Onity Group Inc (ONIT) 2009 Q2 法說會逐字稿

Welcome and thank you for standing by. At this time all participants are in a listen-only mode. (Operator Instructions). Today's conference is being recorded. If you have any objections, you may disconnect at this time.

I will now turn the call over to Mr. David Gunter, so you may begin.

Thank you. Good morning, 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 website, www.Ocwen.com., select shareholder relations, then calendar of events, then click here to listen to conference call. Then under conference calls, second-quarter 2009 earnings, select click here to listen and 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 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 Form S-3, first-quarter 2009 Form 10-Q, and 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; and Bill Shepro, President of Altisource Portfolio Solutions.

And now we will turn the call over to Bill Erbey.

Thank you, and good morning everyone. The second quarter has been an exceptionally busy time for the Ocwen team. For the first time since the summer of 2007, we've been able to devote the majority of our time to growing the business. Having made great strides in generating liquidity and financing capacity, we've become very focused on growing our servicing of unpaid principal balance. We are currently negotiating the purchase of at least one substantial servicing platform. Given Ocwen's operating leverage and current excess capital, we believe that acquisition will be accretive to earnings.

Second, we expect to complete the separation of Altisource Portfolio Solution, S.A. on Monday, August 10th, via tax-free distribution to shareholders. We're expecting to incur some taxes at Ocwen as a result of the steps necessary to complete this transaction. Altisource Portfolio Solutions began (inaudible) when-issued trading on July 31st and will trade regular way on August 10th. Completing the spin will free up resources, both in terms of management time as well as stop the expensive cash drain for attorneys and accountants of $2.3 million for the second quarter and $3.7 million for the first six months of 2009.

As Bill Shepro will cover later on, we believe that this effort will be rewarded in terms of enhanced value for our shareholders. Third, we have solid liquidity and substantial excess financing capacity today, so we intend to position ourselves for future portfolio acquisitions. The industry appears to have reached a tipping point leading to a period of consolidation. As a result, we will launch a road show later this week to raise $300 million in equity.

We have not, however, neglected the important task of disposing of non-core assets. First, GSS Germany, part of International Commercial Servicing Joint Venture and BOK, our German bank subsidiary, went under contract for sale with GSS closing during the quarter at a gain of $715,000. BOK is expected to close in the third quarter. We recognized a gain of $1.2 million to reverse previous write-downs. This gain only partially reflects the higher sales price and includes the $750,000 nonrefundable deposit to the buyer.

Second, we are in advanced negotiations with one of the auction rate counter-parties to provide Ocwen the right to sell $88 million face amount of its auction rate securities at 85% of par and retain all upside of the securities for a period of three years in exchange for terminating pending litigation.

Separate from that negotiation, we recognized a $6 million gain this quarter as a result of the increased probability of a near-term liquidity solution for an additional $70 million face amount of the auction rate securities.

As for operations, the servicing segment continued to be our largest income producer with $15.5 million in pre-tax income. This was, however, a 38.5% or $9.7 million reduction for the first quarter, $6.3 million of which was due to the short-term impact of the HAMP program, which truncated our pipeline of non-HAMP modifications.

We only recognized income in the form of deferred servicing fees and ancillary fee income when we return a loan's performing status, whether it be through a HAMP modification, a non-HAMP modification, or otherwise. We are making solid progress in increasing the number of potential modifications under HAMP. The number of HAMP trial period offers we have made to our borrowers has dramatically increased. We made more than five times the number of trial plan offers in June than we did in April.

In July alone, we made offers on almost as many loans as we did in the entire second quarter. Since it takes three to four months from the time a HAMP trial plan offer is made until the loan is officially modified, assuming the borrower makes all three trial plan payments and complies with all other program requirements, we've yet to recognize any revenue under the program.

As you will recall, Treasury pays us $1,000 for each loan modified through the program plus ongoing success fees for three years to the extent a modified loan remains current. The flywheel appears to be picking up momentum. The number of changes by the government to the HAMP is diminishing, and adjustments to our technology platform are beginning to be delivered.

