Onity Group Inc (ONIT) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Ocwen Financial third quarter 2014 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Mr. Michael Bourque, Chief Financial Officer. Sir, please go ahead.

Great. Thank you very much. Good morning and thank you everybody for joining us today for Ocwen's third quarter 2014 earnings conference call. Before we begin, please note that a slide presentation is available to accompany today's call. To access the presentation, please go to the Shareholder Relations section of our website at www.ocwen.com and click on the Events and Presentations tab. As a reminder, the presentation and our comments this morning may contain forward-looking statements 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. Forward-looking statements by their nature address matters that are, to different degrees, uncertain.

Forward-looking statements involve risks and uncertainties that could cause the Company's actual results to differ materially from the results discussed in these forward-looking statements. In addition, the presentation and our comments contain references to non-GAAP financial measures such as normalized pre-tax earnings and normalized adjusted cash flow from operations. We believe these non-GAAP financial measures provide a useful supplement to discussions and analysis of our financial condition. We also believe these non-GAAP financial measures provide an alternate way to view certain aspects of our business that is instructive. Non-GAAP financial 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.

For an elaboration of the factors I just discussed, please refer to today's earnings release as well as the Company's filings with the Securities and Exchange Commission, including Ocwen's 2013 form 10-K A and our second quarter Form 10-Q. Note that we expect to file our third quarter 2014 Form 10-Q tomorrow. Joining me on the call today are Bill Erbey, our executive Chairman, and Ron Faris, our President and Chief Executive Officer. Now I will turn the call over to Bill.

Thank you, Michael. Good morning and thank you for joining us for today's call. I will begin by offering a high level overview of the key results of the quarter and provide some additional perspective on the letter dating issue. Ron will then give more detail on our letter dating investigation. He will also provide an overview of our performance on various external servicing performance benchmarks including continued strong performance on HAMP and non-HAMP modifications, followed by an update on our community initiatives. He will close with an update on our continued risk and compliance related investments. And finally, Michael will summarize our financial results for the third quarter. Ocwen repeated a pre-tax loss of $72 million and an earnings per share loss of $0.58 per share. Our results were driven by lower revenues, which were down 7% as we saw a decline in modifications occasioned by the one time slowdown in the resolution process.

As Michael will explain, we believe most of this revenue is deferred into future periods and not lost. Additionally, we recorded $120 million of legal reserves of which $100 million was for a potential settlement with the New York Department of Financial Services. I would caution that this does not mean we've settled with the Department. However, we felt we were sufficiently engaged in discussions in the third quarter and we believe it is unlikely we will reach a settlement for anything less than $100 million. I would caution that should we reach a settlement, the final amount could be materially higher than this, and also require other non-monetary elements. Also in the quarter, we completed the transfer of all of the remaining active loans off the legacy ResCap platform.

This occurred earlier than we indicated previously and is a result of great efforts from the team to complete the integration. This migration to one common servicing platform positions the Company well to drive further quality and process automation improvements in the coming year. The Company generated $349 million of cash from operating activities and $195 million of normalized adjusted cash from operating activities, a non-GAAP measure that adjusts for the impact of advanced financing and loans held for sale. As part of our ongoing efforts to improve borrow outreach to keep more people in their homes, in the second quarter we created an advisory council made up of 15 nationally recognized community advocates and housing counsellors. We recently conducted our first community advisory council meeting in Washington, D.C., where we had discussions on the current state of the servicing industry, leading to constructive feedback on some of the challenges that homeowners and counselors continue to face when working with servicers.

Finally, I want to say a few words about the letter dating issue raised last week by the New York Department of Financial Services. We're committed to rectifying our letter dating mistake and continue to work with the DFS and its monitors to ensure that Ocwen is a best in class mortgage servicer. As you know, one of our goals as a servicer is to keep people in their homes whenever possible. Ocwen is creating a review and remediation process for borrowers potentially impacted by the letter dating mistake the Company has made. With that, I'll turn the call over to our President and CEO Ron Faris, who has more to say on this subject. Ron?

Thank you, Bill. At Ocwen, we take our mission of helping struggling borrowers very seriously, and we have apologized to homeowners who may have received one of our inadvertently misdated letters. To reiterate what happened, on certain types of correspondence, Ocwen's historical practice was to utilize the date a loan met the criteria for the letter rather than the date on which the letter was generated. In most cases the difference between these dates was three days or less. In some cases, however, there was a significant gap between the date on the letter and the date it was actually generated. We are taking this matter very seriously and are taking the following steps.

First, we have commenced a rigorous investigation. Second, we are hiring an independent firm to investigate this issue and help us ensure that all necessary enhancements have been made. Third, we will engage our community advisory council members to obtain their guidance on how we can best make things right for borrowers who may have received a misdated letter, and been affected by our mistake. Finally, we will do everything we can to rectify any instances where a borrower was harmed as a result of our misdated letters and to ensure that this does not happen again. Despite our letter dating mistakes, we believe our operating environment contained numerous compensating controls that should have prevented widespread borrower harm such as an incorrect foreclosure.

Our pre-foreclosure and pre-sale processes are designed to ensure that no borrower is referred to foreclosure or experiences a foreclosure sale without a thorough file review. This file review is a second set of eyes on the file and typically involves checks that are independent of the printed date on the correspondence. This check ensures that borrowers have the required time to respond to offers or denials of lost mitigation correspondence regardless of the date on the letter. Additionally, our pre-foreclosure team will not allow a property to be eligible for referral for foreclosure until 30 days after the letter generation date on a lost mitigation denial, to ensure adequate time for an appeal. Finally, our policy is not to limit a borrower's acceptance of modifications to due dates provided on correspondence but rather to pursue modification and forbearance outcomes until the last possible date.

Ocwen's appeal process for modification denials will accept the appeal and postpone foreclosure no matter when we receive the appeal, even if it is well beyond a 30-day period noted on a letter. Furthermore, after a decision is reached about an appeal, our pre-foreclosure teams wait 15 days after the correspondence date of the appeal decision to re-start the foreclosure process to ensure the borrower has adequate time to follow up and ask questions. Lastly, Ocwen's practices are to engage in affirmative outreach following modification decisions and therefore any delay in paperwork should have been mitigated by outbound call campaigns and additional written correspondence. As an example of our backup checks, I just described, let me tell you about the 6,098 borrowers referenced in the New York DFS letter that received misdated letters in the summer of 2012.

