Ocwen Financial Corporation
Q2 2018 Earnings Call Transcript

Published: 26 Jul 2018

[Operator:]

Good day, ladies and gentlemen, and welcome to the Ocwen Financial Second Quarter 2018 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this call may be recorded. I would now like to turn the conference over to Mr. Steve Swett from ICR. Sir, you may begin.

[Steve Swett:]

Good morning, and thank you for joining us for Ocwen’s second quarter 2018 earnings call. Please note that our second quarter 2018 earnings release and slide presentation have been released and are available on our website for your review. Speaking on the call, we have Ocwen’s Chief Executive Officer John Britti; and Chief Accounting Officer, Cathy Dondzila. As a reminder, the presentation and our comments today may contain forward-looking statements made pursuant to the safe harbor provisions of federal securities laws. These forward-looking statements may be identified by reference to a future period or by use of forward-looking terminology. Forward-looking statements by their nature address matters that are to different degrees, uncertain. Our business has been undergoing substantial change, which has magnified such uncertainty. You should bear these factors in mind in considering such statements and should not place undue reliance on such statements. Forward-looking statements involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially. In the past, actual results have differed 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 references to non-GAAP financial measures such as adjusted operating expense, adjusted pre-tax income, adjusted pre-tax income before corporate debt expense, normalized adjusted cash flow from operations, available liquidity and adjusted liquidity among others. We believe these non-GAAP financial measures provide useful supplement to discussions and analysis of our financial condition. We also believe these non-GAAP financial measures provide an alternate way to view certain aspects of our business that is instructive. 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. For an elaboration of these factors I just discussed, please refer to our presentation in today’s earnings release as well as the Company’s filings with the SEC, including Ocwen’s 2017 Form 10-K and first and second quarter 2018 Forms 10-Q, which are available on our website. Now, I will turn the call over to John.

[John Britti:]

