Q4 2023 Ocwen Financial Corp Earnings Call

Participants

Dico Akseraylian; SVP, Corporate Communications; Ocwen Financial Corp.

Glen Messina; Chair, President & CEO; Ocwen Financial Corp.

Sean O'Neil; EVP & CFO; Ocwen Financial Corp.

Bose George; Analyst; Keefe, Bruyette & Woods, Inc.

Derek Sommers; Analyst; Jefferies Financial Group Inc.

Matthew Howlett; Analyst; B. Riley Financial, Inc.

Eric Hagen; Analyst; BTIG LLC

Presentation

Dico Akseraylian

Good morning, and thank you for joining us for Ocwen's Fourth Quarter and Full Year 2023 earnings call. Please note that our earnings release and slide presentation are available on our website. Speaking on the call, the office Chair and Chief Executive Officer, Glen Messina, and Chief Financial Officer, Sean O'Neil.
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 and address matters that are to different degrees uncertain. You should bear this uncertainty in mind and should not place undue reliance on such statements. Forward looking statements speak only as of the date they are made and involve assumptions, risks and uncertainties, including those described in our SEC filings in the past, actual results have differ materially from those suggested by forward-looking statements. And this may happen again.
In addition, the presentation and our comments contain references to non-GAAP financial measures, such as adjusted pretax income among others. We believe these non-GAAP financial measures provide a useful supplementary discussions and analysis of our financial condition because these are measures that management uses to assess the financial performance of our operations and allocate resources.
Non-gaap financial measures should be viewed in addition to and not as an alternative for the Company's reported GAAP results. A reconciliation of non-GAAP measures used in this presentation to their most directly comparable GAAP measures and management's view on why these measures may be useful to investors may be found in the press release and the appendix to the investor presentation.
Now I will turn the call over to Glen Messina.

