Onity Group Inc (ONIT) 2003 Q2 法說會逐字稿

Good afternoon and welcome to the Ocwen second-quarter results earnings announcement call. This conference is being recorded. If anyone has any objections, you may disconnect at this time. I would like to remind participants, they will be in listen-only until the question-and-answer session of the conference.

I would like to introduce your host for today's call, Mr. Bob Leist, Vice President and Chief Accounting Officer.

Thank you. Good afternoon, everyone, and thank you for joining us today. Before we begin, I want to remind you that a slide presentation is available to accompany our remarks. To access the slides, log onto our Web site at www.Ocwen.com, select Shareholder Relations, then Conference Calls second quarter 2003 results and then View Slides. Each viewer will be able to control the progression of the slides during the presentation. To move the slides ahead, please click on the gray button pointing to the right.

As indicated on slide two, our presentation may contain certain forward-looking statements that are made pursuant to the Safe Harbor provisions of the federal Securities laws. These forward-looking statements may be identified by a reference to a future period or by use of forward-looking terminology. They may involve risks and uncertainties that could 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 today's earnings release, as well as the Company's filings with the Securities and Exchange Commission, including those (indiscernible) 2002 10-k. We are happy to make Ocwen news releases, 10-Qs, 10-Ks and other materials available to you via e-mail. If you are not already receiving our materials by e-mail and would like to be added to our destination list, please e-mail Linda Ludwig (ph) at Ludwig@Ocwen.com (ph).

As indicated on slide three, joining us for today's presentation are Bill Erbey, Chairman and CEO of Ocwen, Ron Faris, President, and Mark Zeidman, Senior Vice President and Chief Financial Officer. This presentation will be followed by a question-and-answer period, during which will be taking questions from those of you attending the conference by telephone.

Without further delay, I will now turn the call over to Bill Erbey.

Thanks to all of you for attending Ocwen's second-quarter conference call. The would like to open this meeting with my perspective on our for performance for the first quarter, after which Ron and Mark will provide more detailed information. Before I begin my remarks, I want to note that Art Ringwald, the President of OTX, will not be the joining us on this call. OTX has been making notable progress towards its goal of breaking even in 2003. Our expense control has been excellent, driven largely by our globalization strategy and the use of Six Sigma tools to reduce infrastructure expenses.

Unfortunately, revenue growth, while accelerating, has been less than hoped-for. Art Ringwald and I are in complete agreement that accelerating revenue growth for OTX is one of the Company's top priorities. To that end, I'm pleased to announce that Art has agreed to devote 100 percent of his time and effort to creating revenue growth. Art brings 25 years of experience in the mortgage banking industry to the (indiscernible), as well as his passion and belief in the future of OTX. I expect that he will be instrumental in taking us to the next level.

As shown on slide four, I'd like to cover three topics in my remarks today -- an the overview of our first-quarter earnings, the operating results of our strategic fee-based businesses, particularly OTX, and our remaining noncore assets and the results of our noncore businesses. I'm happy (indiscernible) my remarks this quarter by stating that we reported net income in the second quarter of this year.

As illustrated on slide five, our pretax income in our core businesses rose to 7.5 million in the second quarter, an increase of 71 percent over the same period last year, while noncore earnings were essentially breakeven, as compared to a loss of $49.1 million in 2002. Our corporate sector also reflected improvements, reporting a pretax loss of 3.3 million, as compared to a loss of 5.5 million in the same period last year. We believe these results reflect continued strong progress in our transition from capital intensive to fee-based businesses.

As shown on slide six, our year-to-date results reflect similar trends in all three categories after excluding the arbitration charge of $10 million in the first quarter of this year.

As shown on slide seven, our core businesses reported average quarterly losses of $7.4 million in 2000 and $1.7 million in 2001. In 2002, they reported average quarterly pretax income of 3.4 million, as compared to pretax income of 7.2 million and 7.5 million in the first and second quarters of this year, respectively.