Keep in mind that these were letters informing mostly delinquent borrowers that their modification application for a particular modification program had been fully underwritten but denied because they did not qualify for that program. Almost 70% of the population was subsequently approved for another modification. As of the end of September 2014, about two-thirds are now making regular payments with a high percentage, almost 80%, contractually current, and many others making payments on an agreed upon payment plan. Less than 5% of borrowers have gone through foreclosure. Of these, about one-third were offered other pre-foreclosure alternatives like a short sale or deed in lieu of foreclosure. Of the roughly 3% of the population that went to foreclosure without being offered an alternative, unless prohibited, Ocwen either contacted or attempted to contact them a significant number of times, in most cases 50 times or more.

Despite our belief that no significant numbers of borrowers have been harmed as a result of our misdating issues, Ocwen is creating a process whereby any borrower who believes he or she received a letter with a questionable date, and believes he or she was harmed in the management of their delinquent loan, can present a case to us for review and potential remediation. We take our mission of keeping people in their homes very seriously, and we will do everything we can to rectify any instances where a borrower was harmed as a result of our mistakes. Keeping in mind, again, that these were borrowers that were underwritten and denied for a specific modification program, the statistics on this set of loans above demonstrates how our process resulted in positive outcomes for homeowners and investors even in cases where the homeowner may not qualify for a particular modification program.

Having potentially caused inadvertent harm to struggling borrowers is particularly painful to us because we work so hard to help them keep that your homes and improve their financial situation. Our record speaks for itself. Ocwen recently reached a significant milestone by making its 500,000th loan modification. Ocwen is a leader in foreclosure prevention with 44% more HAMP modification than any other servicer. This is consistent with Ocwen's track record of resolving borrower delinquencies and benefiting loan investors. Ocwen continues its strong focus on reducing delinquencies and loan losses by keeping more families in their homes through sensible repayment and loan modification plans. As reported in the most recent Making Home Affordable Program performance report through the second quarter of 2014, Ocwen has completed 283,589 HAMP first lien loan modifications.

That is 20% of all such modifications in the program, and 44% more than the next highest servicer. We have completed 65,648 HAMP principal reduction modifications, 42% of the total and more than the next three highest competitors combined. Even more impressive is the fact that for homeowners who were not accepted for HAMP or who were disqualified from HAMP, Ocwen has the lowest foreclosure rate and the highest alternative modification and repayment plan rate. In other words, a family who has its home loan serviced by Ocwen has a significantly better chance of remaining in its home. Based on the BlackBox Logic data for sub prime non-agency securities, as of September 1, 2014, Ocwen has a modification rate of 60.7%, which is consistently among the highest across servicers.

Also, Ocwen has a redefault rate of 25.9%, the lowest rate among specialty mortgage servicers. As third-party studies have confirmed, Ocwen's superior results in helping consumers avoid foreclosure through sustainable loan modifications also result in improved cash flow, lower delinquency rates, and lower expected losses for loan investors. Finally, based on the BlackBox Logic data as of September 1st for sub prime non-agency securities, 64% of borrowers serviced by Ocwen made all of their payments in the past 12 months, versus 53% of borrowers serviced by others. 77% of borrowers serviced by Ocwen made at least ten payments in the past 12 months, ten percentage points more than borrowers serviced by other companies.

Moving on, in keeping up with our ongoing commitment to help homeowners and communities in distress, we have continued to expand our initiative to help them in a multifaceted way. I am pleased to give you a brief update on them. Bill spoke about our community advisory council. In addition, in the third quarter we created our customer experience office, a centralized group dedicated solely to improving the customer experience for both the residential servicing and originations business lines. The objective of this group is to make sure that customer satisfaction is the backbone of everything we do at Ocwen. In our previous earnings calls, we alluded to the significant regulatory oversight we are subject to for multiple regulators and how Ocwen has been investing over the past two years to significantly enhance our compliance and risk infrastructure.

The chart on slide 14 shows the significant increase in our spending in compliance and risk-related areas between the third quarter of 2012 and the third quarter of 2014. Over the last two years, we have undertaken numerous initiatives to further enhance our compliance and risk management capabilities, and that has increased our expenses from $1 million in the third quarter of 2012 to $18 million in the third quarter of 2014. Here are examples of changes we have made over the last few years, and believe these are smart investments in our future. We hired this year a new Chief Risk Office, Marcelo Cruz, with over 20 years of experience in companies like Morgan Stanley, ETrade, and McKinsey, and over the last two years have added over 1,000 people in the risk, audit and compliance areas, including a number of senior positions.

We have significantly expanded the scope of quality and compliance testing. We have expanded our compliance training programs. We set dedicated resources to support regulators and monitors. We have engaged consultants to assist where necessary. Considering the growth that our firm has experienced in the last few years, we believe these investments in risk and compliance will support sustainable growth in the future. Apart from helping us to better fulfill our mission of helping homeowners and the mortgage loan investors, these investments should also translate into better customer experiences and outcomes, higher efficiency and lower servicing expenses.

An added benefit of all this will be continuing strong performance in the eyes of our various stakeholders, including GSE's, regulators, and mortgage investors. We continue to make investments to ensure we have the infrastructure needed to support Ocwen well into the future. We believe that our proactive approach to building out this infrastructure over the last two years is creating a true competitive advantage and supports our goal to be the best in class servicer. We that, I will turn the call over to our CFO, Michael Bourque.

Thank you, Ron. Beginning with a review of our financial results for the third quarter of 2014, Ocwen generated total revenue of $514 million, which was a drop of 7% from the second quarter of 2014. Servicing revenue totaled $485 million, and was also a drop of 7% sequentially. The largest driver of our revenue decline was a slowdown in loan resolutions, namely modifications and other outcomes. This result reduced revenue recognition in the form of lower deferred servicing fees, late fees, and HAMP fees. The good news is that most of these modification and resolution opportunities were timing driven and are not lost and can be captured in the future. In addition, as a result of the extended timelines, operating expenses are higher, given that delinquent loans are more expensive to service than performing loans. Interest expense is higher, and operating cash flow is lower, as a result of escalated servicing advances.

I am pleased to note that we are beginning to see some reversal of this trend in modification volumes in the fourth quarter. We generated 25% higher modification offers in Q3 over Q2, which is a leading indicator of stronger results going forward. And, during the first three weeks of October, completed modifications were 34% higher than the half month average run rate for completed modifications in the third quarter. Monthly trends can vary but we believe these are encouraging signs. Moving on, lending revenue of $27 million decreased 14% from the second quarter of 2014, due to lower margins. During the quarter Ocwen originated $1.1 billion of forward loans and $168 million of reverse loans. Total operating expenses for the Company were $455 million, and included the impact of $120 million charge for legal related items discussed previously.