Glen Messina

Thanks, Dico. Good morning and thanks for joining our call today. We'll review a few highlights for the fourth quarter and the full year and take you through our actions to address the market environment and deliver long-term value for our shareholders.
Please turn to Slide 3. It has undergone a significant transformation since 2019, guided by our strategy. We've transformed the Company into a well-balanced mortgage originator and servicer that creates positive outcomes for clients, homeowners, investors and communities. We've built up from our foundation and special residential and small balance commercial loan servicing with the PHH and RMS acquisitions to include performing agency and reverse mortgage servicing. Today, we're a top 10 non-bank servicer by UPB with broad capabilities and multiple industry awards for delivering top-tier industry performance for customers and investors. We've added multichannel originations capabilities to replenish and grow our servicing portfolio and provide earnings balance through industry cycles. Our originations platform ranked as a top 10 correspondent lender and top five reverse lender by volume and endorsements, respectively. And we substantially improved our portfolio recapture capabilities over the past four years we believe our originations platform is positioned to grow volume and earnings. So the forecast for lower interest rates in the second half of 2024 materialized, we've invested in technology to enable low cost, high performance and improve the customer experience. We replatform the entire business invested in multiple digital interface channels such as our AI enabled chat box and mobile app and enabling technologies like robotic process automation. Our technology-enabled global operating platform is scalable with a highly competitive cost structure, and we believe we will deliver further profitability improvement as we increase our total servicing UPB servicing is a capital intensive business. So we focused on driving prudent capital light growth to reduce capital demands. We have 113 subservicing clients and building from our successful mass joint venture with Oaktree. We now have five Capital Partners, which we believe will support our growth by converting new originations to subservicing and growing servicing UPB without traditional or additional MSR investments to enhance returns. We continue to focus on asset management transactions that leverage our core competency in special servicing fee transactions, including clean-up calls, claims processing and asset recovery deliver $15 million in pretax income in the second quarter of 2023, and we expect more transactions in 2024. We've meaningfully improved business performance capabilities and the potential for growth and value creation. We believe the continued execution of our strategy of balancing diversification, capital-light growth, low-cost top-tier operating performance and Dynamic Asset Management will deliver long-term value for shareholders.
Please turn to Slide 4. Despite the challenging environment for originations, we continue to improve adjusted pretax income in the fourth quarter and throughout 2023. We reported fourth quarter adjusted pretax income of $11 million, an improvement from both the sequential quarter and year-over-year basis adjusted pretax income for the quarter and for the year of $49 million is up $118 million over last year. Adjusted ROE is in our target range for both the fourth quarter and full year. We reported a $47 million loss in the fourth quarter and a $64 million net loss for the full year. The net loss for both the quarter and full year was largely driven by MSR fair value changes.
Net of hedging, our fourth quarter unfavorable MSR fair value change was driven by an 80 basis point reduction in key interest rates, offset by hedge coverage of 69%, which was aligned with our average target for the quarter. In December, we increased our hedge coverage ratio target to 100% to protect book value should rates fall in 2024. As anticipated, full year unfavorable MSR fair value change reflects the impact of higher hedge costs due to the inverted yield curve and rate volatility and a five basis points reduction in our own portfolio of nine versus prior year end to align with bulk market value results in servicing, we continue to grow average servicing UPB in the fourth quarter and have entered 2024 with subservicing borrowing commitments, roughly 1.5 times our total additions in 2023.
Also in 2023, we made great progress on enterprise-wide continuous cost improvement. Full year operating costs were down 19% versus last year, excluding expense notables, further improving our cost competitiveness as we enter 2020 for year-end liquidity of $242 million, which is up versus both the third quarter and the prior year, due in part to support our higher hedge coverage ratio and higher seasonal disbursements in the first quarter. We intend to continue to opportunistically repurchase corporate debt in 2024 as excess liquidity permits as we look ahead third-party estimates, project industry volume remaining low in the first quarter of 2024 before moving into the spring and summer buying season, declining interest rates for the second half of the year are expected to help drive $2 trillion of total industry originations for the full year. I'm excited about how we're positioned entering 2024. We believe our balanced business model positions us well, if interest rates remain steady or decline as projected.
Now please turn to Slide 5. The execution of our strategy has helped us to continuously improve adjusted pretax income of the past six quarters and deliver financial performance in line with our adjusted return on equity guidance for 2020 for our financial objectives start with sustaining the performance improvements we've achieved to date. This will require continued focus on cost improvement, disciplined M&A or investing with optimized test coverage and maintaining a prudent risk and compliance management approach.
Next, we're focused on improving return on equity and capital ratios and have three levers to do this first by growing our subservicing portfolio, while we hold our owned MSR UPB in the $115 billion to $135 billion range.
Second, as our excess liquidity permit, we expect to continue to delever the business through opportunistic debt repurchases, which I believe will also help reduce enterprise risk and earnings volatility better by improving the profitability of our legacy owned MSRs. Roughly 11% of this $18 billion portfolio is over 60 days delinquent and it carries $458 million in advances, which is dilutive to earnings and returns.
