Ocwen Financial Corporation (NYSE:OCN) Q1 2023 Earnings Call Transcript

Ocwen Financial Corporation (NYSE:OCN) Q1 2023 Earnings Call Transcript May 4, 2023

Operator: 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. The conference is being recorded. I would now like to turn the conference over to Dico Akseraylian, Senior Vice President, Corporate Communications. Please go ahead.

Dico Akseraylian: 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.

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 fourth quarter of 2022. We are seeing the benefits of our cost reduction actions with total operating expenses down in the first quarter, over $100 million annualized versus the second quarter of 2022. Total liquidity of $233 million is up 7% versus the fourth quarter of 2022, and we continue to take a prudent view of our liquidity and capital, given interest rate and economic volatility, potential cash consumption from our increased MSR hedge coverage position, and market risks and opportunities. Lastly, I’m pleased to report the court entered a final judgment in the company’s favor in the CFPB matter and closed the case.

Overall, I’m pleased with our results and believe our balanced and diversified business is performing well. I remain confident in our ability to execute on those items within our control. Let’s turn to Slide 4 to discuss the environment and our value creation plan. The conditions in servicing continue to be favorable. We are seeing the benefits of slower MSR runoff, higher float earnings and low delinquencies as well as the benefit of our portfolio growth and cost reduction actions. MSR trading volumes in the bulk market remain elevated and industry sources are speculating trading volumes may exceed last year’s level of $1 trillion. While this represents a potential investment opportunity in low coupon MSRs, it is driving reduced investor demand for current coupon MSRs and generally puts downward pressure on MSR values.

Potential client interest in subservicing remains strong, and our opportunity pipeline has grown since the fourth quarter. However, we are seeing the recent banking issues and market volatility, distracting clients and extending RFP processes and decision-making. Opportunistic asset purchase transactions are beginning to appear as is interest from investors, or seeking partners to source and service MSRs, whole loans and nonperforming loans. Moving to originations. We expect market conditions to continue to be challenging. The most recent industry origination projections for 2023 from Fannie Mae and the MBA have been revised slightly lower since our last earnings call. We expect nominal refinance activity across the industry in general. Our owned MSR portfolio has a 3.8% weighted average coupon, so if the 30-year mortgage rates dropped from the current level of 6.5% to 4.5%, we expect roughly 8% of our portfolio would be refinance eligible.

GSE actions to support enterprise goals are driving pricing and margin volatility. Competition remains intense, and we continue to see market leaders in correspondent and co-issue with substantially more aggressive view of new origination MSR values relative to bull market levels. We are seeing high M&A opportunities in both origination and servicing. As we’ve said before, the Board and management are committed to evaluating all options to maximize value for shareholders. In this environment, we believe our core strength in servicing is the right foundation. Our value creation plan remains unchanged, leverage our balance and diversified business, prudent growth adapted to the environment, industry-leading servicing cost structure, top-tier operational performance and unmatched breadth of capabilities and capital partner relationships to support our growth.

Let’s turn to Slide 5 to discuss our balanced and diversified business. Our MSR investment, balanced business and key operating actions have driven consistent annual GAAP income improvements since 2019. Change in interest rates do impact the value of our MSRs and that can drive quarterly volatility in our GAAP net income. Over the past several quarters, while originations adjusted pretax income has been depressed due to rising interest rates and declining industry volume levels, higher interest rates are helping to drive improvement in servicing adjusted pretax income. Based on the Fannie Mae and MBA forecast for interest rates and industry volume, we expect originations profitability will remain depressed, while servicing adjusted pretax income is expected to improve for full year 2023 versus 2022.

Based on projected seasonality and home purchase activity, we expect to see seasonal changes in origination volume, portfolio prepayments and MSR runoff. Similarly, trends in property tax remittances and escalating insurance costs and their effect on escrow balances will also drive seasonal changes in MSR runoff. Our focus on diversification is evident when looking at our portfolio composition. Our operating performance and proven capabilities have supported material growth in forward and reverse subservicing. We believe our emphasis on growing subservicing and owned MSRs also helps mitigate our exposure to liquidity demands due to advancing requirements in the event of a recession. The segments of our portfolio where we have more significant responsibility for advancing payments, loan repurchases as well as revenue risk with bar delinquency, RPLS and Ginnie Mae owned MSRs. However, these segments only comprise 12% of our portfolio.

Let’s turn to Slide 6 to discuss our growth in the current environment. Our Originations team performed well in the first quarter, delivering subservicing growth, improving our mix of higher-margin products and growing our subservicing opportunity pipeline. Total servicing additions were roughly $17.5 billion. MSR originations were down 24% versus the fourth quarter and subservicing additions of roughly $13 billion for the quarter was consistent with our expectations. Our servicing additions drove continued growth in both our owned MSR and subservicing portfolios versus the prior year and the fourth quarter. We’ve added $119 billion in subservicing in the last 24 months and increased our potential opportunity pipeline to $325 billion. We are targeting to add another $30 billion in subservicing between Q2 and Q4, most of which is expected to board in the fourth quarter.

