Greetings. Welcome to the Ocwen Financials' First Quarter 2020 Earnings Call. At this time, all participants will be in listen only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] Please know that this conference is being recorded. At this time, I'll turn the conference over to Dico Akseraylian, Senior Vice President of Corporate Communications. You may now begin.

Good morning and thank you for joining us for Ocwen's First Quarter 2020 Earnings Call. Please note that our first quarter 2020 earnings release and slide presentation have been provided and are available on our website. Speaking on the call will be Ocwen's Chief Executive Officer Glen Messina and Chief Financial Officer June Campbell. 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. The 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 different degrees uncertain. Our business has been undergoing substantial change and as a result of the COVID-19 pandemic, we are in the midst of a period of significant capital markets volatility and rapidly evolving mortgage lending and servicing environment, 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 several assumptions, risks and uncertainties that could cause actual results to differ materially, including those risks and uncertainties described in our reports and filings with the SEC, including our annual report on Form 10-K for the year ended December 31 2019 and our current and quarterly report since such date. 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 statements, whether as a result of new information, future events or otherwise. In addition, the presentation and our comments contain references to non-GAAP financial measures, such as expenses, excluding MSR valuation adjustments, net and expense notables and pretax loss excluding income statement notables, amortization of NRZ, lump sum cash payments, adjusted annualized run rate cost savings among others. We believe these non-GAAP financial measures provide a 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. Reconciliation of the non-GAAP measures used in this presentation to their most directly comparable GAAP measures may be found in the appendix to our first quarter investor presentation available on our website. For an elaboration of the factors I just discussed, please refer to our presentation and today's earnings release as well as the company's filings with the Securities and Exchange Commission. Now, I will turn the call over to Glen Messina.

Thanks, Dico. Good morning, everyone, and thanks for joining us. The environment we're facing today is nothing like we expected at the start of the first quarter. Little, if anything we're doing today is business as usual. We have strong momentum going into the first quarter and that momentum continued in January and February, then COVID-19 happened. I'm extremely proud of how our team has reacted while maintaining our high standards for operational excellence and compliance. I want to thank our team for their efforts to move to remote operations as swiftly and seamlessly as possible and especially thank our employees that continue to report to our facilities where it's critical for them to perform their functions. Additionally, we would like to thank the healthcare professionals and first responders for the sacrifices made throughout the world to battle the COVID-19 pandemic. Throughout this crisis, our team has maintained business operations to assist our 1.4 million borrowers and has fielded more than 740,000 calls from March 1 through April 30. As of April 30, we've provided approximately 115,000 active forbearance plans for all borrowers in need, even if they were not protected under the CARES Act. Despite the strain the COVID-19 environment will place on our business, we expect to have adequate liquidity to operate our business and we expect to opportunistically originate approximately $25 billion in new servicing for 2020 with the targeted 50-50 mix of loan servicing, and sub servicing. While we are operating in an environment with increased risk, we believe this environment has created increased opportunities to invest in high quality, newly originated MSRs and delinquent servicing at very attractive returns. Our proven expertise in special servicing and the actions we have taken over the past 18 months to strengthen our company position us as one of…

Thank you, Glen. Please turn to Slide 11. My comments today will focus on our first quarter results as compared to the prior quarter. As previously noted, our first quarter investor presentation includes more details on our results, and is available on our website. Our first quarter reported net loss of $25 million included a $62 million income tax benefit, primarily due to favorable changes in the CARES Act, among other items. Pre-tax results for the quarter were impacted by the COVID-19 pandemic and market disruptions in several ways, primarily unfavorable interest rate and assumption driven fair value declines in our net MSR portfolio. The next financial impact from COVID-19 on revenue was $7 million on favorable and on expenses was minimal for the first quarter, although we expect these impacts to increase. Revenue of $254 million decreased by $8 million from the prior quarter; the seasonal fair value elections made in the quarter allowed us to recognize $47 million of future fair value upfront into equity, although ongoing quarterly revenue is estimated to be lower, with a $4 million impact in the quarter. Results were also negatively impacted by portfolio runoff, COVID-19, and market conditions. Operating expenses continue to improve as a result of our continuous cost improvement efforts. The unfavorable MSR valuation adjustment of $174 million in the first quarter is primarily due to $157 million of unfavorable fair value change, primarily in our agency portfolio, due to a 118 basis point decrease in the 10-year swap rate, $53 million reduction in MSR value due to portfolio runoff, offset by $35 million favorable impact on macro hedges. MSR valuation adjustments net of macro hedge and NRZ totaled $78 million. Our forward MSR hedge strategy performed as expected, with total coverage against our forward MSR equal to 43% of…

Thanks, June. Now, please turn to Slide 16. We've made solid progress on our growth strategy, financed performance, and business improvement plans. While we expect the COVID pandemic will impact our performance in the near term, we believe we have strong momentum, as well as the liquidity and proven operating capability to navigate this environment. We will continue to execute our key business initiatives to achieve progress towards our objective to deliver attractive long-term returns for our shareholders. Assisting borrowers in need is one of our core business capabilities and a key differentiator for us in the industry. We have created a flexible, highly automated operating platform that allows us to more easily scale up loss mitigation capability, allowing for operations to maintain quality while undergoing increases in volume and rapid change. We believe this environment has created increased opportunities to invest in high-quality, newly originated MSR and delinquent servicing at very attractive returns. Our proven expertise in special servicing and the actions we took over the last 18 months to strengthen our company and expand our originations capabilities positions us as one of the few players in the industry who could take advantage of these opportunities. We have a great platform and a great team. Our primary growth limitation will be our available growth capital. In this regard, we are highly focused on exploring all strategic options to leverage our proven operating capability in this environment to fully realize the value of our platform. We believe that Ocwen has a critical role to play in the current environment to help both borrowers and the mortgage industry. We continue to be one of the best servicers for non-performing loans, with decades of experience that will help us assist homeowners in the current situation. We have done it in the past, and we'll do it again. I want to thank our management team, Board of Directors, and employees for their commitment and resilience during a crisis we've all been facing. This team has risen to a challenge like nothing we've ever faced before. I'm proud of what we have done to get us to where we are today, as we take the next step towards further improving our long-term competitiveness and financial performance. And with that, we're ready to take questions. Operator?

