Hello, and welcome to the Ocwen Financial Corporation Preliminary Third Quarter Earnings and Business Update Conference Call. At this time, all participants will be in listen-only mode. [Operator Instructions]. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dico Akseraylian. Please go ahead, sir.

Good morning and thank you for joining us for Ocwen's preliminary third quarter 2020 earnings and business update call. Please note that our preliminary third quarter 2020 earnings release and slide presentation are available on our Web site. 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. These forward-looking statements may be identified by reference to a future period or by use of forward-looking terminology that address matters that are to different degrees uncertain. You should bear this uncertainty in mind when considering such statements and should not place undue reliance on such statements. Forward-looking statements involve assumptions, risks and uncertainties, including the risks and uncertainties described in our SEC filings, including our 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 materially 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 adjusted pre-tax income, adjusted pre-tax 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 as an alternative 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 press release and the appendix to the investor presentation available on our Web site. For an elaboration of the factors I just discussed, please refer to our presentation and this morning’s preliminary earnings release as well as the company's filings with the SEC. Finally, this presentation and our comments refer to our preliminary third quarter financial results. These statements are based on currently available information and reflect our current estimates and assessments. The company has not finished its third 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 third quarter financial closing procedures, and any such differences could be material. The company expects to release final third quarter 2020 results in early November. Now, I will turn the call over to Glen Messina.

Great. Thanks, Dico, and good morning, everyone. Thanks for joining our business update call today. I’m going to get started on Slide 3. We continue to make great progress here and I'm really excited to share our preliminary third quarter results with you today. We've got a great team here. Everybody's working with a lot of passion and energy to deliver results for our consumers and investors. I really am just so proud of what they've been able to accomplish. Today we're a stronger, more efficient, more diversified business, and we're delivering on what we committed to do. Profitability is improving. Originations volume continues to grow. We've got a competitive cost structure. We've built a diverse servicing portfolio that we believe can perform through the cycles. We're resolving our legacy regulatory matters, and we believe our capabilities line up really well with market trends and opportunities. We are focused on executing a straightforward strategy. It's all about balance, diversification, cost leadership and operational excellence. And look, we believe continued execution of this strategy will enable long-term growth, profitability and will create value for our shareholders. Let's turn to Slide 4, just for a couple of words on today's Ocwen. We are a leading mortgage special servicer and originator who's focused on creating positive outcomes for homeowners, communities and investors. We've got two principal business units, servicing and originations. We serve over 1 million borrowers, thousands of investors and hundreds of clients with various mortgage products. We've got proven capabilities in creating non-foreclosure outcomes for borrowers and industry-leading performance against a number of independent benchmarks and operations and efficiency. We've also built a diverse multi-channel origination platform in both forward and reverse mortgages that's grown total volume by 115% over the past year. And we think we've got room for a…

Thank you, Glen. Please turn to Slide 15. This is our fourth consecutive quarter of adjusted pre-tax income. Revenue increased quarter-over-quarter driven primarily by volume growth across all originations channels. Operating expense improvement is from leveraging technology and productivity actions, which we continue to invest in our originations platform. MSR adjustment increase is driven by higher runoff from prior vintages. We continue to grow our MSR originations to offset higher runoff. Adjusted pre-tax income is $14 million, $5 million higher than prior quarter with higher revenue and lower expenses offset higher runoff. You can see that we had income tax favorability during the quarter driven primarily by CARES Act net tax benefit, partly offset by offshore tax expenses. Please turn to Slide 16. Our balanced business model is operating well, originations growth and profitability is replenishing the servicing portfolio and offsetting runoff. On the left side of the slide, you can see that our multi-channel platform is fueling strong originations volume, with growth up 32% quarter-over-quarter. Originated volume for the quarter was up 67% quarter-over-quarter driving strong replenishment of 104%. Adjusted pre-tax income was $35 million, 8% lower than the prior quarter as higher volume was offset by expected margin normalization and investment in our platform. On the right side of our slide, servicing segment is demonstrating strong performance through the refinance cycle delivering improved results quarter-over-quarter, in spite of increased MSR runoff. Productivity savings and leveraging technology is improving efficiency and driving down operating costs. UPB runoff is being replenished through newly originated servicing and subservicing. We had a strong subservicing pipeline with our top 10 prospects at $125 billion with additional opportunities from MAV. Please turn to Slide 17. We're driving growth, balance and diversification in our segments and cost leadership and operational excellence to create long-term value. We told you in our Q2 business update that we expect to generate positive adjusted pre-tax income for 2020, positive GAAP earnings in 2021 with low to mid teen after tax ROE by mid 2021. This page is a roadmap to achieving these results. The key drivers to our business are market dynamics, originations growth, balance and diversification and cost leadership and operational excellence. We show on the page how we see these key drivers impact performance in our originations, servicing and corporate segments from now to the end of December 2021. I won't go through the details on the call here today, but please let me know if you'd like to review it another time and I would be happy to walk you through it. With that, I’ll turn it back over to Glen.

