Kelly Residential & Apartment Real Estate ETF
Q1 2015 Earnings Call Transcript

Published: 9 May 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to the Altisource Residential Corporation Q1 2015 call. [Operator Instructions] I'd like to now introduce your host for today's program, Mr. Robin Lowe, Chief Financial Officer of Altisource Residential. Sir, please begin.

[Robin Lowe:]

Thank you, Roland. Good morning, everyone, and thank you for joining us today. My name is Robin Lowe, and I am the Chief Financial Officer of Altisource Residential Corporation, which we refer to as RESI. Before we begin, I want to remind you that slide presentation is available to accompany our remarks. To access the slides, please log on to our website at www.altisourceresi.com. These slides provide additional information investors may find useful. As indicated on Slide 1, our presentation may contain certain forward-looking statements pursuant to the Safe Harbor Provision of the Federal Securities Laws. These forward-looking statements maybe identified by reference to a future period or by use of forward-looking terminology. They may involve risks and uncertainties that would cause the company's actual results to differ materially from the results discussed in the forward-looking statements. For an elaboration of the factors that may cause such a difference, please refer to the risk disclosure statement in our earnings release as well as the company's filings with the Securities and Exchange Commission, including our yearend December 31, 2014, Form 10-K and our first quarter 2015 Form 10-Q that we will file today. If you would like to receive our news releases, SEC filings and other materials via e-mail, please register on the Shareholders page of our website using the e-mail alerts button. As indicated on Slide 2, joining me for today's presentation are Ashish Pandey, Chief Executive Officer of RESI; and George Ellison, President of RESI. I would now like to turn the call over to Ashish Pandey. Ashish?

[Ashish Pandey:]

Thank you, Robin. Good morning, everyone, and thank you for joining us today. Today I will cover key developments to date in 2015 and our focus areas for the next couple of quarters. George will provide an update on our first quarter operating performance, and Robin will provide an overview of our financial performance. Please turn to Slide 3. First, as updated on the previous earnings call, we renegotiated our management agreement with AMC on favorable economic terms for RESI. In the first quarter of 2015, the fees payable to AMC were based on their rate of the formal fee structure and the new fee structure. Hence the full effect of revised fee structure will be seen in our second quarter 2015 results. Second, we have pointed two new services, and by the end of April 2015, we had successfully transferred the servicing of approximately $1.1 billion of UPB from Ocwen to new services. We believe that these servicing transfers were the right thing to do for RESI's long-term prospect. But the transfer of a large portion of our loans during the quarter hampered our resolution efforts on those loans, which negatively impacted our results. Third, it was critical that we stabilize our access to REO financing, as the number of unfinanced REOs in our portfolio have continued to grow. We established a new $100 million REO financing facility with Nomura, and we also renewed an upsized our Credit Suisse repurchase facility from $225 million to $275 million, with increased flexibility to finance REOs. Further, we extended our Wells Fargo facility until March 2016. Finally, in April 2015 we reached to tentative agreement in principal to sell $193 re-performing loans to an unrelated party. If completed, we believe the sale of these re-performing loans will result in an estimated taxable gain of approximately $8 million in the second quarter of 2015. This represents a 42% gain on loans purchased in non-performing status that we had brought current, and an 8% gain on loans that were re-performing at the time of purchase in full, acquired in 2014. We believe that the substantially higher gains on loans we had brought to performing status are evidence of the fact that our model of purchasing non-performing loans is beneficial on multiple levels. We have made decision so far in 2015 that we believe will be positive for our business over the long-term, but we kept cost volatility in our results in the immediate term. We believe that the entry into our management agreement with AMC was the right thing to do for RESI's business. But the length of that time that it took, combined with the uncertainty around it, created a situation in which our ability to access equity or debt financing was virtually zero during the first quarter. Similarly, although we believe that the servicing transfer to Fay and BSI were important to begin RESI's long-term separation from the headline of perceived risk surrounding Ocwen. These transfers clearly delayed our ability to complete resolutions and impacted our results negatively. Our expected continuing transfer of servicing away from Ocwen, and very well likely respect us from achieving 1,500 resolutions per quarter for at least another quarter. However, the good news is that we believe most of the issues that have recently negatively impacted our company are now behind us, and we can begin to move forward. We understand what happened and we are in control of initiatives necessary to again deliver on our business model. Over the next couple of quarters, we'll be focused on next steps to continue to grow RESI's portfolio. First, we plan to appoint a third new services and move all non-securitized UPB away from Ocwen. Second, we are working on our third securitization and expect to complete this in the second quarter of 2015. We expect that our third securitization will provide us with additional liquidity to deploying our business. Third, we are actively looking to acquire new assets, we are bidding on non-performing loan pools and are also opportunistically evaluating REO and single-family rental portfolios available for sale, as a way to more quickly achieve a scale in our rental portfolio, provided the economics makes sense. I would now like to turn the call over to George. George?