Thank you. At this time, we'll now be conducting the question-and-answer session. [Operator Instructions] Our first question is from the line of Lee Cooperman with Omega Family Office. Please proceed with your question.

Thank you. Glen, you strike a very optimistic tone. But the facts are the following, we have a book value of 332, we have a stock to close at $0.40 at 12% of book value, we have a market cap of a paltry $54 million, we have a term loan that is trading at $1.80 [ph] with a short-term maturity, we have publicly traded debt that sells a yield to maturity I think of 22%. So the public is making a pretty grim assessment of our situation. Yet, as best as I can tell, because of the term loan, you're unable to capitalize on list of market's mispricing; so I have three questions for you. Number one -- and I think a lot of the answers are evident in what you presented. I guess the question whether it's believable. Do you believe the book value of the company is real, and that we will remain a sovereign entity? That's question one. Two, it seems to me -- I'm very surprised that nobody showed up and knocked on your door, given how the skill set of the company -- you said on three occasions today, great platform, great team, yet available to big discount, nobody's showing up. So I'm assuming that the Florida AG and the consumer protection whatever the hell they're called board, or two poison pills -- you addressed that a little bit in your comments, and maybe you could re-address them. And third, tell me about the profitability of new servicing. You say great return on investment. When I look at the way we're selling at in the marketplace, it would seem to me the greater return investment is to basically either sell the entity if there's a buyer, or find other ways of capitalizing on the big discount that our paper's selling at. But thank you for any responses you could provide.

Good morning, Lee. And thanks for your questions. Lee, before I specifically get into your questions, there was one update I have for everyone, for the markets, just given the environment. This call was pre-recorded, as you might have been able to tell by some of the gaps and spacing between speakers. But we do have an agreement in place to upsize and extend through June 2021, our OMART and OFAF advanced financing facilities. The OMART VFM capacity will increase from $200 million to $500 million to accommodate forecasted advancing requirements and the amortization of $185 million in term notes in August. The OFAF facility will increase to a total of $70 million. In addition, we've reached an agreement to extend our MSR repo and warehouse facilities with Barclays. So that's an update I wanted to get out to the market before I answered your question. So, in terms of your questions, we -- look, from a book value perspective, I believe in the credibility of our financial processes and the value of our assets, and I believe our book value is fairly stated for the company. In terms of the CFPB matter, as I said on the call, look, this is one of our top priorities to resolve. It's one of the few remaining legacy regulatory matters that are I think serving as a drag on the valuation of the company. We've said it's our strategic priority to get this closed in a manner that produces an acceptable outcome to all of our stakeholders, and arguably, would like to get it done prior to the trial date, which is at the tail end of this year. So, look, we can't provide any assurances that we'll be able to resolve it for the amounts that we increased the reserve to…

What can you say about the -- with Florida Corporation, I'm shocked, and I know they don't want to put you out of business. But what is the status of negotiations with the Florida AG?

Lee, look. I really can't provide any more in that than I've said already. The bar of the --

Repeat what you said, please.

So I said it's -- we are -- our goal is to resolve these matters before they come to trial.

That was the CFPB. Is it the same thing for Florida AG?

I believe so. I believe the timing is consistent between the two.

Right. And so, the Florida AG trial date set for late this year?

Both the CFPB and the Florida matters are set for late this year. That's correct.

Got you. Okay, thank you. I guess what's behind my questions, in all honesty, is whether the shareholders are better off being de-risked by merging with a larger entity, if that opportunity exists. It may not exist. I don't know or remaining independent. And the frustrating thing about remaining independent is market cap of a little over $50 million, 12% of book value, term loan trading at a big discount, all of which does not fit with your optimism of what you've created here in your platform and your team that's all. You've got to kind of disregard the market's efficiency in the -- accept what you're saying versus what the market is saying. But I get it. Just an observation. You've answered my questions. Thank you.

Thank you, Lee.

Thank you. [Operator Instructions] Thank you. At this time, I'll turn the floor back to Glen Messina for closing remarks.

Great. Thanks, Rob. Again, I want to extend my thanks to the entire team, who has just worked tirelessly over the last 60 days to enable a remote operating framework and continue to conduct our business in a high-quality fashion and serve all of our borrowers with empathy and focus. And even those people who aren't protected under the CARES Act, we're making sure that we can accommodate their financial needs in this time of struggle for the nation and for the world. Look, I firmly believe our proven expertise in special servicing and the actions we've taken over the last 12 months to strengthen the company really position us as one of the key players in the industry who could take advantage of the opportunities that's in the marketplace today. We've built a great platform and a great team. I'm proud of everyone. Again, I think our primary growth limitation will be our available growth capital. And again, we're going to leverage all options we can to fully harvest the value of our team and our platform in this environment. Thanks, everyone, and look forward to talking to you next quarter.

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.