Thanks, June. Let's now turn to Slide 18 to wrap up and move into Q&A. So again, we've built a great team who are working together with passion and energy to deliver results for our consumers and investors and I really couldn't be prouder of what they've accomplished. Today, we're a stronger, more efficient, diversified business and we're delivering on what we committed to do. Profitability is improving. Originations volume is growing. We've got a competitive cost structure. We've built a diverse servicing portfolio that we believe can perform through the cycles. We're resolving our legacy regulatory matters. And we believe our capabilities line up very well with market trends and opportunities. We are laser focused on executing a straightforward strategy of balance, diversification, cost leadership and operational excellence and we believe continued execution of this strategy will enable long-term growth, profitability and value creation for our shareholders. And with that, I'll turn it over to the operator to address any questions. Kevin?

Thank you. We’ll now be conducting a question-and-answer session. [Operator Instructions]. Our first question today is coming from Bose George from KBW. Your line is now live.

Thank you and good morning. A couple of things, the first actually on the origination. The 11.4 billion that you guys gave on Slide 6 for originations and you break it out into servicing and subservicing. I just wanted to make sure I understood that. Is that – you couldn't normally do that [indiscernible] corresponded flow, some of that flow – can you just sort of break that out into how that works?

Good morning. The servicing additions is really coming from correspondence flow and portfolio retention and the details of that by channel will come out with our Q. So that will be following shortly. And in our subservicing additions, those are really from new portfolio adds with existing subservicing clients who continue to flow business to us on a monthly basis under interim subservicing arrangements.

So when I think of that 11.4 billion, are those – should I think of those as sort of originations where you book a gain on sale or are some of them top of that category, but some of them are also flow loans that go into the servicing portfolio but go through income on the income statement?

Yes, those were the – for third quarter, the 4.7 in subservicing additions, there's no gain on sale for that, right. That just flows into the portfolio. For the 6.7 million in servicing additions, there's a gain on sale or a positive MSR fair value adjustment associated with those loans.

Okay, great. Thanks. And then you noted the normalization of margins on the corresponding side. Can you just talk about the recapture, how margins did there versus last quarter?

Yes, sure. So, recapture margins are actually holding in there fairly well. I don't think we're the only ones who are facing hiring challenges in the industry. Retail generally I think is probably the most capacity constrained. So while there's been some level of contraction in margins there not nearly to the degree of what we see in correspondent and flow, which are coming – correspondent and flow margins are coming very close to I would say historical levels. But in recapture again, margins are still historically very strong.

Okay, great. Thanks. And then in terms of your growth expectations, the 250 correspondent by year end, 400 by next year. Can you just characterize the competitive landscape on that side? It seems like there are obviously a lot of companies now coming public, et cetera. Is there focus more on retail and wholesale versus correspondent? Can you just give us a lay of the land there?

Sure. The competitive landscape in correspondent and flow on the SMP program and the agency cash window, look, I’d say the competitive environment is probably less competitive than it was immediately prior to the COVID crisis. There are probably fewer players in that segment right now. Not to say it's not competitive. Correspondent and flow has always been competitive, but a lot of – there have been a number of historic MSR originators in corresponding and flow who are now there now. On the retail side, as you've seen from Rocket, United Wholesale, a number of others, right, there continues to be a lot of people in the retail segment with big platforms growing aggressively. But our portfolio retention platform continues to perform well. So, yes, encouraged by the competitive environment.

Okay, great. That's all I had. Thanks a lot.

Thanks, Bose.

[Operator Instructions]. Our next question today is coming from Lee Cooperman from Omega Family Office. Your line is now live.

Hi. Thanks. I appreciate it. I guess on July 17, you publicly stated that Ocwen was exploring strategic alternatives. You mentioned you've engaged an investment banker. Have we received any credible approaches at this point in time? Maybe you can talk about that. I have several questions.

