Onity Group Inc. (ONIT) Q2 2020 Earnings Report, Transcript and Summary

Hello, and welcome to the Ocwen Financial Corporation Preliminary Second Quarter Earnings and Business Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Dico Akseraylian, Senior Vice President, Corporate Communications. Please go ahead, sir.

Good morning. And thank you for joining us for Ocwen's Preliminary Second Quarter 2020 Earnings and Business Update Call. Please note that our preliminary second quarter 2020 earnings release and slide presentation are available on our website. Speaking on the call will be Ocwen's Chief Executive Officer, Glen Messina. 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 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 reports 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 statement, 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 adjusted pretax income; adjusted pretax income excluding amortization of NRZ lump sum payments; and adjusted expenses, 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. A reconciliation of the non-GAAP measures used in this presentation to their most directly comparable GAAP measures may be found in the press release and the appendix to the investor presentation available on our website. For an elaboration of the factors I just discussed, please refer to our presentation and yesterday's preliminary earnings release as well as the company's filings with the SEC. Finally, this presentation and our comments refer to our preliminary second quarter financial results. These statements are based on currently available information and reflect our current estimates and assessments. The company has not finished its second quarter financial closing procedures. There can be no assurance that actual results will not differ from our current estimates and assessments, including as a result of second quarter financial closing procedures, and any such differences could be material. The company expects to release final second quarter 2020 results in early August. Now I will turn the call over to Glen Messina.

Thanks, Dico. Good morning, and thanks for joining our call today. I'm excited to share our preliminary second quarter results with you. We continue to make great progress in the business. Our turnaround and profitability trajectory have really strong momentum, and we're delivering on what we committed to do. We've built a great team who are working together with passion and energy to deliver results for our customers and our investors. I couldn't be prouder of what they accomplished this quarter. Our team has demonstrated incredible resiliency and commitment to serve our borrowers in need during this pandemic. Before we get into the details, let's turn to Slide 3, so I can introduce you to today's Ocwen. We are a leading mortgage special servicer and originator that's focused on creating positive outcomes for homeowners, communities and investors. We have 2 principal business units, our servicing unit and our originations unit. In servicing, we're one of the largest special servicers serving over 1 million borrowers, thousands of investors and well over 100 subservicing clients. We've got a strong subservicing and specialty servicing capability that includes conforming mortgages, small balance commercial loans and servicing loans and private securities. And we've got a proven capability in creating non-foreclosure outcome and industry-leading performance against independent benchmarks in operations, efficiency and improving outcomes for borrowers and investors. To replenish and grow our Servicing portfolio, we've built a diverse, multichannel originations platform in both forward and reverse mortgages. And we've grown volume 14x since this time last year, which helps provide a balanced earnings profile to our servicing business. We expect to originate over $30 billion in volume this year, excluding bulk acquisitions with roughly a 60-40 split in owned servicing and subservicing. And we believe we've just scratched the surface of our potential in originations. We also believe that there's an emerging opportunity over the next several months for our strong and scalable loss mitigation capabilities as difficult economic times will drive higher delinquencies as far as come-off-forbearance plans. We are proud of the company we've built. We believe our balanced business model, proven special servicing capability, our low-cost structure, controlled and scalable platform really position us very well to deliver profitability and growth and capturing the opportunities in the current environment. Turning to Slide 4. We've made tremendous progress on improving profitability, delivering growth and reducing key risks in the business. Regarding profitability in the second quarter, we delivered preliminary results of $8 million in adjusted pretax income before amortization of NRZ lump sum payments. This represents a $353 million improvement in annualized profits versus the second quarter of 2018 adjusted baseline for the combined Ocwen PHH. This is a remarkable turnaround executed by our team. Assuming