Onity Group Inc (ONIT) 2009 Q1 法說會逐字稿

Welcome to the Ocwen first-quarter earnings conference call. All participants will be in a listen-only mode. (Operator Instructions) Today's conference is being recorded. If you have any objections, you may disconnect at this time.

Now I will turn the meeting over to Mr. David Gunter, Executive Vice President and CFO. Sir, you may begin.

Thank you. I would now -- thank you, good morning, everyone, and thank you for joining us today. Before we begin, I would like to remind you that a slide presentation is available to accompany our remarks. To access the slides, log onto our website, www.Ocwen.com., select shareholder relations, then calendar of events, then click here to listen to conference call. And then under conference calls, first-quarter 2009 earnings, select click here to listen and to view slides. Each viewer will be a 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 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 filing with the Securities and Exchange Commission including Ocwen's 2008 Form 10-K. If you would like to receive our news releases, SEC filings, and other materials via email, please contact Linda Ludwig at linda.ludwig@ocwen.com.

As indicated on slide three, joining me for today's presentation are Bill Erbey, Chairman and CEO of Ocwen; Ron Faris, President of Ocwen Asset Management; and Bill Shepro, President of Ocwen Solutions.

Now we will turn the call over to Bill Erbey. Bill?

Thank you and good morning to everyone. We are pleased to report income from operations of $42.3 million for the first quarter of 2009 which continues an upward trend in growth since 2004, as seen on slide four. Income from continuing operations before taxes was $23.3 million in the first quarter of 2009 compared to $8.4 million in the first quarter of 2008.

Our operations teams led by Ron Faris and Bill Shepro continued to produce strong earnings results. Our 18% reduction in first-quarter operating expenses as compared to the same period one year ago allowed us to produce a 5% increase in income from operations even though average UPBs contracted causing revenue to shrink by 11%.

With our first material servicing acquisitions since 2007 taking place late in the first quarter, quarter-end UPB is up 1.5% since the end of 2008. Ron Faris and Bill Shepro will provide a review of our operating results at Ocwen Asset Management and Ocwen Solutions respectively.

We continue to operate in a difficult economic environment. To succeed in this environment, we have implemented a strategic plan as outlined on slide five centered on four initiatives. First, maintain liquidity and continuing to strengthen our balance sheet; second, pursue revenue opportunities; third, extending our quality and cost structure leadership; and fourth, completing the spin off of Ocwen Solutions as a separate company.

Dave will review our success with liquidity and balance sheet management. Ron and Bill will review revenue growth at OAM and OS respectively. Bill will also update the status of the OS separation.

I would now like to spend a moment on our quality and cost structure. Ocwen has always been a leader in quality and cost structure as verified by third-party studies. Of the three independent studies of which we are aware, Ocwen generated more cash flow for investors and kept more people in their homes than any other servicer.

Two recent studies determined that Ocwen is also the low-cost provider. First, according to a third-party evaluation study, Ocwen's cost for servicing performing loans is 16% lower than the subprime industry. The same study indicated our cost for servicing nonperforming loans and loans in REO is 58% lower than the industry. Second, a separate industry trade association study shows that Ocwen is 28% less expensive than the nearest competitor.

We are proud of the results of these studies and believe that cost and quality are directly related. Errors increased cost and destroy quality, therefore we have launched three key initiatives to further improve quality while lowering costs. First, consolidation and automation of manual processes to further reduce unit costs and increase productivity.

Second, increase process uniformity to eliminate variability, particularly in the home retention and collection processes. Upon completion, we expect that our lowest performers will be on par with our top performers thus achieving efficiency improvement and further widening our lead and generating more cash flow for our investors and keeping more people in their homes.

And third, workflow analysis to improve supervisory effectiveness. As a result of job simplification, we believe that we will be able to broaden the span of control of our supervisors and make them more effective in reducing variability.

