Greetings. Welcome to the Ocwen Financial Corporation Preliminary Fourth Quarter Earnings and Business Update Conference call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host Dico Akseraylian, Senior Vice President, Corporate Communications. You may begin.

Good morning and thank you for joining us for Ocwen's preliminary fourth quarter 2020 earnings and business update call. Please note that our preliminary fourth 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; 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 and address matters that are uncertain. Important risks and uncertainties that may cause our results to differ from our forward-looking statements are described in our SEC filings. 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 and adjusted expenses among others. We believe these non-GAAP financial measures provide a useful supplement to analysis of our financial condition and 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. The 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. Finally, this presentation and our comments refer to our preliminary fourth quarter financial results. These statements are based on currently available information and reflect our current estimates and assessments. The company has not finished its fourth 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 fourth quarter financial closing procedures. And any such differences could be material. Now I will turn the call over to Glen Messina.

Thanks, Dico and good morning, everyone. Thanks for joining us. Let's get started today on slide 3. We're really energized by the great progress we've made across the company. We've executed an incredible business transformation. We're a better balanced and more diversified mortgage originator and servicer. We're stronger, more efficient and better aligned with future market opportunities. We've concluded our strategic review and are excited to announce an expansion of our strategic alliance with Oaktree Capital with their investment in OFC HoldCo notes. We believe our alliance with Oaktree can enable a level of growth and EPS accretion and potential value creation that we cannot achieve on a standalone basis as well as support the refinancing of our corporate debt. In the fourth quarter, we continued to improve profitability. We delivered record growth in originations and we continued to reshape and diversify our servicing portfolio. As we look ahead, we believe we are well-positioned to capitalize on potential future growth opportunities in multiple market segments and we're focused on executing five straightforward operating objectives to drive improved value for shareholders. Let's jump to slide 6 to discuss the outcome of our strategic review process. Our expanded strategic alliance with Oaktree marks the conclusion to our strategic review process that we announced in May 2020. The objective of our strategic review was to maximize long-term value for Ocwen's shareholders. Our review of alternatives which was overseen by our Board and with the support of Barclays and Crédit Suisse was fulsome and robust. Our outreach was aided by our public announcement of the strategic review process, which also resulted in inbound increase by parties not included in our initial outreach. Now we had discussions with numerous parties and all options were considered. And at the end of the day, there were really…

Thank you, Glen. Please turn to Slide 19. This is our fifth consecutive quarter of positive adjusted pretax income. Revenue decreased quarter-over-quarter driven primarily by lower NRZ subservicing fees, resulting from UPB transfer and runoff. We've been awarded multiple subservicing contracts with projected volume $16 billion to $24 billion and closed approximately $15 billion of MSR bulk purchases which should largely offset the lost revenue. MSR adjustment decrease is driven by fair value calibration for higher one-off which reduced the fair value of MSRs in the third quarter. We also recorded $3 million of higher gain during the quarter largely driven by higher MSR purchase volumes. Operating expense improvement is from leveraging technology and productivity actions as we continued to invest in our originations platform. Adjusted pretax income is $15 million $2 million higher than prior quarter as favorable MSR valuation and lower expenses offset lower revenue. Notables in the fourth quarter include a $13 million additional CFPB accrual and $4 million in other legal accruals. We had higher income tax expense during the quarter which excludes tax benefit on fourth quarter legal accruals which we expect to recognize when paid in 2021 and fourth quarter period adjustment to the CARES Act benefit for higher pretax income than previously estimated for the year. We reported a GAAP net loss of $7 million, $2 million improvement over prior quarter and after the $13 million of additional CFPB accrual, I previously mentioned. Please turn to Slide 20. Our balanced business model is operating well. Originations growth and profitability is replenishing the servicing portfolio and offsetting one-offs. On the left side of the slide, you can see that our multichannel platform is fueling strong originations volume with growth up 164% quarter-over-quarter. Servicing originated volume is up almost 4x quarter-over-quarter driving strong replenishment of…