[George Ellison:]

Thanks, Ashish. Today, I'll be providing a roadmap for completing our ongoing servicing transfers as well as reviewing our first quarter operating performance. So please go to 4, to provide an update on servicing transfers. As of the end of the first quarter, $458 million of unpaid principal balance, UPB, was being serviced by Fay, and additional $579 million of UPB was transferred to BSI in April of this year. This leaves approximately $952 million of non-securitized UPB that was currently serviced by Ocwen. We schedule another transfer of approximately $650 million of our non-securitized loans for next month June 2015. If you go to 5, we showed we resolved 1,069 loans in the first quarter of '15 with worth about $275 million UPB. The overall resolution count decreased by approximately 26% compared to the fourth quarter of last year. As Ashish mentioned, this decline was primarily driven by our servicing transfers and the friction the transfers caused in resolving loans. But despite this friction, the 1,069 loan resolutions we achieved in the first quarter still represents 10% of our first quarter loan count of 10,500 loans. The details of our loan resolutions during the first quarter are as follows. Conversions to REO constitute about 68% of all NPL resolutions in the first quarter. 728 loans were converted to REO, either through foreclosure or deed in lieu. 105 loans were resolved via short sales and third-party sales at 98% of BPO at acquisition, generating net proceeds of approximately $38 million. 126 loans were modified and rendered current and 67 were reinstated. RESI's average unlevered current yield on the modified and reinstated loans, based on a purchase price is 10.3%. 15 loans are refinanced by the borrower at 109% of BPO at acquisition, generating about $3 million in net proceeds and 27 were repaid in full, generating about $14 million in net proceeds. If you turn to 6, we have seen continued acceleration of the growth in our rental portfolio during 2015. At the end of April, 655 properties in our portfolio were leased compared to 336 at the end of the last year, representing about 80 properties being leased per month so far this year. On 7, we showed details of our rental portfolio as of the end of April. In addition to the 655 I mentioned, an additional 130 were listed for rent and another 85 more in the renovation. The average gross rental yield per property at April 30, 2015, was 13% of the property value at the time of acquisition. And for properties renovated during the first quarter this year, the average renovation expense per property $21,200. If you go to 8 please, we give you an update on our 2015 year-to-date NPL and REO financing activity that Ashish alluded to. First in March, we extended our repurchase facility with Wells for additional 12 months. Next, in April we renewed and upsized our facility with Credit Suisse from $225 million to $275 million with increase sub-limits and flexibility for REO financing. Then also in April we established a new $100 million facility with Nomura, exclusively for financing REO properties. With these changes our financing facilities are more aligned to accommodate the growing proportion of REO properties on our portfolio. We believe this additional REO funding will enable us to accelerate the sale of REOs, but do not meet our rental criteria since we can now buy them out of existing warehouse lines that contribute them to our taxable REITs held for sale. Furthermore, we believe the additional REO funding capacity provides us with near-term financing for rental properties until we can achieve a single-family rental securitization. We remain focused on migrating to securitization financing for NPLs. As Ashish stated, we're seeking to launch our third securitization deal in the second quarter of this year, obviously subject to market conditions. I'll now turn it over to Robin. Rob?

[Robin Lowe:]