Our goals, though we may not achieve them are to increase cash flow to investors in the number of families we keep in their homes by 25% and to reduce unit costs by 30% over the next three years.

Now Dave Gunter will review our liquidity position and balance sheet. Dave?

Thank you, Bill. Our liquidity situation has continued to strengthen as we have focused on adding financing capacity and accessing term financing. Our unused borrowing capacity at March 31, 2009 was $438.7 million, an increase of 64% as compared to December 31, 2008.

First, we renewed $200 million of advanced financing in January and second, we obtained new financing in March of 2009 that will result in term advance financing of $67 million. Subsequent to quarter end, we renewed and upsized a $300 million advance financing facility to $500 million. This increased our excess advance financing capacity to $628 million. At an 80% advance rate, this excess capacity would allow us to fund an additional $785 million in service to our advances, almost equal to our balance outstanding today.

The prospect of term financing improved significantly with the inclusion of servicer advances in TALF. We are currently planning on issuing a TALF note this summer. At $158.9 million, our cash position remains strong. At quarter end, we had two significant uncertainties regarding our cash requirements. First, maturity of the investment line on June 30 of this year. On April 30, we removed this uncertainty by renewing this line through June 30, 2010. This line funds our investment in auction rate securities.

Second, the possible redemption of the convertible notes in August, we repurchased notes with a face value of $25.9 million during the quarter. Furthermore, we believe that we have sufficient cash available in the event that holders choose to redeem their notes. We downsized our balance sheet by $207.6 million during the first quarter. This was primarily due to $148.9 million reduction in advanced receivables and our continued downsizing of non-core assets.

We are pleased with the continued success of our liquidity and balance sheet management programs and will continue to drive these initiatives in order to create value for our shareholders.

Thank you. I would now like to turn the call over to Ron Faris.

Thank you, Dave. I will focus my comments on revenue growth opportunities, operating results, and the Home Affordable Modification Program or HMP.

In February, Freddie Mac announced a new program to move certain high-risk loans to a select group of special servicers. Ocwen was named as the first special servicer selected and was awarded a pilot group of loans to special service. To date, the pilot has gone well and we expect to receive additional loans to service under this program.

In addition to the Freddie Mac loans, we acquired the servicing rights to a pool of seasoned option ARM loans. In total, we added approximately $3.6 billion of new loans to the portfolio during the first quarter.

We continued to improve our brand recognition with key constituents. Ocwen is increasingly recognized as a leader in foreclosure prevention and loss mitigation through loan modification in industry media and government circles. We are working with various government and government-sponsored agencies on special servicing opportunities. We are in discussions with several large investors and servicers on how we can assist them with their special servicing needs.

With the continued strengthening of our liquidity position, we are also actively looking for opportunities to acquire servicing rights and/or servicing platforms. Finally, we are exploring various ways to enter the FHA servicing space.

Turning to operating results on slide six, Ocwen Asset Management generated income from continuing operations before taxes of $20.5 million during the first quarter of 2009, a 26% improvement over the first quarter of 2008. Highlights for the quarter shown on slides seven through 10 are prepayment speeds declined to 21%, the lowest point in the past five quarters; servicing advances declined by $148.9 million compared to an $8.3 million decrease in the fourth quarter of 2008. Operating expenses were reduced by 18% compared to the same period last year, and Ocwen completed 20,651 loan modifications in the first three months of this year compared to 13,148 in the fourth quarter of 2008.

Finally, I would like to update you on the progress we have made in implementing the HMP. As was announced recently by the US Treasury Department, Ocwen was one of the first seven servicers to sign on to the program. To date, we have initiated the process with over 40,000 of our customers. The interest in the program by our customers has been tremendous.

To refresh everyone's memory, the program originally established guidelines for modifying first lien owner-occupied home loans that are in default or where default is imminent. Just last week, Treasury announced preliminary guidelines to add second lien mortgages into the program. As part of the program, Treasury will provide incentives to the servicer for completing qualifying loan modifications.

