Onity Group Inc (ONIT) 2011 Q4 法說會逐字稿

Welcome to the Ocwen Fourth Quarter Year End 2011 Earnings Conference Call. (Operator Instructions) Today's conference is being recorded. If you have any objections, you may disconnect at this time. After the presentation, we will conduct a question-and-answer session. I would now like to turn the meeting over to your host, Mr. John Van Vlack.

Thank you. Good morning, everyone, and thank you for joining us today. My Name is John Van Vlack. I'm the Executive Vice President and Chief Financial Officer of Ocwen. Before we begin, I want to remind you that a slide presentation is available to accompany our remarks. To access the slides, log on to our website at www.ocwen.com, select Shareholder Relations, then under Events and Presentations you will see the date and time for Ocwen's Financial Fourth Quarter 2011 Earnings. Click on it and register. When done, click on Access Event, click on how you wish to listen to the event, Adobe Flash Player or Windows Media. 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 on the bottom of the page pointing to the right.

As indicated on slide 2, our presentation may contain certain forward-looking statements pursuant to the Safe Harbor provisions of 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 filings with the Securities and Exchange Commission including Ocwen's Form S-3, first, second and third quarter 2011 Form 10-Qs, and 2010 Form 10-K.

If you would like to receive our news releases, SEC filings or other materials via e-mail, please contact Linda Ludwig at linda.ludwig@ocwen.com. Our presentation also contains references to normalized results which are non-GAAP performance measures. We believe these non-GAAP performance measures may provide additional meaningful comparisons between current results and results in prior periods. Non-GAAP performance measures should be viewed in addition to and not as an alternative for the Company's reported results under accounting principles generally accepted in the United States.

As indicated on slide 3, joining me for today's presentation are Bill Erbey, Chairman of Ocwen, Ron Faris, President and Chief Executive Officer of Ocwen, and John Britti, Executive Vice President. Now we will turn the call over to Bill Erbey. Bill?

Thank you, John. On today's call, in addition to reviewing our financial and operating results for the past year and quarter, we will also provide updates on the Litton acquisition, discuss our plans for managing new growth, describe the impact to Ocwen of the expected sale of assets to Home Loan Servicing Solutions, or HLSS, and provide some thoughts on the regulatory environment. Ron and John Britti will discuss our financial results in more depth later. Let me start by reviewing year-over-year growth in revenue and net income as reflected on slide 4.

Ocwen's servicing portfolio grew from $74 billion of unpaid principal balance, or UPB, at the end of 2010 to $102 billion on December 31, 2011. With the pending Saxon and JPMorgan Chase transactions, the servicing portfolio is expected to increase to approximately $130 billion. The 2011 growth pushed our annual revenues from $360.4 million in 2010 to just under $500 million in 2011. Net income more than doubled year-over-year to $78.3 million. Similarly, earnings per share for 2011 were up substantially over 2010, increasing 98% to $0.71 per share.

Last quarter I reviewed our business model. Slide 5 shows historical and projected performance on four deals. As we discussed, Ocwen generates increasing returns on invested capital by driving down delinquencies primarily through responsible loan modifications. As loans return to paying status, we increase our servicing revenue by capturing the first servicing fees and generate cash by lowering servicing advances.

We are in the enviable position of being able to do what is good for our shareholders while simultaneously helping American families and providing better returns to investors in mortgage-backed securities. Families win by staying in their homes and resuming affordable payments, investors receive greater cash flow by avoiding lengthy foreclosure processes and the sale of a distressed property.

As Ron will discuss later in more detail, I am pleased to say that the early results of the Litton portfolio are meeting or exceeding expectations. By way of reference, the Litton transaction is represented by Deal One, which is the blue line. In particular, modifications are ramping up as planned. Additionally, delinquencies, which typically rise a bit in the first couple of months after a transfer, have instead declined.

As you can see on slide 6, we are seeing our typical pattern of increasing revenue from the Litton transaction as was the case for HomEq and the earlier Saxon portfolios. The transition of each portfolio further reinforces our confidence in the scalability and performance of our platform, which will enable us to achieve our objectives on future transactions.

With respect to new business, we expect to close our purchase of Saxon Mortgage Services from Morgan Stanley in the next few days. And Ocwen will likely complete our purchase of mortgage servicing rights from JPMorgan Chase in the next several weeks. These two transactions will add approximately $31 billion of additional UPB to our servicing portfolio and convert about $11 billion of subservicing to own servicing.