no adverse changes to market conditions or legal and regulatory matters, we do expect adjusted pretax income will be positive for 2020 and we expect positive GAAP earnings in 2021 as well. We believe we're on track to achieve low double digit to mid-teen after tax ROEs by mid-2021. Moving to growth. Regarding our growth actions, we have built an originations platform to service our growth engine and it's paying off very well. We are taking advantage of the near-term robust, high-quality agency loan originations market by growing in all our origination channels substantially versus 2019, and we're continuing to expand our capacity. We have maintained staffing levels in Servicing and can quickly scale up to take advantage of the expected delinquent servicing purchase and subservicing opportunities that we believe will result from the COVID pandemic. Regarding key risks, our COVID-19 results are trending far better than we and others expected at the end of the first quarter. In addition, the actions by the agencies have substantially improved expected revenue projections and have capped loan level advances. We've expanded our servicer advances and MSR financing lines to support more than our base case forecast for forbearance plans, and we expect to have adequate liquidity to grow originations to over $40 billion by 2021 with roughly a 60-40 mix of owned Servicing and subservicing. We believe our portfolio composition, combined with our special servicing skills and our global operating capability does help limit our exposure to significant cost increases from COVID forbearance-related defaults in our existing portfolio. And lastly, on the legal and regulatory front, there have been continued favorable developments in the CFPB and the Florida AG matters. The presiding judge ruled to combine the cases into one, and the matters will be held as a bench trial, not a jury trial. Additionally, very recently, the judge has postponed the trial, which was scheduled to begin this October and has ordered the parties to mandatory mediation once the summary judgment briefing is completed in September. Our goal remains to resolve these matters as quickly as possible in a manner that produces an acceptable outcome for all of our stakeholders. But we believe the recent case developments here including mediation order are positive catalysts to help facilitate a possible settlement. To summarize, look, our turnaround and profitability trajectory have strong momentum, risk exposure continues to abate and our proven special servicing skills position us, we believe, very well to capitalize on current emerging industry growth opportunities. Turning to Slide 5. Maybe just a couple of details and highlights on our second quarter preliminary performance. And I think the second quarter was a milestone for several reasons. This is our third consecutive quarter of positive adjusted pretax earnings. We achieved profitable positive profitability before amortization of NRZ lump sum payments, the amortization of the NRZ lump sum amounts stopped in April pursuant to our original schedule. Our strong performance and originations is helping to balance out COVID and prepayment impacts on our Servicing platform. Net income was positive for the quarter. We delivered $18 million of adjusted pretax income. Origination volume was up 75% versus the first quarter. So I'll talk a little bit later about originations and a terrific job that team is doing. We did experience slightly over a 1% decline in the total Servicing portfolio due to accelerated runoff. We did achieve a 95% replenishment rate for our owned MSRs, despite a 30% CPR in GSE servicing and a 22% CPR in Ginnie Mae servicing. From a cash perspective, unrestricted cash was $314 million, up $50 million from the last quarter. Our balance sheet optimization actions are on track. Forbearance plan levels are trending down. And outstanding service [ receivables ] came in about 17% below our forecast. From a cost reengineering perspective, we've continued to deliver on our planned continuous cost improvement actions. This is very important for our competitiveness in our highly competitive industry. And adjusted operating expenses are down 41% compared to the second quarter 2018 baseline for the combined Ocwen and PHH. Book value per share at $3.33 was flat compared to the quarter as well as well above our current share price. Notable items for the quarter included severance charges associated with our cost improvement actions as well as abandonment charges for facilities and certain facilities exits that we've done. Other notable items included net unfavorable fair value change and some COVID-related expenses for surge resources and equipment to enable our remote working environment. Overall, we believe it was a really strong quarter reflecting the positive impact of the execution of our key initiatives on the business. Turning to Slide 6. I'd like to talk a little bit about what we've done in originations. And look, our originations team here is making great progress. As I noted, we've built a multichannel profitable scalable