How are you? Good. How are you? Good. All right, we're going to get started. Good morning, and welcome. Thank you for joining us. My name is Terry Ma. I'm the New Consumer Finance Analyst at Barclays. I'm pleased to be joined by, the gentleman from Mr. Cooper. We have Jay Bray, the CEO, Kurt Johnson, the CFO, and Christopher Marshall, the Vice Chairman, President. So welcome, gentlemen. Thanks. Thank you. I think we're just going to get right into it. Can we just start with an update on the servicing business? Your portfolio will be about $950 billion pro forma for Home Point. Can you just talk about the appetite and opportunity for additional bulk MSR purchases going forward? Well, I think we've been very active in the ballpark. I'm sure we may be a lot more than anyone else in the space this year. I think we're hovering right about $200 billion, so quite a lot of activity. We expect that to continue. There's no sign of abating. In fact, I think, as we get into the fourth quarter, you may see some of the regional banks start to sell some of their portfolios, just given the recent capital changes and the fact that they hold that more to retain their customers than they do to make money. So we expect it to be a buyer's market for quite some time. Yeah, and I think if you look at our platform, we really feel like we have a competitive advantage when you think about it from a cost standpoint, customer standpoint, et cetera. And you look at our track record on being able to acquire portfolios and transfer them in, and they've gone extremely well. The ones we've executed on this year, you know, couldn't have gone better. So I think as you think about the regulatory community and the sellers, they want a trusted advisor, and I think we're number one on that list. Yeah. And I would say in addition to that, we've done over the last decade about 700 service, and so we know all of the sellers. We know the performance, we've got detailed information on them, and I think it allows us to be competitive on our bids and on the pricing scenario. We're still seeing really attractive yields in the marketplace. Got it. That's helpful. So maybe you can just speak to the competitive market for MSR purchases. Is it more of a buyer's market, a seller's market? And what positions Coop to win some of these purchases? Definitely a buyer's market, especially as you get beyond the small pools, $1 to $3 to $4, $5 billion. If you exceed, say, $20 million, there may be a couple of active buyers. Now, we're in a great position because we've got historically, high liquidity, and we've planned over the last few years for this to occur. Anyone who's been listening to our conference calls over the last couple of years, we've been saying, this is - this will happen. People will start selling their portfolios. It started with the originators that retained MSRs during the refi boom, but now it's extending into the banks. So it's definitely a buyer's market. The terms are very good, but there are limited buyers out there. And look, if you look at, Chris alluded to it, but if you look at the new proposed capital rules for the banks, where $700 billion assets and more banks were always held to a 10% limit on MSRs before dollar-for-dollar capital under Basel III, that's been expanded now to $100 billion-dollar banks. So there are a few hundred-billion-dollar banks where, you know, the MSRs are approaching that 10% already, so they're going to get dollar-for-dollar treatment. And frankly, you know, if they have $12 billion in equity, that's $1.3 billion in servicing, they're not going to be efficient from a scale perspective. So we do. There's going to be some more opportunity going into next year. Yeah, I've never been more excited about how—Look at the kind of last financial crisis. We were—we acquired more portfolios then than anybody, and I think now it's even a bigger opportunity. We think it's going to be probably $1.4 trillion in the next, you know, 24-36 months, it's going to transact, and we expect to be the beneficiary of, you know, our fair share of that. So I think it's a massive opportunity in the market right now. Got it. Terry, if I could add to that. If you look at the regional banks, I don't think anyone would ever claim that they make any money off of servicing. One of the advantages we have is we're the buyer of choice, but those banks that don't want to pay a higher capital charge on a non-earning asset, we're also a big sub-servicer. And unlike just about anyone else in the industry, we provide white label sub-servicing. We've done that for many years. It's a big differentiator. If you're going to sub-service to someone, you still want your customer to think that you're being, you know, handled by your bank. But we're now investing a lot of money into creating a white label originations channel as well. So I can see in the very near future, banks will be looking at us not just to handle their, their MSR, but perhaps outsource all of their mortgage function to us, because, as we all know, banks really don't make any money off a mortgage, but we do. Got it. How helpful. So maybe you can just, touch on your expectations