Thank you, George. On Slide 9, we show the timeline metrics on the REO selected for our rental portfolio. Currently, the timeline from REO conversion to rental is about seven months. We check these metrics daily and continue to watch to improve them in partnership with our property manager, Altisource Portfolio Solutions. I will now provide more detail on our financial performance and taxable income for the first quarter of 2015. As shown on Slide 10, we reported net income of $12.4 million or $0.22 per diluted share for the first quarter. Our book value per share at the end of the first quarter was $22.79. Total revenue and net gain on investments for the quarter was $88.9 million, 27% lower than the prior quarter, primarily due to lower unrealized gains on mortgage loans. This was mainly driven by the lower REO conversions during the quarter, due to the servicing transfers that Ashish and George discussed earlier. Expenses for the quarter were $78.4 million, down 5% from the prior quarter. While residential property operating expenses remained flat quarter-over-quarter at $12.5 million, real estate selling costs and impairment charges increased to $14.7 million from $13 million in the prior quarter. The first quarter selling costs provision increased to $10.6 million from $7.7 million in the fourth quarter of 2014, mainly due to the higher number of properties contributed to sale, 609 in the first quarter compared to 406 in the fourth quarter. The impairment recognition amount decreased from $5.3 million in the fourth quarter to $4.1 million in the first quarter. As explained on our last call, GAAP requires us to recognize impairment for properties, where the market value is less than the initial carrying value. However, we cannot recognize a gain, where the market value is above the initial carrying value. Any such guidance is realized when the property is sold or if it is added to the rental portfolio through high yields on lower renovation CapEx. Mortgage loans servicing costs remain steady at $18.2 million compared to $18.6 million in the fourth quarter. The main components of this line item are insurance expenses, corporate advances, made on behalf of the delinquent borrower and foreclosure costs, which are not straight-line in nature, and do not therefore directly correlate to the number of loans. Related party general and administrative expenses were $16.1 million in the first quarter compared to $25.4 million in the fourth quarter, mainly due to the reduction of fees paid to AMC under the new asset management agreement. General and administrative expenses were $4.4 million in the first quarter compared to $1.4 million in the fourth quarter. The increase was primarily driven by $1.5 million of legal and professional fees associated with the negotiation of the new asset management agreement and a litigation reserve of $1.5 million. Under the new asset management agreement, AMC paid RESI $2 million in the first quarter in connection with the professional fees to negotiate the new asset management agreement. Slide 11, shows the reconciliation from GAAP income to taxable income. Taxable income dropped sequentially from $24.8 million in the fourth quarter of 2014 to $21.7 million in the first quarter of 2015, mainly due to lower revenues that were driven by the lower loan resolutions, partially offset by lower AAMCs. As mentioned earlier, we are continuing to transfer additional servicing from Ocwen to other services in the second quarter of 2015. Although we will attempt to mitigate the adverse effects of the servicing transfer process, this may negatively impact the number of loan resolutions, similar to the first quarter. On Slide 12, we show a normalized pro forma estimated taxable income calculation based on first quarter 2015 taxable income. As illustrated on the slide, starting with our first quarter estimated taxable income, we add back the one-time litigation reserve and include a reduction in AMC fees based on new asset management agreement, which is effective, starting April 1, 2015. These adjustments results in normalized taxable income of $31.2 million or $0.54 per share. If we further add the expected gain on the potential sale of our 193 re-performing loans in the second quarter, and deduct the associated increase in the AMC fee due to sale of the re-performing loans, we arrive at adjusted taxable income of $37.6 million or $0.66 per share. At this time, we would like to open up the floor for questions. Roland?

[Operator:]

[Operator Instructions] Our first question comes from the line of Jade Rahmani with KBW.

[Jade Rahmani:]

It looks like there is a lot of progress in terms of the servicing transfers. Just wanted to clarify, the $650 million that you mentioned transferring in June that would be in addition to the $1.1 billion that's already transferred?

[George Ellison:]

That's correct Jade.

[Jade Rahmani:]

Secondly, I just wanted to ask on the REO portfolios for sale. Can you just provide any additional color, what size, ranges might you be talking about? And are these MSA specific or scattered? And also, would you be getting property management along with the portfolios or just the assets?

[Ashish Pandey:]

These portfolios are MSA scattered, though they are not like cognition portfolios. Typically you will find them scattered over six to seven MSAs in 1,500 to 2,000 properties effectively sub-scale rental portfolios are REO portfolios. And these come along with -- you can either take the property management, which is existing with the portfolios or you can change the property manager.

[Jade Rahmani:]

And are these properties already rented or are they vacant REOs? And secondly, what type of target returns would you be underwriting to?

[Ashish Pandey:]

Jade, as we said, we'll be looking at these opportunistically. So we are not looking at underwriting them to target returns less than what our rental portfolios are showing. These are subscale portfolios where certain economics makes sense.

[Jade Rahmani:]

In terms of the NPL market, I was wondering if you could provide some color in terms of what volumes are looking like year-to-date, if selling is accelerating and also where you think pricing is. And a question I got a lot from investors is how the quality of pools today compares with what you've been on, say, a year ago, if it's worsened?