This week, enhancements to our loan resolution model will be released into production eliminating significant manual work necessitated by HAMP. We also have additional significant HAMP-related enhancements to our scripting, workflow, telephony, and underwriting systems that are planned to become operational over the next eight weeks. Ultimately, HAMP will become a far more streamlined process than the process we have employed to date.

I would now like to ask Ron Faris to cover our modification to HAMP performance, including a sense of what we can-- what can be expected going forward, followed by Dave Gunter, who will review our liquidity, provide an analysis of the short-term impact of HAMP on pre-tax profits, and provide insight into servicing operating leverage. Finally, Bill Shepro will describe the growth engine for Altisource. Ron?

Thank you, Bill. I'd like to focus my comments today on some of the key metrics of the loan servicing business, including some further updates on loan modifications and our implementation on HAMP.

As shown on slide 4, prepayment speeds remain slow, at 21.5% annualized, as has been the case over the past few quarters, the vast majority of the runoff of the portfolio is related to defaults and not voluntary prepayments. We anticipate that voluntary prepayment speeds will remain low for the remainder of the year. Turning to loan modifications.

First, we have seen a very strong interest from our borrowers in the HAMP program. However, when we adopted HAMP, we had to make a number of changes to accommodate the program's more document-intensive requirements and extensive set of rules. This obligated us to review all in-process loan modifications, essentially restarting the process using different underwriting and documentation requirements.

The delay in borrowers responding to document requests and the three-month trial period significantly extends the timeline, in most instances, to complete a loan modification. If a borrower is unable to qualify for the program, we work to complete a non-HAMP loan modification when appropriate.

As a result, we saw a 61% decline in the number of completed modifications this quarter as compared to both the second quarter of 2008, and the first quarter of 2009. As shown on slide five, we completed over 20,000 modifications in both the second quarter of 2008 and the first quarter of 2009, while only completing just over 8,000 loan modifications in the second quarter of 2009.

Dave will comment on the financial impact to our second quarter operating results created by this timing difference. But more extensive documentation requirements, along with the extensive set of rules imposed by the government under HAMP, required us to revamp our process, technology, and scripts. All of this takes time and a great deal of coordination.

Fortunately, we are starting to see the fruits of our labor as evidenced by increases each month in the number of modification offers being made to our borrowers under HAMP.

As seen on slide 6, in April we made only 404 HAMP offers. That number increased to 836 in May and to 2,172 in June, for a total of 3,412 HAMP offers in the second quarter. In July we initiated 3,292 offers, or almost as many offers as we made in the whole second quarter. As of June 30th, 2009, 1,058 borrowers began making trial payments under HAMP-eligible modifications.

As of last Friday, that number has more than doubled to 2,517. We expect completed HAMP and non-HAMP loan modifications to progressively increase in the third and fourth quarters until such time as we return to a normal level of loan modifications based on our UPB serviced. We are hopeful that this positive trend will continue, especially as we roll out new scripting and technological enhancements specifically designed for HAMP.

As Bill mentioned, this week we have a significant relief to our real resolution model, which includes the HAMP underwriting module, the HAMP modification terms calculator, and the HAMP-specific NPV calculations. We have also been developing rolling out new scripts and letters designed to increase borrower participation in HAMP. Over the next eight weeks we expect to complete numerous other initiatives designed to increase our efficiency and further increase borrower participation.

These initiatives include more automation of the document processing and HAMP underwriting process, increase self-service options for the borrower, scientifically enhanced customer scripts and robust reporting under the program.

Our goal is to have a process that is fully integrated and automated, eliminating unstructured thinking and decisions, thus reducing variability and performance of our staff and increasing the number of executed HAMP modifications. As shown on the next slide, advances continue to decline, decreasing by $16.8 million from March 31, 2009. In addition to the impact on revenue, the implementation of HAMP and the slowdown in completed loan modifications in the quarter also negatively affected the pace of our advanced balance reductions. This impact is because completed loan modifications result in the recovery of previously made enhancements.