In anticipation of the Saxon and Chase boardings, we have ramped up operations. As a result, our actual and normalized financial performance in the fourth quarter was lower than what it would have been in a steady state. The same will be true for the first quarter. I would point out that we do not normalize for such costs as we do for transition-related expenses.

Even though Ocwen's unique technology enables us to more quickly train and deploy world-class home resolution specialists than any servicer in the industry, we have adopted an operating strategy of investing ahead of growth, given the very strong new business environment. This relates, for example, to hiring in advance of need, building out somewhat larger facilities and running lower staff to manage the ratios than we might otherwise. We believe this is prudent as we continue to see a large pipeline of new opportunities.

On February 10, 2010, Ocwen entered into an agreement to sell HLSS the right to receive the servicing fees relating to approximately $16 million of UPB. In addition, HLSS will take ownership and responsibility for the associated servicing advances in matched funded liabilities. Ocwen will continue to service the loans, receiving a subservicing fee and ancillary income.

We expect the sale to close when HLSS completes its initial public offering. As valued on December 31, 2011, Ocwen will receive approximately $181 million in cash from the transaction, 25% of the proceeds will pay down the senior secured term loan as required by the terms of the loan. The remaining cash will be available for future acquisitions. For further information regarding this transaction, please refer to our 8-K filing dated February 10, 2012. For additional information regarding HLSS, you may also refer to its form S-1 on file with the Securities and Exchange Commission.

Completing the initial asset sale to HLSS will be an important milestone in our strategy to make Ocwen into an equity-light fee-for-service business. In the near term, HLSS should provide us additional capital for growth without dilution to existing shareholders and make Ocwen more competitive on future transactions.

Over time, we would hope to move most of Ocwen's MSRs and advances to HLSS. The impact of this should be higher returns on equity that we could achieve by keeping the assets on Ocwen's balance sheet. The effective cost of capital for HLSS is 8%, at the midpoint of the pricing range; whereas, Ocwen acquires these assets at a projected 25% return on capital.

Finally, I would like to note that we continue to make progress on our longer term growth strategy of acquiring servicing on FHA and GSE servicing. Correspondent One continues to progress, having begun to acquire newly originated loans. We have also attracted additional top management talent to Correspondent One. Nevertheless, we do not expected Correspondent One to have a significant impact on Ocwen's volume this year.

Given the large pipeline of high return servicing acquisitions that are cash flow positive, we do not see the urgency of adding lower return gain on sale, newly originated prime servicing. I will now turn the call over to Ron, who will cover our operating results, including the Litton integration, in more detail. Ron will also discuss the recent federal and state settlements of the top five bank servicers including its likely impact on Ocwen. Ron?

Thank you, Bill. Before I start, I want to mention that this will be John Van Vlack's last earnings call as CFO of Ocwen. As we announced almost a year ago, it has been our plan that Mr. Van Vlack would step down as CFO upon the launch of HLSS and turn over the reigns to John Britti, who has been our executive vice president of Finance since January of last year. As we expect HLSS to complete its IPO in the next couple of weeks, I want to take this opportunity to thank John for his contributions to Ocwen and say that we look forward to working with him in his new role as president of HLSS.

As Bill mentioned, the progress of our integration of Litton continues to meet or exceed our expectations. In the fourth quarter of 2012, Litton contributed -- I'm sorry, of 2011, Litton contributed over $42 million in revenue. We also incurred $31 in transaction-related expenses for Litton as we consolidated operations. The total Litton transaction expenses incurred through the end of December were $50 million. We expect to incur most of the remaining transaction expenses in the first quarter of this year. We continue to expect total costs to be in line with prior guidance of about $64 million.

Particularly gratifying has been our solid delinquency management performance to date on the Litton loans and across our broader portfolio. In the fourth quarter we were able to reduce overall delinquencies by 0.008% to 27.9%. We completed 18,633 modifications in the quarter, an increase of 18.5% over the prior quarter. We anticipate further progress in coming months as our modification programs take hold in the Litton portfolio.

We are seeing the early indications of this as our modification offers rose to 21,566 in the fourth quarter. This is a 23% increase over offers in the third quarter. As these offers are accepted and finish their trial period, we would expect further growth in modifications.