On a normalized basis, operating expenses were $1 million higher versus the second quarter, driven by higher legal and compliance related costs. As mentioned in prior quarters, we do not normalize for monitor and related costs. The monitor costs were $11.4 million in the third quarter, slightly higher than our previous expectations. As of now, we expect the fourth quarter to be slightly higher, around $13 million. Total other operating expense in the third quarter, 2014, was negative $131 million, which was flat compared to the second quarter of 2014. Ocwen's year-to-date effective tax rate trended up to 31.8% due to a change in the jurisdictional mix of earnings, primarily related to lower servicing income and the impact of the New York DFS reserve. As we have said in the past, our rate varies depending on where our earnings are generated and the relative mix of operations in the mainland U.S. There will be more information about the tax change in a new footnote in our 10-Q filing. As a result of these factors, we reported a net loss of $75 million in the quarter. From an earnings per share standpoint, our reported diluted net loss per share was negative $0.58. Cash from operating activities was $349 million.

Additionally, adjusted cash from operating activities, a non-GAAP measure we typically provide, was $280 million in the quarter. If we were to normalize this non-GAAP measure for the change in loans held for sale, which is largely just a timing factor, our normalized adjusted cash flow from operations for the third quarter was $195 million, $65 million more than the second quarter. Touching on a few of the key results of the third quarter, our servicing business pre-tax income was down 51% while lending was essentially flat compared to the prior quarter. We made progress working through our uncollectible advances. You will see the impact in our filings later where we recorded an increase in servicing expenses as we charged off certain items, partially offset by a decrease in bad debt expense. Together, these costs were $15 million in the quarter.

For an apples-to-apples comparison, these amounts were $30 million in the first quarter and $22 million in the second quarter, so you can see we are making progress. Ultimately with continued process and operational improvements, we believe we can reduce these costs further. However, these favorable items were offset by the large legal accruals and the increase in legal and compliance costs. I will talk more about the normalized level of expenses in a few slides. Ocwen recorded a $72 million pre-tax loss and $65 million in normalized pre-tax earnings. Normalized pre-tax earnings were down 41% versus the second quarter of 2014, primarily driven by the servicing revenue decline. $137.1 million of normalized items were led by $120 million of legal accruals, $9 million of MSR fair value related changes, and $8.1 million of integration, technology and other costs. I will address our normalized performance in more detail later in the presentation. Finally, we returned cash to shareholders.

In the third quarter and through October thus far, Ocwen repurchased shares worth $206 million. This is in addition to the $72 million of common shares issued upon conversion of our remaining preferred stock that we repurchased in July. Overall, Ocwen has repurchased $373 million of shares so far this year, reducing the diluted common share count about it 11.9 million shares, or roughly 8.5% since the start of the year. I will now discuss our servicing segment results for the quarter. In the third quarter, total revenue of $485 million was down 7% from $520 million in the second quarter of 2014, and down 2% from $496 million in the third quarter last year. This included $334 million of servicing revenue and $31 million of sub servicing revenue. Servicing revenue was down 6% versus the second quarter of 2014.

The drop in revenue was primarily driven by lower modifications and REO sales, leading to lower recognition of deferred servicing fees and other incentive revenues as well as the impact of a 5% smaller servicing UPB or unpaid principal balance. We collected $101 million of HAMP fees, late fees and other servicing incentive fees, which was 2% lower compared to the second quarter of 2014. We also collected around $20 million of revenue, primarily related to Ginnie Mae redelivery activity and REO commission income. This was down 32% from the second quarter of 2014. From the standpoint of servicing operating expense we saw costs increase by 5% from the second quarter of 2014, primarily from legal items.

Other expenses declined by 3% in the second quarter of 2014, primarily driven by lower HLSS related interest expense. Turning to our portfolio, Ocwen provided servicing and or sub servicing for a total of approximately 2.56 million loans, with a total UPB of $411 billion. Total UPB is down 5% from June 30th, 2014 due to loan amortization and $12 billion of servicing release. The majority of which, roughly $7 billion, was related to a transfer of Allied Bank related sub servicing, with respect to servicing owned by another non-bank servicer and was previously disclosed in our second quarter form 10-Q. As of September 30th, 2014, approximately 87% of our loans were performing, and the remaining 13% were non-performing. Compared with the second quarter of 2014, the non-performing percent of the population is flat, largely consistent with last quarter, approximately 48% of the loans are conventional loans, 42% are non-agency and 10% is government insured.

The total pre-payment rate or CPR was approximately 12.8%, which was down 9 basis points from the second quarter. The CPR related to prime loans was 15% compared to 14.4% in the second quarter, and the CPR related non-prime loans was 9.7% compared to 11.3% in the second quarter. We completed around 21,500 modifications in the quarter, which was down 22% versus the prior quarter. As noted earlier, we believe this trend is reversing as we have seen strong improvements in completed modification volumes so far in October. We are proud of our ability to resolve loans without foreclosure as it is the best for struggling families, for blighted communities, and for mortgage loan investors. For the third quarter of 2014, 81% of customers resolved their delinquency without entering foreclosure.

Examples of pre-foreclosure resolutions include modifications, forbearance, reinstatement, short sales, deed in lieu, and total debt payoffs. Apart from the modifications, Ocwen had 25,706 other pre-foreclosure resolutions of delinquent loans in the third quarter. We're also pleased to announce that we completed the transfer of all active loans off the legacy ResCap system. As we have mentioned in the past this was a crucial milestone for us to complete our integration and begin further restructuring efforts. Turning to our lending results, in the third quarter, total lending revenue of $27 million was down 14% from the second quarter 2014, and down 20% from the third quarter last year. The third quarter revenue included $17 million from gains on loans and $10 million of other revenues. 14% lending revenue decline versus the second quarter was driven by lower volumes in our forward lending business, partially offset by growth in our reverse lending segment.