Our Residential Loan Servicing business earned $8.4 million in the second quarter, which included an impairment charge of $400,000. Our Servicing earnings continued to be impacted by the low interest rate environment, as well as by a somewhat smaller portfolio during most of the second quarter. However, as shown on slide eight, our portfolio grew during the latter part of the quarter and we closed the period with 33.7 billion of unpaid principal balance, an increase of 12 percent over the March 31st level. Ron will cover our Servicing results in more detail later in the call.

OTX results have also been improving steadily, as graphed on slide nine, posting a $2.6 million loss in the second quarter, as compared to a $3.3 million loss in the first quarter and average quarterly losses of 6.9 million and 9.1 million in the preceding two years. As illustrated on slide ten, REALTrans transaction volume grew from 231,000 in the first quarter to 335,000 in the second quarter, a 45 percent improvement, much of which is attributable to the continuing Washington Mutual rollout. We expect further growth in the remainder of this year and project that our average PUT (ph) values will remain at the current $3.25 level. As a result, we continue to believe that REALTrans is poised to break even in the fourth quarter of this year.

As shown on slide 11, since December of 1999, our noncore assets to be sold have been reduced from $1.9 billion to 198 million as of June 30, 2003, a decrease of 90 percent. During the second quarter, we sold four commercial noncore assets with a combined net book value of $46.5 million at a net gain of 3.6 million. While the small number of remaining assets continues to make the timing of future sales less predictable, we are pleased with this result and believe that we will achieve further reductions during the second half of this year.

As of June 30th, the five largest noncore assets accounted for 65 percent of the remaining total. We continue to maintain the strongest reserve levels that we've ever had, and we believe we are in the final stages of achieving our goal.

As shown on slide 12, commercial assets comprised approximately 70 percent of the remaining noncore assets and consist of fourteen loans and properties. Pretax losses in this segment were 4.3 million in the second quarter of this year, as compared to 38.3 million last year. This quarter's results included a $5.5 million write-down of a real estate asset, largely offset by gains on sales of 3.7 million, while in the second quarter of last year, we recorded 35.2 million of additional write-downs and reserves on commercial assets.

As shown on slide 13, reserve levels on commercial loans and REO assets remained at 26 percent, consistent with last year end. Our unsold Affordable Housing assets declined by 1.4 million, or eight percent, since year-end. Of the remaining 15.7 million of unsold assets, 6.3 million are loans and 9.4 million are properties. We also have three million of Affordable Housing properties that are under contract that have not yet met all of the qualifications for sales treatment.

Since slide 14 illustrates the reserves on our Affordable Housing properties and loans stand at 51 percent (sic) at June 30, as compared to 48 percent last December. I remain convinced that our strategy to liquidate our noncore assets and use the proceeds to reduce leverage and to continue to invest in our core fee-based businesses is the best course for our stakeholders.

I believe our second-quarter results demonstrate our progress towards the completion of that strategy, as core businesses continue to be profitable and losses on our noncore and corporate segments continue to decline. Today, we have equity of 305 million and cash and cash equivalents of $251 million. We are confident that this strong financial foundation will provide us with the ability to stay the course and achieve our strategic objectives.

I would now like to turn the call over to our President, Ron Faris.

Thank you, Bill. My remarks today will cover the Servicing business, Ocwen Realty Advisors, Unsecured Collections and our Global Outsourcing business. I am pleased to report that these four business lines generated a total of $10.9 million of profit in the second quarter, an increase of $1.2 million, or 12 percent, over the second quarter of 2002.

Turning to slide 16, you'll see that our Servicing business reported pretax net income of $8.4 million in the second quarter, compared to $8.1 million in the second quarter of 2002. As shown on slide 17, our Servicing portfolio balance at the end of the second quarter was 33.7 billion, a 12 percent increase from the first quarter of 2003. We continue to see strong, new product flow in the Residential Servicing business.