originations platform. Adjusted pretax income is up substantially driven by growth in both volume and margin expansion. Volume by investor type continues to be largely GSE at this stage of the game. Originators are generally choosing to hold Ginnie Mae MSRs to a fairly wide bid-ask spread. Clearly, I think that's attributable to a difference in the perceived risk of holding Ginnie Mae and servicing Ginnie Mae loans in this environment. Low interest rates and industry capacity constraints are driving improved origination margin levels. Average origination margins across all channels was 149 basis points. We originated $4 billion of MSR UPB during the quarter with cash investment before financing of approximately $5 million. Net cash flow from MSR originations was positive after financing. This dynamic of low cash cost of MSR originations accretion is a common and customary in a high refinancing environment as margins widen out, the cash cost at MSR originations actually goes down. Moving on to enterprise sales. Our enterprise sales team is doing a terrific job. Our correspondent seller base is up to 95 sellers from 68 at the end of the first quarter. We've also signed a subservicing agreement for small balance commercial loan portfolio of roughly $1 billion. We expect to sign a residential subservicing agreement for roughly another $500 million, and we've signed a reverse mortgage recapture services agreement as well. These activities are on -- these 3 transactions or expected to commence in the fourth quarter. We've made good progress on our originations growth objectives this quarter, but we believe we're really just scratching the surface. Our platform is providing access to approximately $30 billion of volume potential opportunity in the second quarter, that's what we saw for our channel. And that excludes anything on the bulk side. We believe there remains still substantial growth opportunity just by adding new sellers over the next 12 to 24 months, and we're targeting to grow our correspondent seller base to over 150 sellers by the end of this year, end of the fourth quarter of 2020. We launched our first Fannie Mae SMP customer in June. And we see significant opportunity to sign new flow customers to participate in this program as well as the companion program with Freddie Mac, the Freddie Mac COVID issue exchange program. We continue to improve and grow our retention platform that's very important to us. So far, we've doubled retention operation capacity in the second quarter versus the first quarter. And we're looking to double it, again, by the fourth quarter. The actions we've taken to improve and expand our retention capacity has roughly doubled our recapture rates in the second quarter of 2019 to roughly 18% at the end of June, and we believe we're on track to achieve our targeted 30-plus percent recapture rate by the end of this year. The current enterprise sales pipeline is looking good. We've got roughly -- across our top 7 prospects in the pipeline, includes about $33 billion in subservicing volume, about $1 billion per month in flow MSRs and about $12 billion in annualized recapture services volume, so a very robust pipeline. And the team there, I think, is doing a terrific job. We are beginning to see a few small special servicing opportunities in the bulk market for loans-off-forbearance and Ginnie Mae EBOs. We believe this opportunity will take some time to develop as forbearance plans have given servicers some relief for now, at least for now. But obviously, we think that situation is going to change as borrowers come off the forbearance plans. We intend to launch a special servicing marketing blitz through our enterprise sales team in the third quarter, and we're excited about the potential prospects from that activity. Again, on originations, maybe just to wrap up here, our team has made really strong progress. Our capacity and capabilities continue to expand, and we believe we're well positioned to originate assets at very strong returns in the current market environment. Moving on to Slide 7, maybe just some updates here on the Servicing platform. Look, Servicing continues to perform very well despite the current market challenges should come as no surprise. The combination of increased prepayments and forbearance plans have reduced servicing adjusted pretax income before the amortization of lump sum payment by approximately $11 million versus the first quarter. This is largely from higher compensating interest, conveyance expense on payoffs and reduced servicing fees and ancillary income due to lump sum forbearance. The overall impact of COVID forbearance plans is less severe than we expected, and our remote operations are working really well. Employees remain engaged, productive, and again, I'm very proud of the resiliency and commitment to serving borrowers during this time frame. Post integration, customer satisfaction continues to trend positively. We are laser focused on supporting our customers, especially those that have been harmed by the COVID-19 pandemic. Our call center performance continues to outperform