Forward business originated $1.1 billion of loans, and 5,505 units during the third quarter. UPB volumes in our direct channel increased by 172% year-over-year but were lower by 11% versus the prior quarter. The portion of our volume related to the HARP program was 34%, a decline of five points versus the second quarter of 2014, but significantly above where we were in 2013. Lending operating expenses declined by 17% compared to the prior quarter and by 23% versus the third quarter of last year. This was driven by continued headcount and cost efficiencies in both our forward and reverse platforms. The lending segment pre-tax income was essentially flat at $7 million in the third quarter compared to the prior quarter, with lower revenues offset by lower costs.

At the end of the third quarter we estimated that our reverse business had $41 million of pre-tax, unrecognized future embedded value in its Ginnie Mae servicing portfolio discounted at 12%, primarily comprised of the value of anticipated future borrower draws. In the third quarter this future value increased by $4.5 million. From a strategic perspective, we are focusing our forward origination segment on improving service, speed, and accuracy in all its channels. The business is building a robust new product pipeline and is currently in the market, testing a new jumbo mortgage product. Moving on to the normalization, as in the past, we provide a normalized pre-tax income which adjusts for the impact of certain items in the quarter.

The normalization is designed to give us a clearer view of the ongoing operating performance of the business. During the third quarter of 2014 we incurred $137.1 million in normalization expenses and delivered $65 million of pre-tax normalized income. I have largely covered the three main drivers here and we'll move on to explain our normalized operating results. About 80% of the decline or $35 million is explained by the decrease in our servicing revenue. As discussed previously, the largest driver of this is related to fewer modifications and other resolutions. Additionally, lending revenue was down, as were Ginnie Mae redelivery volumes.

While we saw encouraging improvements in some operating expense areas in the quarter, namely uncollectible advances and compensation of benefits, those were offset by significant increases in our legal expenses and our continued investments in the risk and compliance areas. Our interest expense increased as a result of having a full quarter of interest expense on our high yield bonds. Thank you for joining us today. We would now be happy to take your questions. Operator?

Thank you. (Operator Instructions) Our first question comes from the line of Bose George from KBW. Your line is open. Please go ahead.

Good morning. Actually, in terms of the slowdown in modification activity you noted in the third quarter, are broader industry trends driving a lot of that? Is there some company specific stuff? Just a little more color would be great.

Bose, I think, probably the largest driver is, there was a change in some of the mix of programs that were being utilized due to some government changes which extended the trial plan period beyond what some of our other programs were, so it pushed some of the activity from one-quarter to the next quarter. It probably is consistent with what other servicers are experiencing but I don't know that. I don't know that for sure. But that's why we think it's more of a timing thing than, you know, an actual loss of the opportunity.

Okay. Great. And then just a question on the reserve that you guys have taken this quarter for the potential settlement. Just in terms of the accounting for doing that, do you -- do you have to have sort of a reasonable basis that the settlement is going to be somewhere near that number? I'm just curious how the $100 million, what relation that could have with any ultimate settlement.

So the way I would address it is, we reached a point where we were far enough along in discussions, you know, with the regulator and felt like we were sufficiently engaged in those discussions where it was likely we were going to end up incurring a charge as a result of the discussions, and our best estimate, you know, of that exposure was $100 million as of the end of the quarter. And, you know, given that we believed it was -- it was probable and estimable, we recorded the charge.

But as Bill said, that doesn't mean that that's where we'll settle. It could be materially different from that. But as Michael said, you know, in accordance with GAAP, the point we were at in the discussions, we thought it was appropriate to record that level of reserve.

Okay great. And then just one last one. Have you guys made a decision yet on whether to mark-to-market your MSR?

We have not. That's something we have to elect, come 1-1 and as we progress through that process, we'll update you.

Okay. Great. Thanks.

Thank you. And our next question comes from the line of Kevin Parker with Compass Point. Your line is open. Please go ahead.

Good morning. The mistakes that were identified by the monitor in June 2012 would imply that they need to be cured by your end before you would receive a penalty regarding the national mortgage settlement. Now, some of those issues were identified in November 2013, which would imply that they would need to be cured by middle 2014. Now, I understand the national mortgage settlement has differing levels of penalties and thresholds associated with servicing mistakes, and it seems like the issues that are laid out here do not cross those thresholds. Could you just give us a little bit better understanding where you stand in regards to the national mortgage settlement thresholds and if you're within those cure periods that are laid out?

So, I think at this point it would be difficult to comment on where we are with the national mortgage settlement in that, you know, we really -- you know, at this point don't have any information, you know, to -- about how the issues that were identified by New York may or may not even impact those standards. 2012 would have been before we were a party to any national mortgage standards, and, you know, our full -- the testing for our settlement that we announced last December starts in the third quarter of this year. We were subject, you know, to the ResCap national mortgage settlement beginning, you know, last year after the acquisition, and so that portion, you know, to the extent that the loans were moved on to the new system, would be, you know, something that would need to be looked at. But at this point we don't have any information that would, you know, lead us to believe that there's an issue there. But that'll be part of what we'll be going through.

Okay. And then in regards to New York, could you help us understand some other items that you may be looking at outside of a monetary settlement that you identified in the presentation and took the $100 million reserve? Could you help us understand some of the non monetary penalties?

Yes, I think at this point it does any good to speculate on what -- what may or might not be in the terms of the settlement, that is still in discussion phases, so we took he tell reserve we announced today because we felt, under GAAP, that was appropriate and required, but we're not going to discuss any of the other items at this point simply because it would be speculation.

And then, Michael, you mentioned transfer and Allied Bank servicing portfolio earlier and that caused the CPR to go higher. Could you help us understand the puts and takes between, you know, the implied CPR of roughly 21%, 22% and the amount that was transferred this quarter, that left the portfolio, outside of the 12.8% CPR that you actually stated?

Yes, I mean, the 12.8% CPR is kind of excluding the impact of the servicing transfer or servicing release, so I was trying to provide more of a basis for the walk between $435 billion of UPB at the end of last quarter and the $411 billion where we ended up now. So I think if you adjust kind of the -- where we ended up to $411 for the servicing transfer, you'd be more in line with the -- the payment rate that we disclosed.

So how much was that transfer?

Roughly $12 billion.

Thank you. And then one last question. Given the buybacks in the charges this quarter, I estimate a tangible common equity ratio close to 15%. Could you discuss where you think your target tangible common equity ratio or other capital ratios that you would look at given that, you know, we're looking at new capital standards coming out from regulators, you know, maybe by the end of this year or even into next year?