Lastly, we're focused on capitalizing on market cycle opportunities. We believe our originations platform is positioned to take advantage of a lower interest-rate environment. Probably 70% of our own portfolio would be refinance eligible at the 30-year fixed-rate mortgage drops to 5.5%. We continue to execute accretive special servicing and subservicing transactions executed four transactions in the past five quarters and continue to scan the market for opportunities. As always, we remain flexible and committed to considering all options in this dynamic market to maximize value for shareholders. We're pleased with the performance improvements we've driven and are committed to executing our financial objectives to further deliver value to shareholders. Please turn to Slide 6. Our balanced and diversified business offer several benefits in the current market cycle. We are first and foremost, a servicer and our servicing business enables us to navigate current market conditions, delivering strong earnings and cash flow performance, while our originations today is not a material earnings contributor, as you could see in 2021, when interest rates were lower originations, deliver more substantial earnings. Our diverse capabilities in both origination and servicing, create opportunities and give us multiple avenues to generate earnings growth and returns. We have a top 10 or better market position in both originations and servicing multiple volume acquisition channels, diverse capabilities spanning small-balance commercial and reverse servicing and strong default management and loss mitigation capability.
In addition to growing our agency forward servicing UPB. We've executed multiple transactions enabled by our special servicing skills and are both performing and delinquent small-balance commercial loan servicing. We're excited about the potential growth in these higher-margin areas.
Lastly, we believe our diversified servicing portfolio with the growing mix of subservicing helps mitigate business risk. We've substantially improved our portfolio mix over the past several years decreased client concentration risk and reduced liquidity demands with over 85% of our servicing portfolio in subservicing and TSC owned MSRs, where we have materially lower exposure to events.
Now please turn to Slide 7. We remain focused on capital-light growth and have built a strong foundation with a diverse investor base to support our growth objectives. Total servicing additions were down 31% in 2023, in line with the 32% reduction in overall industry origination volume. We increased the mix of subservicing additions by 15% and doubled the volume of MSR UPB sold to Capital Partners. Consistent with our goal of driving capital-light growth in 2023, we were our average servicing UPB, supported by capital partners by over 70% and established two new MSR capital partner relationships and close the year with Fine Capital Partners until we're targeting to add two more by mid 2024. The most successful of these relationships is our joint venture with Oaktree and mass with an investment position for an investment period that runs through May of 2025 and capacity to support 20 to 25 billion in additional servicing acquisitions. Nearly all of our capital partners have individually equal to or more investment capacity than that.
I want to thank Oaktree and our other MSR Capital Partners for the trust and confidence they have placed in our team. It helps them achieve the growth and profitability objectives. Our subservicing growth with mortgage banking clients and MSR Capital Partners has allowed us to more than offset runoff in the written subservicing portfolio. Our average servicing UPB, excluding revenue, was up 13% in 2022 versus 2022 and up three times over the last two years. We have boarded over $100 billion in subservicing additions in the last 24 months and have client commitments to board $29 billion and certain servicing UPB in the first half of 2024, we're targeting $69 billion in subservicing additions from all sources in 2024 from our investment driven approach to MSR purchases, results and capital efficient growth helps manage our exposure to MSR valuation change due to interest rates and introduces an added level of price discipline for the originations business.
And please turn to Slide 8. In 2023, we remain dedicated to disciplined MSR investment. Our enterprise sales team delivered solid performance in 2023, our origination volume was down roughly 27% versus down 32% for total industry origination volumes. Consistent with our strategy to drive capital light growth, you can see the significant increase in MSR originations funded with capital partners. It was a highly competitive market in 2023, and that's unchanged so far in 2020 for Marcus Theatres in correspondent and co-issue channel, Steve, to have what we believe is an aggressive view of that. The Starbase, notwithstanding, we remain disciplined in originating MSRs that meet or exceed our yield objectives. Which resulted in an 18 percentage point increase in mix in total additions from higher margin channels and COGS versus 2022. We remain committed to managing our owned MSR portfolio in a range of $135 billion to $115 billion as we have done in the last three years. This helps us manage interest-rate risks and supports our objective of opportunistically repurchasing debt as excess liquidity permits. We are also using excess servicing spread transaction to further mitigate interest-rate risk as well as reduce exposure to high hedge costs. And performance variation when industry and the financial markets evolve. We continue to grow our subservicing UPB with the success of our enterprise sales team and intend to accelerate growth there with our capital partners in 2024.
Now please turn to Slide 9. We have been relentlessly focused on building one of the best performing servicing platforms in the industry, while maintaining a highly competitive cost structure. Our platform delivers superior performance versus other servicers across numerous servicing performance metrics and our capabilities have been recognized by Fannie Mae, Freddie Mac and HUD with top-tier industry performance awards for several years in previous quarters spoke about improving the customer experience we deliver for clients. Our ability to cure 60 plus day delinquencies are superior, had claims the financial performance and our ability to maximize RVO sale price versus appraised value while selling within the timeframe allowed by hub. Here again, you can see we also consistently achieve lower delinquency levels compared to the industry average as reported by Inside Mortgage Finance. In addition, since the fourth quarter of 2020, more of our borrowers have exited forbearance interest, current were painful with an active loss mitigation plan industry average as reported by the MBA, our focus on continuous cost improvement has positioned us with a highly competitive cost structure based on the results of the MBA annual servicing operations study for 2022 are fully loaded for residential servicing costs in basis points of UPB are 27% lower than our large bank peers and our favorable to our large independent mortgage banking peer group that has an average forward residential servicing UPB more than twice our size. Moreover, our servicing costs and basis points of UPB are inflated compared to large servicer peers due to our relative high concentration of PLS servicing. If we compare cost per loan for performing and nonperforming loans versus discrete we're materially lower in every comparison. Our cost competitiveness comes from continuous process improvement, strategic investments in technology and our global operating capability with roughly 35% of our servicing cost center fixed or semi-variable, we believe we can further improve our efficiency as we grow total servicing UPB.
And with this on with the other metrics I discuss demonstrate that we are one of the strongest operators in the industry.
Now I'll turn it over to Sean to discuss our results for the fourth quarter.

