Good day ladies and gentlemen and welcome to the Ocwen Financial First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] I would now like to introduce your host for today's conference, Mr. Stephen Swett. You may begin.

Good morning and thank you for joining us today for Ocwen's first quarter 2017 earnings conference call. Before we begin, please note that a slide presentation is available to accompany today's call. To access the presentation, please go to the Shareholder Relations section on our website at www.ocwen.com and click on the Events and Presentations link. Also posted on our shareholder relations site is a second presentation with our traditional financial slides. As a reminder, the presentation and our comments today may contain forward-looking statements made pursuant to the Safe Harbor provisions of the federal securities laws. These forward-looking statements may be identified by reference to a future period or by use of forward-looking terminology. Forward-looking statements, by their nature, address matters that are to a different degree uncertain. Our business has been undergoing substantial change, which has magnified such uncertainties. You should bear these factors in mind when considering such statements and should not place undue reliance on such statements. Forward-looking statements involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially. In the past, actual results have differed from those suggested by forward-looking statements and this may happen again. Our forward-looking statements speak only as of the date they are made and we disclaim any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. In addition, the presentations posted online and our comments contain references to non-GAAP financial measures, such as adjusted operating expense, adjusted pretax income, adjusted pretax income before corporate debt expense, normalized adjusted cash flow from operations, illustrative servicing cash flow or servicing cash generation, and the off balance sheet value of some of our economic assets. We believe these non-GAAP financial measures provide useful supplement to discussions and analysis of our financial condition. We also believe these non-GAAP financial measures provide an alternate way to view certain aspects of our business that is instructive. Non-GAAP financial measures should be viewed in addition to and not as an alternative for the company's reported results under accounting principles generally accepted in the United States. For an elaboration of the factors I just discussed, please refer to today's earnings release as well as the company's filings with the Securities and Exchange Commission, including Ocwen's 2016 Form 10-K and when filed Ocwen's first quarter 2017 Form 10-Q. Joining me on the call today is Ron Faris, President and Chief Executive Officer and Michael Bourque, Chief Financial Officer. Now, I will turn the call over to Ron.

Good morning and thank you for joining us today. There is a lot to discuss, but first let me make a couple of opening remarks about the preliminary financial results for the first quarter. In the quarter we recorded a $33 million loss which is a $79 million improvement versus the first quarter of last year. Obviously reporting a loss is not where we want to be, but it is worth noting the significant improvement. The quarter was pretty straight forward. One notable item was an $8 million litigation reserve related to our legacy securities class action litigation claim. This case has not however settled and any settlement or final legal outcome could be materially different. We also continue to hold the $12.5 million reserve established last quarter during settlement discussions with the CFPB. However, as you know, the CFPB has filed legal action now and any settlement or finding by the court could be materially different than this amount. We are vigorously defending ourselves in both of these cases. Except for the $8 million reserve I just mentioned the quarter was pretty clean and a bit better than we had anticipated. Despite the runoff in the portfolio our revenues were about flat to the prior quarter and we saw a strong modification performance. Our servicing business earned a profit of $3 million and our lending business earned a profit of $1 million. Also notable was the operating cash flow in the quarter. The business generated $86 million of cash from operating activities and we ended the quarter with $268 million of cash. We are not going to review the financials in detail this morning, but we have posted our traditional earnings slide on the Ocwen website for your review and you know where to reach Mike or me if…

[Operator Instructions] And our first question comes from the line of Bose George with KBW. Your line is now open.

Hey, good morning. Actually first just on the NRZ transaction, the just one or two sort of go back to what you guys said about the financial impact, so there won't be an impact on book value and the deferred revenue essentially reflect the future subservicing fees?

So, yes we don't believe that there will be enough gain. We believe that the payments our payments as we receive them will amortize into revenue over the life of the subservicing agreement. So you would have that revenue amortizing in on top of the subservicing fee which I mentioned in my prepared remarks along with the various ancillary income that we would continue to receive.

Okay the only other thing I would say, sorry Bose the only other thing I'd say is I mean that's our preliminary analysis. The ink is not even dry on the preliminary agreement yet and so it's somewhat of an unusual transaction that we continue to evaluate. So that may be subject to change but that's our read of it today.

Okay, that makes sense and then could you just repeat the impact that you said on subservicing, so what happens to the sub revenue going forward?

Yes, so and again and let me clarify something Michael said, there's no agreement at this point in time, but we are very optimistic about that under that. Under the HLSS arrangement you can think of our service net servicing fee that we retained being about 25 basis points annually. We anticipate that under the new agreement if we get there in the subservicing fee would be stay approximately 13 basis points and those numbers are not precise, but that's what we said in the prepared remarks.