industry on hold times and abandonment rate versus the weekly survey data from the MBA. And on the bottom half of the page, we thought it would be helpful to share some key Servicing performance statistics that demonstrate the strength of our platform and the value we could deliver for our clients and investors. On the left-hand side, Moody's tracks servicer performance on total delinquency cycle time. Now as you could see, we clearly outperformed the market, and this results in lower total cost and higher realized cash flow for investors. In the middle of the page, our Ginnie Mae first legal due date timeliness, a metric that's a key driver for Ginnie Mae claims curtailment and cost for Ginnie Mae MSR owners is nearly perfect at 99.7% average for the last 6 months. It has been at this level for quite some time. Similarly, our GSE claims acceptance rate is nearly perfect as well at 99.3% for the last 6 months and has been performing at this level for -- also for quite some time. On the right, regarding efficiency, our cost reengineering actions, global operations and enabling technologies position us with a highly competitive cost structure both for -- that compares favorably against the MBA reported call survey data on both performing and nonperforming loans. Look, I don't think we can stand still here on cost performance. Cost is a competitive advantage in our industry, and we are continuing to drive productivity and automation. We believe we have room for continued enhancement and we intend to maintain our cost leadership position. The -- we believe these key servicing metrics are just part of a picture that clearly indicates we are one of the best servicers for nonperforming loans with years of experience in creating positive outcomes for homeowners, communities and investors. Moving on to Slide 8. Maybe just a few key data points on the performance of our COVID-19 forbearance plans. As of July 13, outstanding forbearance plan levels are down 15% to 112,000 from 132,000 at the end of June. Roughly 35% of borrowers on forbearance plans continue to make payments. On the upper right, net of the 35% of borrowers were still making payments. Forbearance plans where we have the sole responsibility to advance are roughly 36% below our forecast. And for those plans that have reached the initial -- end of their initial forbearance period, roughly 22% of reinstating or canceling, 2/3 are extending and 1% have progressed to loss mitigation. Roughly 2/3 of the plans that are extending are PLS-related. For those plans that have progressed to loss mitigation, we are focused on outcomes that help families stay in their homes by having them secure sensible loan modifications or repayment plans as appropriate. We are also partnering with nonprofit housing advocates to conduct virtual borrower outreach events across the country to help customers in needed assistance. Turning to Page 9, you can see we closed the quarter with, again, $314 million in unrestricted cash. That's up $50 billion from the end of the first quarter. We fully realized our balance sheet optimization actions for the second quarter and our planned actions for the balance of the year are on track. In current market conditions, the cash flow dynamics of our business changes slightly, so low rates are driving slight prepayments and wide origination margins. Higher prepayments help fund P&I advances in custodial accounts. So it's less cash we have to fund and less advances financing on our advanced financing lines. Higher margins in originations also translates, as we said earlier, to a lower cash cost for MSR acquisition and originations. These dynamics will allow us to replenish the portfolio and fund forbearance-related advances while consuming less cash. In the second quarter, we closed on a Ginnie Mae advanced financing line to support our existing facilities for PLS and GSE advances. This advanced financing line does cover both P&I and T&I advances. At the end of the second quarter, we have committed unused capacity under our financing facilities for MSRs, $145 million of unused capacity, servicing advanced unused capacity of $427 million and warehouse line capacity of roughly $202 million. Servicing advances closed the quarter roughly 17% below our forecast. We believe our servicing advanced forecast is perhaps a bit conservative at this stage as it does not yet reflect the current favorable trend in forbearance plan levels. This is purposeful considering the surge in COVID cases and the uncertain government response to that as well as the current foreclosure moratoria, we believe this conservatism is appropriate at this time. We continue to look at it, and we'll continue to adjust our forecast as appropriate. We do believe our cash and liquidity position will permit us to fund our operating needs as well as support over $30 billion in originations in 2020. And as I said, over $40 billion in originations in 2021, again, this assumes a 60-40 split between owned servicing and subservicing. We -- consistent with the proposal in our proxy and the favorable shareholder vote, we are moving