Patrick Flanagan: I think that servicing sale you’re referencing was a third quarter event. There were no bulk sales of servicing in the fourth quarter.
Operator: Your next question comes from John Davis, Raymond James.
Unidentified Analyst : Hi, thanks for taking the question. This is Taylor on for JD. Just maybe to start on the HELOC launch. Can you just talk about the feedback you’ve gotten so far and how the launch has gone versus your expectations when you first rolled it out?
Jeff Walsh: Yes. This is Jeff Walsh. The launch is going well. We’re now in kind of 80% of the market in terms of the opportunity. We’ve been expanding the product offering, and we see becoming a more and more meaningful part of our business going forward, not just the volume and revenue in the short term, but also the kind of the long-term customer opportunities that get created from having those consumers in the portfolio.
Unidentified Analyst : Great. Maybe just one more. It’s good to see your Vision 2025 cost cuts are ahead of schedule. As you’ve gone through the exercise of restructuring your cost structure, have you found any additional opportunities to reduce costs in any particular area?
Patrick Flanagan: Yes. I think — look, I think there’s always opportunity to reduce cost, and we continue every data to get more efficient. I think some are short term in nature and some are longer term. I think the cost-cutting that we’re doing right now mirrors what was going on in 2022. I think longer term, though, we’re really excited about the new LOS platform that was announced recently. We think that over the medium to longer term, that’s going to generate significant cost reduction and efficiency, but also quality and other opportunities for us. So that’s just one example of investments we’re making, there’s many others. So I think we will continue to look at what’s important, I think, is the market and how the market evolves and make cost actions and cost plans accordingly. But we think that we have really good momentum right now coming out of last year and feel good about where we are right now.
Unidentified Analyst : Great. Thanks.
Operator: Next question comes from James Faucette, Morgan Stanley.
Blake Netter: This is Blake Netter on the line for James. Thanks for taking my questions. So in the fourth quarter, cash out refi was about 30% of your volumes. I’m wondering how has that been trending so far during the first quarter and what kind of assumptions are you baking into your outlook for cash out refi given your renewed focus on the purchase market and you recently launched HELOC product?
Patrick Flanagan: Yes. So this is Pat. The HELOC product is inclusive or included in that cash out refinance total. And I would expect that the origination mix remains pretty steady through the fourth quarter going forward. And we’re finding that customers that are benefiting from cash out refinances is significantly less sort of rate dependent as many of that — many of those are cash out and debt consolidation. So I would expect it to remain about steady mix for the rest of the year.
Blake Netter: Got it. And as a quick follow-up to that. Industry-wide, it looks like average FICO scores and cash out refi loans have been declining quite materially over the past year, while on purchased loans have remained relatively flat, so some people are interpreting that to mean the lenders have already finished cashing out the easiest borrower, so to speak and are kind of moving down to like lower credit quality parts of the spectrum. I’m wondering how does that impact your cash out refi outlook? And are you seeing any less opportunity in this space going forward because of that?
Jeff Walsh: I think — this is Jeff. To a degree, I think the HELOC product is meant to serve some of those higher FICO borrowers that maybe have sticker shock when they see some of the current rates. I think going forward, consumers are continually adding to their debt stack, which are at higher rates than even current mortgage rates. So we expect this to continue to see borrowers come to us for that consolidation option, whether it’s HELOC or first lien cash out.
Blake Netter: Got it. Thank you.
Operator: The next question is Bob Napoli, William Blair.
Bob Napoli: Hi, thank you. Good afternoon. I guess trying to get a little more color. I think the most important thing here is to maintain your liquidity and protect as much book value as you can until the market turns. Now it looks like the market is going to be rough for longer. I mean higher interest rates for longer, we may not get a rebound in the mortgage market until, I don’t know, 2025, I mean, you have to be prepared. How are you thinking about that? How much cash do you expect — I mean, at this market, you have to get a way, you have to get to profitability or zero cash burn, so you’re around for the other side. So what are your thoughts on that? How much room do you have? And how — I mean, you’ve done — it’s a really tough question and tough market, and you’ve done a great job reducing expenses.
But it seems like more has to be done to get to where you can generate at least flat free cash flow in this market. So I mean I think some color on how much room you have when — how you can do that in this kind of a market, so you get the benefits when all these high interest rate mortgages are refied a couple of years from now?
Patrick Flanagan: It’s a good question, Bob. This is Pat. I think the first thing to recognize is that our sort of prediction of a $1.5 trillion market is probably significantly lower than most other forecast for the year. So we’ve already started that thought process of building our expense base to be able to get back to profitability in a much smaller market than even we had last year. And we’ll — and we do — are starting to see some seasonal pickup in home purchase activity, and we’ll have to watch very closely to see if that materializes through the spring. I think the other — we are carrying significantly higher cash balance as a percent of total assets than we would normally in a more stabilized market. We’ll continue to protect liquidity.
We have a significant amount of unlevered equity in the MSRs and will — and so that allows us access to additional capital should we need it. But I think we’ve demonstrated over the last year that we have the ability to focus on market conditions and adjust our outperformance of expense cuts of more than $400 million to $519 million is representative of that. Our original view is that the market size would be close to $2 trillion. We adjusted down to $1.5 trillion and made the necessary expense cuts along the way. And so I think we’ll continue that focus on the business, and we have that discipline to adjust to market cycles. And as in my remarks earlier, we would say we’re going to keep our current balance sheet management strategy and focus on maintaining liquidity.