Net revenues in the Servicing business decreased eight percent compared to the same period -- the same quarter last year -- to $23.8 million. The primary factors contributing to this decline are increased amortization of purchased mortgage servicing rights, coupled with a $400,000 impairment charge and continued lower net earnings on float balances due to the ongoing decline in short-term interest rates.

Over the past several quarters, we have been steadily increasing our rate of amortization on Servicing rights to reflect increased prepayment volumes. Our net interest-related income, including interest earned on collection account balances and compensating interest payments on payoffs, declined by $3.2 million, or 47 percent, over the same period of the prior year. We expect that our net float earnings will continue to be negatively impacted on an ongoing basis, due to the current low short-term interest rate environment, which saw another quarter point reduction during the second quarter.

On the expense side, we continue to make progress in reducing our per-unit cost to service a loan. During the second quarter of 2003, our average per-unit cost to service a loan was -- (technical difficulty) -- June 30, 2003, we had approximately 1,326 active servicing (indiscernible). As shown on slide 18, as a result of implementing our REALServicing (ph) software in 2001 and our globalization initiative, we have reduced the average cost of -- (technical difficulty) -- by over 55 percent over the past ten quarters. Total Servicing business expenses for the second quarter of 2003 declined by approximately $2.5 million, or fourteen percent, compared to the second quarter of 2002.

The profit margin in the Servicing business also remains strong at 35 percent for the second quarter of 2003. As shown on slide 19, our Unsecured Collections, or asset-recovery business, posted pretax income of $1 million in the second quarter, as compared to a $1.1 million profit (indiscernible) period in 2002. Although we continue to make progress in improving our collection capabilities, reducing our cost structure and in attracting new fee-based collection contracts, lower collections on our declining owned portfolio declined by $365,000 from the second quarter of last year, contributing to the earnings decline.

Slide 20 shows that Ocwen Realty Advisors, our property valuation division, reported record pretax income of $1.6 million for the second quarter of 2003, compared to $499,000 in the second quarter of 2002, reflecting an improvement in margin from 14 percent to 33 percent. The improvement in margin is a direct result of our expanding vendor network, fully deploying REALTrans as our vendor management and product fulfillment system, and implementing our globalization strategy. We have also made great strides in expanding our client base and improving customer satisfaction among our customers.

Both Unsecured Collections and Ocwen Ocwen Realty Advisors complement our Servicing business, capitalize on our core competencies and provide additional value-added services to our core client base. Both business lines continue to make progress in reducing their cost structures and improving their product quality through through Six Sigma initiatives, the better use of technology and globalization.

As we have previously reported, we continue to pursue new opportunities to leverage our technology and global capabilities. During the second quarter, our global outsourcing business generated $400,000 in revenue, a 15 percent increase over the first quarter of 2003. Year-to-date, the business is breakeven. We have three active clients and began expanding our capacity during the second quarter in anticipation of a fourth client launch during the third quarter. We anticipate opportunities to continue growing this business over the coming quarters.

Thank you, everyone. I would now like to turn the call over to Mark Zeidman.

I'd like to discuss two remaining aspects of the Company's performance during the second quarter of 2003 -- first, the 3.3 million loss in the Corporate division and second, the Company's cash and liquidity position. Regarding the 3.3 million loss in the Corporate division, remember that the Corporate division primarily consists of several components, as depicted on slide number 22.

First, the net interest expense incurred to finance corporate assets, such as cash, income taxes, receivable and other assets that are not identified with any particular business unit; second, unallocated costs of the Technology Services division that our incurred for general corporate purposes rather than in direct support of any business unit; third, gains or losses on redemption or repurchase of debt, if any; fourth, certain expenses that are general in nature and are not directly associated with the business unit and are therefore not allocated out to a business unit. Examples of these costs include the cost of our Six Sigma department and costs incurred in connection with efforts to comply with Sarbanes-Oxley and similar types of expenses.

As you can see on slide 22, the largest individual component of the overall loss in the Corporate division is the net interest expense incurred to finance Corporate division assets. In the second quarter of this year, we incurred approximately 1.6 million in net interest expense, or less than half of the net interest expense incurred in the second quarter of last year. The decrease in net interest expense reflects the progress the Company has made in reducing the amount of high yield bonds and expensive brokerage deposits outstanding.

