Thank you for standing by. This is the conference operator. Welcome to the Ocwen Financial Corporation’s First Quarter Earnings and Business Update Conference Call. [Operator Instructions] The conference is being recorded. [Operator Instructions] I would now like to turn the conference over to Dico Akseraylian, Senior Vice President, Corporate Communications. Please go ahead.

Good morning, and thank you for joining us for Ocwen’s First Quarter 2023 Earnings Call. Please note that our earnings release and slide presentation are available on our website. Speaking on the call will be Ocwen’s Chair and Chief Executive Officer, Glen Messina; and Chief Financial Officer, Sean O’Neil. 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 at different degrees uncertain. You should bear this uncertainty in mind 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, 2022. 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 reference to non-GAAP financial measures, such as adjusted pretax income and adjusted expenses, among others. We believe these non-GAAP financial measures provide a useful supplement to discussions and analysis of our financial condition because they are measures that management uses to assess the financial performance of our operations and allocate resources. 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 as well as additional information regarding why management believes these measures may be useful to investors may be found in the press release and the appendix of the investor presentation. Now I will turn the call over to Glen Messina.

Thanks, Dico. Good morning, everyone, and thanks for joining our call. We’re looking forward to sharing our progress with you this morning. Today, we’ll review a few highlights for the first quarter, take you through our actions to address the market environment, and discuss why we believe our balanced and diversified business can deliver long-term value. Please turn to Slide 3. We produced solid results in the first quarter, driven by our balanced and diversified business, cost management actions and strong performance in our Servicing segment. We delivered adjusted pretax income of $6 million for the quarter, a $2 million improvement versus the fourth quarter 2022. Our first quarter results reflect improved servicing performance, partially offset by headwinds from lower industry origination volumes. In the first quarter, we reported a GAAP net loss of $40 million, which includes a $39 million pretax unfavorable MSR fair value adjustment, mainly driven by a 30 basis point decline in a 10-year treasury swap rate. Our MSR hedge performed consistent with expectations at the beginning of the quarter, and we’ve increased our MSR coverage to 66% as of April 30 to further mitigate interest rate risk exposure. Beginning in the first quarter, we are reporting adjusted pretax income using actual MSR fair value runoff instead of modeled MSR fair value runoff. We have updated adjusted pretax income for prior periods in this presentation to reflect actual MSR fair value runoff to ease comparisons to prior periods. We believe this is relevant, useful supplemental information for investors, consistent with how our nonbank peers report MSR fair value runoff, and this change has no impact on our GAAP income statements for reporting. Sean will talk more about this later. We continue to drive growth in our servicing portfolio with total UPB and subservicing up versus the…

Thanks, Sean. Please turn to Slide 15 for a few wrap-up comments before we go to Q&A. I’m proud of how our team is executing and the results we delivered in the first quarter. We’ve made solid progress towards achieving our financial objectives. As we continue to execute our business strategy, we believe we are well positioned to navigate the market environment ahead and deliver long-term value for our shareholders. Our balanced and diversified business supports our ability to perform across multiple business cycles. We are executing a focused growth strategy, leveraging our superior operating capabilities to grow subservicing across multiple investor and product types. Our subservicing opportunity pipeline is robust, and we are positioned to deliver value to clients, investors and consumers in an economic downturn. We remain steadfast in our pursuit of industry servicing cost leadership by driving continuous cost and process improvement, and we’ll continue to optimize expenses further during 2023. We remain equally steadfast in maintaining industry-leading operational performance. We have delivered measurable performance improvements for our clients, borrowers and investors and provide an unmatched breadth of capabilities. Finally, we continue to expand our capital partner relationships. We are prudently managing capital and liquidity for economic and interest rate volatility as well as market risks and opportunities. Overall, we’re excited about the potential for our business and do not believe our recent share price is reflective of our financial position, growth opportunities or the strength of our business. With that, Ashia, let’s open up the call for questions.

[Operator Instructions] The first question comes from Derek Sommers from Jefferies.

Can you provide color on the bulk MSR pricing you saw through Q1 and how that has progressed subsequent to quarter end?