[George Ellison:]

There's a couple of questions in there. The calendar looks fine. The money centers that we've discussed are probably on the other side of the bell curve in terms of where they start a few years ago, with the GSEs, as you know, are picking up. So the volume, to answer that question, looks still pretty large. There was one GSE had some pretty big pools out yesterday, which we bid on, big money centers coming on Monday with $2 billion UPB. The other GSE will be surely behind it. So I would say every pool, as you know, is unique. The HUD pools are different than the GSE pools. And even within the guys that were selling yesterday, I'm pretty sure that was their first pool, and I think people are exploring sort of what prices they can get for what different types of loans and what part of the process of foreclosure and so on. So I wouldn't say the quality is gone better or worse. It's just everybody has different sort of gradations of issues. At BofA, for example, a year ago, there were so many BKs, we did just BK-only pool. So you have a lot of things you're chopping through. So volume is strong. Quality I wouldn't say is -- withdrawing our quality issues, so everyone is different. And I think by the end of this year with the GSEs moving in as the banks were finished, I think the borrowings could still be very strong throughout the year. Pricing it's a got a touch richer, but again that's episodic as well. There is some of these pools yesterday were trading in the low-60s, high-70s of BPO, but again it depends on the pool. There is some of the bank pool that weaker, there's $200 million of home equity pool coming out, totally different pricing. So I'd say, it's gotten richer over the last couple of years, as you all know. I wouldn't say it's changed dramatically in the last six to nine months.

[Jade Rahmani:]

And then just finally on the investment capacity. I know you plan to do a securitization this quarter, but how do you think about current investment capacity and how you might access the capital market?

[George Ellison:]

We've looked and are looking at the public markets through a couple of different vehicles. Common equity is not really something we're looking at, but we've looked at this some of our competitors who have used the perpetual preferred market, the convert market, but I think for right now where we are, as we mentioned on the last call, these companies enjoy, really enjoy the very blue-chip, if I can say that, list of investors. And most of those people have reached out, there's a lot of those people who have reached out to us to do, I'm not sure what the proper word is, maybe a sidecar or a separate arrangement to give us the equity, so we're not concerned about giving the equity and the debt, as Ashish and Robin, Robin put it time and time get into more faculty. The lenders I think are back, as you know we have discussed. Obviously, new guys have been signed up. I think people want to increase the size that they're giving us. So I'm not too concerned about the debt. So the most important thing is that we pay the right price and we don't want to do something stupid to just get back in the game and pay too high of a yield, so that to me, that's the most important thing. It's not the financing. There's a lot of stuff out there, we just got to be smart and disciplined about buying the right stuff at the right yield, so we get the right return for the shareholders, and to me that's probably what we worry more about in the financing.

[Operator:]

Our next question comes from the line of Tony Paolone with JPMorgan.

[Tony Paolone:]

First question on switching servicers. Can you just maybe put some brackets again around, what are the explicit costs of moving those loans, like did you write any upfront checks, perhaps did anything like that? Does this cost anything? And then obviously it seems like that that slows things down. Is that a temporary thing or how does that change the timeline to work through these things compared to, say, when you originally underwrote them?

[George Ellison:]

It's not an upfront issue. It's really, you're talking to a person and you're changing that conversation and you're slowing that down, so at the end of day, it's really as simple as that. So the model works by moving things through at a certain pace and we model that when we bought the pools. And you're literally changing that dialogue, that conversation by the fastest you could it, would be 30-45 days, and before the letters actually go out welcoming people, so it could be 60. So you're basically just stopping the movement of a loan down the pipeline and the model works by releasing P&L. When you look at finances on realized gain, that's the critical line, and you could look right through it. That line got hit really hard because we slow this thing down. As Ashish said, short-term it's not pleasant, but long-term it's the right thing to do and we're going to do more of it, as we mentioned, and we're evaluating the secure securitized stuff as well. I've talked about, it's got to be done.

[Tony Paolone:]

So it's 30 to 60 days, kind of what gets pushed out switching servicers, is that the way to kind of think about it, to put a number on it.

[George Ellison:]

I mean, it could be stuff around the edges. I mean, that's the core. We dug into that number as soon as saw it coming. And you transfer servicing when everything was set up with one guy, and again, we don't need to believe why, but it's being done and it's a direct hit to that number. You can go right to the number and see the release of that gain, slowing down. And we made that decision and we knew that result would happen. And it happened. A big chunk of it's behind us. We probably have one more round to do and then we're done with it.