forward with executing a 1 for 25 reverse split. We believe this will help us achieve compliance with the NYSE listing requirements. We also believe the reverse split, along with the great progress we've made in the turnaround and improvement in our franchise value in this environment, may improve the attractiveness of our stock to a broader base of investors and additional analysts. We do intend to conduct a broad-based analyst and equity investor outreach effort in the third quarter and fourth quarter to increase the market awareness of Ocwen, our turnaround performance and our performance potential. Turning to Page 10, maybe a little bit on what we see as the growth opportunities in the marketplace today. And we believe we're well positioned to capitalize on both the near-term and long-term opportunities to originate and acquire both performing and special servicing. In the near term, interest rate levels are -- in the MBA to project the industry originations volume for 2020 will be $2.8 trillion and $2.1 trillion in 2021. There is strength in both the home purchase and refinancing market. Declining interest rates, mortgage interest rates, operations capacity constraints, along with reduced purchase activity by REITs and financial investors is driving growth opportunities and should help sustain elevated margin levels for a while. It's a terrific environment to originate high-quality MSRs. Newly originated MSRs are generating roughly a 15% unlevered return -- unlevered yield as compared to roughly 8% to 9% in the pre-COVID days. Switching over to the longer-term opportunity. We believe the current double-digit industry PLS and TDMA forbearance levels will result in a surge in industry loss mitigation volumes since the financial crisis -- MSRs are generally more widely held through smaller banks and hedge funds, IMBs, independent mortgage banks and REITs. Ginnie Mae MSRs are generally largely held by nonbanks. As loans come off forbearance not all MSR owners. And if they don't service themselves, their subservicing partners are equipped to deal with the loss mitigation volume that will emerge from the current forbearance levels. We expect the opportunity in nonperforming assets will likely be centered around Ginnie Mae FHA, Ginnie Mae early buyout or EBO transactions and certain non-QM loan products. And we believe our industry-leading operational and cost performance will deliver better outcomes for MSR owners, mortgage investors and consumers. And we believe our proven expertise in special servicing position us as one of the few players in the industry who can take advantage of the opportunities to both grow performing and special servicing in this market. We've built a great platform and a great team. Our primary limitation here will be our available capital to fully exercise and realize all the growth opportunities that the market presents. In this regard, as we mentioned last quarter, we are exploring all strategic options to leverage our proven operating capability in this environment to fully realize the full value potential of our platform. Turning to Slide 11, maybe just a little bit about how we're managing the resolution of the current forbearance volumes in our owned and subservice portfolio. We do think it will have minimal operational cost impact for our business. The dynamics, roughly 34% of our owned portfolio is PLS, where we advance on most forbearances for 30 days at a time, and therefore, we're out of pocket, only one payment at a time. Servicing fees are deferred and we incur interest expense in advances until resolution of the forbearance plan or loss mitigation. 44% of our portfolio is GSE, where we advance up to 120 days or 4 payments. Here again, servicing fees are deferred, and we incur increased advanced financing costs into a resolution of the forbearance or loss mitigation. This will be partially offset by a $500 resolution incentive fee as loans come off forbearance and have been resolved, that was something new that was passed in the second quarter. The remainder of our portfolio roughly 21%, 22% is Ginnie Mae, where P&I advances are untapped throughout forbearance period and subsequent delinquency, if unresolved, again, servicing fees are deferred here and will incur increased financing cost on advances until resolution. We have -- the lower left, we have maintained loss mitigation, home retention or foreclosure staffing levels at a pre-crisis levels, even though we don't see a lot of volume going through forbearance. We want to make sure we're positioned to help borrowers as they begin to exit these forbearance plans. To give you a sense of size and scale of our loss mitigation platform, we typically process loss mitigation workouts of roughly 14,000 to 16,000 per quarter. So this is an industrial-grade loss mitigation platform. Based on our current outstanding forbearance plan levels, we estimate that 35% of the borrowers who are paying today will reinstate at some point, about 40% of additional borrowers are reinstated at some point during the 12-month forbearance allowance and that leaves 25% who will