Ocwen Financial Corporation NEW

Good morning and welcome to the Auckland Financial Corporation second quarter earnings and business update conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Dico Axaralian, Senior Vice President, Corporate Communications.

Good morning, and thank you for joining us for Ockman's second quarter earnings call. Please note that our earnings release and slide presentation are available on our website. Speaking on the call will be Ockman's Chief Executive Officer, Glenn Messina, and Chief Financial Officer, Sean O'Neill. As a reminder, the presentation or 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 to 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, 2021, and our current and quarterly reports since such dates. 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 statement, whether as a result of new information, future events, or otherwise. In addition, the presentation or 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 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 in the appendix to the investor presentation. Now, I will turn the call over to Glenn Messina.

Thanks, Dico. Good morning, everyone, and thanks for joining us. We're looking forward to sharing our progress with you today. I'd like to start by reviewing a few highlights for the second quarter and take you through our actions to address the challenging and dynamic mortgage market. please turn to slide three. We believe our balanced business model is working as intended, as expected for the first half of this year. Servicing appreciation and profit improvement is offsetting origination's decline. Our second quarter results reflect the impact of continued rising rates, widening spreads, and previously disclosed strategic asset sales, as well as the benefits from our actions to address the market environment. MSR values increased and we improved profitability in forward originations versus the first quarter. This was partially offset by losses and transaction costs of the EBO and MSR sales we discussed last quarter, as well as the market value decline of servicing assets other than MSRs. Our origination team drove meaningful profit improvement in forward originations, while reverse origination profitability was impacted by a steep increase in interest rates and severe spread widening. We improved our mix of higher margin products and services. We had strong subservicing additions and a growing potential opportunity pipeline. We're reducing our cost structure enterprise-wide and targeting roughly $60 million in annualized run rate expense reduction by the fourth quarter of this year versus the second quarter. We've executed or identified actions to achieve at least 90% of that target, and we expect to complete all actions in the third quarter and realize the full run rate benefit of cost reduction actions in the fourth quarter. We closed the second quarter with $266 million in total liquidity. This is a result of dynamically managing our owned MSR portfolio, driving growth in subservicing over owned MSRs, optimizing MSR, warehouse, advanced financing facilities, and our custodial arrangements. To support our capital efficient growth strategy, we're making progress in expanding our relationship with Mav and other MSR funding partnerships. Our prudent liquidity management supports our objective to allocate capital to share repurchases, debt repurchases, and opportunistic MSR investments to deliver value for shareholders. Consistent with the surge in bulk MSR trading activity we're seeing, we believe there will be an increase in M&A activity within the industry and we're maintaining flexibility to consider all value creating alternatives. As we look forward to the second half of the year, our focus will be continuing to leverage our balanced and diversified business model. We expect the third quarter will continue to be a transitional period as we complete our cost reduction actions and other key business initiatives. We are assuming reverse origination margins remain tight and volumes depressed and nominal reduction in forward servicing prepayments. With successful execution of our key initiatives and assuming no further adverse market developments, we expect to deliver after tax ROE before notable items at or above our minimum target of 9% by the fourth quarter. I believe we're well positioned for the risk of a recession in the near term. We've taken decisive action to de-risk our Ginnie Mae portfolio, particularly with our EBO and sale of our most severely delinquent loans. Additionally, more than 50% of our portfolio is subservicing, with reduced exposure to advances, and we're a proven industry leader in special servicing, as well as a Ginnie Mae tier one servicer. I'm pleased with the results in navigating this business cycle, and remain confident in our ability to execute those items that are in our control.