For the first quarter of 2012, we expect modifications to be between 20,000 and 22,000. For all of 2011, Ocwen completed a total of 76,205 modifications. HAMP represented 16.5% of these modifications, and our new Shared Appreciation Modification, or SAM, accounted for 9.9%. I am very proud of our team's ability to produce these results at a time of robust growth. Ocwen's success in scaling up its operations and modifying loans is attributable to the experience of our team and Ocwen's industry-leading technologies. We remain committed to reducing losses on the loans we service and helping families stay in their homes through sensible loan modification.

More detail on our fourth quarter and full year 2011 results are available in today's earning release and our 2011 10-K, which we expect to release early next week. John will discuss the overall Company's normalized Q4 and full year 2011 results in more detail shortly.

As shown on slide 7, we continue our progress in reducing advances. In the third quarter, net advances declined by $142 million. The rate of decline had flowed on existing portfolios as we have fewer opportunities to cure delinquencies as portfolios become more current. We expect greater decline in future quarters as we begin to reduce the Litton advances. This tends to occur on newly boarded portfolios as it takes a few months for new modifications to go through the process of contact, offer, acceptance, trial and completion.

I would like to conclude my remarks with some observations regarding recent government actions in areas that affect our business. We believe the federal and state settlement with the five large banks announced earlier this month could provide business opportunity for Ocwen as requirements imposed on the banks play to our strengths in modifications, particularly principal reduction modifications, where we have been the industry leader. Ocwen is well positioned to provide cost-effective solutions to the banks that are party to the settlement.

In addition, the settlement provides additional clarity around government intention for servicing standards. We have carefully analyzed all of the known requirements and our confident that we either already meet these standards or can readily do so. Even though the servicing requirements in the settlement do not apply directly to Ocwen, it is our intention to treat them as de facto industry standards.

In late January 2012, the federal government announced that it has extended the HAMP program through December 2013. In addition, the new HAMP 2.0 increases incentives for principal reduction modification, extends the program to reenter occupied investment properties, and makes the program more flexible for borrowers with certain large non-mortgaged debt, such as medical obligations. Again, we view these changes as positive for Ocwen.

In the fourth quarter of 2011, HAMP modifications were 16% of our total modification. We would expect this percentage to grow under the new program rules, so we have not finalized our estimate of the likely impact. Now, I would like to turn the call over to John Britti. John?

Thank you, Ron. I would like to walk through our normalized pretax income shown on slide 8. The largest item on this is our transaction-related expenses of $31.3 million. All but $200,000 of these relate to the Litton transaction, the remainder for the pending deals. The other item is $3.6 million of the $4.1 million loss Ocwen incurred against several foreign currency, foreign exchange contracts that we entered into in 2011 to hedge against the effect of changes in the value of the Indian Rupee.

Early this year we canceled these contracts after determining that the cost of maintaining the hedge was likely to be greater than the operating exposure. As a result of reversing these hedges, we expect to book a $3.6 million gain in the first quarter of 2012, which we include in our normalized results.

Backing these costs out of our pretax income results in normalized pretax income from continuing operations of $53.4 million for the fourth quarter of 2011. This is a 57% improvement over Q4 2010, and a 12% improvement versus Q3 2011. These improvements are attributable to growth in our servicing portfolio and our ability to reduce delinquencies and unit costs.

On our last earnings call we said that we would book an additional noncash loss of $23 million related to the write-down of the Litton platform that appraised for a higher than expected amount. Instead, GAAP required that we treat it as a purchase accounting update, increasing goodwill.

At the end of December 2011, Ocwen maintained $551 million of liquidity, including $144 million in cash and $407 million of unused, fully collateralized advance borrowing capacity. Our relatively large liquidity position is in preparation for the Saxon and JPMorgan Chase closings.

Cash flow from operations was $982 million for all of 2011, which is very strong and should continue strong in 2012. Cash flow from operations along with cash from sale of assets to HLSS should enable us to acquire new portfolios or reduce high cost debt throughout 2012. Thank you very much. We would now like to open up the call to questions. Operator?

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Bose George.

Good morning. I first had a question on HAMP. Do you think the changes in HAMP will increase the overall level of modifications, or do you think basically it moves modifications from non-HAMP into HAMP?