need to be evaluated for loss mitigation options. Of this population, we believe roughly 25% or 7,000, will go to foreclosure, unfortunately. In the context of our current staffing and typical loss mitigation volumes, we don't believe we'll need significant or any incremental staffing to support these volumes. And again, these estimates of how we see things evolving at a forbearance come from our experience in post-financial crisis, our experience in natural disasters and natural disaster forbearance plans. Some of the initial results that we're seeing coming out of the forbearance plans that are maturing today as well as just generally 30 to 35 years' experience in servicing defaulted loans. We'll continue to update this as appropriate to make sure that we're scaled appropriately to deliver the cycle time performance that we are used to delivering. To wrap up on Slide 12, the execution of our key business priorities has improved profitability and we believe positioned Ocwen for growth and reduced some of our key risks. We do believe we have a strong growth and fundamental momentum and improving franchise value in this environment. Our core business is delivering profitable adjusted pretax income before amortization of lump sum payments. We've built a multichannel originations capacity with the ability to scale up, and we believe we're just scratching the surface of the growth potential of our originations platform. We are executing on our continuous cost improvement initiatives to maintain a competitive cost structure as well as a controlled and effective infrastructure to help us maximize profitability. We have a demonstrated core competency in servicing defaulted loans and have created a flexible and scalable operating platform with a consumer-friendly philosophy that has executed roughly 800,000 modifications to enable consumer home retention. And we do believe the current environment will increase demand for servicing and subservicing by operators with experience in managing through severe delinquencies. And finally, we believe our compliance environment, our compliance culture and our control environment allow for operations to maintain quality while undergoing increases in volume and rapid change. I believe we're the right company with the right capabilities to capitalize on the profitable growth opportunities in the current mortgage environment. I'm proud of the progress our team has made and the perseverance of resiliency they've demonstrated in this very challenging environment. I'd like to thank the Ocwen team globally for their commitment and the Board of Directors as well for their tireless efforts to deliver results for our customers and investors. And with that, Kevin, let's open up the call for questions.

[Operator Instructions] Our first question today is coming from Lee Cooperman from Omega Family Office.

I had written out 3 questions for -- to ask this morning last night, and I think you've addressed some of them. But with your permission, I'd like to just kind of give you my questions, maybe changing emphasis a little bit given the information you've put out. But my first question was, I compliment you on your efforts to right the ship, but the process has been very slow and the cost to run the company is very high. What is your 3-year vision for the company in terms of return on equity and other measures of profitability? I would answer that question by saying, if I heard you correctly, by mid-2021, you could have a low double-digit return on equity. I assume by that time, that book value would be something in the area of $3.50, maybe more, hopefully. So what we're saying is $0.35 or $0.40 a share in earnings in 2021. So I've asked the question I've answered it based upon the information you provided. And let me give you the other 2 questions and you can come back to that. Second question, the industry is consolidating, and given our cost of capital, aren't the shareholders better served by seeking a partner who pay us a fair price for the business? Our annualized overhead is approximately $550 million to produce very little profit. We are one of the best services for nonperforming loans, a valuable expertise. We have terrific capability in reverse mortgages that are very valuable. In the release last night, you indicated we are exploring all strategic options, is outright sale one of them and if yes, what are the other options you're looking at? The third question I had last night was, what is the status of outstanding litigation? I view them as management's poison pill. If we didn't want to do a deal, what is it that the Florida AG or the CFPB want that makes a deal so elusive? And then I would add to -- an additional question as a result of this morning's call, which I thought was very good, by the way. Is cash generation -- do you expect to generate cash over the next 12 months? And given the cash generation, is there any flexibility you can have in your lending agreements that would allow you to capitalize on the mispricing of your debt and equity? But thank you for your efforts and they're very much appreciated.