As you can see on slide 23, during the last 12 months, the amount of high yield bonds has decreased from 210 million at the end of June, 2002 to 133 million at the end of June, 2003. Similarly, the amount of brokered deposits has decreased from 252 million at the end of June, 2002 to only 122 million at the end of June, 2003. It's also worth noting that in the next 12 months, another 43 million of high yield debt will mature -- (technical difficulty) -- only four million of brokered deposits will mature.

The high yield debt has an interest rate of 11 7/8 percent, and the brokered deposits have an average interest rate of 6.36 percent, so with the maturity of these liabilities should continue to reduce the Company's debt burden and improve both the results of the Corporate division and the profitability of the Company as a whole.

The second significant component of the net loss in the Corporate division is certain unallocated costs of the Technology Services division. As you can see on slide 24, the unallocated costs have been reduced from $2.5 million in the second quarter of 2002 to only $700,000 in the second quarter of 2003. More important, perhaps, than the reduction in the unallocated costs is the fact that the total expenses of the Technology Services division have been reduced from 6.4 million in the second quarter of 2002 to only 4.9 million in the second quarter of 2003. The reduction in costs was accomplished largely by reductions in staffing levels.

Turning to the Company's cash and liquidity position, as you can see on slide 25, the Company closed the second quarter with cash and cash equivalents of approximately $260 million, or fully 20 percent of total assets. Of this amount, 184 million was cash at Ocwen Federal Bank and 76 million was cash at the Holding Company level. Consolidated cash at the end of June represented a 35 percent increase over cash of $192 million at the beginning of the year.

As you can see on slide number 26, operating activities, investing activities and financing activities have all been sources of positive cash flow in the first six months of this year. Operating activities have provided cash, despite the net loss reported in the first half of the year of the year, because of the high level of non-cash depreciation and amortization expenses that are charged against net income. Investing activities have generated positive cash flow, largely because of proceeds of $58 million from noncore assets.

Financing activities have generated positive cash flow, primarily because of new credit facilities that have been executed at both the Holding Company and at the Bank. We continue to consider the maintenance of adequate liquidity and the diversification of our sources of financing to be a high priority, and we continue to look for new opportunities to diversify our funding sources further.

I would now like to turn the call back to Bill Erbey.

Thank you. Teresa, we're now ready to open the call to questions.

At this time, we're ready to begin the formal question-and-answer session. Merrill Ross of Friedman, Billings, Ramsey Group.

Hi. I was wondering if the problems that Fairbanks is having has made pricing a lot better in the market? Has it affected it at all?

I mean, I think that, clearly, you know, they are a large participant in that sector and with them really not being in the marketplace, there may be some softening in prices, but I don't think it's significant. There are other players that have stepped in and kind of -- I'd say levels are somewhere where they have not declined significantly since the Fairbanks activity.

Bob Napoli of Piper Jaffray.

Good afternoon. Just a couple of questions -- I mean, you guys returned to profitability this quarter. I mean, do you think -- is this a permanent returned to profitability? Are we beyond the lumpiness?

Without trying to give a forward-looking statement, Bob, I think that we are happy basically; we continue to be able to grow core earnings within the business lines. That's been going on for like the last three years. We, in fact, are making very good progress reducing the losses at the corporate level, as Mark pointed out, both in the reduction of our net interest -- our interest expense as well as the cost of providing our Technology Services. There are some significant reductions in the level of high-cost debt that we're going to be paying in the very near future.

Thirdly, I think we've certainly reduced the amount of exposure that we have to our noncore business lines. One can't forecast what will happen to that, but we are very comfortable with the reserving levels that we have today on our noncore assets. I think, overall, we're very comfortable with the direction that strategy is taking us.