Despite the slowdown in completed loan modifications, our ability to control delinquencies and effectively liquidate REO allowed us to keep our advance balances in check for the quarter, as an increase in completed modifications will re-accelerate the decline in advance balances.

Moving on to business development. As Bill already mentioned, we have begun to spend a great deal more management time on exploring growth opportunities for the servicing business. We are particularly excited about various large servicing platforms and portfolios that are, or may be available for acquisition. By expanding the portfolio size we service, we can significantly increase efficiencies and reduce our fixed cost burden. To the extent we are successful in acquiring some of these portfolios, our technology and low-cost labor advantages should allow us to create significant value for our shareholders.

Finally, before I turn the call over to Dave, I'd like to make one more comment about our implementation of the HAMP modification program as compared to many of the other servicers out there today. HAMP allows a servicer to select two approaches to implementing the program. One option is where a servicer can simply take verbal income information from the borrower, send them an offer, and then follow up afterwards on gathering all of the required documentation. This option will likely result in higher offers initially, but substantial fallout on the back end.

The second option, and the one chosen by Ocwen, is to gather all income documentation first and fully underwrite the modification in accordance with the HAMP guidelines before approving an offer and sending it out. This option results in a lower number of initial offers, but it will have substantially less fallout. Many of the big servicers are using the first option and, therefore, showing more initial offers and more active trial plans. We believe that in the long run our approach will result in a greater number of sustainable loan modifications.

Thank you. I would now like to turn the call over to Dave Gunter. Dave?

Thank you, Ron. We are pleased with the continued success of our liquidity and balance sheet management program. Our high level of liquidity is a significant advantage in the current market. As of June the 30th, we have $213.9 million in cash. We reduced debt during the quarter by $56.7 million. Cash provided by operations was $193.1 million, and we have $653 million or 80.1% excess advanced financing capacity.

In addition to our plan to increase our effective capital by raising equity, we expect to participate in the TALF program beginning in September, which should provide term, fixed-rate financing at tighter spreads than we are paying under our existing financing arrangements. At a minimum, the TALF financing would replace a $165 million note on one of our current advance financing structures that would have begun amortizing in December of 2009, and instead repay this note in August of 2009, as we have received note holder consent to repay this note early to facilitate the TALF issuance.

Depending upon our success in acquiring another portfolio, we may either upsize the September TALF issuance, or execute a second TALF deal later in the year.

As we previewed last quarter, as described in greater detail by Ron, HAMP had a short-term impact on revenues and earnings, as many of the pending modifications in the pipeline needed to be reevaluated and operating procedures needed to be adjusted to conform with the president's program.

As Bill and Ron pointed out, the reduction in modifications caused by the majority of the decline in our second quarter servicing revenues and earnings, when compared to the first quarter of 2009 servicing and subservicing fees decreased $12.1 million, of which 52.5% or $6.3 million, is due to the lower number of completed modifications.

However, the decline in modifications represents delayed modifications, not loss modifications. We believe the decline in the second quarter revenue is a timing difference that will be recognized in future periods, as loan modifications return to normal levels based on our UPB service.

We expect to see HAMP revenues beginning in the third quarter of 2009, and accelerating in the fourth quarter, as qualifying loan modifications pass the 90-day trial period. HAMP modifications are expected to provide incremental revenue and pre-tax income versus non-HAMP loan modifications as a result of the government incentive of $1,000 per completed loan modification.

Accordingly, we expect revenue improvement in Q3, and particularly Q4, as the flow of completed HAMP modifications accelerates and combines HAMP and non-HAMP completed modifications return to normal levels.

Finally, Bill stated that we are beginning to look at acquiring servicing portfolios, which we believe will be accretive to earnings. First, the servicing business has historically been very profitable, generating greater than a 30% return each year since 2007, as shown on slide eight. Growing servicing and eliminating non-core assets will be beneficial to earnings growth.