Thanks June. Wrap up, let's turn to page 24. As I said at the onset, I'm just energized about the opportunities and our potential for 2021 and beyond. We've radically transformed Ocwen. It's a better balanced, diversified, mortgage originator and servicer. Our strategic alliance with Oaktree can provide almost $0.5 billion of incremental capital to enable a level of growth, EPS accretion, and potential value creation that we could just not achieve on a stand-alone basis. We're stronger, more efficient, and better aligned to future market opportunities as a result of all the hard work of the Ocwen global team. We're delivering record growth in originations, and we continue to reshape and diversify our servicing portfolio. As we look to the opportunities ahead, we believe, we're fairly well positioned to capitalize on the potential future growth opportunities in multiple market segments. Yes, in 2021, we're focused on executing five straightforward objectives to drive improved value for shareholders and achieve our goal of low double-digit to mid-teen after-tax return on equities by mid-2021. And none of this would be possible without all the hard work of our global Ocwen team. So, I want to thank our Board and global team members for their tireless efforts to transform Ocwen and their service to homeowners' communities and investors. And with that, Shamali, let's open it up for questions.

Certainly. At this time, we will be conducting a question-and-answer session. [Operator Instructions] And our first question is from Lee Cooperman with Omega Family Office. Please proceed with your question.

Thank you. You've provided a tremendous amount of information here, as I have spent some time digesting it, but I congratulate you. Based upon everything you've said, it seems very positive. I'm a little confused and I have a feeling that has to do with time frame. On page 3 of the presentation, you talk about low-digit -- low double-digit to mid-teen after-tax return on equity. And then on page 8, you talk about $10 to $12.10 a share in earnings. Number one, what is the pro forma book value now after the second transaction with Oaktree? What are we looking in terms of book value?

Yes, Lee, based on the current $414 million of equity capital at Ocwen, our current book value per share and this is on page 27 of the presentation for future reference is $47.65. And after execution of all the warrants that were granted to Oaktree and again assuming the proceeds from those warrants come into the company, related to executing those warrants. We would expect the diluted book value per share to be $44.87, again starting with the $414 million.

Okay. So the return on equity of low double-digit to mid-teens, should be applied against that $44.87 number?

I don't think so, Lee. So it all depends on when Oaktree executes the warrants, right? So, if they execute them right upfront then obviously the additional capital comes in the business and the dilution happens. We're assuming in our targets that the warrants aren't immediately exercised. They wouldn't be exercised until some future date. So our low double-digit to mid-teen returns is really focused on the $414 million of equity.

Well, so the $10 to $12.10 of incremental earnings what time frame are we talking about? It's obviously not 2021.

Yeah. Lee, we think it will take about two years to fully invest all the proceeds that are coming in from Oaktree both in terms of MAV as well as the on book capital. We'll obviously invest it as fast as we can. And obviously, it's a great market environment now. So I think there's lots of near-term opportunity to invest. But for purposes of what we laid out here, we are assuming it takes about two years to invest the proceeds.

Okay. So the two years generate incremental $10 to $12 in earnings then the return on equity would be materially different?

Yeah, that's right, Lee. So again, if you do the math coming off of page 27, it would imply a return on equity of about 22% to 26%.

Right, right. Just a few other questions if I may. Oaktree has access to information that public doesn't have which is understandable since they've made such a large investment. Can we derive some comfort from their willingness to invest close to $0.5 billion as regards to CFPB litigation?

Look, Lee as you might imagine Oaktree putting up almost $0.5 billion of capital into the company. They performed the requisite diligence that's commensurate with that size of investment. And look I think their commitment to the company the size of their investment and the duration of their investment, reflects a strong commitment to the company and our growth potential and obviously they evaluated the risks and opportunities associated with the company. And we're excited to have them as a partner. I think it takes the company to a whole new level having Oaktree as a partner.