Thanks, Steve. Good morning and thank you for joining us today. First, a few comments about our executive team. As you know, our colleague Ron Faris, concluded his tenure as President and CEO of Ocwen after over 27 years. We thank him for stewardship and wish him the best. As we have also previously said, Glen Messina will assume the role of Ocwen’s President and CEO upon the close of the PHH transaction. Until that time, I will serve on an interim basis as CEO of Ocwen. As announced last week, Cathy Dondzila, our Chief Accounting Officer, serves as our Principal Financial Officer for SEC reporting purposes until we name a new CFO. The CFO search process is already underway. Since our last earnings release, our focus has remained on the strategies that we have previously outlined to drive stronger financial performance and continue the transformation of Ocwen. While there are many things we do day to day to improve performance of the Company such as managing the efficiency of our operation and providing excellent customer service, we have been and will continue to focus on four key areas in the near-term. These are helping homeowners resolving legacy, legal and regulatory matters; investing our excess cash; and preparing for closing of our acquisition of PHH. We realized that these current areas of focus may not in themselves be sufficient to complete a transformation to enable us to resume growth and profitability. Nevertheless, success in these four areas, particularly the closing of the PHH transaction and capturing of potential synergies are necessary steps in that process and position us very well to we move our business forward. Regarding the first area, an important part of the Ocwen tradition is our motto that we all take to heart. That motto is helping homeowners is what we do. In the second quarter, we helped over 10,700 families remain in their home and get a fresh start to a loan modification. Modifications help homeowners into sustainable performing loans while also providing better outcomes to mortgage loan investors. Our servicing segment achieved all this while having its eighth consecutive quarter of positive pretax earnings. Since 2008, we have provided modifications to over 786,000 families and we remain an industry leader in providing sustainable loan modifications to home owners. In addition to modification activity, our forward lending business specializes in helping homeowners, access better loan terms to refinances, while our reverse lending helps senior homeowners access equity in their homes. During the quarter, we helped over 1,100 of our servicing customers refinance into a better loan. Meanwhile, our reverse lending business helped over 1,200 seniors and their families convert home equity into cash. With regard to legacy matters, we believe that as a result of court ruling, settlements and ongoing negotiation, we’re continuing to make progress on this front. These legacy legal and regulatory issues remain a focus as they have both hampered our ability to grow and create uncertainty for our investors. I refer you to our second quarter 10-K disclosures for more detail on our progress in these matters. Another important task has been the deployment of excess cash. As discussed on last quarter’s earnings call, we’ve executed clean-up calls that we own. We own clean-up calls in approximately $18 billion of UPB and we expect to continue deploying capital on these calls. In the past few months, we’ve executed calls on 14 deals with unpaid principal balance of about $85 million. In general, we believe these calls have attractive asset returns that we estimate will exceed 10%. We have also deployed cash into somewhat lower yielding short and medium-term investments that reduce our debt service costs. Notwithstanding the importance [ph] of the first three areas, a particular area of emphasis in recent months has been and will remain developing a successful integration plan for our pending acquisition of PHH. We believe this transaction will have many operational and financial benefits, including helping us move on to the Black Knight MSP platform more quickly and with less risk than a de novo implementation might acquire. Transition to MSP is a necessary condition for future growth in our servicing portfolio. In addition, we believe it will help Ocwen to achieve more efficient scale in operations and utilize best practices across two great companies to optimize our longer-term performance. As noted in our press release, this morning, we are encouraged by our progress towards closing the transaction and we are currently targeting to close in the third quarter of 2018. The Ocwen and PHH teams have been developing detailed integration plan to support this effort and allow us to realize synergy as quickly as possible, while minimizing impact on our customers and mortgage loan investors. Based on more detailed plans and analysis, we have raised our target for annualized run rate synergies to $100 million, which we aim to realize within about 18 months of close, and which is higher than our previous estimate of $50 million. This target refers potential reductions in run rate expense. Please refer to our investor presentation for more detail on our analysis of potential synergies. In keeping with our commitment to provide excellent service to our customers, we are paying particular attention to the more than 1 million Ocwen customers that will be moving on to the MSP platform. While change inevitably results in concerns, we’re making every effort to minimize the impact on our borrowers to ensure excellent service throughout the transfer process. The transfer process will occur over several months, following the closing of the merger. This dedication to customer service is one reason we anticipate some delays in realizing the full synergies we believe are achievable. Before turning over to Cathy, let me cover three other areas. Funding our balance sheet, our lending business and our MSR valuation. Regarding our balance sheet. Ocwen has always sought to maintain a manageable debt burden and strong liquidity. We continuously evaluate options for improving our cost of funds and when appropriate, delever the balance sheet. During the second quarter, for example, we voluntarily paid down the senior secured term loan debt by $50 million to approximately $240 million. In late-June, we opportunistically tested the waters on refinancing our remaining first lean term loan debt with the object of improving term. We ultimately chose not to move forward. The term loan market experienced oversupply and widening spread at the end of June as prior excess demand slipped to oversupply. The mortgage sector in particular was negatively affected by a very large issuance of unsecured debt. We believe that further progress on some of the areas I just discussed may improve use of Ocwen’s credit. As such, in coming months, we may decide to renew our efforts to revamp our term loans or seek other forms of financing to optimize our balance sheet. In the meantime, we closed on a refinance in mid-July of a $225 million advance facility on much better terms than our prior facility. That refinancing bolsters our view that it would be in shareholders’ best interest to hold off at least for now on term loan financing. We remain opportunistic and seeking to improve our overall balance sheet costs and risk. Turning to lending. As you’ll note, our overall lending performance is down quarter-to-quarter and our forward lending business continues to struggle to achieve breakeven. It is obvious to anyone following the mortgage industry past several months have seen a sizable decline in both volume and profit across the industry. This has been true in both the forward and reverse lending industries. While we are far from immune to these general trends, we have I believe nonetheless weathered them better than most. Our volume and margins in both forward and reverse have held up better than the industry as a whole. Some of this is a function of the underlying business. For example, our forward lending business relies on recapturing loans from our servicing portfolio. Our servicing portfolio is less interest rate sensitive and more credit and equity sensitive than most servicing portfolios. As a result, stronger employment conditions and home price appreciation drive more loan activity in our portfolio as compared to the industry as a whole. We also believe credit goes to our management of these businesses. We continue to look for ways to improve performance by evolving with the market. We are investing in marketing technology and process changes in efforts to stay ahead. Notwithstanding these efforts, we fully expect the second half of the year will remain challenging for our lending businesses. Regarding MSR valuations. We saw essentially no impact from the 15 basis-point increase in benchmark rates from the end of Q1 to the end of Q2. Secondary market trading of servicing assets show MSR prices remain at or near record multiples, in excess of 5 times annual cash flow for conventional servicing for the various industry sources. While there are potential demand dynamics that may modestly improve valuations, it seems unlikely that we would see much upside in MSR valuations even if rates continue to rise. I will now turn it over to Cathy Dondzila, our Chief Accounting Officer, who will provide you more details on our second quarter results.