Second, based on the substantial operating leverage within the servicing business, we expect that growing our unpaid principal balance should be accretive to earnings. As we grow our business, we do not anticipate material additions to our supervisory burden or technology expenditures. Furthermore, a majority of our personnel will be added at low-cost locations.

Now, I would like to turn the call over to Bill Shepro.

Thank you, Dave. Ocwen Solutions remains focused on three issues for 2009. First, expanding mortgage services from the standpoint of scope and geographic coverage of the product offerings; second, combating the continuing decline in collection rates on receivables in the Financial Services segment; and third, completing the separation.

Our efforts in Mortgage Services are very improved, as indicated by the $42.2 million in revenue achieved year-to-date, a 35% increase over the same six-month period in the prior year. This improvement reflects the growth of our knowledge process outsourcing business and the roll out and geographic expansion of our new default-oriented products.

Our new products contributed $8.8 million in revenue for the quarter and $12.2 million in revenue year-to-date. We achieved this growth in revenue at attractive margins as evidenced by the 33% year-to-date margin on income from continuing operations.

With respect to Financial Services, revenue was down 5% as compared to the first quarter. This was expected, as the first quarter is generally the strongest quarter. Overall, market conditions continued to be difficult. However, we believe by executing on our strategic initiatives of implementing next-generation scripting and reducing variability in operating performance, that we will position this segment for future growth when market conditions improve.

We are encouraged with the progress of our cost-reduction initiatives, as well as our efforts to expand opportunities with existing and new clients. Our efforts are starting to pay off as we recently began providing services to another large financial institution. We now serve six of the most recognizable credit card issuers. For most of those clients we are a top-tier performer, which should afford us increased market share with those clients over time.

Our Technology Product segment continues to deliver its services cost effectively, while enhancing the technology capabilities for Ocwen's servicing business and our Financial Services and Mortgage Services segments. This business benefited in the quarter from an increase in services performed for an existing customer.

Finally, I share Bill's enthusiasm with respect to completing the necessary steps to separate the majority of the former businesses that make up Ocwen Solutions into a new public entity named Altisource Portfolio Solutions. Building off the strong heritage of Ocwen, Altisource remains committed to creating long-term shareholder value by focusing on our customers and growing our core businesses. We believe that our independence will also provide us the financial and operational flexibility to take advantage of opportunities in the knowledge process outsourcing space.

Our shares became available for trading on the NASDAQ Global Select Market on a when-issued basis on July 31st, under the symbol ASPSV. The shares will begin trading regular way on August 10th under the ticker symbol ASPS. I encourage you to learn more about us at www.altisource.com. I would now like to turn the call back over to Bill Erbey. Bill?

Thank you, Bill. I'll conclude our remarks by referring you to slide nine. The key takeaways for our second quarter performance are; first, we continue to increase liquidity and finance capacity; second, the Altisource separation will be completed on August 10th; third, as expected, second quarter servicing results were lower due to the delay associated with the HAMP; fourth, we are gaining momentum in HAMP modifications that should more than recoup revenues of pre-tax income (inaudible) timing differences; and fifth, we are currently negotiating and exploring opportunities to significantly expand our servicing portfolio. We will now open the call to questions. Operator?

Thank you. We will now begin with the question-and-answer session. (Operator Instructions). The first question comes from Bob Napoli, Piper Jaffray. Your line is open.

Thank you. Good morning.

Morning, Bob.

Let's see, a couple questions. First, on the growth opportunity in the servicing business, can you put some quantification around the opportunity you're seeing in the market, the-- the amount of portfolios, where they're coming from and potential pricing?

There are numerous portfolios available in the market today. I think that the-- many, many sellers-- many owners are coming to the realization that their cost structures and their advancing obligations simply don't work in this environment. So I think that feeds it, in that whereas in our-- our cost structure is very much aligned and at competitive advantage in this kind of an environment. I-- we really can't talk about pricing, I think right now with regard to that, but I-- needless to say there are-- one of the real reasons there is this opportunity is because right now there is HAMP financing available between now and the end of the year. And that has obviously a significant impact on valuation.