[Tony Paolone:]

So then pulling the switching of the servicers aside, if you go back and think when you originally underwrote the loans and what you thought, for lack of a better term, the weighted average timeline to get through everything was going to be, what is that today,? Are these things taking longer, even putting the servicers switching aside from what you thought or is it otherwise on track? Like how should we think that?

[Robin Lowe:]

As I was saying to Jade's question there is a -- these are complicated pools with lot of issues inside it. And I would say, the timelines are still fine. You have to sort of get the servicing stuff behind you. But there is always some blips along the way, some stake-through little more challenging than we thought. Some issues, as you read about, crop up everyday. I mean, this is very, very sensitive stuff in terms of dealing with foreclosures. It's got to be handled right. But I don't think we're concerned that the way we modeled things is opened to any material change. I mean, obviously that's something we watch everyday. I think we'll be happy when the servicing transfers are done, and then we'll have a little bit more visibility into that. It's creating a lot of noise as you can imagine, but we're getting used to new servicers, and they do things a little bit differently, both of them doing a great job. But it's a little bit of -- it's a transition. So to the core of your question, I'm not concerned if there is a modeling issue or that we have to change timelines, but that's the art of the game.

[Tony Paolone:]

And switching over to the REOs and the rental portfolio. Your rental portfolio, just about 900, what's the REO portfolio at quarter end? You may have mentioned that, I may have missed it.

[Ashish Pandey:]

We're at the 4,430 REOs at the end of the quarter. The size or the proportion going into REO versus the rental portfolio, is that playing out like you thought? It seems, like the REO portfolio has just gotten to be very large, and the rental portfolio while growing hasn't gotten as big. We had thought that split would have been little bit different, I guess. How are you guys thinking about that?

[George Ellison:]

When you say REO, you mean, sale versus rent, right, Tony?

[Tony Paolone:]

That's right.

[George Ellison:]

So again, we've discussed this. The thing is two years old. So I would say, aspirationally, obviously getting pull through the rental, so rental really is key, and that's the focus. That ratio is moving around. I would say, it is running a little heavier on sale, but it is on rental. But the point is we want to have pull-through to be as much as we can. If you think about it in terms of a portfolio that's actually an AAMC issue who manages those rentals. As long as money is coming out, that every steps of this process, as long as money is pouring out -- as long as money drops out, maybe early resolution. As long as money drops out, when you sell that early resolution stuff, which Ashish talked about earlier, again, that's good, high returns. As long as you sell it, and we're going to find out, Rob obviously gave us some flexibility, now to sell more stuff with this Nomura thing, as long as you're selling those homes, you're creating liquidity, and hopefully we'll make some positive P&L on that. We're watching that ratio and we want that ratio to be high in terms of rentals. But as long as you're making money in every step of the way that sort of a -- that's a issue that we watch and we'd like to get as high as we can, but the primary thing is to get the right returns for RESI, and so far there is money coming out of that sale channel, and as long as that keeps up, I'm not as concern that the channel might be run a little harder that we thought, I'm watching it, we're watching it, but it's not a huge concern.

[Tony Paolone:]

I'm not implying that have a preference in terms of REO versus that rental. And on the REOs that thing you had sold, what's been the experience in terms of how quickly you can kind of move that product to close and just get rid of it?

[George Ellison:]

I don't have the SLA timelines for sale of that, I apologize. Rob, do you have sort of, or Ashish, the timeline for when that's going to sell it?

[Robin Lowe:]

Generally, that's six to seven months.

[Ashish Pandey:]

Six to seven months from listing to getting the money.

[Tony Paolone:]

So many guys just ask a little bit differently which for my last question, if you think about the stuff you sold whether it's REO, or like the short sales, third-party proceeds of $38 million in the quarter, I think that it was just kind of round trip to where the cash went out and it all came back. Do you have any IRRs you could share on those buckets, just in terms of your original capital out the door?

[George Ellison:]

This is on, that which we are selling at the end or each of those buckets you mentioned?

[Tony Paolone:]

In both of those buckets, because I guess if you sell the REOs for instance in the quarter, in the instance where you got $38 million of proceeds on the short sales, like those are things that are effectively of round trip the cash. So just trying to get a sense of what you ended up with in terms of IRRs on that stuff?

[Robin Lowe:]

Tony, we haven't specifically disclosed that information to date.