We recognize the trust our clients are placing in us to serve their borrowers and investors, we take this responsibility seriously, and we will deliver on our commitments. Our originations team continues to deliver on our objective of increasing our mix of higher margin origination products, which is up 4 percentage points versus the fourth quarter of 2022 and 13 percentage points versus the first quarter last year. We believe our enterprise sales approach, multichannel strategy and breadth of capabilities will continue to drive portfolio growth in 2023. Please turn to Slide 7 for an update on our expense management actions. We remain committed to achieving and maintaining an industry-leading Servicing cost structure. We’re driving automation, digital migration and other systemic process enhancements, consistent with our technology road map and focus on continuous process improvement and the customer experience.

And we continue to leverage our proprietary global operating platform, which has been in place for over 20 years and supports all business activities. Total company expenses and servicing operating expenses as a percent of UPB remained well below prior year levels. In the first quarter, we did see a seasonal increase in expenses versus the fourth quarter, and we added staff to provide additional client support activities and reverse subservicing. Notwithstanding, we continue to target further reduction in total company and servicing operating expenses as a percent of UPB by year-end. With the improvements in our cost structure, scaling up our servicing portfolio through capital-light subservicing is a key priority. Assuming a standard GSE subservicing profile, we believe we could add between 2.5 to 3 basis points in pretax income per $1 billion of UPB added.

We would expect the profit contribution from government, reverse, commercial and special servicing additions to have a more favorable pretax income contribution. We’ve been able to grow our subservicing UPB by over $80 billion in the last 2 years, and we’re targeting to increase our subservicing portfolio by $39 billion for the balance of the year. This does not include any potential bulk MSR purchase activity with Capital Partners. Please turn to Slide 8 for an update on our operating performance. We continue to maintain industry-leading operational performance, improved service delivery to customers, clients and investors, and sustain a prudent risk and compliance framework. Our breadth of capabilities is unmatched in the industry. We service forward, reverse and small balance commercial loan portfolios covering GSE, Ginnie Mae, Federal Home Loan Bank and private label products.

As you can see, our team delivers massive servicing performance improvements for clients versus our competitors across several critical metrics. This differentiated performance creates a better consumer experience as well as decreased costs and improved MSR returns for clients. Our industry-leading performance has again been recognized by investors with top servicer performance ratings by the agencies and our forward servicer ratings have been upgraded by S&P and Fitch to above average with a stable outlook. We continue to demonstrate proven leadership in special servicing in both forward and reverse. In forward, for all loans that were over 60 days past due when boarded in 2021, we achieved a 67% cumulative cured rate within 12 months from the date of boarding.

In reverse, for our clients where we have assumed managing claims collateral to support HUD assignment claims, we have driven a 23% reduction in aged assignment claims and a 56% increase in loan assignments. Through our investment in technology and global operating capability, we’ve built an efficient and mature platform with capacity for growth that delivers industry-leading performance and improved financial outcomes for clients. Please turn to Slide 9. We continue to focus on expanding our capital partner relationships to support our growth objectives on a capital-light basis. Since completing the upsize in mid-fourth quarter, MAV has purchased $17 billion in MSR UPB at attractive pricing levels, and we have remaining capacity for growth.

We’ve also closed 2 trades with 2 new capital partners, and we’re targeting an additional 2 capital partners in the second quarter. With these new capital partners, we’ve implemented an MSR best execution structure for flow sales of MSR purchased through our origination channels, further enhancing our ability to generate capital-light growth. Looking ahead, we’re focused on developing additional investor relationships to support our growth objectives across multiple asset types. We are evaluating a diverse range of potential structures across our potential capital partners to satisfy the unique needs of each investor and for the diversifier structural alternatives. We believe the development of an investor — of investor relationships will further help us achieve our servicing scale objectives on a capital-light basis.

In addition, our investor-driven approach to MSR purchases introduces an added level of price discipline to our independent valuation expert benchmarking process as well as mitigates interest rate risk exposure. I want to thank our business partners at Oaktree and our new MSR investor partners for the trust and confidence they have placed in our team to help them achieve their growth and profitability objectives. And now I’ll turn it over to Sean to discuss our results for the fourth quarter.