So I think the sellers that intend to sell, probably will attempt to take advantage of this window because after December 31st if HAMP is not extended, their valuations will probably be adversely affected as a result of that.

Bill, are these bank subsidiaries primarily that are-- ?

I'd prefer not to comment on--

Okay.

-- individual ones. I think that we-- confidentiality concerns with people as well as just (inaudible)

Okay. On the modifications, are-- so, I mean, I guess, the way I read what you said there is that you kind of expect to get back up to a run rate generally similar to where you were in the first quarter of 2009, adjusted for the size of your servicing portfolio. Is that kind of--

Right.

-- the theory? Okay. And then--

TALF will not diminish the number of modifications done. As a matter of fact, it should be at least positive with respect to the number of modifications. It was more the impact of-- you have a pipeline of modifications that needed to be reevaluated, within light of the HAMP program. In other words, you could not give them a non-HAMP program without-- non-HAMP modification without availing them the opportunity to have a HAMP modification.

The biggest challenge we see in the HAMP program is really complying with the documentation and requirements and we've elected to, basically, require that and get that done up front so you do not end up with a problem whereby you give someone a HAMP modification based on a verbal, and then they don't produce information that is equivalent to that and then it becomes a difficult situation further on down the line.

But are you finding-- you're finding that the-- that enough of your borrowers qualify for HAMP in the similar manner to the prior modification program you utilized? What is-- besides the documentation, what other financial differences are-- major financial differences are there?

You mean why won't they-- why would they not qualify for a HAMP, in other words?

Right, where they did qualify for a prior Ocwen modification.

I mean, certainly, the documentation is one major issue that hopefully will be -- and Ron, please jump in any time -- where we believe, hopefully, we will be able to overcome that by working with the borrowers. It does take a lot of time to do that. The second one really is there are a group of borrowers that are delinquent that are, in fact, have less than a 31% debt-to-income ratio, front-end ratio. They have very high back-end ratios, if you will, because of other debt obligations. They would not be eligible for HAMP. They would, in fact, be eligible, in so long as there is a positive net present value outcome for the investor, they would be-- still would be eligible for a non-HAMP modification.

Okay. And this last question for now is just on the mortgage-- the Altisource mortgage business was much stronger than, I guess, we thought it would be and I talked a little bit about that, but I would like a little more clarity on that and what percentage of that business or how much success are you having getting non-Ocwen customers for Altisource?

Well, at the present time, we really are focused very much on rolling out the product and rolling out the geographic coverage, making certain that our processes and procedures are in place. There's still a lot more coverage that we need to avail ourselves just to cover Ocwen. Once we, in fact, have basically developed that infrastructure and are capable of providing that in a seamless manner, we will go out and basically attempt to be more aggressive in selling that product to other third-party providers. But right now, it's really more a question of just satisfying existing demand.

And the products-- the product that drove that growth, and this was you internalized this from other third parties that would have provided these services?

That's correct.

And it's mostly default, was the growth in the quarter?

Yes, most of the products around the default, for example, real estate sales, field services, the (inaudible) legal process work we're doing for the foreclosure lawyers.

Thank you.

The next question comes from Rick Shane, Jefferies & Company.

Thanks guys -- good morning -- for taking my questions. A couple different things here. So by the run rate it looks like modifications were down about 12,000 mods quarter-over-quarter and you state in the press release that that created basically an $8.1 million variance from the first quarter in terms of servicing. Help us understand the economics of [HALF] modifications versus non-HALF because my understanding is that what happens is on the-- sorry, I say HALF, I'm blending terms-- HAMP and non-HAMP deals, that you collect on the non-HAMP modifications you collect the back fees, but you have to forgo those on HAMP modifications, but in lieu of that you get the $1000 fee. Help us understand the economics-- the economic difference and how that relates to the $8 million that you saw this quarter.