On first loans, we will receive an initial fee of $1000 for each modification plus a paper success fee awarded monthly for up to three years at $83 per month or $1000 per year as long as the borrower stays current, with current being defined as less than 90 days delinquent and an additional $500 initial fee for modifications made on loans where the borrower at risk of imminent default is still current.

Since the program requires that borrowers make payments for three months under a trial period plan prior to modification, we do not expect to receive any fees from Treasury until the third quarter of this year.

As you may recall, in 2008, we completed approximately 61,000 loan modifications and we completed another 20,651 in the first quarter this year. We estimate that approximately 62% of the 2008 and year-to-date 2009 modifications could have potentially qualified under the government's eligibility requirements. To the extent we were able to continue successfully modifying loans, HMP will add a meaningful amount of additional revenue which will ramp up and compound over time as the pay for success fees are awarded.

The program does require that to the extent an eligible modification is completed, accrued late fees that might otherwise have been recognized as income must be waived.

We remain excited about the program and the interest our customers have shown. We are pleased that second mortgages have been added into the program as this provides us with another source of revenue to the extent we are able to modify or in some cases extinguish a second lien mortgage.

Thank you. I would now like to turn the call over to Bill Shepro.

Thanks, Ron. Turning to slides 11 and 12, Ocwen Solutions recognized $42.9 million in revenue in the first quarter of 2009, an increase of 9% over the fourth quarter of 2008 principally due to growth in the Mortgage Services segment.

Income from continuing operations before taxes of $6.2 million grew $1.4 million or 29% as compared to the fourth quarter of 2008. Compared to the first quarter of 2008, income from continuing operations before taxes increased by $1.3 million or 27% adjusted for the impact of our equity interest in BMS.

Ocwen Solutions is focused on three issues. First, expanding Mortgage Services both from the standpoint of product offering as well as geographic coverage; second, combating the continuing decline in collection rates on receivables in the Financial Services segment; and third, completing the separation.

Mortgage Services continues to execute on a plan to expand its national footprint and diversify its revenue base as we seek to provide a more balanced product offering across the lifecycle of the mortgage. Our new products contributed $3.4 million in revenue in the first quarter or approximately 19% of Mortgage Services total revenue. We expect these new products to continue to drive revenue growth as we solidify our operations in existing states and judiciously expand into new states.

Financial Services revenue grew quarter-over-quarter even as collection rates continued at depressed levels. In large part this was due to seasonality. We believe the best way to address the existing market factors is by executing on our strategic initiatives, which include the systematic deployment of new scripting technology, reduction of variability among our collection agents, and thorough evaluation of each customer from a profit and growth perspective. Finally, we remain focused on achieving top performance for our clients while looking for additional ways to reduce costs.

Technology Products continues to develop solutions that support our new Mortgage Services products and improve our existing products. We believe our technological capabilities are a differentiating factor across our entire product platform.

Finally, we remain committed to a separation of Ocwen Solutions as a public company and continue to believe that this is in the best interests of Ocwen shareholders. We believe that our independence will allow us to focus on our core businesses, providing us with a financial and operational flexibility to take advantage of opportunities in the marketplace.

We anticipate filing a Form 10 during the second quarter with an anticipated separation date sometime during the third quarter subject to regulatory review. Upon completion of the separation, we will conduct operations as (inaudible) source portfolio solutions.

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

Thank you, Bill. I will conclude our remarks by referring you to slide 13. Key takeaways for our first-quarter performance are our liquidity position has continued to improve with high cash balances and $628 million of excess borrowing capacity. Second, our balance sheet has become stronger as we drive down advances and continue to reduce non-core assets. Third, our prospects for revenue growth have improved with opportunities in special servicing and the central purchases of new servicing rights. And finally, we expect to extend our industry-leading position in both quality and cost of our service.

We will now turn the call -- have the call open for questions.