Bose, this is Ron. I think it mostly will just move modifications from non-HAMP into HAMP. I think most of the expansions in the program would be covered by our non-HAMP programs to date, so I don't think the overall number increases, but I do think the percentage that are HAMP will increase.

Okay, great. And then, actually, switching to -- I think you guys said a little earlier on the call that the share depreciation mortgages, it was 9.9% of 2011 modifications, so I was curious what it was for the last quarter, just for 4Q '11?

I don't have -- I don't know if any of us have the exact number there, but in the latter part of the year it was running at closer to 20% of the modifications that we were doing.

Okay, great. And then actually one last thing. The comment that John Britti made on liquidity, did he give a number in terms of current available liquidity to deploy into new assets?

I'm sorry, I'm not sure I understand your question.

Oh, just in terms of available cash, etc., to purchase assets. You guys got the $200 million extra capacity now on the line, so a total available, sort of investable capital?

Yes, that's the $551 million of liquidity.

Okay. Great, thank you.

This is John Van Vlack. I just might add the other way of looking at it is that we expected after closing the Saxon and JPM acquisitions that we will still have a substantial cash and available credit balance in excess of $100 million.

Okay, perfect. Thank you.

Our next question comes from Mike Grondahl.

Yes, thanks for taking my questions, guys. Two questions. One, Bill, could you kind of comment on the $300 billion pipeline, just sort of in terms of timing and how you think that plays out over '12 and '13. And then, secondly, any expected charges related to the Saxon closing? I seem to remember, I thought there was about $50 million to run through, but if you could remind us of that, that would be great.

We estimated $51 million for the transaction-related costs for Saxon, and so those will start shortly after the close.

Have you broken it out between 1Q and 2Q yet, John?

It will mostly be in the second quarter.

Okay.

And the first question, Mike, we really don't give guidance on when transactions will be completed. The $300 million, if anything, has gotten more robust as we had our last quarterly call. So, there is an enormous amount of activity going on in the market, and that really relates to transactions in the space that we like to focus on. If you think about the loans out there as a continuum from a portfolio that is fully current to one that is fully delinquent, which is obviously hyperbolic in terms of what you'd actually see, we like to focus on those portfolios that are more heavily delinquent primarily because it focuses on our -- it plays to our strengths of low operating costs on nonperforming loans and our industry-leading ability to get delinquent loans current. There is even more than that product available in the marketplace today. I would say there is probably close to $1 trillion of product that various people are looking at.

Gotcha. I know it's only a couple weeks old, but any change in tone on inbound calls since the robo settlement?

This is Ron. I have not been made aware of any change in customer behavior or activity since then. I think you are right, that any time there is public announcements about something going on in the industry, whether it be the new HAMP program or something like a settlement of this nature, it can sometimes create additional customer inquires. I think the fact that this was fairly well publicized that it only impacted, if your account was serviced by the five banks, probably has limited that for our particular portfolio, so I am not aware of anything.

Okay, thank you.

Our next question comes from Douglas [Katz].

Hey, Bill, good morning. I was following up on Mike's question. I think you answered my first question, whether it's possible to quantify the actual dollar size of the current universe of available servicing portfolios to fail and the amount that is likely to be made available for sale in the next several years. And the second question was, what is your best guess as to the anticipated change in the direction of the cost of future portfolio acquisitions? And you can use any metric you like.

I believe that the cost is going to go up for most servicers pretty materially. In terms of just taking one item alone, which would be single point of contact, Ocwen about two to three years ago started developing technology to deal with our contact management, with our borrowers. And we went to what is called an appointment model, so that in fact our borrowers can set an appointment when it is convenient for them either through the phone and through the Internet, and that enables our people to be well prepared, they know what they have to bring to the meeting or to the phone call, and we think that works very well.

The rest of the industry operates on what's called mathematically a chaos model. It's really the same as an emergency room model, where people basically don't set appointments, they show up whenever they show up. That has a pretty significant impact when you have single point of contact, because as you can imagine, one of the problems is, no matter how hard I try, I can't get all of our employees to work 24 by 7. So, a lot of our people call at times when their single point of contact is not there, they leave messages, that results in callbacks. A whole series of calls get generated out of that and basically not a very favorable borrower experience.