Bill, do you want to take that or --

Sure. I mean, we still have -- we still have our same policy in place that we have iterated through the various calls with regard to this. We believe we are -- we believe we're substantially -- our capital strength is substantially in excess of other participants within the space. And certainly the initial indication from Ginnie Mae on capital standards, we would significantly exceed the amount of capital that Ginnie Mae would require. So I think we're in a good position with respect to capital standards, and as a result -- and with respect to our capital allocation, we're going to stand on the statements we've made in at least the prior two or three quarters.

Would you keep an additional buffer given some of the regulatory and litigation issues that are occurring right now?

We object we obviously look at all the cash flow requirements that we have in the business, and take that into account before we do any capital allocation, so the answer is yes.

Thank you for taking my questions.

Thank you.

Thank you. And our next question comes from the line of Ken Bruce with Bank of America. Your line is open. Please go ahead.

Great. Thank you. Good morning, gentlemen. A few things I'd like to cover. First, it was good to see that the systems integration has taken place a little in advance of, I guess, your last comment on the subject. Could you give us some sense as to how you believe the cost associated with that integration will progress, you know, going forward? I think you've been on record as saying that there's a significant amount of head count attached to the U.S. based operations in particular, and how that's going to change going forward, please?

I think I would -- I mean, I would address it a couple ways. I think you have the first immediate impact, which would be the cost that we have tended to normalize around the kind of ResCap platform. Now that we've completed the transfer, you'll start to see those costs run down. The other significant cost element is, as we officially pull the plug on the system at some point next year, we will incur the significant termination charge that we've alluded to in quarters past. We're not using the system today but we still have it available for information requests and other types of things, and so when we finally terminate that, we'll take that charge next year.

You know, and then from there, you know, we -- you know, we've -- we continue to look at our different kind of opportunities to enhance our operations now that we've got the portfolio back on one platform, that includes things like different productivity programs, it also includes looking at our onshore-offshore mix. We have made kind of concessions and other changes in the recent past around performing certain operations associated with the GSC portfolios in the U.S. but I think we do believe here over time into next year we can begin to shift the onshore-offshore mix back more closer to what you've seen in past periods before the state of acquisitions took place.

Let's drill down a little bit on that. So I think in the quarter you've got $8 million of normalized expenses that you're essentially reversing which relates to integration and technology. Are those the costs that you think will go away ultimately?

Those are direct costs we can point to today that we have as a result of the duplicate systems, duplicate processes, et cetera. The additional enhancements to our cost structure we would make in 2015 would be above and beyond that.

Okay. I guess the way that I had been looking at this before, you've got, as of Q2, 90, 100 employees (sic), 2500 of those in the U.S., I think many of those were associated with the ResCap platform. Could you give us a sense as to what you believe that head count will go to now that you've got that integration completed?

Yes, I don't think we're going to speculate or forecast on where our headcount will go. It -- it's going to probably have less to do with the number of people, although there could be some adjustments there, but more about the mix that Michael just referenced.

Okay. I presume that if you -- you're talking about moving more offshore, at least a mix of more offshore versus onshore that would be a positive from a cost perspective, just given the differences in compensation. Is that an appropriate assumption?

Yes.

Okay. Moving on, I guess, you know, the discussion around the deferred servicing, I think, is obviously, you know, something that we've known about for some time, but just looking at the quarter-over-quarter progression and given the backup in loan resolutions, I would have expected the deferred servicing amount to have gone up. Is there something there that we should be aware of just in terms of what is being recognized that would keep that, you know, basically similar quarter-over-quarter?

I mean, I -- I mean, the -- you have the portfolio running down and yet -- so in some sense you know if it's remaining about flat, it's on a relative basis going up. Keep in mind, too, that the GSE portfolio does not really include deferred servicing fees, so, you know, and we have, you know, the mix of GSE compared to where we were a couple of years ago, is much different. So may be skewing kind of how you're looking at it. But there's nothing, you know, new or different or changing that's going on that would be affecting that number one direction or another beyond the fact that if we're, you know -- if on the private label portion of the portfolio to the extent that modifications are coming in a little bit slower, the number would not be coming down as quickly as we would have anticipated.

I think there's some foreign runs that -- you would have expected this number to come down as the portfolio gets -- as the portfolio -- historically it's come down, putting aside acquisitions, so it's probably difficult, quarter over quarter, for you to see the effect. But as these portfolios have become more current, you actually anticipate that you will collect those deferred servicing fees. The fact that it stays level is a negative.

Understood. Just for being precise, you had a $580 million Q1 deferred servicing amount. It went to $560, so I think $70-odd million was recognized in the quarter, Q2 and now it's at roughly $560. Can you disclose how much was in fact recognized?

No, we don't -- I mean, we'll have more information in our Q, Ken, and I'd refer you there, but we generally don't provide kind of a -- you know, a detailed walk here on the call.

Okay. That's fine. And then maybe just lastly, the MSR fair value is remarkably stable quarter over quarter and I'm wondering, you know, just in terms of the moving pieces there, I would guess with the rates having done what they did, I would have expected a little bit of a negative mark there. Is there something in particular that's -- that we should be, I guess, aware of that's holding that up and any color around that would be helpful as well.

I think part of what we had done as we rolled through the -- you know, the -- first the fair value and then some of the adjustment changes and modifications that we make to the value, are kind of to better reflect what we believe to be actual performance and expected performance, and I think you'll note the value did come down a bit, you know, roughly in line with amortization overall, and, you know, they're, you know, a specific point in time type assumptions do take a bit to roll through fair value models from third-party brokers and other things, so there can be a bit of a lag there. But, you know, it really didn't change much in the quarter.

I guess that's a positive. It's remarkably stable. I think that -- that'll do it. Thank you for your time this morning. It was good to see that that integration did take place and now we're looking forward to getting this other thing behind us, which would also be, you know, good to see. Thank you.

Thank you.

Thank you. And our next question comes from the line of Henry Coffey with Sterne Agee. Your line is open. Please go ahead.

Yes. Good morning. And thank you all for the time you keep putting into this. The first question -- my two questions are sort of related, but obviously, number 1, what sort of resources are -- what sort of acquisition, what sort of move forward is going to be required to develop a more robust mortgage business?

You mean on the origination side?

Yes.

Okay. Go ahead, Bill.

Okay. I think the most important thing is for the first time we have a leader of that business that we have confidence in. He is a very process driven individual. He came to us through the reverse mortgage acquisition of Liberty. He's spent most of his career at General Electric, [Genworth] Capital, so he has a mindset and a mentality about process technology that's very much in line with our corporate culture. That -- building that base, if you will, of infrastructure to develop that business before you actually increase the volume is very important. You're probably not going to see massive increases in volume sometime in at least the middle of 2015 with regard to it. So that's really what's required. He's putting in place what we think the infrastructure required to be able to safely grow originations.