Well, first of all, to be clear, one of the largest recoveries that we get when a loan gets modified and becomes current is that we recognize the first servicing fee. In other words, we record our servicing fee, which is absolutely the top of the waterfall. We only record it when we receive it, even though the probability of not receiving is infinitesimal. So when you get a loan current, you actually recognize those servicing fees that we had deferred and you get those in both HAMP and non-HAMP modifications.

But you forgo the late fees in the non-HAMP-- excuse me, in the HAMP modifications.

That is correct. That is the difference.

And typically, what are the late fees that you're forgoing, is it about $750 a loan?

No. It's much less than that. Ron, do you have the number?

Yes, it's more been in the $400 to $500 range.

Okay, so basically there's an incremental-- if you can do a HAMP modification, there's an incremental $400 or $500 per loan that you collect?

$500 to $600.

And you had made the comment that some of these-- a percentage of these loans are not going to qualify for HAMP modifications going forward. What do you think when you get back to the call it 20,000 mod per quarter run rate, what percentage of those do you believe will be HAMP verus non-HAMP, given that you have all the data now in terms of what qualifies and what doesn't?

Well-- we gave last-- last quarter, I believe, we stated that-- I thought it was 60% of our modifications would be eligible for HAMP historically, is that the number, Ron?

Yes.

And now that you're a quarter into this does, has that view changed at all, given-- ? Because it seems to me that the biggest issue you are running into is that a lot these loans were low-doc loans and the requirement from the government that you-- that there's greater mod-- excuse me, greater documentation around the loans -- I'm struggling this morning, I apologize -- is a fairly significant shift. Now that you've been through the program basically for three months, do you still feel that 60% is a good target rate?

Ron?

Well, I think as you somewhat pointed out and Bill pointed out, that the number probably is going to be a little bit lower than that simply because as we gather that documentation, in some cases we do find out that although the borrower meets all the other requirements, like they live in the home, they are in default or imminent default, but that their front-end ratio is already at 31 or below.

We don't know that information until we gather their financial information. Those accounts will fall out of the HAMP program and have to be replaced with a non-HAMP modification. So the 60% number is probably-- will ultimately not turn out to be that. Maybe it will be closer to 50/50.

Okay. That's great. In terms of the equity offering, how quickly do you expect-- I mean, this is a significant transaction in terms of size, it's roughly a third of your existing share account, how quickly do you expect to deploy that capital, what's your target?

So this is a-- we can't talk on this call about the equity offering. All we can do for now is point you to the prospectus supplement that was filed. But we've been advised by legal counsel just to simply separate the two issues and can talk on this call about the earnings release.

Understood. I will abide by the lawyers' wishes. Thanks, guys.

Thank you.

The next question comes from Bose Joy-- I'm sorry, Bose George, KBW.

Hey, good morning. Actually, I had the follow-up on the servicing and I didn't know if this was something you might not be able to address here either, but in general, when you think about servicing, do you guys have some sort of IRR or hurdle rate that you look at in terms of investing and servicing assets?

We can refer you to our historical return in the business. Generally, historical return in the business has been somewhere north of 30%.

Okay. So we can just use that as kind of a good benchmark? Great, and then actually I was switching to your-- you commented earlier about the auction rate securities and the progress you had made there. I was just wondering, on the amount of equity you have in there and how much of it, if you mark all that up to par, how much equity would you realize? I just want to see how much you could recover, since I assume since these are government-- these are [FELP] loans that you're getting par back at some point seems pretty reasonable.

You see it on the balance sheet at $243.3 million. The principal today is $265.6 million.

So that 20 is the mark, basically on that?

Yes. (inaudible) it consumes today a lot of equity that could be deployed elsewhere.

And on top of that mark, right? It's the $243 million minus that $170-million odd liability?

That's right $167.7 million.

It's really the $260 million because if you look at the total amount of raw equity that it's consumed.

Well, is there anything else? Hello? Operator?

We'll take the next question, Jordan Hymowitz, Philadelphia Financial. Your line is open.