Okay. In the noncore businesses, your Subprime business -- profits from that sector kind of offset some of the noise in some of the other sectors. In those residuals, do you expect to -- I mean, is that going to be a little bit of a buffer in the noncore businesses for awhile? Do you -- coming off the residuals when you had decent profitability last year, this quarter continuing?

Certainly, the Subprime residuals that we have are cash-flowing very nicely, and they do provide a very nice flow of cash and profitability every single quarter. Those have been fairly stable to strengthening in that asset category.

The share count went up this quarter about a million. I just was not certain why. Did it have to do with the stock price?

What went up? I'm sorry.

The share count was a million shares higher this quarter. 67 million last quarter, 68 this quarter.

I hate when Mark issues those shares and he doesn't tell me.

Could you check your numbers? That's not what --.

We'll double-check those numbers. Maybe we have that.

Within OTX -- I mean, you have great transaction growth. What was the revenue in that business this quarter versus last quarter? I mean, are we seeing a pickup in revenue?

Yes, you are. You are keeping average -- the level of transactions -- or the quick charge for transactions is about $3.25; we did a little over 300,000 transactions for the quarter, so you're around $1 million in revenue. We had growth in the revenue number for the quarter; you know, it's not where we would like it to be, but it's getting there every quarter.

Now, I mean, obviously, we've been in the mother of all refinance booms and now rates are going up; the refinancing boom is clearly ending. It's certainly not going to get any better than it was as far as total transactions. I mean, are you going to be able to keep increasing transactions as the mortgage market itself almost falls in half on the origination side?

Certainly, that makes our job a lot more difficult than it has been previously. We do have, I think, fairly -- assuming a level number of mortgage originations if we could for the moment -- we do have two things that help us, one of which is we have a natural growth out of the continuing expansion of our existing customer base -- in other words, as you get rollouts from different customers either to products or more branches, etc. The other is bringing some new clients onboard.

So you know, obviously, if you see a 50 percent fall overnight, we're going to be hard pressed on that quarter to show continued growth over what it was the prior quarter. But you know, we're still hopeful, even with a significant fall-off this month in the number of mortgage originations, that we will be able to achieve breakeven in REALTrans by the fourth quarter.

You're Servicing business -- I was surprised by the level of growth because I think, in recent calls, you had thought that you would not grow that much this year, but you had ten percent -- very strong growth in the first quarter. What changed? Do you see that growth continuing?

There just happened to be -- first of all, you have to keep in mind that the fourth quarter of last year for us was somewhat slow as far as opportunities in the marketplace and our appetite for business because we had had such great growth for most of last year. I think that's why the first quarter, we saw actual, you know, new -- there's kind of a quarter lag going on, so we didn't see as much growth in the first quarter. But during the first quarter, we saw a lot more product available; we had a bigger appetite in the market and there was just a lot of opportunities and a lot of things fell our way. You know, we did -- we won a number of deals and then those closed in the second quarter. A lot of those actually closed in June, so a lot of it came on towards the end of the quarter. You know, I think we may have -- you know, we (indiscernible) generally target to grow 15, 20 percent a year. I still think that's more like the reasonable amount that we will growth for the full year. I mean, there's still good opportunities in the marketplace, but I don't know that we will see as big a jump in the next couple of quarters as we did in the second quarter.

Within that portfolio, how is it performing? I mean, do we have any statistics that would show -- I think, clearly, one of the most important things to that business is your ability to have good results. Obviously, I mean, how much you pay upfront people are interested in -- but if your results are not adequate, people are going to be leery of selling portfolios to you. How can we gauge how successful that business is being, relative to the market, I guess, and the delinquencies and charge-offs and things like that of your portfolio?

I guess all I can say is that, I mean, we continue to perform, I think, at a very good level, (inaudible) one of the tops in the industry. There's nothing that has changed from that. I mean, I think the performance of our portfolios are performing as good or in some cases better than others out there. I mean, I have no reason to believe that there's anything but a positive view of the performance of the portfolios we service and of Ocwen as a servicer in general, so I think it's all very positive.