Derek. Look, we -- in the fourth quarter of last year, bulk MSR pricing took a pretty severe hit. There was just a lot of supply and not a lot of investors in the marketplace. People had basically spent their cash. In the first quarter, we did see an improvement in bulk pricing. Certainly, it was better than what existed in the fourth quarter, but again, given the supply demand effects that are in the marketplace today, as I noted earlier on the call, I do think if the market is $1 trillion or more as certain industry experts are speculating, it’s going to continue to put a bit of a damper on MSR prices in the bulk market.

Got it. And then 1 more for me. I’m looking at the seller base count at the bottom right of Page 13, and seeing pretty good growth there quarter-over-quarter. What’s driving that? Is that related to banking volatility?

Our enterprise sales team is really focused on developing client relationships that can drive what we call our higher margin product mix. So best efforts, non-delegated and higher-margin products, Ginnie Mae products, for example, and signing of reverse clients and brokers as we continue to grow that business. So it’s good old-fashioned, feet on the street sales effort, focused on growing the clients that can give us the higher margin profit business that we want to originate in this part of the market cycle.

[Operator Instructions] The next question comes from Eric Hagen from BTIG.

Maybe just a couple from me. Can we start by talking about -- can we start by talking about the new reverse subservicing agreement with Finance of America and how much you expect to subservice? What the fee looks like on that business? Just the overall kind of support for being a subservicer in that business. And then on the expense side, are there any expenses that you feel like still need to come out of the business? Or do you feel like you’re rightsized for this interest rate environment? How sensitive do you feel like your expenses might be to a potential pickup in origination volume if we get there?

Sure. Eric, look, we’re excited about the subservicing agreement we just executed with the Finance of America Reverse. I think we stand ready to serve them and deliver value for them. I’d say the agreement is hot off the press, so to speak. It is -- we are still working with FAR to determine what and when and how much of subservicing volume comes our way, but we’re going to continue to work with them. And once we get a closer read on it, we’ll certainly provide an update in our next earnings call. Regarding expenses in the organization, I think as you know, I’ve been focused every year here since I’ve been here on continuous cost improvement. So we are always focused on getting cost out of the organization, period, full stop. So we are targeting to reduce expenses as a percent of UPB for the total company as well as for Servicing and that will continue. Efficiency and productivity is the mainstay of the business. You can’t be in this business if you’re not driving continuous cost improvement, period, full stop. On the origination side of the house, look, we are sizing our infrastructure to the Fannie Mae MBA forecast for industry volume. So we think we are appropriately sized if, in fact, the industry originations volume projection does materialize. We’re going to monitor that closely, also monitor competitive environment closely. Obviously, that can impact how much MSRs we want to buy or invest in. And look, if we either don’t find the pricing attractive and/or industry volume doesn’t materialize, we will take the appropriate actions to rightsize our cost structure appropriately.

That’s really helpful. I’m kind of glad that you guys brought up the valuation in your remarks. It feels to us like the stock valuation is largely a function of the leverage, which is sort of maybe reinforced with quarters like this where MSRs drive a pretty material book value change. So what are the things that you feel like you can do aside from maybe sharing the economics through the MAV structure, which we like and that’s attractive to potentially rightsize the leverage and possibly have that translate into a valuation improvement for the stock?

Yes. In the near term, one of the things we’re doing is, as I mentioned and Sean mentioned is, look, we’ve increased our hedge coverage, right, our MSR interest rate protection. So we’ve taken that ratio to a minimum of 60%, as the end of April, it was 66%, I believe, Sean, correct? Yes, 66%. So first and foremost, it’s protect the asset. Second, as we said, we are developing relationships with a number of different investors to grow our business on a capital-light basis. And as we continue to develop out those structures, we’ll evaluate our portfolio on a relative value basis and see what MSRs we want to keep and what we want to convert to synthetic subservicing. We’ve -- I think I said on last quarter’s earnings call, we are targeting to run our MSR -- owned MSR book between $115 billion to $135 billion. Again, we are -- we own MSRs because we want scale in our portfolio, scale in our servicing factories. So if I can convert those MSRs to synthetic subservicing at attractive economics, we’ll do that, and that helps take, I would say, interest rate risk and leverage out of the business.

This concludes the question-and-answer session. I would like to turn the conference back over to Glen Messina for any closing remarks.

Thanks, Ashia. Look, I’d like to thank our shareholders and key business partners for supporting our business. I’d also like to thank and recognize our Board of Directors and global business team for their hard work and commitment to our success. And I look forward to updating you on our progress at our next earnings call. Thank you for joining.

This concludes today’s conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.