Sean O’Neil: Thank you, Glen. Please turn to Slide 10 for our financial highlights. In the first quarter of 2023, we recognized GAAP net income of negative $40 million due primarily to a decline of $46 million in the forward MSR value drive. This was driven exclusively by interest rate movements in the quarter. The adjusted pretax net income, which is a non-GAAP metric, for the same period was a positive $6 million and the earnings per share was negative $5.34, which led to a book value per share of $55. I will cover the MSR valuation in more detail on the next page. Liquidity was strong in the quarter with an ending balance of $233 million. This is well in excess of any covenants or requirements, including the new FHFA and Ginnie Mae requirements that begin in September of this year.

The walk on the right side of the page has the main drivers of improvement from end of year adjusted pretax income of positive $4 million to the current quarter of positive $6 million. The initial adjustment is a recalibration of how we record our runoff for adjusted pretax income, which Glen mentioned on the opening page. This resulted in the restatement of the fourth quarter 2022 — sorry, fourth quarter 2022 adjusted pretax income to a positive $4 million. Here are the details. 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 the prior periods in this presentation to reflect actual MSR fair value runoff.

This adjustment impacted adjusted PTI by $9 million in the first quarter of ‘23 and $7.5 million in the fourth quarter of 2022. We believe reporting actual MSR fair value runoff provides additional, important and relevant information for investors, which was previously not readily observable. Actual MSR fair value runoff is a metric used by management to assess the performance of our servicing segment and the owned MSR portfolio, and we believe it is more consistent with how our nonbank peers report MSR fair value runoff as well. Modeled MSR runoff is still presented in Note 7 to our financial statements in our 10-Q as realization of expected cash flows. This change will have no impact on our GAAP net income reporting. Then moving to the right, servicing continued its strong performance and grew adjusted pretax income by $5 million for a total of $30 million in the quarter, which I will cover in later slides.

On the overhead line, controlling costs at the levels we came down to in the fourth quarter of 2022 continues to be critical. And the increase in overhead is not due to increased staffing, but rather seasonal impacts such as higher accruals for variable compensation in 2023 versus last year in payroll taxes. Excluding the variable compensation accrual, the overall overhead expense declined in the first quarter versus prior quarter. Finally, origination continued to have volume and margin challenges that brought adjusted pretax income down by $2 million quarter-over-quarter. More on that in a later segment slide. I’d like to recap the notable items for the quarter that connect adjusted pretax income to GAAP net income. We provide adjusted pretax income for greater investor transparency, and it is a metric we use in managing the business.

The first quarter notables, which are detailed in the appendix, are comprised primarily of the $30 million decline in MSR fair value adjustments, net of hedge, and then $4 million loss in other notables mostly from $4 million negative impact of severance, $2 million negative impact from legacy legal settlements, and a positive $2 million impact due to reduced expense in our long-term incentive plan due to stock price fluctuation. In terms of adjusting guidance for 2023, the only changes we are making are, the servicing segment forecast shows a slightly lower UPB growth for the year. We are forecasting $75 billion of UPB gross adds. And this has no significant impact to our outlook on the servicing pretax income overall as we can adjust our variable costs in line with volume brought on.

On the origination side, our segment forecast shows a reduction in volume to $4.5 billion to $5.5 billion per quarter with no change to the revenue margin forecast. For more information on our MSR valuation, please turn to Page 11. This page focuses solely on our forward MSR valuation, which had a net decline of $47 million for the quarter. The appendix will show that the reverse MSR gained $7 million in the quarter as reverse MSRs are a natural hedge to the forward MSR. Of the forward decline in value over 100% or $49 million is attributed to changes in interest rates. This is primarily the 5- and 10-year treasury rates, which were down blended 30 basis points over the quarter. That was offset by $2 million of positive assumption or modeling changes.

Our third-party valuation expert uses interest rates versus the primary mortgage rates to value the MSRs. The mortgage rates declined by a smaller amount in the first quarter versus the 5- and the 10-year treasury swap rates. This drove a steeper decline versus a similarly sized MSR portfolio that would be valued on the primary mortgage rate, which is what the borrowers pay. Coming back to the box on the left. The top graph shows in light blue, the increase or decrease each quarter of the MSR value due to interest rates. The dark blue indicates the change in valuation due to model inputs and assumptions, such as potential future losses in portfolios during a recession, which drove some of the fourth quarter changes. The bottom graph can be built from the quarterly appendix date that is titled MSR valuation assumptions, which is Page 28 in the stack.

And this shows our total book still having a fair value multiple in the first quarter higher than a year ago with the GSE component of our book being at roughly the same multiple. This multiple doesn’t take into consideration the derisking of our portfolio over the last 5 quarters, where we converted $46 billion UPB of owned MSR into excess servicing strips or sales, which reduces the impact of rates. Finally, as Glen mentioned, we have increased our hedge coverage ratio from 37% at the end of 2022 to 66% as of the end of April. This helps to protect both our GAAP net income in future periods and our adjusted net worth if rates decline. Now we will cover more detailed segment information on Page 12 where we start with our Servicing segment.