(Operator Instructions) Bob Napoli, Piper Jaffray.

Good morning. Nice quarter, good job. Questions on Freddie Mac, the net -- how much are you servicing right now from Freddie Mac and when do you -- you obviously are confident you're going to be receiving more business from them. Can you try to place some -- give me some idea how to quantify that?

Unfortunately we are not really at liberty to kind of reveal the terms or even the amount of what we are doing for them. I guess, you know, you can conclude that it's something less than $3.6 billion, since that was what we added in the quarter. So it's some component of that. You know and it's difficult for us to forecast what the additional levels are going to be. But we are -- things are going well and we've received favorable feedback from them and our hope is that -- our expectation is that we will see that program expanded. Obviously they have a lot of business that could be given out.

And you would expect that in the second quarter?

It's difficult to say. I think there is an opportunity that we could see an expansion in the latter part of the second quarter.

How about the opportunity --? I mean your balance sheet is in -- it looks like it's in really good shape and with the additional equity you raised as well, the opportunity to buy servicing rights and other -- do you expect the servicing portfolio to grow consistently from here? I mean, there's got to be a fair amount of opportunities in the market to expand I would guess.

The market, it's a much changed market from a couple years back. You know, the opportunities are different. They are more opportunistic or they are special servicing and both of those kind of opportunities tend to have sort of a longer lead time and they are a little more difficult to predict you know, the size and when they will hit. As we stated, with the improvement, continued improvement in the balance sheet and liquidity, we definitely are in a position to focus more of our efforts on seeking out growth opportunities, including acquisitions, which really has not been a big focus of ours over the last year and a half. But again as you know, we don't really make projections and it's difficult really to give a lot of guidance in that area.

You have been trying to operate under the home -- the HMP program, I guess. Now you have been even operating under it for a little -- a month or two. What are your feelings on how that is going to be able -- you did 20,000 modifications this quarter. Under that program, are you going to be able to do that many? And what does the second lien program -- what does that mean for you? Because you have a decent sized second lien portfolio, don't you?

Yes, although the second lien portfolio has probably had higher prepayment speeds probably because of the high defaults over the last couple of years. There is -- the program as it's written I think makes -- you know, it is a program that does allow for I think a lot of our borrowers to be eligible. At the same time, there are some rather stringent documentation requirements that the borrowers must comply with and that we must handle, process, underwrite.

So those two things may balance out each other a little bit but we believe that we will continue on with being able to complete a high level of loan modifications. Some of it will depend on the portfolio and whether it grows or declines.

As far as the second lien portfolio, you are correct. We do have some portion of our portfolio is second liens and the program adds in certain fees. They are not as high as in the first lien program, but it adds in fees that you could receive for modifying second liens or in some cases as I mentioned, actually if you are able to work through some way of extinguishing the debt, the government -- in order to kind of help the first lien position, if you are able to extinguish the second lien, the government will kick in certain fees for that.

So it adds, you know, another revenue stream that was not there before for things that really we were already doing. So I think that's really the positive.

How I look at it, Bob, from the perspective of the HMP program is that it will have more of an impact on timing than it will anything else. I mean certainly it's created a much greater awareness of modifications amongst the client base, so witness 40,000 people who responded in addition to the 20,000 we modified during the quarter. So that's quite a number.

So from that perspective also, one should keep in mind that even if it doesn't qualify under the HMP program, that does not mean we still cannot do a modification of that loan. So in other words, it's very beneficial in terms of the number of modifications just because of the public awareness that's been created.

So but keep in mind it will have a priming difference because of the time to get all the extensive documentation required and secondly, the 90-day waiting period. So it will significant enhance revenues, but those revenues will probably not start flowing in any material amount to the mid-part of the third quarter and then really in much greater extent in the fourth quarter of this year. And on seconds, about 24% of our portfolio are seconds.

