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Edited Transcript of OCN earnings conference call or presentation 8-May-20 12:30pm GMT

Q1 2020 Ocwen Financial Corp Earnings Call

WEST PALM BEACH May 23, 2020 (Thomson StreetEvents) -- Edited Transcript of Ocwen Financial Corp earnings conference call or presentation Friday, May 8, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Dico Akseraylian

PHH Corporation - SVP of Communications

* Glen A. Messina

Ocwen Financial Corporation - CEO, President & Director

* June C. Campbell

Ocwen Financial Corporation - Executive VP & CFO

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Conference Call Participants

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* Leon G. Cooperman

Omega Advisors, Inc. - President, CEO & Chairman

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Presentation

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Operator [1]

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Greetings. Welcome to the Ocwen Financial's First Quarter 2020 Earnings Call. (Operator Instructions) Please note that this conference is being recorded. At this time, I'll turn the conference over to Dico Akseraylian, Senior Vice President, Corporate Communications. You may now begin.

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Dico Akseraylian, PHH Corporation - SVP of Communications [2]

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Good morning, and thank you for joining us for Ocwen's First Quarter 2020 Earnings Call. Please note that our first quarter 2020 earnings release and slide presentation have been provided and are available on our website. Speaking on the call will be Ocwen's Chief Executive Officer, Glen Messina; and Chief Financial Officer, June Campbell.

As a reminder, the presentation and our comments today 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. Our business has been undergoing substantial change. And as a result of the COVID-19 pandemic, we are in the midst of a period of significant capital markets volatility and rapidly evolving mortgage lending and servicing environment, which has magnified such uncertainties. You should bear these factors in mind when considering such statements and should not place undue reliance on such statements.

Forward-looking statements involve several assumptions, risks and uncertainties that could cause actual results to differ materially, including those risks and uncertainties described in our reports and filings with the SEC, including our annual report on Form 10-K for the year ended December 31, 2019, and our current and quarterly reports since such date.

In the past, actual results have differed from those suggested by forward-looking statements, and this may happen again. Our forward-looking statements speak only as of the date they are made, and we disclaim any obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

In addition, the presentation and our comments contain references to non-GAAP financial measures such as expenses, excluding MSR valuation adjustments; net and expense notables and pretax loss, excluding income statement notables; amortization of NRZ lump sum cash payments and adjusted annualized run rate cost savings, among others. 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.

A reconciliation of the non-GAAP measures used in this presentation to their most directly comparable GAAP measures may be found in the appendix to our first quarter investor presentation available on our website. For an elaboration of the factors I just discussed, please refer to our presentation in today's earnings release as well as the company's filings with the Securities and Exchange Commission.

Now I will turn the call over to Glen Messina.

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Glen A. Messina, Ocwen Financial Corporation - CEO, President & Director [3]

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Thanks, Dico. Good morning, everyone, and thanks for joining us.

The environment we're facing today is nothing like we expected at the start of the first quarter. Little, if anything, we're doing today is business as usual. We had strong momentum going into the first quarter, and that momentum continued in January and February, then COVID-19 happened.

I'm extremely proud of how our team has reacted while maintaining our high standards for operational excellence and compliance. I want to thank our team for their efforts to move to remote operations as swiftly and seamlessly as possible and especially thank our employees that continue to report to our facilities where it's critical for them to perform their functions. Additionally, we would like to thank the health care professionals and first responders for the sacrifices made throughout the world to battle the COVID-19 pandemic.

Throughout this crisis, our team has maintained business operations to assist our 1.4 million borrowers and has fielded more than 740,000 calls from March 1 through April 30. As of April 30, we've provided approximately 115,000 active forbearance plans for all borrowers in need, even if they were not protected under the CARES Act. Despite the strain the COVID-19 environment will place on our business, we expect to have adequate liquidity to operate our business, and we expect to opportunistically originate approximately $25 billion in new servicing for 2020 with a targeted 50-50 mix of owned servicing and subservicing.