Okay. With this new capital coming in I assume the refinancing will no longer be conditional that the refinancing will move ahead?

Look, it's got to be – certainly market conditions can always impact any refinancing. But look we feel really good about the Oaktree Capital coming in, and how that sets us up to do the refinancing. It's a great market in the high-yield market. We're going to – obviously time is of the essence so we want to react quickly here. But again, we think the Oaktree additional investment here is a huge boost in our ability to execute our refinancing plan.

Last question, really revolves around cost of capital. People like PFSI and COOP are financing at around 4.5% without warrants. We're taking 12.5% money and giving warrants. Are we cost competitive vis-à-vis our competition given our cost of capital?

Lee, look based on where return leverage returns are in the MSR environment today and the fact that we're not growing solely through on book capital we're using MAV for example to create additional fee income, which enhances our base level of return on equity I think we are. One of the things that we've done in the business to drive our improved competitiveness is we just relentlessly focused on cost and operational execution. And they go hand-in-hand. So just cutting costs without improving operational execution just creates cost in a different way. So look we will continue to be passionate and resolute in driving an industry best practice cost structure in the business, which helps offset our cost of capital as it exists today. But look Lee as the business improves and as profit improves, we expect it will produce – it will help us lower our cost of capital over time.

Right. And just as an observation it's far off into the future, it's not now. But given where the stock trades and your pro forma book value and the anticipated $10 to $12 of incremental earnings, are we going to generate the free cash flow to take advantage of Mr. Market where we could shrink equity to offset some of this dilution that we're creating through the warrants?

Yes. Lee, one of the benefits of having this incremental capital come in to support on book MSR investments is, on book MSR has generated great cash flow. They have very strong cash flow dynamics. So as we continue to invest and scale up our operation and take advantage of our scalable and efficient platform, we expect cash flow will improve, along with the earnings of the company. And EBITDA so to speak will improve with earnings of the company. And under the current HoldCo note structures as I mentioned earlier we -- assuming the refinancing gets done we'll have structurally increased flexibility to execute share repurchases as long as we're on target with our growth expectations and profit expectations.

All right. Thank you very much. Good luck. And congratulations on your refinancing.

Thank you, Lee. Appreciate it.

[Operator Instructions] Our next question is from Marco Rodriguez with Stonegate Capital Markets. Please proceed with your question.

Good morning, everyone. Thank you for taking my question.

Good morning.

Hey. I was wondering if maybe you could talk a little bit more about the strategic review process. Just kind of – obviously, I understand the -- what has been done here terms with Oaktree. But I'm just wondering if you could talk a little bit about the other potentials that you kind of reviewed and just kind of frame them in terms of compare and contrast if you can between what you guys basically executed right now?

Yes sure. So Marco, as I mentioned earlier and mentioned during the course of 2020 as the strategic review is ongoing, all options were on the table. So we did have a very broad outreach to many players within both strategic and financial investors and we did have reverse inquiry come into the business as well because it was a public process. We're open about it. We looked at a variety of different things from refinancing transactions to potential merger transactions. As I said earlier, there really were no actionable merger opportunities. I want to say that we got great feedback during the strategic review process, people were impressed by the turnaround performance here in the business and the transformation that we've done. But from an M&A perspective or a merger perspective, look this is a very hot originations market. As you can see in the press and the papers and the industry, a lot of folks with big originations platforms are looking to monetize their investment and are looking to get bigger in originations. So we found that look from an M&A perspective, there generally, I think valuation expectations are very high amongst originators. And as a result I'm just not sure there was anything as compelling quite frankly as the Oaktree proposal. As it relates to the Oaktree proposal, there were other similar structures that were presented during the course of the process. It was a -- obviously people executed confidentiality agreement. So we didn't necessarily share information across people, but you can't do that. So, but look Oaktree was not the only proposal with this kind of structure, but it certainly was the most competitive. And we believe the aggregate commitment of capital and again their relationship on the MAV side as well as the PHH side, the Ocwen side of the house creates a terrific alignment of interest across the business. So we intend to work cooperatively, built a great relationship with folks over at Oaktree, we're excited about working with them going forward.