Okay, last question for now. The FHA business, why were you not in that FHA business? I mean, that's certainly an interesting market. They've grown so radically and so you're going to have regular servicing and certainly probably lots of special servicing, but were you not in that business at one point in time and got out of it?

We were not in it in the same way that you see the business today. I mean there was a time where Ocwen was involved in acquiring some large portfolios of what were called HUD assignment program loans back in the mid to late 90s. So we have a definite familiarity with the product and just through various servicing acquisitions that we have made over the years, we have serviced FHA loans, but not at any sizable level.

You know, it is -- we really did not pursue that market historically because it was actually up until the bubble hit, it was actually a declining part of the mortgage business and just didn't seem to be the best place for us to put our resources. But obviously now that product has really taken over from where the gap that was left by subprime, and that's why we are -- that is the main driver in why we're exploring various opportunities to pick up FHA servicing.

You know, it's also a product that tends to be done to people with either limited or lower credit scores and therefore there is higher delinquencies, not as high as in subprime, but higher than in the prime market and that fits well with our -- the capabilities that we have built. The other nice thing about the product is historically it has had fairly low prepayment speed. So if you put the product on, it should stay around a while, which that was not the case with subprime historically during the boom of subprime, subprime prepaid very quickly. FHA has a pretty long track record of much slower prepayment speeds.

Are you looking at getting -- acquiring fresh servicing for FHA or being allocated servicing from the FHA on what's -- on existing mortgages?

We are trying to do a couple of things in that area, Bob, one of which is that we are trying to reach out to FHA on existing mortgage products that they may have that may be challenged. And at the same time, we are looking to figure out how we can get [flow] servicing from FHA on newly originated product.

So we have a couple avenues. One is looking for flow businesses to go to none of the GSEs but the other government agencies who are the largest repository of challenged assets at the present time. We are looking to figure out if there is a way we can generate new business from FHA on a flow basis. And then secondly on a bulk basis try to acquire pools or platforms that may be readily available. We are probably one of the -- we are probably in the best position of any non-bank servicer out there at this time in terms of liquidity and capital to be able to acquire servicing.

Thank you.

Rick Shane, Jefferies & Co.

Hi guys, thanks. Most of my questions have been asked and answered. One thing, when you look at the options for borrowers right now, and obviously there is very little liquidity in terms of the refinancing side and that's one of the things that's driving CPRs down as low as they are. But realistically is it fair to assume that a borrower given the choice even if they had all of the qualifications in place for a refinance would actually be better served to modify the loan if they could?

Well, a modification generally can happen faster and, you know, is probably -- there's no fee at all for it, whereas generally to get a new loan, to refinance your loan, there's going to be some fees that the borrower is going to have to pay. So, you know, you can definitely look at it in that way, that it's faster and there's no cost to it, so a modification makes a lot of sense for a lot of borrowers versus a refinance.

It's also -- even with the existing programs that are out there, it's hard to qualify most of those borrowers for a refi.

Got it.

When you don't pay on your first mortgage, let's put it this way, it has a deleterious effect on your FICO score.

Fair enough. Is there any purchase money activity going on in the subprime space at this point?

Purchase money, you mean people originating in subprime or --?

Yes, for purchases.

It would be primary off the radar screen. It would have to be probably old way subprime was done pre-1986/'87, which was really pretty much in partnerships or private transactions. I'm sure there are subprime transactions going on, but the market has effectively atrophied down to a very much a private sort of transaction.

Yes, but otherwise most borrowers -- most first-time homebuyers or buyers with less than pristine credit are going the FHA route. That's where the financing is coming from/

Yes, 95% plus financing in the United States or 90% plus financing, every company that does it starts with -- has initial letter in its name starts with an F for Federal.

Got it. Last question, just in terms of servicing advances, can you help us understand mechanically how the cash flows work for modifications? Do you get your servicing advances back as part of a modification? And just sort of please walk me through the mechanics of that.