While we are operating in an environment with increased risk, we believe this environment has created increased opportunities to invest in high-quality, newly originated MSRs and delinquent servicing at very attractive returns. Our proven expertise in special servicing and the actions we have taken over the past 18 months to strengthen our company position us as one of the few players in the industry who could take advantage of these opportunities. We've built a great platform and a great team.

Our primary growth limitation will be our available growth capital. In this regard, we're highly focused on exploring all strategic options to leverage our proven operating capability in this environment to fully realize the value of our platform.

We currently serve more than 460,000 consumers of pre-crisis subprime loans. We've completed approximately 1.5 million non-foreclosure outcomes on behalf of struggling families since the financial crisis. We believe that Ocwen has a critical role to play in the current environment to help borrowers and the mortgage industry. We continue to be one of the best servicers for nonperforming loans with decades of experience that will help us assist homeowners in the current situation. We've done it in the past, and we'll do it again.

I'd like to cover some of our business highlights from the first quarter. Please turn to Slide 4. Despite the headwinds we faced from the COVID-19 pandemic, we made solid progress in the quarter. We reported a net loss of $25 million in the first quarter, which includes a $78 million pretax loss due to the impact of changes in interest rates on the MSR portfolio net of hedges and a $62 million income tax benefit primarily from the utilization of NOLs relating to the change in carryback rules under the CARES Act.

Pretax income before notable items of $2 million includes $7 million unfavorable impact of COVID-19 during the quarter and $3 million unfavorable impact due to seasonal changes in employee costs and escrow balances versus the fourth quarter. We ended the quarter with unrestricted cash of $264 million despite $59 million in MSR financing margin calls and $134 million in debt retirement, and book value per share increased 9% from the fourth quarter to $3.32 per share.

First quarter funded volume was approximately $4 billion, and we achieved March annualized funded volume in our flow and retail channels of approximately $11 billion. We realized annualized run rate cost savings of $395 million as compared to the adjusted annualized run rate cost of Ocwen and PHH combined for the second quarter of 2018.

Despite the strength in our liquidity position, the dramatic improvements we've made to our platform and the solid momentum on our key business initiatives, we remain disappointed that our share price trades at an extreme discount to book value. We believe we are taking all the appropriate actions to fully realize the value of our platform.

Lastly, we received a favorable ruling in the legacy Florida matter where the court granted our motion and dismissed with prejudice a deceptive and unfair trade practices at claim. One of our top priorities is to resolve the Florida and CFPB matters prior to trial in a manner that results in an acceptable financial outcome for our stakeholders.

In this regard, we have increased our reserves related to these matters in the first quarter to approximately $18 million. However, we cannot provide any assurances that we'll be able to resolve this matter for the amounts currently reserved or in the time frame we desire.

Now please turn to Slide 5. We believe the swift actions we have taken in response to the challenges created by the COVID-19 pandemic have positioned Ocwen well to navigate through the uncertain future ahead. We took decisive and proactive action to safeguard our employees so that we could continue to serve our borrowers, clients and investors. We are fully functional, with nearly all our global team working from home and approximately 2% of our team who must work on site due to job requirements.

Our team is performing exceptionally well in this environment. I'm proud of our call center team who has fielded hundreds of thousands of calls between March 1 and April 30. Our call center is performing well, and our performance compares favorably to the call center statistics most recently provided by the MBA.

As mentioned earlier, as of April 30, we granted approximately 115,000 active forbearance plans or roughly 8.5% of our total number of loans serviced. We have the sole responsibility to advance in roughly 27% of these plans or approximately 7% of our owned portfolio. On average, we're seeing approximately 26% of borrowers on forbearance plans continue to make their payments. As you can see on the slide, this varies by investor type and is 41% for GSE loans.

Based on the MBA report data as of April 27, the percentage of loans in our portfolio on forbearance for Fannie, Freddie and Ginnie investor types is below other nonbank servicers. For PLS, it's above. We believe this is based on the quality and seasoning of our portfolio.

We have developed our forecast for advances based on our experience in natural disasters. However, in this case, we are using unemployment as one of the drivers to forecast future forbearance plan demand, ultimate reinstatement and default levels. Our current forbearance plan levels are consistent with our forecast, and we are seeing a reduction in the number of borrowers who are requesting forbearance, which is also consistent with our forecast.