for servicing profitability in the second half, and also, maybe additionally, just where's your mark-to-market today? Yeah. So, we guided to over $700 million in profit for those servicing at our last quarterly earnings, and we're very comfortable with that. You know, I think servicing results have continued to be strong. Prepayment rates are low. Your short-term interest rates are high, which helps your float income. So I think it's, you know, it's a good market for servicing right now, and I think we continue to see strong and improving earnings on the servicing side. And we did roughly $180 million, I think, last quarter. I think you'll see it up from. It's great. I mean, Terry, you know this, but our model is very balanced, right? We have a strong origination business, and the servicing business is perhaps the strongest in the industry. And we're in an environment where interest rates are high, so origination business is obviously slower, but the servicing business is killing it. I think the other thing that we kind of view, we're in the early to middle innings of the efficiency and cost continuing to take out of the servicing business. So my view is profitability is going to continue to improve there. I mean, we've got several initiatives that we're investing in this year, that are going to really drive down the cost, and we think, make the customer experience better. So they'll serve tools, a lot of digital tools, et cetera. So very, very bullish on kind of the outlook for servicing in the quarters to come. But if you go back—for those of you who haven't followed us for many years, if you went back to end of 2018, 2019, we made massive investments in the servicing platform. In fact, Kurt managed all those investments. And now we're seeing the full monetization of some of those. As Jay said, we'll continue, obviously, to continue to invest in that. But our call center is state-of-the-art. I think we are probably approaching 50% of the headcount we had a couple of years ago, and yet we've grown our UPB by a third. So there's a lot of room to go, but right now we're the only company that has invested heavily in their servicing platform. And then in terms of mark, we announced in the first quarter that we had increased our hedge from historically about 25% to about a 75% Delta hedge ratio. I think that's really important. So we've seen, obviously a sell-off and the increase in the servicing value is going to go up as a result of that. We're offsetting that increase about 75%. So, where the market is today, you know, it, it is up even net of the hedge, but it's not up all that dramatically. But I think it positions us really, really well for a rally in rates. Not only do we have the originations income, but we're going to have cash flow from the hedge perspective as well. Got it. Got a helpful color. Just turning to credit for a moment, can you just talk about the credit trends you're seeing in the servicing book? What's the outlook, and is there any impact from student loan forbearance ending? Let me start? Yeah. So look, there will come a time when credit, obviously, will hit the mortgage space. It's not right now. We're seeing our delinquencies. We reported it at June quarter-end, that our delinquencies were down from pre-pandemic levels, even in pre-pandemic were at historic lows. So our servicing portfolio right now has the lowest level of delinquencies that we've ever seen in our 20 years of existence. And if you look at July and August, Ginnie Mae statistics and the Ginnie Mae are public also, so July and August are out there. Our delinquencies have continued to decline in July and August. So we're not really seeing a credit crunch in the mortgage space right now. We are monitoring our customers, other consumer accounts. You've mentioned student loans. We have about 16% of our mortgages have a student loan. The average balance on those is about $42,000 versus a $250,000 mortgage. So we are looking at that as student loan payments resume. And we are seeing a little bit of delinquency noise in credit cards and autos for our customers as well. So we're paying close attention to it. We have not only active monitoring tools, but we do outbound calls as kind of the credit characteristics of our customers. So we're pretty proactive in reaching out and making sure that they're making the payments. Fundamentally, though, it's like Kurt said, delinquencies are at an all-time low for the company. And when you look at the health, you know, kind of the customer from a housing standpoint, significant equity, you know, in their homes, much, much different than what we've seen, you know, back in 2008, et cetera. And so I kind of view it as a very, very, you know, healthy portfolio. And if you look at some of the recent acquisitions we've made, acquired Rushmore, which is one of the best specialist servicers in the industry. We acquired Bayview's special servicer a year or so ago. So we really have a lot of capacity and dry powder. If you were to see a turn from a delinquency standpoint, we certainly have the capability and the capacity to handle that. We think we're going to grow those businesses. When