Sure, Lee. Good morning. Lee, I’m not going to – I don't think it's – yes, I'm not really going to speculate on all of the options and alternatives that we've been looking at. But we have – we are working with our bankers on a number of different things, a broad range of options as we've talked about before and we continue to make progress there. So nothing to update as of this time.

Well, I wouldn’t ask you to speculate. I just asked if you have any credible approaches. That’s not speculating. That’s just saying yes or no.

We're looking at a number of different approaches that we think can create value for shareholders.

All right. Also, given the way you want to run the business, this is second question, what is a credible return on the shareholders investment that you expect to achieve? And what is your timetable to get there? With the book value of $49 and we’re reporting nominal earnings, what do you think a reasonable return on shareholders’ investment would be and how long you think it will take you to get there?

Yes, Lee, so consistent with what June talked about earlier, we are expecting positive GAAP earnings and positive adjusted earnings in 2021 with low double digit to mid teen after tax ROE by mid 2021.

Okay, I missed it. Okay. Thank you. Okay. We will talk later. Thank you very much. Congratulations on the improvement. My only observation would be we should be more aggressive in cutting costs, but I'll leave that up to you.

Great, Lee. Thank you very much. Look forward to speaking later.

Thank you. [Operator Instructions]. Our next question is coming from Marco Rodriguez from Stonegate Capital Markets. Your line is now live.

Good morning. Thank you for taking my questions. I was wondering if maybe you could talk a little bit more just from a higher level. You had a very nice presentation on a slide -- excuse me, slide presentation of particular opportunities near-term and long-term for Ocwen. Perhaps maybe you can drill down a little bit more just for the next 12 months if you could just talk about the biggest opportunities you see for Ocwen. And then also on the flipside, just what are the biggest risks you're focused on?

Yes, Marco, how are you? Good morning. Yes, look, I think there's – as we talked about, the opportunities here for us in the near term really focus around I would say maturing our originations platform, so expanding that seller base in both correspondent and flow sellers as well as executing on conversion of our enterprise sales pipeline. So we've got a very robust pipeline there. We've built $125 million of combined subservicing and flow opportunity and portfolio recapture services. So again, near-term opportunity, we do believe is in that performing originations and subservicing space. And historically, we've not really originated a lot of Ginnie Mae product. And as we expand into the Ginnie Mae flow program in the first quarter of 2021, again, I think we can fuel continued growth of our business despite an overall shrinking market. Longer term, I do think there's two dynamics that we’re positioned very well for; so one is in the special servicing arena. Look, it is a very tough time for pockets of consumer segments out there, particularly when you look at Ginnie Mae loans and PLS loans or non-QM with millions of borrowers who are on forbearance plans who are going to need help. We're seeing these borrowers extend their forbearance plans. Unfortunately, the hotel sector, transportation, travel, those sectors, restaurant industry being adversely impacted and you just got to feel for these consumers. And they're going to need help. And look, I think given our proven capabilities in creating non-foreclosure outcomes for consumers, we can help. We can help consumers, we can help investors and we can do that either through subservicing portfolios of people where they have concentrations like this or like we did following the financial crisis to the extent that people don't want to own these assets, we can buy them and service them profitably, assuming obviously we buy them at the right price. And then third I'd say on the long-term side, the whole demographics around the aging population in the United States, we've got a great little reverse mortgage business. We're one of the top originators and servicers in our reverse mortgage space. Liberty Reverse Mortgage is our brand. We go to market with them. Again, that's an area where there's lots of untapped equity in seniors homes. And unfortunately for a lot of seniors, their cash flow doesn't really match their expenditures in retirement. So, our reverse mortgage is a good product to help there. So, that's how I see the environment going forward. Again, I think it's balanced both near term and long term.

Very helpful. And last question just circling back on the enterprise sales force. Just kind of wondering if maybe you can help us understand and frame that opportunity there. In the last few calls, you've mentioned the fact that you're just sort of scratching the surface to use the phrase that you've had there. So can you help us maybe understand and frame out maybe a timeline wise, when it's no longer just scratching the surface? And then sort of what it’s going to take to kind of get there, if you will?