Moving on to Slide 6. We expect current cash levels plus operating cash flow and our working capital improvement actions will support our operating needs, origination objectives, debt service requirements and the equity portion of our servicing advance requirements while maintaining our target $200 million in operating cash plus liquidity earmarks. We estimate the total amount of advances will peak around the end of this year for an incremental amount of approximately $150 million above our first quarter 2020 advanced balances.

We have a decade of experience in managing and collecting servicer advances, which peaked at well over $2 billion following the financial crisis. We're confident in our ability to manage the projected increase in advances.

We do not have to advance P&I on 16% of the loans in our own servicing portfolio because contractually, we're only required to remit payments when the borrower makes them. On the remainder of the portfolio where we must advance, for Fannie and Freddie loans, we stopped advancing at 4 months P&I. We recover our P&I advances at resolution of the forbearance plan, loss mitigation workout or liquidation.

For Ginnie loans, we advance P&I while a forbearance plan is active. We will evaluate the borrower for a partial claim prior to the end of the forbearance period and recover the advances if they qualify for the partial claim. If the borrower does not qualify, we would extend their forbearance plan up to 12 months and would eventually be evaluated for a loss mitigation solution or default. We can use excess funds in custodial accounts to limit our P&I advances.

For PLS loans, we would continue to advance P&I through a series of 1-month forbearance plans, which advance the due date upon completion and move the resulting missed payment to or near the loan's maturity as a noninterest-bearing balance. As such, Ocwen does not expect to be out-of-pocket cash for any more than 1 month for each loan. Generally, we may stop advancing for P&I once deemed nonrecoverable from the net proceeds of the property.

We are required to advance T&I on all loans until resolution of the forbearance plan, loss mitigation solution or property disposition. Based on our natural disaster experience, we are assuming varying forbearance duration and repayment terms and that some borrowers will unfortunately ultimately go to default.

Moving on to Slide 7. Industry origination volumes and margins are strong. Frankly, margins are higher than we've seen in a long time. We have built flow and recapture originations capability to capitalize on this. We have good momentum in these channels, and we're continuing to expand our capabilities.

We are acting opportunistically to originate MSRs in our retail and flow channels at deep discount to historical levels before COVID-19, resulting in highly attractive returns. Included in our liquidity estimates is funding $25 billion in originations for 2020 at a target 50-50 mix of owned servicing and subservicing. We believe this ratio is prudent and appropriate to conserve capital and considering potential variability in market conditions.

Our recapture funded volume for the quarter was $196 million and gross lock volume was $870 million. Our March funded volume was adversely impacted by our and the market's transition to a remote environment. Lock volume trends and margins continued to be strong, and loan pipeline cycle times are beginning to normalize. In April, we recorded gross lock volume of more than $500 million, and we continue to expand capacity to maximize recapture volume potential.

In our correspondent forward lending channel, we are currently purchasing volume for more than 68 counterparties and have an additional 182 in the pipeline. First quarter bid volume was $13.4 billion, up 126% from the fourth quarter. We originated over $2 billion of annualized volumes during the quarter.

Overall, our flow channels across agency purchase, co-issue and direct flow MSR arrangements originated over $5 billion of annualized volumes during the quarter. We were also granted approval to participate as a certified buyer as part of the Fannie Mae SMP program.

Our reverse originations business funded $226 million of loans in the quarter, a 60% increase compared to the same quarter last year. We were ranked as the #2 reverse mortgage lender in the quarter based on FHA endorsements. Currently, we have a pipeline of $90 billion in subservicing opportunities. Although the subservicing sales cycle has a long tail, there appears to be a growing interest from prospects in our offering as potential customers look to diversified subservicing providers.

Please turn to Slide 8. We believe this environment will create opportunities to invest in or subservice delinquent servicing at very attractive returns. The pace and magnitude of our growth is largely limited by our available capital. We're evaluating a number of different opportunities to partner with investors to acquire or subservice delinquent servicing or using our planned MSR funding vehicle as one of the mechanisms to advance acquisition of delinquent servicing.