The answer is yes. At the time that a loan is officially modified, if there were outstanding advances, yes, we receive those advances back.

Got it. Okay, thank you.

Jim Fowler, Harvest Capital.

Good morning, gentlemen. Thank you for taking the questions. Just a couple on HMP as well. Is there anything with your relationship right now with Freddie Mac that would preclude you from having any involvement in Fannie Mae just as a matter of course?

No.

Okay, great. Secondly, there was a press item that stated that Ocwen had been approved to receive as much as $559 million in fees from the Treasury. Gathering from Bill's comments that's likely to start later this year. But let's assume for example that that were to begin in the fourth quarter of this year and $1000 for a modification and $1000 over three years of a loan being current. Have you an idea, an estimate that you could provide on that first $230 million if I'm thinking about this properly, over how many quarters you would expect it would take for that to be realized in your initial modifications?

Hi Jim, it's Dave. That number that you quoted would be a ceiling that we think the administration came up with, and it would not be not only the $1000 modifications that would come to us, but incentives for others as well. So no, that's -- don't take that number and put it in a model and think that that's the number. That's just a high ceiling so you can't quite work towards it.

Okay, so that's not something that they derive from your current base of servicing on a simple $2000 over three years per modification?

That's part of it (multiple speakers)

That definitely -- it does -- it was specific to us. I mean the number for us is different than the number for JPMorgan Chase, for example. I mean it is based on sort of the size of our portfolio and what they have seen that we are doing. We don't have the exact details as to all their assumptions and their calculation and it is -- they are, as Dave mentioned, they are required to sort of -- they only have allocated so much money towards this program so as they sign-up servicers, they sort of are allocating a certain amount that they think would flow through that servicer.

But again, it's difficult. We are not going to really make projections. You know you can see what kind of modifications we've done historically and as we've mentioned, we don't think the program is going to reduce that number. And in some cases maybe even make it more available and through the awareness, you know, it's helpful. But we are not going to provide projections on that front.

Okay. And then lastly, given that you have been modifying loans, have you --? Can you provide any anecdotal or direct information on how well the borrowers that have been previously modified either last year or your first quarter, which might be obviously too early, but any sense on how their ability to maintain their payments at their modified rate?

Yes, I mean we've seen our -- what we call redefault rate in the low 20% range, which we are really thrilled about because it's much better than what has been reported by some of the government agencies on what some of the banks, the bigger banks are doing. They've had redefault rates many times double or more than double that range.

Sorry, the default rate tends to basically pick up and then become more of an asymptote. It starts -- it flattens out after they make more payments. So you wouldn't expect another 20% in the second year.

Right, right, I guess -- well let me follow one question on the revenue. I suspect you have the same press release or comment that I've seen. In that, they said that there was going to be total fees of just under $11 billion, of which what they had allocated to you or suggested to Ocwen was 5% of that, But as you look at the currents of an approved servicers is there -- are you optimistic that your percentage of that total pool of that is exactly -- if it turns out to very close to what flows through could be much higher than that?

First off, the program is flexible in that if they see our numbers rising and others maybe not doing as well, then they can kind of adjust each person's contract to reflect that. So I don't see a risk. The government has to protect themselves. That's why they're doing it this way, but at the same time I don't see a real risk for us of getting capped out because if we are doing really well and others aren't, then they will just shift the money over to ours.

Okay, well I hope you get as much of it as you can. Thanks, guys.

Jim, in terms of how you could look at that, to give you a little help, we -- last year we -- to run, we modified 60,000 loans last year. That was part way through the year when we really got that kicked off with any sort of size. We did about 20,000 in the first quarter. We are not seeing that (technical difficulty) with regard to that, so you can start -- we look at it as building blocks too, because obviously what you do in the first year then hopefully 70% to 80% of that carries over to the second year and so forth.