Okay, thanks and then, I mean just in terms of uses of cash obviously there's a lot of cash coming in as part of this transaction. Is it too early to kind of think about what happens to that potential uses, returns, et cetera?

Yes, I think it is. I mean first off the timing of the cast coming in is it will be uncertain. As we mentioned it will come in we anticipate it would come in as individual PSAs or go through the process and receive the proper consent and so the timing is uncertain at this point in time, where we'll be in our cycle related to ability to acquire MSRs or not, other investment opportunities we might have we're are uncertain at the time. So we can't really comment at this time on what the cash will be used for, but we can evaluate other options to pay down debt other things, but we don't know at this time how it will be used.

Okay, thanks, I guess just one on the earnings for this quarter the $31.8 million MSR Mark. I'm just curious what drove that, just given rates were roughly flat for the quarter?

Yes, Bose that was the mark from the fourth quarter that favourability doesn't repeat. So as you're walking kind of fourth quarter to first quarter it looks like a bad guy, but you know in the quarter, you can see the marks on the back usually on the last slide of our kind of financial supplement, the fair value changes were less than a $1 million kind of all in, so you had some run offs, as you would expect but nothing unusual from a fair value change standpoint.

Okay, great. Thanks.

You’re welcome.

And our next question comes from the line of Fred Small with Compass Point. Your line is now open.

Hi, thanks for taking my question. So just on the first one I guess you put up a 13 basis points, but do you have a sense of sort of what the overall revenue yield on the servicing book is would be pro forma for the entire NRZ transaction?

At this point we don’t have any other information. As I said we expect that subservicing fee to be what we commented on and we expect to continue to receive most of the ancillary income that we received today, but we don't have any other information to report at this time.

Okay, sorry I didn't hear that part, you said that ancillary fees stay with Ocwen under the contract?

Yes, you can go back, but yes I mean HAMP fees and most of the traditional ancillary fees will stay with the company.

Okay, what about Escrow?

There really aren't any material fees that come off of Escrow, but so I'm not exactly sure what you are even referring to.

Okay and then just assuming that this, assuming that this goes for as anticipated, how much more scale do you think, you need in order to get to breakeven, do you have any sort of rough thoughts about that?

No, we're not going to give any projections on that, but as we've highlighted in prior quarters and is evidenced by this quarter, the continued decline in the portfolio does create a scale issue for us and we need to over time find both hopefully additional sources of revenue and as well as continue to make progress on the cost front. So that's a major focus of the management team, but we don't have any kind of forward looking statements on that.

Okay, and then just I mean, as you look forward to or maybe in the next year the potential once the company's past sort of the current I don’t want to say regulatory noise, but what some of what's cropped up recently, once you get through that, and you look towards maybe acquiring MSR what sort of, what I guess flavor or what type of MSR do you think makes the most sense or what type of servicing would you look to acquire? I mean is there a legacy non-agency servicing out there that you can still find you think an acquire at attractive prices, I'm assuming agency doesn't really make sense for you, would you look for acquired Ginnie Mae servicing, can you give any color on that?

So Fred just, I mean first off as you're aware we really haven't been in the market for the past three years and I'm not sure if you heard all my prepared remarks, but I did indicate that we've expect the restrictions for the additional period of time on our ability to acquire MSRs. So, it's really difficult for us to project out or comment. I think we have the capability to service, FHA, VA loans. We have the ability to service Fannie and Freddie loans. We obviously are one of the larger servicers of non-agency. If things get to the point where we all hope they will be, we would be open to considering any of that. We would also hope that there might be opportunities to work with New Residential in ways to facilitate that at the right time, but really at this point, we've been out of the market for three years. We expect to be out of the market for additional period of time and it's really not feasible to project what might occur when that time comes.

Okay got it. And then on – and as you I think talked about the call, on the call about the downstream services associated with the MSR, but if its sole ownership of the MSR transfers to NRZ does that impact the Ocwen's contractual obligation to use all the source as a service provider on your default services OREO sales et cetera, I mean does that because if NRZ owns the MSR outright does Ocwen need to use because Ocwen as subservicer need to use Altisource as a service provider?

So first off let's remind everybody that, at this point there is no agreement. We also comment that we are going to limit our conversation related to this because there is not a signed agreement at this point and there's still discussions going on. We're going to comply with our contractual agreements that we have with all the sources as well as, whatever we end up signing with New Residential. We have no reason to believe that the relationship will materially change, but it's really at this point you know not appropriate or it's too early to really even discuss it any further.