you look at the servicing landscape today, let's just say a bit of chaos. So having Mr. Cooper and Rushmore partnering together, a very powerful statement to the market. So we think we're going to grow special servicing in a meaningful way, and it'll be kind of another leg to the stool from an earnings standpoint. Of course, if you look at our overall portfolio, roughly 40% of it is sub-serviced. We don't bear any credit risk. In fact, we get paid higher servicing fees as loans do become delinquent. So a combination of all those things is, well, not just well-positioned if things do turn, but it may be a growth, a growth sector for us. Got it. Got it. Helpful. So turning to originations, can you maybe just give a quick update on how volumes and margins in the current quarter rate? I'd say volume is exactly where you'd expect it, given rates, you know, have pierced the 7% mark. So, I mean, the guidance we gave was $20 million-$30 million. I think we had a little bit more in terms of EBT quarter, but of course, that's the high water mark for the year. So we expect it to be $20 million-$30 million. We're very comfortable with that guidance, but it's if anyone were to ask, "Why is it down?" There's the cycle, but of course, rates. Rates have a big impact on originations, but we more than offset it on the servicing side. So our business is designed to have that balanced business model, and you should expect that to show up when we report earnings. I'd say the other thing in the origination business is we're definitely investing for the next cycle. You know, we've made some significant investments in the platform to improve the efficiency, again, improve the customer experience. So we expect, you know, when and if rates do come down, that we'll be more than ready, you know, from a capacity standpoint, to take advantage of that opportunity. So that's really a challenge to the team at the end of the day, is out of this in a much more efficient manner and be able to kind of see today when rates do shift. Got it. So if I look at industry estimates right now, MBA and Fannie forecast anywhere from $1.9 trillion-$2 trillion of total originations in 2024. Does Mr. Cooper have an outlook on what 2024 looks like? I mean, I think we'll stay consistent with Fannie and Freddie. You know, they've been wrong consistently, but yeah, our general view, I think, is interest rates are going to stay higher for longer. And so you could, you know, you could see some downward prepayment numbers, but but overall, I think it's in the range of what we would expect. Again, with our model, it is a very balanced business model. So from a, you know, servicing standpoint, again, we have a lot of visibility into quarters to come, and we think that's going to be incredibly strong. And you know, if you think about where kind of current coupons are at, and you look at the averages, there's a significant number of customers that are still in the 3% range. So it would take a significant move to get, you know, a real, real dramatic increase in volume, at least on the refi side. Yeah, and look, I would say that everything Jay said I add to it. But from a servicing origination interplay for our company, right? If rates do rally, you see, in markets, it's more than the $1.9 trillion-$2 trillion. We do 80% recapture on our refinance business. We're in double digits on purchase recapture, moving more towards 15%. All of those are factored in. So to Chris's point earlier, if the market is $1.5 trillion-$7 trillion instead of $1.9 trillion-$2 trillion, you're going to see servicing earnings come in really strong. Your CPRs are going to be slow, and it comes a little faster, you're going to see originations earnings really pick up. So I think the balance is really key. Ed, one thing that is, we're obviously focused on volume. Volume is at-- I mean, we're at the trough now, so it sounds a little silly to be talking about margins, but the investments we're making are to protect and even expand our margins. And just not to bore anyone, but a lot of people talk about making investments in technology. We've taken every single individual step in the originations process and the servicing process and mapped every single step, thousands of steps. And our effort has all been focused on what could be automated, what could be outsourced, not outsourced, but offshored, and then what just needs the process itself to be streamlined. So we've gotten about 40%-50% of the way through on the origination side. We saved more than half of the human labor. The cost, direct cost per loan is down more than half. So when volumes do come back, we will have our fair share and more, but our margins, which have always been the highest in the industry, should be even stronger. So we're prepared for that. In the meantime, though, we're killing it on the servicing side. We've done the same exact thing. We've gone through every step, we've automated quite a bit, but we have further to go, and so our margins in servicing over time should be even stronger. Got it. Maybe just touch on what you're seeing in the correspondent channel with respect to competition. I don't know. There's