Yes, most of my questions have been answered. My only follow-up is to Mr. Shane's question. You said there's a $500 to $600 variance per loan. That would only be in year one, correct, because you get $1,000 in year two and three as well?

That's correct. You get a-- to the extent that they remain current throughout the 12-month period, you get another $1,000, and to the extent that you do one in imminent default, the difference is $1,500 to $1,600 a year in year one-- or imminent at inception, rather.

And also, in terms of the servicing acquisitions-- financial servicing acquisitions, are you only looking for subprime or would you be expanding into whatever is available at this point?

The most we would be expanding into is Alt-A, primarily because prime servicing, even though they both have the word servicing in them, is economically much different than the subprime. Prime servicing is pretty much all about the IO, the IO strip and the capital intensity of it, very low operating intensity. Whereas when you get into non-performing products such as subprime and the Alt-A, you have much higher operating costs, where we bring to bear our operating cost advantage of about 58% lower cost than the rest of the industry. So we really want to focus on those areas where we have the highest competitive advantage.

And there's lots of servicing platforms in the market available today. Would you actually buy a platform, if need be, and shut it down, or would you just try and buy the portfolio if you had your druthers?

Our preference would be to buy the portfolio. We, however, are prepared and flexible enough to provide any sort of options to the seller, in terms of all of the above, whether it be the platform, the portfolio, or whether it be servicing, subservicing, et cetera. So we try to maintain flexibility to meet the sellers' needs.

Thank you.

The next question comes from Bob Napoli with Piper Jaffray.

Thank you. Just wanted to follow up on your Freddie Mac relationship and any-- how that's progressing and if you can talk at all about your interest in any progress in doing business with either Fannie Mae or the FHA?

Ron, would you like to handle that, please?

Sure. The pilot program that they initiated is continuing on nicely. We've had recent meetings with their senior people and I think both sides were pleased with the relationship and, at least on our side, we're optimistic that it will, long-term, result in some additional business coming our way.

At this point, I don't think we have anything really new or additional to report on, similar-type arrangements with Fannie Mae or FHA or any of the other government agencies. Although we continue, I think, to have a very solid, very good reputation with the various agencies in Washington D.C. and continue to have ongoing discussions with many of them about various opportunities.

And how much-- what are you servicing today on Freddie Mac and what is the opportunity, do you think, out of-- the potential opportunity out of that portfolio?

Yes, unfortunately, kind of our arrangement with Freddie Mac is somewhat confidential so it's difficult for me to kind of get into that. I mean, as far as number of non-performing loans, it is a reasonably substantial number to our overall portfolio of non-performing loans.

I think what still needs to happen is the various parties that control servicing, or at least control the risk of loss are still taking-- making steps in gaining more control over the servicing rights and as that evolves that will open up more opportunities, I think, for them to move loans to a special servicer like Ocwen. It's just, I think, that process is taking more time than maybe was initially thought.

Okay, thank you. You're-- the converts-- Dave, you have the converts or-- what is-- what have the convert holders done? I mean, I guess, in August of this month they are puttable. Has anybody put? And they're in the money, I guess, a little bit right now.

The put window closed yesterday at close of business. We are reporting on Form 10-Q today that there have been no puts. And then remember in our recent Form 8-K we announced that we are distributing to the convert holders a proportionate share of Altisource shares. And so as of this moment, there is no window open.

Okay. Do you intend to call those, or do you-- you have the opportunity to call, don't you?

The opportunity to call opened on August the 1st and goes on indefinitely. We've made no announcements about whether to call.

And, I mean, how confident are you that you will get a TALF deal done in September, and why?

I mean, we're-- I can make forward-looking statements but, I mean, the process is proceeding apace with regard to that, I think we've made excellent progress. We have no information today to lead us to believe that we will not get it accomplished.

Thank you.

At this time I show no further questions.

Thank you very much everybody, have a great day.

Thank you for participating in today's call. You may disconnect at this time.