Okay, I mean if you were just the subservicer forget NRZ if somebody else owns the MSR and Ocwen is just the subservicer, does Ocwen as subservicer have and non MSR owner have a contractual obligation to use Altisource for default servicing?

Look Fred I'm not, I'm not a lawyer and I don't want to get into the nuances of all of our various contracts and it may, very well depend on the different relationships, but as you are probably aware we subservice loans and for others and we have our vendors that we use, and they're pretty consistent across all portfolios. We have no reason to believe that that's going to change, but again until agreements are signed and there's really not much more to say on it.

Okay, got it thanks a lot. Congrats on the deal with NRZ and good luck with everything else going forward.

Thank you.

And our next question comes from the line of Kevin Barker with Piper Jaffrey. Your line is now open.

Thank you. In regards to the cash payments from the deal with NRZ would there be any requirements to pay down debt given it would be considered a material sale of assets?

I think may be similar to the comments that I made with Fred we’ll obviously comply with all of our agreements as I said maybe with Bose's question. We have not made any determination yet as to what the use of proceeds will be for.

Okay and then I believe you made some comments about pulling servicing from some states or not servicing in certain states could you clarify that?

Yes, I don't think we said that, but do you want me just clarify?

Yes, you might, sorry.

So, I think I commented that there were two states that required us to pause foreclosure activity and the impact is less than 150 loans and we’ve done that.

Okay and within certain states is it possible to have another servicer service MSRs related to loans in some states even though they're part of a larger mortgage backed security and are you able to isolate that or do you need to have one servicer servicing the whole mortgage backed security?

Probably vary some depending on the type of security, but you can have subservicers in place for subsets of loans in many situations. We don't believe we're headed in that direction, but it will depend on the agreement themselves and so it's a difficult question to answer.

Okay and then you made a comment that the annual subservicing fee will be around 13 basis points from NRZ, it's close to 25 basis points now. Would the effective impact of the sales essentially be a decline of 12 basis points of compensation annually?

Well, there would be a decline of about 12 basis points annually from the servicing fee component yes. Obviously we would be getting this upfront payment which would be amortizing the income most likely offsetting some of that.

Okay and then...

But keep in mind Kevin you'll also have, the reduction in some of the kind of the “interest expense” that we pay NRZ. You'll have offsets in other parts of your income statement that will you know mute a large part of that impact. So you've got to kind of take in the whole thing changing together.

So, on a GAAP or a cash basis will the net impact excluding where it is on the income statement whether it's an interest expense or through servicing fees or amortized with a net total impact on the income statement essentially will be 12 basis points?

We can maybe come back to that as the agreement gets finalized and we talk about it further. You know this is still very much happening in real time and I think it would be premature to say definitively anything like that today.

Yes, I appreciated that and I know it's pretty complicated. In regards to The New York Department of Financial Services review of your servicing platform it appears that that's still ongoing, absent what's happening with the other states in regard to the New York Department of financial Services review will they be finishing their review a year from now as has been indicated in some media reports or is that something that's going to - that can happen in the near term?

Yes, so we've made and I'm not aware of the media reports or who put out any media reports on that, but just to remind everybody, the monitorship that New York had in place did come to an end in April. And one of the conditions of the consent order that we signed was that was paid intended to do its own examination of Ocwen and they had not done a regulatory exam in a number of years of the company and that following an examination that would be a piece of information that they would use in determining whether it's to potentially grant us the ability to acquire mortgage servicing rights again. We've made no comments nor do we have any comments about, whether there's - when an exam will occur, what the timing of that will be anything related to that nor do we necessarily even know, so we don't have any further comments on that.

Okay and then just one housekeeping item how much, how big were the HAMP fees in this quarter?

So Kevin - on that...

Now the HAMP fees in the quarter were $21 million.

So it was pretty consistent with last quarter but a step down from our peak in the second and third quarter last year during the big streamlined HAMP push.

And that should decline pretty quickly going forward right just because of the expiration of HAMP in December right?

Yes, I mean as we've talked about in the past we did expect a pretty good volume of HAMP mods in the first quarter and that was from folks who kind of had gotten into the pipeline before the end of the program. So, I think we did just under 9000 HAMP mods in the quarter. That will come down rapidly and then we’d expect to be just left with the success fees that we get when which will kind of run down over the next two or three years.

Okay, thank you for taking my questions.

Sure.

Welcome.

This concludes Ocwen Financial's first quarter earnings call. Thank you for attending and have a nice day.