Ocwen continues to be one of the best servicers for nonperforming loans with decades of experience that will help us assist homeowners in the current situation. We have created a flexible, highly automated operating platform that allows us to more easily scale up loss mitigation capability, allowing for operations to maintain quality while undergoing increases in volume and rapid change. Today, we're managing over $3 billion in advances, and our proven capabilities allows us to aggressively market our subservicing for servicers that do not have the experience or capacity in handling delinquent loans.

We have been the leader in previous government homeowner assistance programs and completed over 350,000 modifications under the prior HAMP program, which was 60% higher than the next highest servicer. We have completed more than 1.5 million non-foreclosure outcomes on behalf of struggling families since the financial crisis. Under the Treasury MHA program following the prior recession, Ocwen completed almost 120,000 principal reduction modifications to non-GSE borrowers, which was almost 50% of all such modifications offered by the entire industry under the program.

Turning to Slide 9. We expect our financial performance for the balance of 2020 will see both positive and adverse impacts resulting from the COVID environment. In servicing, we expect to see lower servicing revenues and higher operating and interest expense. In addition, given current interest rates, we are likely to see higher MSR amortization and some additional revenue pressure due to higher prepayments.

In contrast, we expect a more robust originations market with strong near-term volume and margin opportunities. We believe our actions over the past 12 months to build diversified origination sources and reduce our cost structure as well as our loss mitigation capabilities and strong operating skills position us to capitalize on this market disruption and could provide the opportunity to prudently acquire servicing assets at very strong returns.

Going forward, we're executing our COVID-19 action plan and key business initiatives with commitment and focus. While we continue to achieve progress toward our objective to deliver attractive long-term returns for our shareholders, we are not providing near-term earnings guidance because of the uncertainty in the number of borrowers needing forbearance, duration of forbearance and foreclosure moratorium, borrowers needing loss mitigation, industry origination volumes and margins, and any future state or federal government actions that may further impact the mortgage industry.

Now I will turn it over to June, who will discuss the results for the quarter.

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June C. Campbell, Ocwen Financial Corporation - Executive VP & CFO [4]

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Thank you, Glen. Please turn to Slide 11. My comments today will focus on our first quarter results as compared to the prior quarter. As previously noted, our first quarter investor presentation includes more details on our results and is available on our website.

Our first quarter reported net loss of $25 million included a $62 million income tax benefit, primarily due to favorable changes in the CARES Act, among other items. Pretax results for the quarter were impacted by the COVID-19 pandemic and market disruptions in several ways, primarily unfavorable interest rate and assumption-driven fair value declines in our net MSR portfolio. The net financial impact from COVID-19 on revenue was $7 million unfavorable and on expenses, was minimal for the first quarter, although we expect these impacts to increase.

Revenue of $254 million decreased by $8 million from the prior quarter. The seasonal fair value election made in the quarter allowed us to recognize $47 million of future fair value upfront into equity, although ongoing quarterly revenue is estimated to be lower with a $4 million impact in the quarter. Results were also negatively impacted by portfolio runoff, COVID-19 and market conditions. Operating expenses continue to improve as a result of our continuous cost improvement efforts.

The unfavorable MSR valuation adjustment of $174 million in the first quarter is primarily due to $157 million of unfavorable fair value change, primarily in our agency portfolio, due to a 118 basis point decrease in the 10-year swap rate; $53 million reduction in MSR value due to portfolio runoff, offset by $35 million favorable impact on macro hedges.

MSR valuation adjustments, net of macro hedge and NRZ, totaled $78 million. Our forward MSR hedge strategy performed as expected with total coverage against our forward MSR equal to 43% of the decline in our forward MSR value. The positive pretax earnings impact from the amortization of the lump sum cash payments received from NRZ in 2017 and 2018 was $25 million in the first quarter and $26 million in the prior quarter. The remaining unamortized $10 million lump sum cash payments will contribute positively to our pretax income in April.