[Cathy Dondzila:]

Thank you, John. My comments today will be brief and focused on our second quarter results as compared to the prior quarter. As previously noted, our second quarter investor presentation includes more details on our results, and is available on our website. We recorded a pre-tax loss of $28 million in the quarter versus a pre-tax profit of $5 million in the first quarter. As a reminder, our first quarter results were dominated by a large increase in the value of our MSR versus a small decline in value for the second quarter. We also recognized a gain in connection with the NRZ transaction amendment in the first quarter. As John noted, we don’t expect to see significant increases in values in the near-term. Adjusting for various items, as shown on slides 23 and 25 of the investor presentation, our adjusted pre-tax loss was $9 million in the second quarter. Our adjusted pre-tax performance was driven primarily by poor lending segment performance. Overall, revenue of $254 million declined $7 million from the prior quarter, primarily due to an overall decline in revenue, contributed by lending segment due to lower margins in the quarter driven by higher interest rates, wider investor spreads, and higher competition for reverse mortgage volumes. Regarding MSR, as many of you will recall, at the beginning of the year, we made an accounting election to carry the remainder of our owned MSRs at fair value. As a result of this election, we no longer reflect MSR amortization separately as it makes sense. The impact of the amortization is now captured in the mark-to-market fair value adjustment in MSR valuation and expenses. We have provided additional information in regards to the MSR valuation impact for you on page 27 of our slide deck. As noted by John, our servicing segment delivered its eighth straight quarterly pre-tax gain, recording a pre-tax profit of $2 million. Notwithstanding our substantial effort to develop integration plans for our acquisition of PHH, we continued to manage costs and servicing performance. While servicing revenue of $231 million was slightly higher versus the previous quarter, we continue to see improvement in controllable expenses. During the quarter for example, we reduced headcount by over 300 in servicing as we found efficiencies in our operation. This continuing positive trend in controllable expenses was however more than offset by the quarter-over-quarter change in the MSR valuation. In our lending segment, we posted pre-tax income of $1 million in the second quarter, which is down by $7 million as compared to the first quarter. Much of the decline was a result of the drop in reverse lending profitability, driven by higher competition for lower reverse mortgage volumes in the industry, higher interest rates, and wider investor spread, lowering industrial pricing and execution margin in the second quarter. Overall, funding volumes were challenged compared to the prior quarter, and we continue to see margin compression and rates increase and prepayment rates decline. Due to continuing efforts to improve efficiency, margins in forward lending were down only slightly. Changes in HUD reverse program, however, pushed down volumes in the reverse lending industry by 33%, as Q1 volume had been bolstered by residual closings under the prior higher margin program. As John stated, we continue to look for ways to improve our lending businesses, but conditions remain challenging. During the second quarter, cash flow from operating activities was $97 million, compared to $99 million in the first quarter of 2018. The cash generation was primarily driven by improvements in our portfolio delinquency and the higher net servicing advanced recoveries of $111 million during the quarter. We ended the second quarter with $228 million of cash on the balance sheet and available liquidity a $384 million. We view available liquidity as including foregone and available credit on advanced facilities and warehouse line with pledged assets that we choose to fund with corporate cash that can be quickly converted into cash. We had total corporate debt outstanding of $590 million, representing about one-time debt to book equity ratio, which compares favorably to our peers. In summary, we continue to make progress operationally. And our current financial position provides adequate liquidity and balance sheet strength for the near-term. Thank you. That completes our prepared remarks. Operator, please open the call to questions.