been a lot of discussion about correspondent margins bouncing back. We don't really see that. We're a big player in correspondent. They're okay, but, there's still a lot of competition there. We're focused on margin, as I just said, so we're indifferent as to where we get our business. It could be through correspondent, it could be through co-issue, it could be through bulk. Right now, we do a fair amount of correspondent relative to the market, but I don't think margins are what people are expecting them to be just yet. ... Yeah, margins overall are still very thin. I think when you think about allocating capital, you know, we, we're looking at where can we get the highest return. So, you know, right now, we still feel like that's in the bulk market, the co-issue market. We're certainly going to be participant in the correspondent market, but, to Chris's point, we don't see margins coming back there in a strong way. Got it. So you've talked in the past about expanding the scale of your DTC platform. Can you maybe just speak to the investments you've made there? I didn't hear the first. The what platform? DTC. DTC platform, investments. We're going through a whole, a series of investments now. The first is modernizing the front office, basically, with MLOps to streamline that and also what the customer has to go through. That's part of it. The second part is what I just talked about. We call it Project Flash, where we've taken processing of the application that is completely now automated or the processes have been streamlined. We've taken out half the cost, more than half the cost. We're now doing the same thing through underwriting. We're halfway through that, and then we'll get to funding and post-close. I'd say it'll take us through the end of next year. We should have underwriting finished by the end of the first quarter. So those are the things we're doing for our internal processes. But, standing up a white label capability and a white label recapture capability is a way we think we're going to capture more revenue into the company. So we'll bring it in, but we've got to be efficient back office, and I think we are more than halfway there. Got it. You spoke a little bit about this, but you did, the origination segment did $38 million in pre-tax last quarter. You got it to $20 million-$30 million. Can you maybe just talk about what the outlook is in the near term? Yeah, I think, look, we're, as Chris said, we're very comfortable with the $20 million-$30 million. We think Q2 is the high water mark. We, you know, we book revenue at the time of lock, and the locks typically come in for, you know, most of the summer in the late second quarter. So as a result of it, you'll see higher funding volume and maybe slightly higher and elevated prepayment speeds on the servicing side, although not much. And rates, as Chris said, have increased, and so our lock volume, you know, is probably a bit low. Markets seem to be holding it pretty well, and we're comfortable in the $20 million-$30 million space, but I think, as Chris said, the high-water mark was Q2. But again, going to be completely offset with increased servicing income on a go-forward basis. I also do think that we're doing, you know, a nice job now on really kind of expanding products. second liens, I think, are going to be a continued focus for us. We do see a lot of customers with rates in the 7%, who have a 3% mortgage, and the second lien is attractive for them. And we've, to Chris's point earlier, we put in a lot of automation around things to make sure that we can have a profitable second lien program. And what that does is that raises the effective refinance rate from a customer, right? So if they're in a 3% rate now, but now they've got a 10% second, that combined refinance rate is now 5%-5.5%. And so, you know, it's a little bit less to be in the money to kind of refi and combine the two of them. But fundamentally, I mean, the origination business is profitable. We expect it to continue to be profitable. Kind of when you look across the origination landscape, that's not always the case. Originators are facing, you know, tremendous pressure. But again, with the balanced business model, we're really focused on the origination business in a more medium and long term, and making the right investments so that when the opportunity presents itself, you know, we're going to be more efficient, more effective. Not going to have to hire 1,000 people, 2,000 people. We're really building, I think, a factory that is going to be well prepared for what... And the servicing business, you know, again, is going to continue to kind of carry the day and offset anything you would expect there. Okay, got it. That's, that's helpful. So when we look at the entire business, you know, you generate a ROTCE of 11.7% last quarter. It's expanded in each of the last four quarters. What's the outlook going forward? And just based on the trends that you're seeing currently. Well, we've always said we should earn 12%-20%. That's our target over the long term. Of course, during refi, we've made multiples of that, and as rates shocked, those returns fell. But we