Right, has there been any pushback from any constituents in the securitization or process? I mean senior bondholders, non-investment grade? I mean, is anybody saying anything that makes the market, not just yourselves, but believe that this isn't going to be something that's -- this process isn't going to be something that actually gathers steam as it is shown to be very helpful to housing?

Well, you do have certain industry groups on the investment side that will benefit -- would benefit from foreclosures within the capital structure. Obviously the AAAs would benefit from us just foreclosing even though that would generate less overall cash flow to the trust, which is what our contracts say we have to maximize. So there's clearly that pushback. I think the administration has been pretty steadfast in terms of its support for keeping people in their homes.

I think you know, the government worked the American Securitization Forum, who was there to represent investors, servicers, trustees, the various constituents in this to try and make sure that the program was balanced and, you know, everybody had to give a little. But everybody got something too. So hopefully that process was a good one and alleviates some of the concerns that originally were thought that there may be people who weren't in favor of it.

There's always going to be some but I think as a general process, they did a good job in including that industry group to help negotiate that was good.

I mean the are paying the investors (multiple speakers).

Yes, investors are getting money that they weren't getting before, so, you know --

Okay, thanks, guys. I really appreciate it.

[Michael Leavitt], Chesapeake Partners.

(technical difficulty) that portion allocable to the solutions business.

Only your last seven words or so came through. You were on mute before that or we could not hear your question. I'm sorry. Could you repeat it?

Okay. I was hoping David could provide us with total D&A for the quarter and that portion allocable to the solutions business.

We are going to have depreciation and amortization for you later today when we file the Form 10-Q, so that number you will find in our statement of cash flow.

Okay. And with respect to corporate overhead, what do you think the solutions may be (technical difficulty) on go forward basis?

You're asking for a projection go forward of overhead?

Either and allocation or an estimate of what that business will need.

Right. We are going to file the Form 10 very shortly hopefully within a week that will give you a reasonable idea I think of some at least historically what we spent in that area, which should give you some pretty good guidance on that.

Okay. And then Bill, could you provide some color around the servicing rights market in terms of deal pricing, who the sellers are, and what the supply is like? Just maybe anecdotal data points as to kind of what that market is looking like?

Well, the market is really -- since they are such large transactions, really almost by appointment, they are -- they don't trade every day to say the least. We have not been active nor many other players have been active given the liquidity situation that occurred for the past 18 months. We now feel reasonably comfortable that we have access to liquidity that will enable us to judiciously acquire platforms and we are actively engaged in discussions with a number of players who have platforms that may be for sale. So I think there's more potential supply than there is potential demand.

And now that you are back in the market, how has pricing changed or is it too early to tell?

Pricing is down from where it was just because now it's all equity for the PMSRs. Operating costs for most players are a significant issue. Our 58% advantage in nonperforming loan operating costs is the difference between being highly profitable and losing money. It's a big difference. It's become a very operational cost intensive business, where it historically was not. So we have a pretty significant competitive advantage.

And pricing is always interesting because it very much depends -- it's very situationally specific with regard to how aged is the product? How many basis points of servicing fees do you get? How delinquent are the advances on any given -- at any given portfolio?

But needless to say it is down from where it was pretty significantly in terms of people's price talk. And you've seen a few transactions that have occurred where that would be the case.

Okay, thank you.

(Operator Instructions) Bose George, KBW.

Good morning. Just really a follow-up to the earlier question on the political landscape for the Senate just passed their bill that provides a safe harbor for servicers who modify loans under HMP. And how material do you think that is? Do you think that influences your behavior in any way? You seemed pretty comfortable modifying before this went into effect, so just curious what your thoughts on that were.

We felt that our position was a sound one. It certainly -- one would never turn that down. That's certainly extremely -- you always would like to have that. But we actually felt the position that we had taken was legally sound at the time.

Great. Thanks very much.

There are no further questions.

Thank you, everyone. Have a great day.

Thank you. That concludes today's conference call. All lines may disconnect. Once again, that concludes today's conference call. All lines may disconnect.