The second problem is that it's sort of like the party game, where you ask how many people have to be in the same room for two of them to have the same birthday, it is very interesting -- that same math applies here. If you have any sort of -- let's say the industry operates at 240 borrowers per loss mitigator, there is a very high probability that that loss mitigator will get many simultaneous calls, again resulting in a lot of callbacks, missed calls. And when the loss mitigator calls back, it's probably likely that person won't be available. So, it doesn't lead to a high quality customer experience.

So, I estimate that we will probably have three to four times the cost just dealing with delinquent loans as a result of the new servicing standard. So, I think that is also a contributory factor to some of the servicing portfolios that are available for sale.

Thanks, Bill.

We actually think with our appointment technology, our cost will be the same or ultimately come down, because we are able to -- we are very focused on first call resolution. In order to be able to get the person on the phone and resolve their issue on the first call, so it increases customer satisfaction and it drastically reduces your operating costs.

Thank you.

Our next question comes from Henry Coffee.

Yes, good morning, everyone, and I guess let me throw my -- well, congratulations to John, since you're moving on to a new job, but we'll miss you all. Bill, all you have to do to get people to work 24/7 is make them CFO. A couple of questions, just quick on the numbers. So, it looks like the total cost for Litton in terms of one times were right around $50 million. Do you expect additional charges from that?

Yes. What we had indicated is we do expect to the ultimate number to be around the $64 million number that we had given guidance on a while back, and we expect that most of that additional amount will be incurred in the first quarter.

And then in terms of loan mods, how does that 20,000 to 22,000 number compare to sort of the year-ago quarter, first quarter of '11?

I think it's a little bit higher than what we had in the first quarter of '11. Our portfolio is a little bit bigger.

And then revenue impact is sort of a modest boost in mod-related revenues then, or would that number be a lot higher?

I think it would be a modest boost.

Okay. And then, finally, just sort of a big picture question. As you look at this evolving picture of struggling bank servicers, how do you step into play a role? Do you continue to buy servicing or do you see yourself partnering with a bank to manage the servicing? Or how specifically do you think you will engage around the AG settlement?

I think it's -- and I'll let Bill fill in if he wants, but I think it's all of the above. I think it really is -- I think potentially even different banks may go about it different ways. I think the banks are currently in heavy discussions internally about what's the best way to manage the new world environment, and I do think they are looking at their alternatives on how to use quality third-party providers, like ourselves. And I would expect we'll see a combination of some sales of MSRs, some subservicing type arrangements, or even almost component type arrangements. So, I think it will be all of the above.

Thank you.

Our next question comes from DeForest Hinman.

Hi. I had a few questions. Maybe this one is for John. Can you break down the $31.3 million from the Litton charge on a line-by-line basis through the income statement?

Yes, let me give you just round numbers. It would be about $20.6 in comp and benefits, about half, about $600,000 on the servicing origination line, about $3.4 million in technology and communications, about $2.9 million in professional services, $3.7 million in occupancy and equipment, and then about $300,000 in other operating expenses.

Okay, that's helpful. And can you kind of help us think about the big picture from a perspective of this $1 trillion of UPB that you just mentioned? In the past we've done more platform transactions and more recently we did MSR purchase with JPMorgan. Is there a bigger growth opportunity from subservicing at this point than there has been in the past?

First of all, let me clarify. That is across the entire array of all products. We wouldn't be interested in the lower return of more current portfolios, so we don't view that as our available market, just because it's very difficult to -- we don't like the prepayment risk where the return parameters are the more performing portfolios. I think that what we are seeing right now is very heavily sales of servicing, but I do concur with Ron, that I think that with the AG settlement and the focus on principal reductions, there may be increased level of activity in the subservicing space there. There are fairly significant penalties associated with not meeting those goals set for the five large banks. And I would point out, I think, we believe we've done more principal reduction mods than the rest of the industry, so we would hope that we would be a prime supplier for providing those services should banks elect to outsource that.

And in terms of, I know the ink is still drying on the settlement here, but is there any mechanism in our discussions with the bank where they have to make a decision as to what they're doing? If we go back to your commentary regarding the single point of contact, this is going to be a major expense for some of these banks and potentially they can save some money if they do some sort of subservicing transaction or sell that MSR. I mean, how soon do you think that they make this type of decision?

I've been decidedly unsuccessful in predicting, unfortunately, so I really don't know when that will happen. I suspect that will be -- a lot of it will depend on how successful the banks are initially in meeting their goals, and as the time ticks buy, it may be, if they're not meeting their goals, there may be more incentive for them to do it. But I would go back to Ron's comments about I think there's - people are actually considering doing some outsourcing here.