[Operator:]

Thank you. [Operator Instructions] And our first question will come from the line of John Devaney with United Capital Markets. Your line is now open.

[JohnDevaney:]

Hey there. John, one of the questions that I have kind of relates a little bit to the liquidity. I’m trying to analyze pro forma, the combination of PHH going forward. And I understand that NRZ owes PHH funds from previously announced acquisition. Could you tell us what that number is? Is it $70 million to $100 million?

[JohnBritti:]

So, there is -- yes, they were set up to acquire some MSRs. I think, the net effect is closer to $70 million. I’ll have to get to the -- I’ll have look it out to give the exact numbers. But I think on a net basis, that’s roughly -- it’s roughly $70 million impact, mostly in the form of advances.

[JohnDevaney:]

Yes. And then, when -- what are the terms of that transaction, more or less? Is that clothing as those rights transfer over to NRZ, and what’s the expecting receipt of those funds?

[JohnBritti:]

So, I can’t give you any more update or details on that. What I can say is it -- there is a deal outstanding between the two. But, I actually don’t -- I can’t give you specifics on when that’s likely to close or expected to close.

[JohnDevaney:]

Okay. And then, I’ve got another sort of statement and then question, and it has to do with the Ocwen’s decision to invest in calling some of these deals. You’ve now said you’ve invested almost $160 million of the Company cash. I’m extremely in favor of the strategy. One of the things that I think is out there on the $18 billion of call rights and residuals that are controlled by Ocwen. And this also would point to what I believe could be extraordinary value for both Ocwen and especially your partner NRZ. I think that the residuals and call rights could have harvested value in the near term as well as into the future that would benefit both companies tremendously. And so, I’m very encouraged to see that Ocwen has decided to deploy this strategy. Let me just sort of back up and tell you that I’m in subprime for 20 years and I own in my book thousands of written off bonds. I brought a bunch of bonds on purpose at $1, $2, $3, $5 or whatever that I just doubt I was going to get interest income on, knew they would be written off. In the fourth quarter, I sold 28 bonds that are still that stay written off for $10 million out of my portfolio. And it was a nice surprise and 75% of all those bonds are serviced by Ocwen. I mean, I am a believer in Ocwen’s ability to protect the cash flows on the private label deals. That is Ocwen’s core competency is effectively doing loss mitigation efforts on at risk borrowers. And it’s been proven that Ocwen’s delivered the best cash flows against the whole universe of the private label securitizations over any services out there. And as mentioned, you participated in government programs, like HAMP that have modified agency securities. But, I’m very close to the private label. So, it’s turned out that some of the very seasoned deals have slipped and where the lending rate to the borrower was at 7% and the funding for the bonds was at 3% that means there was 4% of income in those deals up for grabs to cover losses or that income actually becomes the property of the residual owner, if it could go back up. Now, the trend is interesting, because I had bonds, and I honestly thought couldn’t -- ever get any new money. And I sold them for $10 million for 28 different bonds. And what happened was and a lot of these Ocwen deals that Ocwen was so effective at loss mitigation efforts that they drove the actual loss rate below the excess spread rate. And this example I’m giving, the 4% spread maybe only was impacted by 2% of loss. That 2% of the extra income, it actually created a situation where many deals had $10 million of collateral and only $5 million of liabilities in the bonds. And I sold these bonds that still were written off, but they were pointing at having a claim against the greater collateral pool. So, one of my questions is, in understanding how call rights and residuals works, John, is of say $80 million that you recently invested to call these deals, right, did you spend $80 million to get a collateral that has a current market price that’s over the $80 million, like say, $120 million or $150 million? Because there are deals that I’ve researched in the Ocwen directory that currently have $10 million of collateral and $5 million of bonds where no bond has ever been written off. So, somebody owns the residual and call right to those deals. And so, I could say it again that you guys probably are smart, knowing which is which inside the whole portfolio. And did you spend $80 million to get a greater amount of collateral than $80 million?