[George Ellison:]

I think we did it on the last one, Tony, so we can get that. I think we broke up the return on every single bucket. When you look at the Page 5 where we through each of the resolutions, I think this time we showed you cash, but we can probably get that.

[Operator:]

Our next question comes from the line of Mike Grondahl with Piper Jaffray.

[Mike Grondahl:]

In terms of 2Q and 3Q conversions, kind of your outlook there, did I hear correctly that for 2Q they're going to remain around this 1,000 or 1,100 level, but about 1,500 were possible in 3Q? Is that how you're kind of thinking about those?

[George Ellison:]

Again, some of this is pre-date to me, but Ashish was driving that up to 1,500. And I think as far back as I look that 3Q '14, 4Q '14, it is top down to 1,500. So this is the first one where it's kind of dipped to 1,100. We can't see it just yet being first week of May. My anticipations is that they do stay here for this quarter and our hope is that they get back up obviously to 1,500 or higher. Obviously, some of that will be determined by us giving back in the market and buying, which I mentioned we're trying to prudently do. So yes, I don't know where it would be third quarter, but we'll get back up there. And then, as I said, once you start buying again, six to nine months out, you'll start seeing that stuff come through, so whether it's 3Q or not, I'm not exactly sure, but I think we'll get back up there and hopefully get through it.

[Mike Grondahl:]

The key rental metrics, where you talked about the 7 or 7.5 months to go from REO to leased property. Is that now average, do you anticipate that being a little bit lower going forward or what's kind of your goal there?

[George Ellison:]

Mike, there's two parts of the business. They're getting it from an NPL to REO. That's a very intensive servicing conversation, as you know, and that's where we've made a lot of changes. The second half of the business, once you get the REO, it's almost a separate business. That's getting somebody from REO to, what Tony was looking at, the sale versus rental conversation. And that's a heavily choreographed conversation with ASPS, who's obviously an excellent and growing vendor. But that page, Rob has open on, that's where we spend an enormous amount of time, just counting on when the utilities again turned on and how fast the house gets inspected and how fast the rental happens, how fast it gets listed and how fast it gets rented. I mean that is -- we look at stuff, I can share with it you. Every single morning we get a report, we can see every single house and how many houses got the power turned on. We have enormous granularity provided to us by ASPS. So the line better get shorter, and I think it will, but that's sort of just as we talked about the art of making sure you don't pay too much in being disciplined. This part here is where ASPS has stood up for doing extremely good job, anywhere in the country, any price of house, any place, any amount and they're continuing to grow with us. And this is where people are struggling, on that page right there, and that's where we're going to continue to press and be excellent around this process. And I think that's where you're seeing a lot of people put the white flag up, because the operational complexity and intensity and granularity around this page is tough. And so this fine, but I don't care if we get it one day shorter or another day shorter, but we lean on this every single day.

[Mike Grondahl:]

And then just last question. You disclosed the gross rental yield of 13% on the 655 that were rented. What was the margin, I know in the past it has been running about 8% or slightly over. Do you have that margin number updated?

[Robin Lowe:]

We didn't put out to this slide in this time, Mike, because we just updated a month ago. The number is really haven't changed very much since the last time we disclosed.

[George Ellison:]

Gross, gross we looked at -- yes, it's only been like three weeks. So yes, gross is still running high-12 to 13, and that is still running 5, 7s to 8. It just was like 90 homes more than, unfortunately it went we out on April 1, so we'll have it next time, it was just three weeks ago, so we did not bid, but we can show you that, but it hasn't moved that much.

[Operator:]

Our next question comes from the line of Fred Small with Compass Point.

[Fred Small:]

Couple questions on just the timelines and the REO. But I guess, if I look at the normalized taxable slide that you have. And I'm sorry I missed a bunch of the script, so if you said it I apologize. But that doesn't normalize -- the normalized adjusted taxable income doesn't normalize for a slowdown in timelines in the first quarter, right?

[Ashish Pandey:]

It does, because normalization is to the first quarter resolution number. It's effectively taking the first quarter taxable number, which was 869 resolutions, so it does, Fred.

[Fred Small:]

So this assumes the pace of resolutions that you underwrote too.

[Ashish Pandey:]

It's not. This assumes the pace of resolutions that happened in first quarter.

[Fred Small:]

Right. That's what I'm saying. So it does not normalize for the pace that you would have been resolving had there not been issues at Ocwen, and you weren't transferring servicing to, say, I think sort of Fay and BSI.