Okay. And my final question is just on the tax rate. Can you just explain the increased level in the fourth quarter and can you help us, what kind of rate we should be using for 2012?

So, I think when you look at the deferred tax asset, you'll see that there was a significant amount realized over $30 million of DTA that was realized. That was a result of a project that we had engaged in to kind of go through the details of all that. When you do an update at the end of the year, we've been booking our quarterly tax results using a high level estimation process. And when you do quarterly true-ups at the end of the year, you tend to go back and look at all the accruals. So, I think the effective tax rates that we're seeing for the full year 2011 may be a little bit higher than what we're going to see going forward, but it is a pretty good indication.

This is John. In terms of that project on the deferred tax asset, that was to convert that into a receivable, a tax receivable, which will turn into cash.

Which will turn into cash in Q1 or Q2.

Okay, thank you.

Our next question comes from Ryan [Zarcarias].

Hey, guys, thanks for taking the question. First question is on the tolerance for the proceeds from HLSS kind of staying idle. Let's say you get $180 million payoff to SSTL with part of those proceeds and a deal doesn't come for some period of time. How long are you willing to wait? Because obviously there will be a drag on earnings and ROE if nothing is done with the proceeds?

The cash won't be idle in the sense that we can forego borrowing on our advance facilities. The savings from doing that obviously are less than the coupon rate on the term loan, so there is not a specific time frame in terms of number of months. But there is a period beyond which, if we didn't think we had growth coming within the next six months or so, then we would be more inclined to pay down the term loan with those funds. But that is not our current plan.

Okay. And maybe, I'm not sure if you can answer this, but thinking with kind of the HLSS cap on, how active is HLSS going to be in seeking out its own MSR deals? Is it going to rely on Ocwen to do that or is it going to contact JPMorgan and see if there are any MSRs that could purchase?

I don't think we are permitted to speak on behalf of HLSS on this call.

Okay. Is it Ocwen's expectation that HLSS might do things on its own to increase its own servicing portfolio and that Ocwen might get additional subservicing from that perspective?

I think Ocwen certainly would like to work with HLSS to become the subservicer on additional portfolios that HLSS may acquire.

I mean, Ryan, speaking from Ocwen's standpoint, clearly there is going to be no less activity on the Ocwen side from a sales and marketing standpoint trying to find the right opportunity. So, there will be no change in our approach or resources to finding new opportunities. To the extent that HLSS is able to find opportunities as well, from the Ocwen standpoint, we would more than welcome that, but our efforts will continue to be as strong as they have been in the past.

Great. And then the one other question was can you quantify what the incremental overhead was attributable to kind of the ramp-up in anticipation of Saxon and JPMorgan?

You mean the impact that we described? I don't have an estimate for the impact, how much additional resources we laid on in anticipation of that readily available.

It will actually be a little bit higher in the first quarter than it was in the fourth quarter, because the first quarter is where we're fully ramped up in anticipation of these new deals. So, it will be a little bit more of an impact on the first quarter than it was in the fourth quarter, but I think kind of that's probably the best information we can give at this point.

Okay. I mean, to the extent that we could get that I think would be helpful for modeling purposes, just to understand what the incremental profitability of Litton was in the quarter and what it will be in the first quarter.

Okay, we understand your point, Ryan.

Okay, thanks.

Our next question comes from Jeff Petherick.

Hi, guys. My question is kind of along the same lines here. I think you made a comment there that you said over time most of the MSRs you would expect would be moved to HLSS. I think that's what I heard. You can correct me if I'm wrong, but I'm curious how you see that over the next several years, sort of that transition or that evolution. And obviously there are opportunities right now that are presenting themselves and you have capital, so as we look into 2012, I'm sure we're going to see Ocwen put that capital to work. But how do you see that transition and evolution to HLSS having most of those MSRs?

We're a little constrained about commenting on that because a lot of it relates to the capacity of HLSS to raise capital.

Right.

So, we do have a road show currently going on for HLSS. We would be more than happy to answer that as a part of the road show, but I don't think we should answer it on the Ocwen call. If I could defer that, I would appreciate it.