I would now like to provide comments on our servicing and origination segment results. As outlined on Slide 12, our servicing segment reported $56 million pretax loss compared to $59 million pretax income in the prior quarter. This was largely due to interest rate and assumption-driven net fair value changes, which were $89 million unfavorable compared to $31 million favorable in the prior quarter. As of March 31, our servicing and subservicing UPB, excluding NRZ, increased by $1 billion due to originated and purchase volumes outpacing runoff. This increase is consistent with our efforts to build our originations platform.

Our servicing business remains focused on providing sustainable loan modification solutions to qualifying borrowers in need. We completed more than 8,300 modifications in the quarter, 41% higher than the prior quarter.

Please turn to Slide 13. The originations segment reported pretax income of $10 million, $7 million favorable to the prior quarter. Our recapture business recorded $11 million gain on sale in the quarter, $2 million higher than prior quarter driven by $189 million higher pull-through adjusted lock volumes.

Correspondent business recorded $2 million gain on sale in the quarter, $2 million higher than the prior quarter due to improvement in margins. Reverse mortgage business was adversely impacted $3 million by market disruption attributed to COVID-19, which started to stabilize in April.

As you can see on Slide 14, we ended the quarter with $264 million of unrestricted cash. At quarter end, we were fully funded on our servicing advance and committed warehouse facilities based on available collateral. We also had available borrowing capacity of $446 million provided we have the eligible collateral to fund enough facilities.

Our liquidity was $165 million lower than prior quarter, primarily driven by $134 million of debt paydown, including $126 million of SSTL balance during January. We were also impacted by $59 million of margin calls on our financing instruments due to declining interest rates and changes in modeling assumptions and other working capital needs. This was offset by $78 million of cash sources from various balance sheet optimization initiatives during the quarter.

In April, we completed balance sheet optimization actions, which generated an additional $42 million of liquidity and are currently targeting additional high-probability actions of $113 million for the balance of the year. We repurchased 5.7 million shares in the quarter for total cost, including commissions, of $4.6 million.

We expect to finalize shortly increases in extensions of our OMART and OFAF facilities that should cover our forecasted increased requirements for advanced financing in our PLS and GSE portfolios. The cost of financing under these facilities will increase due to increased funding spreads and commitment fees. We also expect to extend our GSE MSR financing facility and warehouse line.

We are not acting at this time to establish a private Ginnie Mae advanced funding facility or planning to access the Ginnie Mae PTAP. We will continue to assess our Ginnie Mae requirements and options going forward and may establish financing later this year. We ended the quarter with corporate debt outstanding of $513 million and a corporate debt to equity ratio of 1.2x. Shareholders' equity ended at $430 million and the book value per share was $3.32.

Moving to Slide 15. The increase in forbearance plans will drive lower servicing revenue and higher operating expenses. This is temporary and unavoidable. As stated earlier, we're expecting advances to increase $150 million above first quarter level. We also expect average financing spreads to increase, offset in part by lower market interest rates. This will drive higher interest expense.

For those that are in forbearance, we will not be receiving servicing fees during the forbearance period. The deferred servicing fees will be recognized upon resolution of the forbearance plan at time of loss mitigation or liquidation. The servicing fee deferral does not impact our total cumulative revenue over the life of the loan, but will reduce near-term revenue and cash flow.

In addition, due to the moratorium of foreclosures and resolutions, we will not be recognizing the recovery of deferred servicing fees on PLS loans that would have gone to resolution. In April, we saw a 13% reduction in resolution of delinquent loans and a 9% increase in foreclosure holds. This is also a matter of timing and impacts near-term cash flow, revenue and pretax income.

Ocwen has a strong history of reducing delinquencies and collecting deferred servicing fees. We believe the recovery of deferred servicing fees will be somewhat higher than recovery rates we have historically experienced with natural disasters as no infrastructure rebuilding is required and homes are not damaged. We are not expecting an immediate increase in operating expenses while these loans are in forbearance. However, once the forbearance period is over, we will see an increase in costs relating to completing the necessary modification.

I'll now turn it back over to Glen.

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Glen A. Messina, Ocwen Financial Corporation - CEO, President & Director [5]

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Thanks, June. Now please turn to Slide 16. We've made solid progress on our growth strategy, financial performance and business improvement plans. While we expect the COVID pandemic will impact our performance in the near term, we believe we have strong momentum as well as the liquidity and proven operating capability to navigate this environment. We will continue to execute our key business initiatives to achieve progress towards our objective to deliver attractive long-term returns for our shareholders.