should be back in that zone. I think this is still a tough time for the mortgage industry, but there, I don't know how many companies can say we're still earning 12%+ in ROTCE. So over time, you should see us stay in that zone. As things pick up, yes, we'll move more to the top of that. But right now, I think we feel confident that we can continue to generate returns at around this level, but moving up as we get into next year. Not only saying that they can earn 12% ROTCE, but trading below $1 also. Yeah, that's right. Pretty unique in that aspect. Got it. Maybe you can just dig in and maybe talk about some of the drivers that get you to the top end of that 20% range? I think a little bit more originations. We don't ever have to get back into a refi boom like we just saw. We don't ever expect that to happen again. But to get back to, if rates come down a little bit, you'll see a little bit more refi. If we go into more of a recession, and that's your—you know, everyone can make their own bet on what's going to happen. But if that happens, we'll see more pressure on the consumer. We'll see more people refi and certainly more people tapping the second liens that we offer. So I think it's likely, even if that doesn't occur, over time, the book that we've been generating over the last couple of years will be in the money, even with minor drops in rates. So I think we're still at the beginning of a transition for most of the industry. We're doing extremely well, and all we see is upside. So I'm not sure which path the economy is going to take, but either way, we should see upside. I think if you look at the assets we're acquiring now, they are at a very, very attractive yields. And so, even with a slight downturn, we expect that to perform as, you know, at, in those levels. And then when you look at the initiatives we have underway, I mean, we are maniacal about taking cost out. We're going to continue to invest where it makes sense to reduce costs. We've got, I don't know, five or six key initiatives teed up for 2024, that we hope is going to take out another, you know, $50 million plus in cost. And so I think it's a combination of those things that will keep driving that. And then as the costs come out, of course, we've got fee-based businesses that are now generating income without assets, right? So we've got the sub-servicing business, and if we're the most efficient in the industry, people are going to look to us to sub-service more and more assets, and I think you're starting to see that already. We're starting to see people come to us and want us to be in sub-servicing. Not just because we're the least expensive in the industry, which we are, but because we are also really, really good at what we do and we have retention capabilities as well. And so we acquired Rushmore and Roosevelt as of the end of July. We're looking at potentially starting a fund with Rushmore, the former Rushmore spinning out as a licensed entity and able to acquire MSRs. We'd be the logical choice to sub-service those as well. That's even furthering our fee-based business. And what the white label, co-label that Chris talked about in terms of the origination side, is a new fee generation earnings stream for us as well. And so all of that, without assets, I think can add to that 12% ROTCE. Last thing, the driver is, we had a lot of successful cost reduction initiatives this year. Those will all be annualized next year. We had a tremendous amount of growth that'll all be annualized next year. So it's not like we need new drivers to help improve our returns. It's just seeing some of the things we've done recently get annualized. But we expect growth to continue. We expect our sub-servicing business to continue. As Kurt said, we are considered the best in the industry. At the same time, where some of the more logical or traditionally logical sub-servicing choices are really in disarray. I mean, the two largest independents are, you know, they have a lot of challenges in front of them. The balances are declining very rapidly, and we are a beneficiary of that. Got it. Okay. I'm going to pause right here and just go to the two audience response questions that I have. Can you just cue up the first one? Question is relative to Fannie and MBA forecast of total originations of $1.6 trillion-$1.8 trillion in 2023, and $1.9 trillion-$2 trillion in 2024. Do you expect 2024 total mortgage originations to look like, one, $1.4 trillion-$1.6 trillion, two, $1.61 trillion-$1.8 trillion, three, $1.1 trillion-$2.0 trillion, or four, greater than $2 trillion? So the lower end. So next question, please. Over the next year, would you expect your position in Mr. Cooper to, one, increase, two, decrease, or three, stay the same? Be bullish now. Exactly. I can't wait for the answer here. Oh, that's pretty bullish. Yeah. Yeah. We'll take that. I'll open the floor up to Q&A if there are any questions. Anyone? We got one up in the front here. Maybe just talk about a little bit more about the second lien business. Just, you don't normally take credit risks, so how is that getting funded? And then kind of separately, if you could just talk about rating