Okay, but, I guess, again, from sort of Ocwen's perspective, it would be the hope that eventually HLSS is able to raise more capital and you can become more capital light and assuming that that was the case, is that something that you see transpiring over a two- to three-year time frame, or fast or slow, or I guess from an investor standpoint, how do we think about that?

We haven't given forecast as to how long that will take. You really have -- you're sort of in some cases, it relates to two forecasts -- one, how much more business will Ocwen acquire in the meantime versus how much capital can HLSS raise. So, both of those are projections. We certainly at Ocwen are very open and excited to moving as much product as we can to HLSS, given the relative cost of capital. It certainly enhances Ocwen's ROE significantly, and also enables us to grow and acquire new acquisitions that are actually fully accretive to earnings. So, we will not be the governor on that. It will really depend on how fast HLSS is capable of raising capital in the marketplace.

Yes, that's a fair answer.

I think they would be happy to discuss that on the, with respect to HLSS, on the road show or after the road show, but I don't feel comfortable giving projections for HLSS on this call.

Yes, okay, fair answer. Thank you.

Thank you.

Our next question comes from Mike Grondahl.

Yes, thanks. Just to follow-ups, guys. On Litton, do you have to pretax contribution in the fourth quarter? And, secondly, Bill, would you mind commenting on Robert Stiles' resignation this morning at Altisource? I know there are a lot of people interested in the whole Ocwen ecosystem, and it might be helpful. Thank you.

I think first, just to -- and then I'll turn it over to Bill. I think we are not in a position where we're going to report sort of earnings for a particular deal. A lot of that has to do with how costs are allocated and everything. So, I think in my script gave some information on the amount of revenue that we received from the Litton deal. We talked about the expectations over time, we'll get a 25% return on the capital that we deployed on that deal and the deal is performing as anticipated or even a little bit better. But we are not going to provide net income numbers by deal.

I agree. And, Mike, I think the one comment here I can give without going through a forecast is if you look on slide 5, we're trying to give more and more transparency to the earnings model. If you look at deal one, as I said in my script, that was the Litton transaction. I think, Ron, you'd share this view, that we did better than we projected in the first quarter.

Yes.

Because if you look at the Litton transaction, it shows they lost.

Gotcha.

And as you are well aware, Mike, most of our existing portfolios, once they get boarded, sort of goes through this ramp pattern and they are pretty predictable once they are boarded. So, that gives you some insight into what happens with the old versus the new portfolio. But we are very pleased with the performance of the Litton portfolio in the first quarter that we have. It has exceeded expectations.

With respect to Robert Stiles, again, same with HLSS as with Altisource, I don't feel comfortable commenting on this call. There is an 8-K out there. We wish Robert well and I think Michelle Esterman, we are very excited about having her as the CFO of ASPS and Altisource. And since we're having to be on a road show today, if I can encourage all of you who have any further questions, if you could call Bill Shepro, that would be exceedingly appreciated.

Gotcha. Thanks, guys. Congratulations.

Our next question comes from Bose George.

Thanks. I just had a follow-up on the addressable market number you gave. So, you said it was about $1 trillion but including prime stuff that you wouldn't look at. So, in terms of the stuff that you would look at, should we still think about that or that your -- your direct pipeline, still think of that in the $300 billion range?

Ron, I think you can comment, or John. It's very bit of that. There is an enormous amount of activity that is going on in the market at the present time. I mean, you're really seeing, in my view, a complete reassessment on the part of people in the mortgage business, where they want to be. I mean, if they're not -- if it's not truly a core business for them, many people, as you have seen, are exiting the business. And I think even the people that have it as a core business to them are really assessing who are their core clients within that space. Do they have multiple relationships with the bank? And I think many of the large banks, if it's not a core customer of the bank, are really assessing whether they really want to be providing services to that segment of the market.

So, I think ultimately it opens up an opportunity down the road as the market begins to heal itself, because I think the US market is going to become a little bit more like the UK market, where many of the long-term holders of Ocwen realize we were the largest originator and servicer of non-prime loans in the UK. So, I think you're going to have a much smaller portion of the population that can actually go to their bank and get a loan. So, I think there is a growing opportunity for non-bank, non-prime originators and servicers over the next several years as the market begins to recover.

Great, thank you.

At this time I have no questions in queue.

Thank you, everyone.

This concludes today's conference. Thank you for participation. You may disconnect at this time.