And is the thought process, Bill, that you're not going to move forward with an acquisition or -- you know, we all have a list of companies we'd like you to buy, but that you're not going to move forward on that front until you feel that you have the [adequate] infrastructure in place or is there an opportunity to buy something that might help you accomplish that?

Well, we've assiduously avoided acquisitions. The issue when you get an acquisition is, is it a company that culturally fits in with you? What do you get in origination business? And, you know, if they have great technology in a particular area, whether that be origination systems, whether it be the ability to, you know, run a call center more effectively than we can in that area. If we get actual really solid value that's sustainable, that doesn't go down in the elevator every night, then we will look at an acquisition. I mean, it's -- clearly, if it would accelerate our ability to put our infrastructure in place, that would be a positive. But just to go out and buy a company that originates a lot of loans, today, this doesn't make a whole lot of sense to us because it's a very temporal solution to what we hope is a long-term business for us.

I mean, our objective is to develop a business that generates not only agency product but QM-exempt product that will in the long-term replenish the non-prime element of our servicing portfolio, which is where we generate a great deal of our profit. So we have to generate a business that's sustainable, that can generate -- the break-even point is about, you know, not quite $2 billion a month in terms of being able to do that. And that's what -- that's what Otto is tasked with, that or more over some time, but it's going to take time to get there because you have to build the infrastructure first.

And I imagine at this point if you had a white board somewhere that says, "In a perfect world, this is how our servicing business has to work." you know, given the new world order, and it's probably a pretty complicated white board, but what's required to get there? Is it software, is it systems, or is it simply absorbing more staff and probably more, you know, quote middle or middle management level types and a cultural exercise, and regardless of what it takes to get to that point, is it reasonable to think that some time -- let's use the middle of next year, that we'll be there? Or is there going to be some serious reinvention required?

You'll never quote, get there. Every business you're in, you're constantly trying to figure out how to improve the business. Clearly I think the best model in the space today is Quicken. They're very technology and process driven. And in many of the pieces that we have in servicing, such as the ability to manage dialogues, dialogue engines, the ability to do underwriting in a seamless way because the modification is really just an underwriting. So we have a lot of the pieces but we have to basically get an unified platform that is going to enable us to, in a very controlled manner, be able to access the market. And that is -- we're going to do that to the extent we -- of the retail channels. We're going to do that basically through a centralized call center as opposed to having a distributed network of branches, which we think is much, much more difficult to control.

The other element which we got with the Liberty one, is Liberty is very effective at doing all the analytics and diagnostics, knowing who to call, and basically managing your investment, if you will, in advertising and in calling efforts and mailing to optimize your performance. So we think that we have those analytics in place, what we really need to do is look at our operating platform, because there's huge opportunities just to be able to do the work more efficiently, effectively and higher quality through automating out manual processes that create errors.

Thank you.

Thank you. And our next question comes from the line of Mike Grondahl with Piper Jaffray. Your line is open. Please go ahead.

Yes. Thank you. Guys, could you talk a little bit about it about, in 2Q, total operating expenses were like $345 million, and if we back out the $120 million charge, they were $335 million or down $10 million in 3Q. Can you talk a little bit about directionally where that's headed? And maybe the interplay between your rising legal and compliance costs and some of the progress you're making on reducing other operating expenses?

Yes, Mike, I'm not sure we're going to be too specific on forecasting out for folks, you know, the different drivers. I would look at kind of the normalization recon --you know, kind of slide we had that does show, you know, a 5% reduction in kind of quarter to quarter operating costs, a $7 million reduction in some of the advances -- uncollectible -- advances in bad debt items that we've been working through, as progress. You know, as we work through the different legal matters, and I guess our sense is, as we continue to work on integration, as we continue to work on process optimization, we should continue to make progress there.

The -- you know, on the flip side, though, from a legal and a regulatory standpoint, some of this is uncertain. So as we continue to work through, you know, the things we're working through and, you know, it -- we will spend what we need to defend the Company so it's hard for us to forecast exactly how that plays out in future. Ron, I don't know if you have any other thoughts, but our sense is we're going to do what we think we need to do operationally to drive the business, and we'll manage through the legal and regulatory challenges as best we can.

Yes. So as we make -- we think we're already making progress. You saw some of that in the quarter, you know, in our -- in the core operating costs, whether it's, you know, compensation and ultimately with, you know, getting down to one system, we'll start to see some benefits on the technology side. You know, there's various places Where we're going to see improvement. The big question mark is, at least in the short-term do we eat up some of those improvements with some of these, you know, other matters that Michael just referenced. But we are making progress and we think well continue to make progress on that front.

Okay. And then in some of your discussions with the DFS, are there any other issues out there that you're aware of that they want fixed or do you think those issues have been communicated to you?

Well, we're not -- I think, as I said before yours, wear not going to discuss, you know, our ongoing discussions with them. You're aware that they have a monitor in place, so, you know, the monitor is looking at things, you know, literally on a daily basis. You know, as -- as they ask questions, we -- you know, we work with them and respond to them. And if there's areas for improvement, we focus on those. But we're not going to get into any more detail than that.

Okay. And then can you guys comment what's left on the stock buyback and kind of what your appetite is here for the fourth quarter?

Yes, against the $500 million authorization from the Board, we have just under $140 million left. In the third quarter and through October so far, we repurchased 206 million under the program, and I guess the guidance we give you is, we'll continue to make repurchases in line with our capital allocation priorities for excess cash, you know, as we talked about in prior quarters, those priorities are around, supporting the growth of our core servicing and lending business. Number two, expanding into similar or complementary businesses that would meet our return on capital requirements, you know, and then ultimately after that repurchasing common stock. And so we always look at it and it's something that we continue to evaluate, and, you know, we -- I guess that's where I would leave it.

Okay. And then just lastly, can you guys kind of give an update or the progress you've made on that cleanup call opportunity you've referenced on prior quarters?

We've issued our first call, and we will look -- in effect goes well we'll look to issue more calls here in the fourth quarter, and, you know, as we begin to make sure that we understand each of the steps and any of the issues that may arise as a result of that, we'll continue to ramp that up over subsequent quarters, but we started off with one, we think we know what we're doing, but we started off with one call just to make certain that, you know, we had the experience of it before we -- before we make that initiative larger.

