

Our next question comes from Craig Perry of Panning Capital.

I just had 2 quick questions. The first was, Bill, in your opening remarks, with respect to the cumulative cash flow from operations slide, you made a comment, which I just want to make sure I understood correctly, which is you felt like scenario 3 is starting to look more like the baseline forecast, is that correct?

Well, scenario 2, if you -- the difference between scenario 2 and 3 is really the reinvestment rate. And we -- my comment though was a position around scenario 2.

Got it. Just in terms of improving underlying CPRs and delinquency rates. Scenario 2 seemed more likely the sort of middle-of-the-road forecast, as opposed to a mid-case or something, okay. The second question is just with respect to what is the target ROE now for redeploying capital? And how are you guys thinking about that -- numbers you think through, kind of the various options for all the cash flow to come back, you were helpful in sort of walking through what the priority is for the company. But I just want to make sure I understand as you think about adjacent businesses, as you put out capital, what is the kind of IRR, internally, that you're thinking about?

It'll be a little -- I'll give you a wide range. Somewhere between 15% and 25%. It depends obviously on the business and it depends on how -- that may not be the initial return but the returns we think we can achieve through -- as restructuring any new business over time. We certainly want it to be in line with what we've been able to achieve in the servicing business.

Right. Although it looks, I mean, seemingly based on -- even looking at the capital you've put out in the servicing business versus what you're -- have been able to or expect to return, that the returns have been well in excess of 15% to 20%?

Yes. And they'll -- as we find other businesses where we can deploy. We've purposely remained substantially under-levered and maintained assets on our balance sheet that if we had other even greater growth opportunities, we could, obviously, the return on servicing, then would rise significantly.

Our next question comes from Daniel Furtado of Jefferies.

The first is just, I just want to be ultra-clear here that when you're talking about the $100 billion by year end, you're talking about your own pipeline? So 1 quarter of your $400 billion pipeline or are you talking about just the industry, in general?

It's on our pipeline.

Okay. Then second question is to the extent you feel comfortable, would you mind commenting on the gain on sale margins for HARP product in the quarter and what you're seeing so far here in the fourth?

Well, the short version is that gain on sale margins have declined. It's mostly a function of the increase in profitability that we've generated mostly because of increased volume from newly-acquired portfolios. So beyond that, I don't have any specifics to disclose.

We'll move on to Ken Bruce of Bank of America.

Quick clarification if you could. Just in terms of the revenue recognition on the sales. I had thought that those would occur at the point-of-sale versus boarding. Is there any differences in terms of the OneWest transaction? Or how should be thinking about when the revenue recognition will start on any given deal versus the actual boarding?

If I understand your question correctly, so when we announced the OneWest deal earlier in the year, we just announced that -- we announced it at the time we had signed a contract, but we have not yet acquired the MSRs or transferred them. OneWest is a deal where we, as we -- we are acquiring the MSRs in phases simultaneous with the transfer. So does that...

Yes, okay, that helps. And then as...

Ken, there have been cases in the past where we actually take ownership of the MSR and subservice back to the selling entity but that's not the case in this.

Right. So the structure [ph] is just different. You take ownership when you're actually boarding the loans in this case?

Right.

Okay. And then as you look at the opportunity in terms of whether you wanted to dimensionalize it across the $400 billion or the $1 trillion opportunity, is that what you see as the opportunity for the sale of MSRs or is that some combination of the sales in subservicing? Or is there any way to think about what -- in addition to the $400 billion or the $1 trillion, that may come up from a subservicing standpoint?

It's a mix of both, Ken. I think as we've discussed maybe in the past, it's sometimes hard to tell when a portfolio is being discussed, whether it will end up as an MSR sale or subservicing because in many cases, the discussions look at both. I mean, literally, you could end up bidding on the same portfolio, both with a subservicing bid and an MSR bid. So we can't even be sure. I would say, based on just recent information, it does appear that mix is -- continues to trend in favor of MSR trades. But as Ron mentioned in his remarks, I think we're also likely -- we believe, long-term, subservicing will become a bigger component of business.

Okay. And then lastly, just in terms of the forward lending opportunity, is there any way that you can discuss kind of what your aspirations are there in terms of either volume or share in the market or how to think about what the growth potential is for Ocwen in that part of the market?

That might be something that we want to do a little bit in more detail maybe in future calls. I think we do have a lot of room to grow from a direct lending standpoint, just to handle the refinance opportunities that exist within the portfolios that we've acquired. Most of which have been acquired fairly recently in the last year. Some of them, just acquired -- on OneWest, very recently. So we have a lot of room to continue to ramp up that direct lending side of things. Obviously, it will somewhat be dependable -- dependent on interest rates and refinance activity. And it will be somewhat dependent upon the mix of future acquisitions. But maybe in future calls, we can maybe give a little more detail about our longer-term thoughts on originations overall. But we do expect to see, over time, a lot larger share than we have today. We, of course, have a very small share today and we do expect to see that grow. Bill, go ahead.

Yes. I'd add the comment, too. Lending is a relatively new business for us as opposed to servicing, which is a well-established operation. That, in addition just to Ron's comments, there's also -- I think we will definitely improve our operational capability as we are in the business longer and we have more experience at it.

Our next question comes from of Mike Grondahl of Piper.

The $900 million cap on the buyback from June, is there a specific number today? And how do we think about any tangible net worth covenants around this buyback? Like what's the minimum you have to have?

Mike, as far as the $900 million, I think we mentioned earlier, but first of all, the cap we have right now is based on what's been approved by the board. And so we would certainly need to go back to our board if we wanted to purchase more. But you...

But has the $900 million increased since June?

The answer to that is yes. But I think as we -- as I discussed earlier, that is just regarding, if we wanted to just use cash. We could, today, if we had approval from our board, theoretically purchase more than $900 million simply by borrowing it, the money. So it's not -- there's no meaningful restriction. I think that -- does that make sense?

Yes, that does. And then any covenants that you guys have to think about? Or that minimum amount of equity that you want, how should we think about that?

We think, Mike, the way we think about it is, first of all, if we were to borrow it, most likely it would be unsecured -- it would be bonds as opposed to term loans at that particular point in time. And we believe we're -- with the leverage we proposed there, 1:1, that we're well inside the covenant package that we would have to promise to the lenders -- to the bondholders. So we don't see that. Now the question is, if you start buying back stock well in excess of your reported earnings, you're going to reduce your tangible net worth. And you will, in fact, at some point, it will look like you have a higher leverage ratio, right? And then at some point beyond that, you'd get to a point where you'd start running -- bumping into potential covenants that you might have on a new bond offering. So there's a lot of gap between the -- we don't want to deteriorate tangible net worth through a dividend -- through a stock -- through a dividend, I keep saying that, sorry, through a stock buyback program. We want to maintain our capital strength. And -- but that still gives us an enormous amount of stock that we can repurchase. But we won't have -- I don't think it's covenant -- it won't be covenant of limitations and we don't think it will be the ability to utilize cash through our global network that will be a limitation. It will be our self-imposed limitation on what -- how we want to manage our capital structure. And that will be more stringent than any of the other items that we discussed.

At this time, I show no further questions.

Excellent. Thank you, everyone. We appreciate your support.

Thank you.

This concludes today's presentation. Thank you for your participation. You may now disconnect.