Assisting borrowers in need is one of our core business capabilities and a key differentiator for us in the industry. We have created a flexible, highly automated operating platform that allows us to more easily scale up loss mitigation capability, allowing for operations to maintain quality while undergoing increases in volume and rapid change.

We believe this environment has created increased opportunities to invest in high-quality, newly originated MSR and delinquent servicing at very attractive returns. Our proven expertise in special servicing and the actions we took over the last 18 months to strengthen our company and expand our originations capabilities positions us as one of the few players in the industry who could take advantage of these opportunities.

We have a great platform and a great team. Our primary growth limitation will be our available growth capital. In this regard, we are highly focused on exploring all strategic options to leverage our proven operating capability in this environment to fully realize the value of our platform.

We believe that Ocwen has a critical role to play in the current environment to help both borrowers and the mortgage industry. We continue to be one of the best servicers for nonperforming loans with decades of experience that will help us assist homeowners in the current situation. We have done it in the past and we'll do it again.

I want to thank our management team, Board of Directors and employees for their commitment and resilience during the crisis we have all been facing. This team has risen to a challenge like nothing we've ever faced before. I'm proud of what we have done to get us to where we are today, as we take the next step towards further improving our long-term competitiveness and financial performance.

And with that, we're ready to take questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question is from the line of Lee Cooperman with Omega Family Office.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [2]

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Glen, you strike a very optimistic tone. But the facts are the following: we have a book value of $3.32. We have a stock that closed at $0.40 at 12% of book value. We have a market cap of a paltry $54 million. We have a term loan that is trading at $0.80 on the dollar with a short-term maturity. We have publicly traded debt that sells a yield to maturity, I think, of 22%. So the public is making a pretty grim assessment of our situation. Yet as best as I can tell, because of the term loan, you're unable to capitalize on Mr. Market's mispricing. So I have 3 questions for you.

Number one, and I think a lot of the answers are evident in what you presented. I guess, the question, whether it's believable. Do you believe the book value of the company is real and that we will remain a solvent entity? That's question one.

Two, it seems to me, I'm very surprised that nobody showed up and knocked on your door given how the skill set of the company. You said on 3 occasions today, great platform, great team, yet available at a big discount. Nobody has shown up. So I'm assuming that the Florida AG and the consumer protection, whatever the hell they're called, board, are 2 poison pills. You addressed that a little bit in your comments. Maybe you could readdress them.

And third, tell me about the profitability of new servicing. You say great return on investment. When I look at the -- where we're selling it in the marketplace, it would seem to me the greater return on investment is to basically either sell the entity if there's a buyer or find other ways of capitalizing on the big discount without paper selling it.

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Glen A. Messina, Ocwen Financial Corporation - CEO, President & Director [3]

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Thanks for your questions. Lee, before I specifically get into your questions, there was one update I have for everyone, for the markets, just given the environment. This call was prerecorded as you might have been able to tell by some of the gaps and spacing between speakers. But we do have an agreement in place to upsize and extend through June 2021 our OMART and OFAF advanced financing facilities.

The OMART VFN capacity will increase from $200 million to $500 million to accommodate forecasted advancing requirements and the amortization of $185 million in term notes in August. The OFAF facility will increase to a total of $70 million. In addition, we've reached an agreement to extend our MSR repo and warehouse facilities with Barclays. So that's an updated one to get out to the market before I answered your question.

So in terms of your questions, Lee, look, from a book value perspective, we've -- I believe in the credibility of our financial processes and the value of our assets, and I believe our book value is fairly stated for the company.

In terms of the CFPB matter, as I said on the call, look, this is one of our top priorities to resolve. It's one of the few remaining legacy regulatory matters that are, I think, serving as a drag on the valuation of the company. We've said it's our strategic priority to get this closed in a manner that produces an acceptable outcome to all of our stakeholders. And arguably, we'd like to get it done prior to the trial date, which is at the tail end of this year.