Okay. Thank you.

Thank you. And our next question comes from the line of Michael Kaye with Citigroup. Your line is open. Please go ahead.

I just wanted to talk a little bit more about the lending business, specifically the Lenders One partnership. Is that a relationship you still plan on growing? Secondarily, can you just comment on the recapture rate you're seeing on refinancings?

Michael, do you want to do the recapture rate?

Sure. Generally, Mike, we're seeing recapture rates between 22% and 32%, you know, I believe in the quarter the way we evaluate it is, you know, for folks who have an economic incentive to do so, you know, we see a higher recapture rate, and then for kind of against total kind of payoffs or, you know, total opportunities, it's that lower number.

Okay. In terms of, you know, Lenders One, Lenders One is a -- obviously a large cooperative with respect to its origination capability. It's a wholesale channel, and if we were simply to do agency originations going forward, in some cases I'd look at the wholesale business as picking up nickels in front of a steamroller. It's risk/reward is not really that favorable, in my view. To the extent, though, we can develop QM-exempt products that meet a very large unmet demand, you know, and our estimates are that 30% of the U.S. population families today could qualify for a new mortgage, that's down from 60% to 70% pre crisis.

So there's a large opportunity there, and to the extent that we can actually create which would be a non-agency product and it would be non -- it would be QM-exempt, we would try to utilize Lenders One as one element of our entire wholesale strategy. So we have other wholesale opportunities besides Lenders One and certainly we are not exclusive with Lenders One by any stretch. They have a number of -- a number of preferred lenders in their network.

Thanks. Just one last question. On that independent firm you hired to help with the back dating issue, did you comment -- sorry if I missed this. I'm not sure if you commented on how much is this going to cost and if that's included in that $13 million number that I believe Mike said earlier?

So, you know, we did not comment -- we did not comment on the cost, and, you know, I think at this point it would -- you know, there -- there probably will be a couple of firms doing different things. One of firms that's been involved already, you know, some of the costs would be included in there already, but mostly it would be, you know, additional costs on a go forward basis.

We haven't even -- unlike our normal pattern, we haven't even asked what the cost is. We need to deal with this. We need to do it effectively. We need to do it quickly. It's important for the organization to treat it as such. So, you know, if it costs a couple million dollars or more, in the short-term, it may not look good, but I think it's a long-term investment in the business.

Okay. Thank you.

Mike, one clarification on the statistics I gave you on the recapture rate. That was on a year-to-date basis.

Okay. Great.

Okay.

Thank you.

Thank you. And our next question comes from the line of Doug Kass with Seabreeze. Your line is open. Please go ahead.

Good morning, gentlemen. I was going to ask you to explain the process by which you derive the calculation of the $100 million accrual charge. First questioner asked something similar, but I just want to go an bit beyond. Number one, was $100 million calculated before the alleged misdating bill? And secondly does $100 million represent your bid, does it represent -- does it represent your bid plus ten percentage of the difference between the bid and the offering by the DFS?

So we're -- again, wear not going to really comment about the specifics of the -- you know, of our settlement discussions. The $100 million you know ,again represents, you know, under GAAP where we think we needed to accrue based on our discussions, you know, in the -- in the quarter. So we're not going to get into any more details, you know, than that.

Thank you.

Thank you. And our next question comes from the line of Jeremy Campbell with Barclays. Your line is open. Please go ahead.

Good morning, guys.

Good morning.

Just a couple points of clarification here. Most of my questions have kind of been asked and answered. Just wanted to double check. That shutdown cost relate to ResCap was not in these numbers, right?

That is correct. As Michael pointed out, because even though we've moved the loans off of the system, because the system is still available to us for use, you know, there's going to be some year-end reporting requirements and some things that need to take place off of that system, under the accounting rule of even though you're really done with substantially using the system, you really can't sort of accrue kind of the future costs that you think you'll incur, you sort of until you've actually stopped using it all together. So as Michael said, we think that occurs sometime early, you know, next year, you know, first quarter-ish or something, or around that timeframe, and so there might be, you know, a -- a one-time cost out in the future, and then that will reflect a reduction in cost going forward from that point forward.

Got it. And then, you know, even after adjusting for the normalized items, it looks like servicing and origination expenses and technology both took a step up pretty big on a quarter over quarter basis, but other operating expenses took a step down. Was that shifting one to the other or something else going on with those numbers?

No. You've basically hit it -- you've hit it exactly as -- you know, as you should think about it. So as we work through reducing the uncollectible advances we have identified items in that population which will be expensed as incurred as opposed to booking a receivable. So in the quarter you noted the servicing expense increased, we also had a reduction, you know, in the kind of bad debt reserves that goes against a portion of that. So collectively the impact is a net $15 million that I mentioned as we talked through it. But going forward, you'd expect to see more normal behavior out of those lines.

Got it. And then on the legal side of everything here, are you guys able to buy back stock during discussions for a major settlement or does that kind of restrict you guys from doing that?

Yes I mean, we're -- you know, the business traditionally has operated under 10B5 plans which we would enter after we released all our material non-public information through our SEC filings, typically after the end of the quarter. and so as we work through kind of the time line here, we'd make that evaluation. And that program is one way that you can be out there in the market, you know, on an ongoing basis, should you possess material information, you're not restricted. It's basically you set it up and it operates without the Company's influence. So that would be a way, you know, a company could do it. We're not stating that we will. But that's typically how we've operated over the last few quarters, and it would be a mechanism available to us, you know, presuming that we didn't have any material and non-public information that hadn't been released when our window would open, you know, after we file our -- our Q.

Got it. All right. Thanks a lot, guys.

Thank you.

Thank you. And our next question comes from the line of Henry Coffey with Sterne Agee. Your line is open. Please go ahead.

Thank you for allowing a follow-up. When we look at your relationship with HLSS, an important part of that is your own servicer rating. There was some sort of a quick reaction to some of the news that came out. What sort of dialogue are you having with the rating agencies about the changes you're making and, you know, is there a sort of a review point where you can sit down and have a longer, more substantial conversation with them? What are the triggers in terms of whether you get an upgrade or a downgrade in that servicer rating?

So Henry, we're in -- you know, we're in pretty constant contact with the rating agencies. But I think you hit upon a good point. They generally only once a year come in and do sort of a more detailed, you know, review. And depending on the agencies, those kind of -- they're not all at the same point in time throughout the year so you can kind of go back and see when each of them have issued a report and get a sense as to when the next once might be coming up.