[JohnBritti:]

John, first of all, thanks for your discussion of our performance in the bond. We do agree with your point of view that the actions we take to manage those homeowners is both good for them and good for the investors. Regarding the calls, I guess, I would say this, which is I think, your inference is accurate. I won’t get into details about how much, but we do think that the value of what we call is greater to Ocwen as a holder than what we had to pay. And we do think we could cut value in a variety of ways, some of which I think you highlighted. So, yes, I would say, the answer to your question -- the short version would be yes.

[JohnDevaney:]

Are you marking the market, the value of that collateral, or are you carrying a cost?

[JohnBritti:]

It depends on the source of the value. In some cases, we do end up marking components of it right away; in other cases, we don’t. Because of the GAAP account rules, we can’t take all of what we think are the sources of value, into income immediately. So, it’s a mix.

[JohnDevaney:]

Okay, great. Also, could you comment at all on the NOL that you think that you’re inheriting from PHH and efforts that you might be doing to preserve the NOL? There is very interesting thing about the transaction with WMIH and KKR buying Nationstar. And I’ve recently done an enormous amount of work on that deal. I think, the KKR pulled the trigger, bam! And they bought Nationstar because of the January 31st ruling on RESPA that said that basically the commissions that most mortgage serving firms have received in related to the force-placed insurance, the CFPB has called them kickbacks, was in fact allowable, which ten -- and dozens of servicers have made settlements and paid CFPB, and now they say that’s fine. I think that the ruling has wide implications for the 3 million relationships that the Nationstar has and the $1.8 million combined relationships now that Ocwen has because the voters [ph] are showing this, the CFPB was looking into voters that were receiving kickbacks from the loan originators or commissions that have been going on for 20 years, so therefore these clients to loan originators. Then, the real estate industry started having the originators pay, the advertising fees and the CFPB really has gone after using any RESPA to any of the ecosystem in the whole mortgage servicing and origination industry, and said, listen, you just can’t pay any partner, anything, to do anything. And these relationships are valuable to Nationstar and Ocwen, millions of relationships. I mean, this is why Nationstar has just announced in this merger that they’re getting into credit card lending, insurance businesses, they’re expanding into a lot of other areas because Nationstar holds the keys to 3 million relationships. Nationstar has done an excellent job saving all of those dollars, money, mainly refinancing all these government agency loans. So, they’ve got a lot of credibility for helping all those homeowners out there. Now, that this RESPA ruling was ruled on by the DC court en banc that the commissions are actually okay that I think that that was the trigger point that made KKR’s control vehicle pull the trigger and quickly by Nationstar and decide to merge with them to harvest the 6 billion of NOL. The marketplace right now has put a value of the 600 billion of NOL; it’s something like $900 million. And on the merger call by an analyst Kevin Barker from Piper Jaffray had a discussion with Jay Bray who said, yes. The book value of Nationstar is expected to go up from 18 to 24, based on this asset of the NOL coming onto our balance sheet. But then Kevin got Jay to say and yes, that if Nationstar isn’t profitable that the book value would go to 10. So, the marketplace, right now, just went an extra $900 million through the debt issuance that I think you might have been referring to that’s putting that positive value on a very large NOL that’s now been merged into the Nationstar. And just as an aside, I mean, I believe that now like Nationstar had said in their merger presentation or they expect to be able to do some merger and acquisition deals, I think, we saw that Ditech announced in an 8-K that they got unsolicited inquiries to buy by the company to their board, and now they hired to look at it. But I think the consolidation is coming in this industry. And it’s in part driven by I think the trigger with the RESPA ruling. And now, I’m encouraged to see the NOL from the old label [ph] company get a very large positive value. It’s based on the -- Nationstar is a different company and earning $225 million a year and the accounts are saying that it’s allowable for them to include that on their balance sheet. But, I’ve been looking at the 10-K statement from Ocwen Financial. You reported that based -- and it’s some adjustments you made to approximately 700 million of NOLs that Ocwen Financial has. You thought that those are now worth $100 million or whatever. You said in the 10-K based on tax reform, made haircuts to that. So that is an asset to Ocwen, it might be worth $0.80, if Ocwen could ever flip positive. But, I’ve done, significant amount of work on the NOL asset and trying to figure out, who’s going to be able to use it, when they can use it and also thinking about this RESPA ruling, and why I believe that ruling may flash the green light triggering to some of the big private equity players out there that in fact it might be safe to invest in this area again. But, if I say it again, John, that -- I know what you said in the 10-K, your NOL as well. So, you don’t need to comment on that. But, I’ve been reading the PHH financials and I can’t figure it out. I mean, they’ve got some big numbers of losses and adjustments to it. I mean, how much present value of NOL do you think might be there on PHH? And are you taking steps to try to preserve that?