Thank you very much for the kind worded comments. I hope you are still safe, healthy and well in this environment. Yes, so let me start with the standing litigation. Again, I can assure you that management and the Board are laser focused on trying to resolve this matter as quickly as possible with an acceptable financial outcome for all our constituents. These are regulatory discussions. They don't follow a usual and customary commercial practice. I'm sure that is frustrating for you, it's frustrating for us as well. We believe we have meritorious arguments for our defenses. And as I mentioned, I think there's been some very favorable developments that happened recently, the consolidation of the 2 cases, the bench trial versus jury trial. And probably most recently and most importantly, the judge has ordered us to go to mediation, which is expected to commence after summary -- motions for summary judgment are filed in September. So mediation brings in a third party, 2 folks get together, they're required to work together to come to an amicable -- or not necessary amicable, but a reasoned solution, and it's a court-ordered mediation. So as you might imagine, I'm sure the court will be monitoring our progress. So look, I -- unfortunately, had -- have had the opportunity to deal with the CFPB in a prior life as well as have dealt with a lot of the state regulators, AAMC, Department of Justice as well in certain matters. And these just don't follow a commercial time line. It's frustrating. But again, I feel good, positive and optimistic about what we have in front of us. In terms of cash flow generation and flexibility, in these market dynamics, the cash flow consumption of the businesses is lower than we had anticipated because of the high margins and the things I talked about. As you know, in our existing term loan, we do have the flexibility to spend up to an additional $5 million on -- because these $5 million are ready for share repurchase and additional $5 million for share repurchases and debt retirement. So that is there, and that's the existing flexibility we have. Maybe bridging to your next question about our comments on exploring all strategic options to fully realize the value of our platform. Look Lee, again, I can assure you that the Board and the management team are focused on executing the best risk-adjusted option to maximize value for shareholders. In my view, all means all. But some of the things that we are considering, obviously, would be a broad spectrum of options, including some options that may give us additional flexibility in -- again with our capital allocation. I don't want to cause undue speculation, so I'm not going to go into any further comments on the call. But again, all means all. And then in terms of 3-year vision, again, I believe this company has an incredible breadth of capabilities to perform well as a mortgage servicer, a special servicer and an originator. I think we've demonstrated this quarter that we've built platforms of scale that can perform very well. Quite frankly, to pull off a $353 million profit improvement and turnaround in a regulated business of this size and complexity, I think we've done it relatively quickly. Not to be disrespectful, but I understand you're a shareholder and your view of time may be different than management. So I respect that difference. But look, I do expect we will be profitable, again, assuming no adverse regulatory matters or changes and no change in the market environment. We will be profitable in 2021. We expect to get to low double-digit to mid-teen after tax returns. And we'll have a balanced, scaled business that can be a strong originator and servicer, again, with a special boutique capability in special servicing.

Well, you've done a very fine job, and we hope the trends continue.

Thank you, sir. Appreciate it.

On the 1 for 25 reverse split with the book value of $3.33 and the great clarity you provided on the call, are we locked in for 1 for 25? And that's just no big deal. I've always said stock splits, somebody gave me 5 singles for $5 bill, it didn't make me any wealthier. But are we locked in at the 1 for 25?

Lee, I'll have to defer to legal counsel on that. So let me take that offline and…

[Operator Instructions] If there are no further questions at this time, I'd like to turn the floor back over for any further or closing comments.

And Kevin, thank you very much again. I couldn't be more proud of our team. We've demonstrated a solid progress and strong momentum in our turnaround and profitability objectives. And I think we're operating in a very opportunity-rich environment with room for continued growth and expansion. We've built a great team. We've built a great platform, and I look forward to continued positive progress in updating you on our next call. Thank you, everyone.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.