That doesn't mean that we can't provide them information in the interim, and we do, but they're more detailed review would be, you know, once a year. I think just practically speaking, you know, it's probably at that detailed review where you'd have more opportunity for an upgrade, you know, in the interim time frame, that's probably more difficult. But, you know, again, we'll provide them am the information they request and any information we think is relevant, you know, to our performance, to our capital, whatever it might be, and they use that to, you know, in their evaluation process.

I know the HLSS that --

Sorry, one other point, just to -- out of respect for the agencies, I think in each of their communications they've indicated that, you know, their actions, and that we are you know still in kind of a negative watch for other potential reviews, so I don't want the comments here -- we answered your question but I don't want it to sound like we're anticipating upgrades or things like that. They've said what they've said publicly, and we continue to work through them, okay?

One of the tie inside with HLSS is if your service or rating would go down, I think it's two notches to below average in the S&P system and something equivalent in Moody's, how does that work between you and HLSS? How -- I haven't had a lot of experience with this over the years. I mean, I've watched rating systems over the years, but, you know, how significant a change would that be from your current rating? What's the dynamic with HLSS if something like that occurs? Can you just give us some insight into that -- that seems to be the cross point for the two of you.

Henry, if we could -- that's more of an HLSS question -- if we could defer that on this call, that would be helpful, and we can --

That's fine. They have discussed a lot of this with me, too, so, thank you, I get it, thank you. It's perfect, I get it. Thank you very much.

Thank you, and our next question comes from the line of Brad Ball with Evercore. Your line is open. Please go ahead.

Thanks. Just for a clarification, you said several times that your $100 million accrual for the settlement -- potential settlement is based on discussions that happened during the third quarter. Does that $100 million, does that envision charges or costs associated with the back dating issue which, you know, really came to light publicly a week and a half ago? I know you were aware of it prior to that, but it seems like that letter which was dated the 21st from the DFS happened after the end of the quarter.

Yes, Brad, we're really not commenting further than to say that the $100 million was our best estimate of our, you know, kind of probable and estimable exposure at the time at the end of the quarter and given all the facts and circumstances that we had available to us at the time, that's what we recorded. You know, you'll just have to kind of infer from that, you know, if you will, what that may mean, but --

Really, there's just no way to speculate -- we're not going to speculate on where things stand or where they might be. So, you know, we're trying to be clear with people that, you know, as it says in the press release, that, you know, they could be materially different but we really don't know.

And then just again to clarify, you have laid out a plan, you have a presentation deck describing how you're addressing the back dating issues, you know, presumably that's going to come with some additional cost. In your slide 14 you talk about $18 million of risk and compliance related costs. Is it appropriate to assume that that's a run rate going forward or is that something that's likely to go up in the quarters ahead?

Well, just to be clear, so that amount is kind of our ongoing kind of core operational risk compliance and audit type cost. It does not reflect legal investigations or the like. That would be something on top of that. And as it relates to kind of our ongoing risk, audit and compliance infrastructure, I think Ron mentioned that we continue to make additions and enhancements where we see fit to build out our capabilities there and ultimately we think these are wise investments that will pay back for the Company in the long run.

You've said in the past that you aspire to return to operating margins of historical levels, the operating margin I think this quarter was around 38%. Is it still a goal and any sense for, you know, when we might get back to, you know, operating margins in the mid 40s?

Yes, well, I think just to be clear, we haven't specifically put out a margin improvement target. We've said we -- you know, we aspire to get back to kind of a mix-adjusted, more close to a mix adjusted margin rate kind of in line with historical levels, or closer to historical levels. And so from there I think part of the improvement is going to be continuing to work through, first, the revenue side, and with it the timelines on resolutions and modifications, the recognition of those deferred servicing fees is probably one of the biggest elements that can help drive our margin improvement opportunities. The follow-on effect of that will be the continued improvements that we can make in our operations, efficiencies, and cost structure.

And then as we do begin to recognize some of the deferred servicing fees, then that will help other things, like interest expense and other costs that will accumulate. So I think over time we'll try to make more clear for folks kind of how we see this evolving, but as of now, I think those are the big drivers, and, you know, that's ultimately what we're going to work towards.

Okay. And then last one, I think following up on Henry's line of question, regarding the rating agencies, so you are on review for downgrade or negative watch. Can you give us a sense as to what would trigger a servicing transfer under rating agency changes? You know, do you need a two notch downgrade to trigger a transfer or are you at risk of transfer, you know, with these negative watches that are in place? How does that work?

So, rating -- changes in ratings don't necessarily trigger any -- you know, a transfer in and of itself. And, you know, many of the deals that we service, if not most, have already reached, you know, delinquency and default triggers just because of the -- you know, the subprime nature of them. So you usually -- you know, usually if a downgrade went to a point where it, you know, it effectively allowed the bondholders under sort of a majority vote to take action, that could occur. Historically it's been very rare to see anything like that occur, whether it be for delinquency triggers, default triggers, rating agency changes, or any other factor that might occur. So I wouldn't, you know -- not that rating agency levels aren't important, but they're not the sole factor and they in and of themselves don't trigger anything.

It looks like there was about $5 billion of transfers in the quarter other than the Allied related book, is that right? And what would that encompass?

So that was a -- yeah, that was a sub servicing relationship that we had that, you know, I think, you know, a number of months ago the client was looking to consolidate some of their sub servicing activity, and, you know, we were a relatively small player for them so they consolidated it, you know, with one of their larger subservicers.

Got it. Great. Thank you very much.

You're welcome.

Thank you and our next question comes from the line of Kevin Parker with Compass Point. Your line is open. Please go ahead.

Thank you. The $100 million reserve that was put up, does that -- is that solely for New York or does that include a potential for other states?

That's related to New York Department of Financial Services.

Okay. And then given some of the rating agency downgrades, does it still make sense to utilize, you know, HLSS for external financing, if you were to complete the Wells Fargo deal, or would you look for other sources of financing?

We're going to look for whatever is best for Ocwen, so, you know, they would definitely be something that we would consider, assuming they were interested. But we're going to look at whatever is the best at the particular time for the Company.

Okay. Thank you for taking my follow-up.

You're welcome.

Thank you. That's all the questions we have time for this afternoon, and if there is no closing remarks from management?

No, we just want to thank everybody tore taking the time today and everybody have a great afternoon. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.