aspirations and optimization around what rating. What rating do you think you're the most efficient at? I heard second liens. What was- The rating. Oh. Where we think... Rating aspiration, where are we comfortable? Yeah. Yeah, because I'm Kurt's the CFO on ratings, so my ambition has always been to at least be double B. Let's see. second liens, we rate every customer, we score every customer every day. So we know the customers that may have some challenges, we know the ones that have the most equity, and we know the ones who it makes more sense to do a second lien than a refi. A large majority of our customers today. We originated on balance sheet. We sell them to a couple of different large banks on a regular basis. The funding is, you know, we're funding things for less than 30 days, generally. So that, at our current level, is sustainable through the long term. We're not taking any credit risks. We're basically selling the, the credit risk away and, on a flow basis or kind of a, you know, call it a mini bulk basis, pull them up, sell it to them. We have a stable of investors, and that market's come back in a pretty meaningful way, and we have some large multiplayer banks as well as some other buyers. I was a CFO of a couple of banks during the financial crisis. Home equity was not... Did not fare well in that cycle, so I will never forget that. So we're selling what our customers need, but we're not taking the risk. You want to comment on ratings? I will. Look, we talked about efficiency. Our turn times on those are very good. We don't have a lot of lock volume, but that's uncommitted. The turn times are great, as Chris said. On the rating agency perspective, look, I think our bonds are trading like we're two notches above where we are. If you look at some of our industry peers, we're trading kind of at that double B minus level. I think that's where our aspirations are, and I think that's where you'll see us kind of having some really good dialogue with the rating agency over the next three to six months around getting there, because I think the market already thinks we're there. If you just look at the balance sheet and you look at the capital liquidity, the overall, we should... We're actively working with the agencies to address that. We have a little bit of time. Maybe you can just touch on capital levels. What's your target capital levels longer term? Yeah, so we're at 30% right now. So obviously, a really rock-solid balance sheet. I think our liquidity is at a record level. We commented that it was about $2.4 billion as of the end of the quarter. I think that's pretty stable, consistent going into the end of this quarter. And so I think we have some room, and I think as there's opportunity to invest capital, we certainly will. As I said, we're trading below books, so I think we'll continue to buy back shares as well. But we're never gonna be, you know... We probably aren't gonna come down to the 18% that was in our presentation, but you could see it kind of coming down a little bit from the 30%, because right now we think there's still some opportunity and that will increase returns, which I think are positive for the company and the stock right now. Okay, any more questions from the audience? We got one more over here. Sorry. You mentioned earlier that you thought the correspondent business still had weaker margins, like, or, than makes it attractive. I guess, where would you expect originations, correspondent originations, to get to in order to have margins that were sustainable? And/or how much capacity would need to come out of the market before margins were sustainable? I'm sorry, I didn't hear the whole question. I mean, on correspondent- Yeah. Just kinda where we think margins would have to be to be more stable, attractive, you know, for us. Oh. I think, look, the correspondent business has always been a little volatile, and we've been somewhat opportunistic, you know, there. I think, you know, margins today, you know, we are profitable in correspondent, but for us, it's more about where can we get the highest return for the invested capital. So we don't think that's the correspondent channel today. We co-issue more attractive, again, the vaults, even smaller vaults, more attractive. So, you know, I think we would want to see kind of sustained profitability, or correct me, but 30-35 basis points in that, you know, channel for us to probably invest more capital. And, you know, again, just with the amount of supply on the vault side, it just, it makes a lot more sense for us to focus on that at the moment. Yeah. And then I would say the other thing you've got is Fannie and Freddie are, you know, influencing margins a lot with their Duty to Serve goals right now, right? You have to. They have a certain percentage that everyone has to hit in terms of low purchase and very low-income purchase, which frankly isn't representative of where the market is right now. And so in order to be competitive, you have to lower your margins in that case. And so that is probably depressing margins overall as well. Okay, great. I think that does it for us. Thank you. Thank you, guys. I appreciate it.