Mr. Cooper Group Inc.

Good day, and thank you for standing by. Welcome to Mr. Cooper Group Q2 2022 earnings conference call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Kenneth Posner. You may begin.

Good morning, and welcome to Mr. Cooper Group's second quarter earnings call. My name is Ken Posner, and I'm SVP of Strategic Planning and Investor Relations. With me today are Jay Bray, Chairman and CEO, Chris Marshall, Vice Chairman and President, and Jamie Gao, Executive Vice President and CFO. As a quick reminder, this call is being recorded. Also, you can find the slides on our Investor Relations webpage at investors.mrcoopergroup.com. During the call, we may refer to non-GAAP measures, which are reconciled to GAAP results in the appendix to the slide deck. Also, we may make forward-looking statements, which you should understand could be affected by risk factors that we've identified in our 10-K and other FCC filings. We are not undertaking any commitment to update these statements if conditions change. I'll now turn the call over to Jay.

Thanks, Ken, and good morning, everyone, and welcome to our call. I'll start with the quarter's highlights. And then I'll spend a minute on how we're positioned to deal with the current cycle and possibly a recessionary environment, which obviously is the concern in everyone's mind right now. And after me, Chris and Jamie will take you through operations and the balance sheet as we always do. And then we'll take your questions. So let's start on slide three. And in summary, I'll say the quarter was consistent with our expectations and the guidance we shared in May. and that our results demonstrated the consistency and predictability of our business model. We generated $151 million in net income, thanks largely to a positive mark on our MSR portfolio. Strong net income drove tangible book value per share to $54.51, which is up 46% year-over-year, and that's certainly performance we're quite pleased with. Strong net income also drove our capital ratio above 30%, which puts us in a phenomenal position. The servicing segment earned $30 million in pre-tax income, up from $7 million last quarter, driven by the rise in interest rates as we guided you to expect. Based largely on the forward curve, as well as continuous incremental operating efficiencies, we're now projecting servicing pre-tax income at or above $125 million in the fourth quarter. This steep ramp in servicing income is a huge benefit in this transitional environment, given the obvious pressure on originations. This is exactly the reason we operate with a balanced business model, and it is a major differentiator for Mr. Cooper. In terms of growth, the servicing portfolio exceeded $800 billion, and it's exciting to be making progress towards our $1 trillion target. But you'll notice the growth was a little slower this quarter, and that's because we used more cash for stock repurchase. In fact, we bought back 100 million in shares this quarter, almost three times the level of the first quarter, which shows you how we're constantly thinking about capital allocation and where we can get the best possible returns. You will probably see us continue growing at a modest pace for the next few quarters as we watch to see if more stress develops in the mortgage market. Now, turning to originations, pre-tax income was $63 million, which was slightly ahead of guidance. Last quarter, we made the difficult and necessary decision to reduce capacity, and we tried to do that in a manner that was fair and transparent. Having taken those steps, we're now appropriately aligned with the current level of demand and are continuing to produce new loans with solid margins. I'd like to compliment the Originations team for implementing the necessary changes quickly and without sacrificing focus on our customers. As a result, we hit the strategic target we set last year of 60% refi recapture and then blew past it in July to 68%. Finally, I'll mention some results that don't show up on our income statement but are just as important as those that do. This quarter, we were proud to be certified as a great place to work for the fourth consecutive year and with world-class team member engagement, I might add. Just last month, Fortune magazine named us as one of the best places to work in Texas. And finally, and actually just yesterday, Forbes magazine named us as one of the best employers for women. I'm extremely proud of this recognition because it demonstrates the core element of our business philosophy, which is that we can best serve customers by providing a purposeful, inclusive environment for our team members. So, Let me pause here to say thank you to every single team member at Mr. Cooper for your contribution to the company's results. Now let's turn to slide four and talk about our track record, especially in the context of concerns about a possible recession. You know that today Mr. Cooper is the largest non-bank servicer. But for those of you who weren't following us during the last financial crisis, I'd point out this was a time when our portfolio growth really started to take off. All of our stakeholders, our investors, the agencies, the regulators recognized us as the platform to help homeowners. With their support and approval, we took on very large distressed portfolios from some of the leading banks. We consistently demonstrated that we had the operational skills to work with our customers who were struggling with financial hardships and help them whenever possible to stay in their homes. We saved millions of borrowers from going into foreclosure, and we saved investors and agencies hundreds of millions in losses. Consistently during this period, we cured delinquent loans at a much faster pace than the rest of the industry, which was, again, the best possible outcome for both borrowers and investors. And, of course, it allowed us to significantly expand our business. It was also during this time that we began building our zone auction exchange with the goal of improving and streamlining the foreclosure process. In my view, there's not another mortgage company with as much experience as Mr. Cooper. In a severe recession, I'd expect to see a shakeout among servicers who don't have our capabilities, and I believe that would lead to new growth opportunities for us, just like you saw after the last crisis. Clearly, I'm very proud of our track record, but now let's turn to slide five and talk about how we're positioned today and how we expect to deal with the obvious issues that may emerge in the future. To start with, in addition to our unmatched level of experience, today we have the industry's most efficient servicing platform due to the large investments we've made to develop and expand our best-in-class technology. The investments we've made in automation and digital tools means that whatever the next cycle looks like, we'll be able to manage through it much faster and with significantly less cost than we did in the past. For example, following the enactment of the CARES Act, you saw us roll out digital self-service tools within days. These tools enable borrowers to initiate and manage a forbearance plan with ease. Then, using our automated modification system, we helped almost half a million borrowers exit forbearance and return their loans to current status. At the same time, we improved our overall efficiency and widened our cost advantage over peers, as Chris will show you in a moment. Now, let's talk about subservicing. which I'd remind you represents 51% of our portfolio. In a recessionary environment, we expect our subservicing margins to remain stable or even increase slightly because our contracts include incentive fees based on delinquency status, and our costs are very efficient. Also, we've launched a new specialty default servicer called RightPath, which we recently acquired. The timing of this move wasn't accidental. If we go into recession, special servicing expertise and capacity will be another big differentiator for servicers. As you know, we have a process underway to monetize our zone boxing exchange, which is a high margin digital franchise that sells foreclosed properties. We'd expect the recessionary environment to drive higher volumes and earnings for the exchange and potentially result in a higher valuation. And finally, as Jamie will take you through, our capital and liquidity is rock solid. A strong balance sheet makes us the partner of choice and positions us to exploit dislocations in the market should they occur. And with that, I'll turn the call over to Chris.