This is both forward and reverse. Let’s begin with adjusted pretax income in the upper left chart. The Servicing business continued a trend of increasing profitability in the forward and reverse Servicing areas and the result was a positive $30 million or up $5 million from the last quarter of adjusted pretax income. The improvement in the forward servicing area was a function of higher servicing fees as UPB rose, improved float income, lower delinquencies on our own book and lower than modeled MSR runoff. Reverse servicing also improved by 16% quarter-over-quarter, primarily due to better ancillary fees as we improve claim filing processes for the Ginnie Mae HECM reverse loans and saw better tail securitization gain. Moving to the right, subsservicing growth improved even more in the first quarter than it did in the fourth quarter with $155 billion UPB and subservicing growing to $162 million, as did the overall book, which includes subservicing, which grew from $290 billion to $298 billion UPB.

This growth continues to provide scale, drives down our servicing costs and creates marginally higher income. We also won a major new client in the reverse space and should see those MSRs or hope to see those MSRs start to board later in the year. As expected, improvements in float income continued as our custodial balances grew from a seasonal fourth quarter trough due to taxes, which was $1.5 billion, up to the first quarter closing balance of $1.9 billion of custodial balances. This generated an additional $4 million of float income quarter-over-quarter, which was partially offset by higher interest expense in the segment on MSR advanced lending and MSR financing as SOFR rates increased during the quarter. Finally, like any successful servicer must do, we continuously improve our cost structure while keeping quality and customer service at the forefront.

You can see in the lower right graph, that improving trend. There was a slight increase in the first quarter as we temporarily added some staff to generate the higher fees that I mentioned earlier in the reverse servicing area as well as some of the seasonal changes, which impact the expense base. Please turn to Page 13 for an overview on our origination segment and also the forward and reverse. The origination business continues to experience a challenging environment with continued lower volumes in Correspondent, Consumer Direct and all of our reverse channels. You can see that in the bullets to the left. The Correspondent margins can be partly attributed to the disconnect previously mentioned between MSR values at origination versus the bulk market.

Specifically, Correspondent flow lending delivered a small loss as we are not chasing margins, but rather pricing for an appropriate return. Besides controlling costs, the Correspondent business continued to have a focus on higher-margin products, which you can see with an illustrative example of best efforts in the Ginnie Mae product in the lower left graph. This helped alleviate some mandatory lower volumes. The growth in these products is directly attributed to our enterprise sales force continuing to expand the base of sellers, especially those in multiple channels, such as clients that participate in forward Correspondent, reverse and/or Consumer Direct. Moving to Consumer Direct. The volume again declined quarter-over-quarter, but we were able to offset most of that with better margins, continued cost reductions and posted the similar losses in the prior quarter.

The reverse channel and origination created a small profit for the quarter and is showing the momentum in new application volume heading into the second quarter as well as adding new clients. Finally, please turn to Page 14 for a view on our stock price, both relative to our peers as well as relevant indexes and the book value per share. Our book value per share is at $54.50 with the declines in MSR value due to interest rates primarily driving the change from the third quarter 2022 peak. Similar to year-end at the end of the first quarter ‘23, our stock was trading at 50% of current book. While this is an improvement over most of the 2022 trading range, we think this discount is not representative of the value we are creating nor of our current balance sheet.

Finally, I will point out using the same starting point that we have used in prior quarters, which is 2020 year-end, our stock continues to outperform not just the Russell 2000, but also a basket of our peers. This basket of our peers is the same basket that we have in our proxy, and we also show it in the end notes for your convenience. Before I turn the mic back to Glen, I want to point out to investors a few additional data points that sit in our appendix. We continue to provide data on fully diluted shares in equity as well as information on the Oaktree warrants, which are described in our 10-K, either the 2021 version or the 2022 version. On our MSR valuation assumption on Page 28, we showed the valuation multiples in the trailing quarter for ease of reference.

With respect to our balance sheet, we provide a more granular view on Page 19 titled condensed balance sheet breakdown. This delineates assets that require matching asset and liability gross ups under GAAP treatment. This is primarily due to an inability to achieve accounting through sale and these balance sheet impacts fall into roughly 3 categories. The first category is the assets held at MAV and Rithm. The second category is reverse HECM assets and the final category is Ginnie Mae MSRs that are not eligible for an early buyout, commonly referred to as EBOs. Back to you, Glen.

Glen Messina: 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.

Q&A Session

Operator: The first question comes from Derek Sommers from Jefferies.

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

Glen Messina: 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.

Derek Sommers: 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?

Glen Messina: 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: The next question comes from Eric Hagen from BTIG.

Eric Hagen: 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?

Glen Messina: 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.

Eric Hagen: 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?

Glen Messina: 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.

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

Glen Messina: 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.

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