So look, we can't provide any assurances that we'll be able to resolve it for the amounts that we increased the reserve to or in the time frame we specified, but it is absolutely one of our top priorities to get cleared.

In terms of the profitability of new servicing, look, margins in the origination environment we're in today are at levels a few of us have seen in our lifetime. It's a very robust originations market, both from a volume and a margin perspective. In our portfolio retention channel, the economics are such that, fundamentally, MSRs, the cash cost of the MSR is 0.

So we are -- that MSR has come back -- coming back to us without necessarily a cash investment. And margins in correspondent lending, again, are as wide as -- and our flow channel is as wide as we've seen them in quite a long time. So the cash cost, so to speak, of MSR creation is well below the fair value. There's a number of dislocations in the market, as you might be able to suspect, that's kind of driving that. But the returns on MSRs today are some of the best we've seen.

Look, Lee, I believe we've built a terrific platform here. We've got skill sets and capabilities that are right for this part of the market cycle. We've built an origination platform that can take advantage of the origination opportunities we talked about. We've got the special servicing capabilities to deal with the wave of modifications that are coming at us and the -- managing through the elevated level of advances that the industry is seeing.

And I think that's going to be a valuable resource and a valuable service as we move forward, and it's something we're looking to market aggressively. And as I said on the call, look, I believe in the team, our operating capability and the value play in the marketplace. And we are highly focused on exploring all strategic options to leverage our capabilities that we've built to fully realize the value of our platform.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [4]

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What can you say about the -- we're a Florida corporation. I'm shocked. And I know they don't want to put you out of business, but what is the status about negotiations with the Florida AG?

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Glen A. Messina, Ocwen Financial Corporation - CEO, President & Director [5]

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Yes. Lee, look, I really can't provide any more in -- than I've said already.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [6]

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Repeat what you said. Repeat what you said, please.

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Glen A. Messina, Ocwen Financial Corporation - CEO, President & Director [7]

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So I said it's -- we are -- our goal is to resolve these matters before they come to trial.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [8]

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Yes, the CFPB. The same thing for Florida AG?

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Glen A. Messina, Ocwen Financial Corporation - CEO, President & Director [9]

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I believe so. I believe the timing is consistent between the 2.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [10]

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Right. And so the Florida AG trial date is set for late this year?

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Glen A. Messina, Ocwen Financial Corporation - CEO, President & Director [11]

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Both the CFPB and the Florida matters are set for late this year, that's correct.

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Leon G. Cooperman, Omega Advisors, Inc. - President, CEO & Chairman [12]

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Got you. Okay. I guess what's behind my questions, in all honestly, is whether the shareholders are better off being de-risked by merging with a larger entity if that opportunity exists -- it may not exist, I don't know -- or remaining independent. And the frustrating thing about remaining independent is a market cap of a little over $50 million, 12% of book value, term loan trading at a big discount, all of which does not fit with your optimism of what you've created here and your platform and your team. And so you've got to kind of disregard the market's efficiency and accept what you're saying versus what the market is saying. But I get it. Just an observation. You've answered my questions.

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Operator [13]

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(Operator Instructions) Thank you. At this time, I'll turn the floor back to Glen Messina for closing remarks.

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Glen A. Messina, Ocwen Financial Corporation - CEO, President & Director [14]

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Great. Thanks, Rob. Again, I want to extend my thanks to the entire team who has just worked tirelessly over the last 60 days to enable a remote operating framework and continue to conduct our business in a high-quality fashion and serve all of our borrowers with empathy and focus. And even those people who aren't protected under the CARES Act, we're making sure that we can accommodate their financial needs in this time of struggle for the nation and for the world.

Look, I firmly believe our proven expertise in special servicing and the actions we've taken over the last 12 months to strengthen the company, really position us as one of the key players in the industry who could take advantage of the opportunities that's in the marketplace today. We've built a great platform and a great team. I'm proud of everyone. Again, I think our primary growth limitation will be our available growth capital. And again, we're going to leverage all options we can to fully harvest the value of our team and our platform in this environment.

Thanks, everyone, and look forward to talking to you next quarter.

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Operator [15]

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Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.