I think just from some numbers, Bob, one of the things that we're very product is that this year, about 79 percent of those loans that are done 90 days we were able to resolve without foreclosing on the property. I think that's a very important measure, considering some of the issues, as someone raised, that have occurred in the market recently with some of our competitors. That number is off about one percent from last year, but last year, it was up from the prior year. I mean, I think you're seeing some weakness in certain segments of the housing market, but our numbers are still very good. Seventy-nine percent, we believe, is considerably ahead of any other competitor in the marketplace in terms of what are called pre-foreclosure resolutions.

Okay. Let me go -- my last question, you know, you now have several divisions that you are reporting on and we're tracking. I think, in the past, Ocwen as been very diversified and I think, maybe in some cases, that diversification has not served the Company well. Our concern would be that with many of these businesses -- some of them are very small businesses -- that you could lose focus. I'm not sure it's worth management's time and effort and the reduction of focus you may have on some of your bigger opportunities by having several very small divisions. What are your feelings on that concern?

I think you need to look at some of the ones we are reporting -- may, in fact, be just the same business that we do elsewhere. For example, international is really just doing our commercial asset resolution business internationally; it's a joint venture with Merrill Lynch -- for example, GSS. You can look, basically, at our business process outsourcing; we believe it's just simply offering the same products and services that we do internally for ourselves to the financial services market.

Similar with the property valuation business -- I mean, we have to perform that function anyway for our Servicing operation, so to go out and do (indiscernible) third parties -- you know, there's some sales effort but basically, it's an additional product that we can offer to many of our servicing clients, so it's not a tremendous -- it's not like we're really adding sales resources because it's basically just another product for them to sell and it complements what we do in Servicing, and we have to do it anyway for our own line of business. So, I think it doesn't really divert any serious amount of management time because we would have to do it anyway.

Unsecured Collections? I mean, we consider one of our core competencies to be collections. You know, I think, again, it's something that we think about and do anyway, so it's not like we're having to have management focus on something that's completely different than what we already do; we focus a lot of our efforts on how we improve collections, and so to perform it for some of these other products such as charged-off second mortgages or some of the work we do for the U.S. government really isn't a big stretch for us.

They grew out basically out of our mortgage operation anyway, because you have deficiency collections and that was really the genesis of why we got into Unsecured.

Thank you.

Andrew Kniv (ph) of Lighthouse Partners.

Bill, I was just wondering -- in the past, you've been talking about real servicing or real resolution -- whatever you called it -- and it just didn't get much attention. Has it been shelved?

No, it hasn't been shelved. I think we need to -- what we're trying to do right now is to focus our resources on those products within OTX which are receiving the greatest amount of traction. Those two products, quite frankly, are REALTrans. And a product we don't talk a whole lot about talk about is REALSynergy (ph) and REALSam (ph), which is the commercial mortgage servicing platform that we have.

Both of those products are very close to break even at the present time and quite frankly, offer significant cross-sale opportunities that we need to basically execute on. I think that it's really a case of us taking our shots as to where we think we can get the greatest amount of traction here. To my mind, it's the existing customers we already have in REALTrans, as well as cross-sells through recommendations on the REALSynergy (ph) platform where we have almost 100 clients.

In the press release about REALResolution (ph), you said that you had -- the products had been field tested by a major subprime servicer with outstanding results. From that comment in that press release, you would have thought that would have transferred into an agreement of some sort. What is the status of that?

We don't have an agreement at the present time.

Are they still using the product, or have you -- are they still using the product?

They tested the product. We don't have an agreement at this time with them.

Okay, fair enough. VA contract -- any news on that? I know they haven't announced it, but are you starting to integrate anything? What's the status?

Nothing (indiscernible). I mean, we really are at the mercy of the government to formally award the contract and sign the contract with us. We still believe that that is going to happen in short order. We have interaction with the VA on an ongoing basis, but there's not a lot that's going to occur until they make the formal announcement.

Okay, fair enough. Then the impairment charge on the property -- there's not that many left. Can you tells which one it was?