[JohnBritti:]

So, John, I think, we can say that we are taking steps to try to optimize the tax effects of our merger -- of any merger. I think it’s premature right now to publicly speak -- to try to estimate the value of the NOLs that might come over. Obviously, the most important thing in order to take advantage of NOLs, both the ones that we have today and anything we might pick up as well as the merger is to return to profitability, and that’s certainly our primary focus. And I think as you noted, we are picking up scale and a much larger customer base, a result of this merger. So, that makes us hopeful that we can use that to help leverage our -- that customer base and the scale to get close to profitability. And I do think there are some opportunities potentially to use that customer base to provide them with value-added services and so on. So, I think that there is some opportunities there because something that I think in the past the industry -- and we have been publicly a bit more hesitant to do. Certainly, what we really want to focus on is kind of bread and butter of our business, getting that right first. But, we will be looking also at opportunities to provide other value added services to our customers.

[JohnDevaney:]

And then, other question I have that I saw news release from Freddie Mac, and I know that you’ve worked there before, that had discussed that Freddie Mac entered the lending market for servicing advances and is now competing against the private sector. And that statement it said that they think that it’s in the interest of the agency to provide liquidity in this area and that it could help certain firms in the downturn with their own liquidity. Can you say whether or not some of the improved terms of funding have come from Freddie Mac to Ocwen in advanced facility?

[JohnBritti:]

So, I can say that we are not a participant in the Freddie Mac pilot that they’ve talked about publicly for financing. And I think it’s MSRs and advances. I would say that it publicly is an opportunity for others in the industry including potentially ourselves, if Freddie Mac remains interested or Fannie for that matter in supporting the financing of advances. Without getting into gruesome detail, as you know, Freddie and Fannie have a big influence on the ability to plunge their advances at all and often times it’s difficult if not impossible to plunge Freddie Mac and Fannie May advances to a financing facility. So, their participation would be very helpful and I think is beneficial to market participants to the extent that I think it’s offered broadly where we probably would be a little bit concerned if it didn’t ultimately produce a program that was more broadly developed for the industry as opposed to kind of one-offs.