[Ashish Pandey:]

That's exactly correct.

[Fred Small:]

Can you help us understand what taxable income would have been if you had resolved loans sort of on pace with how you underwrote or if you hadn't been transferring?

[George Ellison:]

Rob, I'll take it, some of this, but maybe you can follow-up. As I said, if you go to financials and look at unrealized gain, that's really I was saying to, I think it was Jade. That's where you've seen a big drop. So if you look at yearend, and look at yearend December 31, 2014, unrealized gains on page 10 Fred. You see that 90 right there, it moves to 60. And Tony was asking the same thing, is that 30, because due to servicing transfers, that's a heck of a lot of it. It's supposed to be 90. It was 90 twice in a row. But you can't say what that number is supposed to be. But that sort of somewhere between those numbers is the -- that's the rub right there on that line, that's where it is. I don't know Rob, if you got anything to that?

[Robin Lowe:]

I mean, Fred, it's typical to sort of speculate it or do anything hypothetically. The numbers are where they are. As Ashish said, it's on a natural basis. The average gain per resolution is very similar quarter-by-quarter, so it's really a volume-driven issue. And as Ashish said, it's based on actual.

[Ashish Pandey:]

And Fred, you can look at your Q numbers probably which was around 1,500 resolution, because our -- you can normalize Q2 and Q3 of last year and you can come to the number, okay, what that number would have been.

[Fred Small:]

And then, Robin, I think you said, I didn't catch the exact number of REO. You said that you had at the end of the quarter. Was it 4,330?

[Robin Lowe:]

4,430.

[Fred Small:]

If I just assume the fifty-fifty split on that, I know this you'll break this out in the Q, but if I take out the portion that's been rented and other portions you separate, and just look at sort of the homes that you're still deciding on, and if I take 50% of those, two questions. And you might have answered one. How long would it take to liquidate that portion of the REO that's not going to fit in the rental pool, and I mean I'm just assuming, say, it's fifty-fifty? And then how much capital do you think you would generate from selling those homes?

[Robin Lowe:]

Well, the number of homes, and you'll see this in the Q later today that we're kind of evaluating, it's 3,576. So you can take half of those, maybe that's a rough number. In terms of timeline, it depends how long they've been in there, but somewhere between three to six months. I think it would be, and that's reasonable to liquidate those. So the actual, obviously, the capital we generate will depend on the final sales price.

[George Ellison:]

It's somewhere between 100, 150 normal sale times, you'll have those [multiple speakers].

[Robin Lowe:]

Yes. You get sort of a rough number that way.

[George Ellison:]

That's the kind of liquidity would come in Fred. And then hopefully there is a gain, which you're trying to make on every house you sell.

[Fred Small:]

Even if I just haircut what I was just looking on, on my calculator, I mean you can probably generate over and even if you expend it out, so say it's nine months. But over the next six months, you think you can generate at least call it $200 million of sort of cash liquidity via REO sales.

[Robin Lowe:]

I wouldn't think that's an unreasonable number, Fred, here.

[Fred Small:]

I don't know if it was in the numbers, how much cash did you generate through the sale of homes in the first quarter?

[Robin Lowe:]

About $33 million.

[Fred Small:]

And then just so I understand when I'm looking at the P&L, how should we think about the selling cost and impairment sort of relative to whatever is being sold, wherever we sort of come out on that number?

[Robin Lowe:]

I'm not clear what the question is Fred.

[Fred Small:]

I mean, let's say, if I assume you can generate $200 million or $250 million of liquidity or cash selling REO over the next six months. Let's say that you sold all, let's say the $250 million was sort of the cash number. Is there a good way to think about sort of what would flow through the P&L in terms of sort of selling in impairment cost on that $250 million?

[Robin Lowe:]

Look I think it's in line with our expectations. It's still in line with what you've seen so far. I don't think you're going to see anything of a huge balance from what we've achieved so far.

[Fred Small:]

And then on the size of the potential NPL securitization in the second quarter, did you say how big that could be?

[Ashish Pandey:]

$200 million to $250 million.

[Operator:]

Thank you. I am showing no further questions in the queue at this time. I would like to hand the call over to Mr. Robin Lowe for any concluding remark. End of Q&A

[Robin Lowe:]

Thank you very much everyone for joining the call today. And have a great day. Thank you.

[Operator:]

Ladies and gentlemen, thank you very much for your participation. This does conclude the program. You may now disconnect.