We would prefer not to, Andrew, just because as we sell properties, we don't want people to have that kind market information. We've found from time to time that people who buy properties from us do listen to our telephone calls or conference calls.

Fair enough. Thank you.

(indiscernible) of Becker Capital Management.

Yes, good afternoon. I have two questions. You mentioned, in your prepared comment, the elevated amortization charges flowing through on the servicing asset. I was wondering if you could maybe quantify the impact that has had on the earnings of this segment and maybe make a comment or two about what you think the amortization levels will be, going forward, given the recent backup in interest rates?

Then secondly, the other comment -- you had talked about some of the high-yield debt that was maturing as well as the brokerage CDs this year. If you could comment on what your thoughts are on the 12 percent due '05 Note in your 10-k that the call premiums came down in June and given the sufficient liquidity that appears on your balance sheet, it would seem it would be an accretive transaction for shareholders for you guys to call that debt in early (sic). Thank you.

Would it be safe to say, on the amortization, that the amortization rates would be lower, going forward, in a higher rate environment?

I think that's what you would anticipate, but I don't think we have -- we have not -- I think it's too early in this backup of rates to really get a full view as to what that impact is going to have on subprime rates -- I mean, subprime prepayment speeds. Many times, the subprime market sort of lags as far as how it reacts to interest rate movements from, you know, the prime market where we react much quicker (sic).

So, I would expect that the levels of amortization that we have in the second quarter here are likely to continue in that neighborhood, over the third quarter and potentially the fourth quarter, because I think it may take, you know, up to three to six months for us to really get a better view as to how the subprime market is going to react to this change in rate environment.

That's right. I think, in the subprime market, refinance is more of a secondary -- it's the secondary effect of interest rates as opposed to the direct effect. Quite frankly, the value of housing, we believe, has a very significant impact on refinancings in subprime (indiscernible). It's more the availability of credit than it is the actual cost of the credit. So, a decline in -- a leveling out of the rise in home prices prices, or an absolute decline in home prices, we think would have a very chilling effect, if you will, upon the prepayment rate of the subprime portfolios.

I think, as Bill said, clearly, that's going to take a longer time to kind of filter through the market than just simply the rate decline. You know, at some point, you will just start to see, then, that -- we believe there's a good chance you'll start to see housing prices level off and maybe even decline partly, simply because interest rates have started to increase on mortgage debt. So, it will be a little bit of a lag but that is probably the bigger factor in what will slow subprime prepayment fees.

To answer your question about the impact of increased amortization -- and this is not a quality answer to you because part of it depends on from what you're starting point is with respect to it, but as a gross number, we amortized about $30 million more of PMSRs (ph) this year than we did last year. Keep in mind, however, the amount of PMSRs (ph) available for amortization were -- the denominator was much larger. It is a very significant monthly impact on our profitability.

That $30 million number is a year-to-date figure?

No, that would be an annualized figure. Again, our PMSR (ph) balances are up significantly over the -- so part of that is a natural growth of the PMSR (ph) balance and part of that is because prepayments are faster. Okay? So, they are about -- CPRs are up about 30 percent over what they were previously. Yes, a percentage of a percentage -- they are up -- the CPR rate is up 30 percent over what it was previously. Okay? Does that help a little bit?

Yes. Then the second question was on the high yield debt, and I know the 11 7/8 of '03 obviously coming due in October are going to go away this year. You had mentioned, in an earlier conference call, you had about $70 million of brokerage CDs coming due, I think, in '03. You had mentioned in your prepared remarks 74 million coming due in the trailing 12 months. With the brokerage CDs coming due in '03, the 11 7/8 in '03 getting paid off in October, obviously, there's going to be an incremental benefit to earnings in '04 with that high yield debt going away. The next question would be, why not take advantage of the reduction in the call premium and excess liquidity on the balance sheet and call the '05s in early as well?

I don't think we really can comment on that. Your analysis makes sense, but it's not something we can comment on.

Thank you.

At this time, we have no further questions.