[JohnDevaney:]

Yes. And then, about the reverse mortgage business, could you confirm that you’d put on the -- Company had put on the slide deck last quarter that you had invested funds in calling deals as well as purchasing reverse mortgage tails. And Ron, in response to a question from Sam Martini at Omega had said that those reverse mortgage tail assets were -- that the discount rate that Ocwen had discussed, I think there’s about $0.60 or something like that, maybe a little more now that would add to Ocwen’s GAAP book value as an adjustment. It’s currently not reflected in the balance sheet. So, I think that Sam was just trying to confirm that there’s a number of assets, almost a couple of dollars that actually could be an increase to Ocwen’s GAAP book. And then, Ron had say, hey, if anybody’s listening out there and wants to sell these things at 15%, give us a call. So, I’d actually missed that on the slide deck last -- it said that you invested in reverse mortgage tails. So, could you just confirm that did you buy a reverse mortgage tail from -- and gave liquidity to another participant in the marketplace that wanted cash? And what kind of discount rate can you buy those at? It seems like it’s risk-free investment to purchase debt from other people that need cash?

[JohnBritti:]

Yes. So, first of all, I think, as we noted in our press release, we have an estimated $106.7 million in undiscounted future gains from future draws, which I think that’s what you’re referring to as tail on our reverse book. We do continue to invest in purchase -- effectively purchasing tails. I think the best way to think about it is, it’s equivalent of correspondent lending in the forward space. We do buy tails effectively and through our correspondent type of relationships in the reverse base. I don’t want to get into details about who we might enter in transactions with. But I could say, I don’t think there are any -- we didn’t do any large single transactions that are notable in the quarter. And I would say that from a -- we think we’re getting them at attractive yields in that kind of 10% to 15% range.

[JohnDevaney:]

And then, my last question, John, it just involves -- you just discussed some of the cost saves from the PHH transaction. What is your expected pickup to GAAP book value, following the merger, maybe by the end of the year? I mean, I know that the PHH has GAAP book of 16 something a share, and you’re buying at 11, that’s at 5 points times $32 million, I think there was a $168 million expressed an Ocwen shares, that was $1.20. You’re saying that you think there is $100 million of cost saves that you’re going to wind up picking up. Although I think that some of the street firms that cover PHH thought there could be 40 or $50 million of losses [ph] in the second, third and fourth quarter. So, if you put all that in a blender, is it still going to be $1.20 pickup to Ocwen’s GAAP book value, if you merge with the company and they are expected to lose money but you pick up these costs saves? Like, what is the pro forma pickup to the GAAP value because of his manager?

[JohnBritti:]

We don’t usually -- we don’t provide detailed forward estimates of our earnings or our balance sheet. I guess, what I would say is this, as mentioned, we do think that there are -- we’re targeting $100 million in saves, as you know. I think that as we also mentioned, we haven’t estimated publicly some of the expenditures to get to that point. So, we’ll be incurring some expenses for training, severance and other items during the period of transition, which as we know, we’re targeting it’ll take about 18 months. So, as you think about your blender, I think you probably do need to assume that there will be some transition-related expenses, as well as some time to get to that run rate. But, I’m not going to give you a forward estimate of our book value. The other thing is that purchase accounting is a particular thing; it could take a little bit of work to kind of flow through. So, I don’t know that we’re in a good position to estimate that today, based on the numbers we got, even if I wanted to provide you number.

[JohnDevaney:]

Yes. Great. Well, please keep up the good work, trying to lead the market with your core competency, which really for all these years is the number one reason why I became investor that Ocwen does -- has the best outcome for the investors on performing loan modifications. And that’s certainly benefited the RMBS holders the best. And then, as I said on another call that Fannie, Freddie and Ginnie should all want Ocwen to use your expertise in effectively dealing with delinquencies to help protect the insurance guarantee that those agencies have. So, keep up the good work, keep doing everything the same with helping homeowners and doing these jobs to protect investors. I think that regulators are going to realize and see the value that you provide to agencies, investors and to homeowners. And I’m looking forward to the whole company turning over a new leaf and with regulatory permission of course, being granted the opportunity to partner with the likes of NRZ, one of the Ocwen investors to start sub-service and use the core competency of dealing with these borrowers to grow the business and win new business in the future. And I’m here for the long haul. And thank you very much.

[John Britti:]

Thank you, John. I appreciate it.

[Operator:]

Thank you. This does conclude today’s question-and-answer session. Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may all disconnect. Everyone, have a great day.