Got it. Very helpful. And then in terms of your origination volumes in the quarter pretty substantial growth sequentially. Can you maybe talk a little bit about the drivers there?

Yes. Our originations team is doing a terrific job. The enterprise sales model that we've put in place, which again allows us to sell the total portfolio of what we do, so bulk purchase of MSRs using the agency co-delivery methods, the cash window, our correspondent channel, offering portfolio recapture services, offering subservicing, our special servicing capability, it's a very broad and comprehensive product set. Our enterprise sales team does a great job selling that. You could see we had -- we've tripled the number of sellers that we deal with in our flow and co-issue and correspondent program. And the team continues to ramp up, right? So we're targeting 450 for next year. And we're going to continue to expand products and introduce Ginnie Mae and non-QM and Jumbo and expand our services as well. So bringing in our best efforts delivery and non-delegated as well. So, look the enterprise sales model for us has just been terrific. We've gotten bulk. We've gotten subservicing new S&P sellers, it's really helped us build the originations platform, but look we're not done. I think there's more opportunity here. And frankly, I think we're just scratching surface. There's a lot of services and products we could bring into our originations channel that other competitors have today and we don't. So we think there's an opportunity to enhance our competitive position here.

Got it. And last quick question here for me. Just looking at your earnings and profitability framework for 2021. Can you maybe just talk a little bit about what you see as the biggest growth drivers there and then perhaps also frame where you might need to do a little bit more work to kind of obtain these goals if you will?

Yes. So the biggest growth drivers are obviously on book servicing, so building or rebuilding that owned MSR portfolio. And as well enhancing that by substantially building out, our subservicing capabilities, our subservicing earnings contribution from MAV. So those are really the two drivers of what's going to fuel the earnings performance of the business. And as I mentioned to Lee, it also -- obviously, the owned servicing has very strong cash flow dynamics. So that helps build the cash flow performance of the business, which then creates capital to reinvest right in more MSR. So it becomes kind of the flywheel effect, as you begin to move the business forward. It's all about scaling up originations for us in terms of delivering that capability. Now we are expecting to see a relatively robust bulk market. It has been very active so far in the first quarter. It was very active in the fourth quarter. We closed $15 billion of bulk transactions. We are seeing activity here in the first quarter. So, continuing to expand our activities in the bulk market kind of job one, right? So that helps us fill MAV and fill our books quickly. But we also want to continue to grow that correspondent seller base and grow our flow programs. Again, I think we're just scratching the surface. If you have a mature correspondent platform you probably have 600 to 700 sellers -- active sellers at any given point in time. And again, we're only half of that, right? So scaling up the originations team scaling up our sales team getting more feet on the street, getting out there and being more present and visible in the market expanding those products and services will really help us fuel the growth of the correspondent platform.

Got it. Thanks a lot guys. I really appreciate your time.

Hey, thanks, Marco.

And we have reached the end of the question-and-answer session. And I will now turn the call over to President and CEO, Glen Messina for closing remarks.

Thanks Shamali. Hey, everyone, thank you so much for taking the time to be on our business update call today. Again, just couldn't be more energized about the opportunities we have in front of us for 2021 and beyond. The whole Ocwen team here has just been moving at an incredible pace to radically transform this business and create significant amount of opportunities ahead for us to grow and mature and expand our business. I'm grateful and appreciative to the team at Oaktree who worked tirelessly with us as well through the strategic process and just very much appreciate their vote of confidence in the business and our leadership team. So thanks everyone. Appreciate your support and look forward to talking to you at the end of the first quarter.

And this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.