Yes. So I think we will have a matured origination platform probably by the end of 2021. Again, I think we have a lot more room to grow our seller base. We've laid out those objectives there. So it's – in terms of the details, it gets – in a portfolio retention as well to our goals to get to 30% recapturing. So I think the objectives there are to accelerate growth and that's how we're going to measure ourselves going forward in addition to how we're growing our seller base. Second is capacity expansion in our retention services platform. So as we continue to expand operating capacity and continue to increase closed loans and drive higher recapture rate, those will be the key metrics there. And then conversion of our subservicing pipeline or enterprise sales pipeline. I think those are the metrics that we'll look at and continue to talk about through the balance of 2021.

That’s very helpful. Thank you, guys. I really appreciate your time.

Thank you, Marco. I appreciate it.

Thank you. [Operator Instructions]. Our next question today is coming from Jonathan Winick from Clark Street Capital. Your line is now live.

Good morning, Glen. Good progress this quarter. I did see that last week we had another record low rate of the 30-year fixed rate. I believe it was 2.81%. How long do you see this mortgage origination boom lasting? And how does Ocwen seize more of this opportunity without adding a lot of costs that won't be needed when the mortgage origination slow?

Hi. Good morning, Jon. Thanks for your question. I covered on Slide 13, there's the data from Black Knight that said there's 19.3 million high quality refinance eligible borrowers with about $6.5 trillion of untapped home equity. That is a massive opportunity that obviously the entire industry is going after. The industry – so far originations volumes this quarter are not backing off. We're not seeing a reduction in volume. The MBA and Fannie Mae are expecting to see originations tail off in 2020 and 2021. So you're right. Now, Jon, I don't have any better information than the MBA and Fannie Mae forecasts. But I have to say when I look at the Fannie Mae forecast and the Black Knight data, the Black Knight data would suggest the robust origination market probably has more runway than what I see in the Fannie Mae forecast. And in terms of the second part of your question, how do we go after that without adding a lot of cost? I do think our strategy of growing our correspondent platform and our flow seller base through our enterprise sales approach is a very efficient way to grow our originations and portfolio replenishment. Our cost structure there as we – one of the things we may want to think about is the differential in cost structure between correspondent and retail, for example. You just go to general industry statistics, they've drastically different cost structures between a correspondent and flow platform and a retail platform. Retail cost per loan is $7,000 to $8,000 per loan where correspondent and flow your industry average cost structure is probably less than $1,000 alone. So growing that side of our business makes sense from the efficiency standpoint. It's the way to replenish the portfolio the fastest with the least amount of investment in infrastructure. But obviously, it's a balancing game because retail margins are very, very strong, a lot higher than you see in correspondent and flow. And the more you can build that direct relationship with the consumer, the better off you are for long-term portfolio retention. So it is a balancing act. But again, a lot of our portfolio replenishment is coming from correspondent where it's very efficient.

Can you comment on the – I know you've talked about the MSR historic opportunity in the past. Obviously, you're launching this vehicle early next year. Can you comment on what you're seeing in the market for MSRs? Are you seeing more opportunities or is there still a gap between buyers and sellers?

I think it varies, Jon, by product type. So, in the agency market, Fannie, Freddie, for example, I think there's a value alignment between buyers and sellers. Generally speaking, it is a robust market. We're seeing again a lot of volume being delivered through the flow channels, the Fannie Mae SMP [ph] program, the Freddie Mac co-issue exchange program, there's the bulk packages that are going around in the marketplace. The place where we've not seen a lot of bulk transactions get done is in the Ginnie Mae space. I do think there's still some bid-ask spread difference there, but a lot of the Ginnie Mae volume today is being done in their co-issue program, which is something we want to participate in, in the first quarter of next year. So MSR volume continues to be robust, particularly on the GSE side, and the agency side in the Ginnie Mae space I think a lot of independent mortgage banks are holding that product. And I would expect to see more buying coming to market in the next six months.

Thanks, Glen. Thanks, June.

Thanks, Jon.

Thank you.

Thank you. We’ve reached the end of our question-and- answer session. I'd like to turn the floor back over to Glen for any further or closing comments.

Everyone who joined the call today, yes, thank you for your continued interest in Ocwen. We appreciate your support. Here we are, again, we're working with passion and energy to deliver results for our consumers and investors. We're delivering on what we committed to do. Performance trends in the business are looking great and we're very excited about the opportunities for the future. So thank you for your interest in the company and look forward to talking to you next quarter.

Thank you.

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.