Sean O'Neil

Thanks, Glen. Please turn to Slide 10 for our financial highlights, I'm going to cover both fourth quarter and full year 2023 results. Overall, I'm proud of our positive progress and results for both the quarter and the year and excited about our financial outlook for 2020 fourth for the quarter, the headline is both our servicing and origination businesses continued their profitable trend and collectively demonstrated yet another quarter of improving positive adjusted pretax income.
Let's start with the fourth quarter. First, the gray column in the middle of the page, the decline in GAAP net income negative $47 million versus prior quarter's positive $8 billion was driven by interest rate impacts on our MSR net of hedge due to about an 80 basis point decline in rates. The adjusted pretax income is up from Q. $3 million to $11 million for the quarter, driven by servicing with a small contribution from originations. This resulted in an adjusted pretax ROE in line with our prior guidance of 9.4%. Q4 was also up year over year by $7 million due to both higher revenue and lower costs for the full year 2023. Please go to the far right to the blue column, where we recognized GAAP net income loss of $64 million, primarily driven by MSR fair value changes and hedging performance. Our full year adjusted pretax income of $49 million illustrates the strength and strength of our year, bringing our adjusted ROE back to low double digits at 10.1%. Finishing off the table to the left side note, liquidity ended the fourth quarter higher than normal due to cash inflows from the MSR hedges and seasonally lower origination volumes. Our portfolio of tax net operating loss carryforwards continued to have a positive effect as the NOL saved us over $3 million in cash by mitigating our 2023 tax expense. Our expectation of an adjusted pretax income ROE of 12%-plus in 2024 builds on the 10 plus percent we delivered in '23. There will be more guidance for 2024 and a few pages for a more detailed view of the interest rate impacts on the MSR valuation.
Please turn to Page 11. The chart on the left shows the movement in our owned MSR portfolio from year end '22 to year end '23. As a reminder, we obtain our MSR marks from independent valuation experts and benchmark the experts mark against other outside marks, external surveys and our own market observations. Over the year, the fair value declined by 5 basis points 136, down to 131 basis points. This reflected market pricing. In addition to market pricing, the calibration of the book was impacted by the increasing note rate of the portfolio, which grew by 50 basis points as we added new origination at higher current rates and also sold MSRs with relatively lower note rates to MSR Capital Partners. Typically higher note rate MSRs are more susceptible to prepayment risk as rates decline and all else being equal, this can lower the value of a higher note rate MSR compared to a lower note rate MSR.
The right chart shows the impact of interest rate on our owned MSR book for all four quarters in 2023, along with the hedge offset in the net result. As you can see, Q1 and Q4 were both quarters were interest rates decline, driving down MSR values as they're more likely to prepay interest rates are shown by the solid line showing the 10-year swap. This Q1 and Q4 resulted in declines in the MSR value at the gray bar, offsetting improvements in the hedge, which is the light blue and a resulting net loss or gain the magnitude of the hedge offset is driven by our hedge coverage ratio, which is shown here is both the target and an actual result in the table below the graph within a 100% hedge coverage ratio that is perfectly efficient, meaning no basis difference between the asset and the hedge will still have other offsets, such as negative carry or option volatility of pricing. Most firms refer to this collectively as hedge costs. So the end result for the year is the combination of asset movement, hedge offset and hedge costs. As you can see, we have been increasing our hedge coverage ratio throughout the year and most recently have adopted a hedge coverage ratio of 100% as of December 2023, we expect this to reduce the volatility of our MSR value in both up and down rate markets, but it comes at a higher cost overall, then a lower HCR. hedge approach Page 12 gives some perspective on our desire to deploy excess liquidity to continue to deleverage the company, starting with the top graph, shows liquidity growing year over year and from the third quarter. Some of this liquidity is reserved for the higher hedge coverage ratio than prior quarters, as well as higher seasonal disbursements. In the first quarter, we executed the repurchase plan to retire debt in Q4 and early Q1. But since we had to set the debt price in advance of execution improvement in our debt price kept our plan bid outside the range where sellers were active and no debt was retired. We are currently approved to retire up to $40 million of debt buyer board and intend to execute another plan shortly. And expect to remain committed to using excess liquidity to retire debt. The lower graph shows our current debt to equity ratio and where we intend to target a lower ratio by the end of the year through a combination of better earnings and debt retirement. We believe this will facilitate any future transactions to refinance our remaining corporate debt with an objective to execute on that refi sometime in the next five quarters. We also plan to opportunistically pursue subservicing retained MSR sale opportunities where appropriate, as this will reduce MSR hedging and valuation exposure as well as provide immediate liquidity.
Finally, we have begun plans to launch a separate legal entity to hold our Ginnie Mae forward assets to meet the new Ginnie Mae risk-based capital ratio requirements and have had preliminary discussions with Ginnie Mae to vet this approach.
Please turn to Page 13 for an overview of our servicing segment. Both forward and reverse servicing continued to improve its contribution to net income for both year over year and trailing quarters. You can see this in the upper left graph that shows adjusted pretax income improvement. This was driven by higher revenues and lower operating expenses in the forward servicing space. The reverse space remained strongly profitable, but declined slightly quarter over quarter, do decline due to declining reverse portfolio balances continuing on a capital-light approach. We grew subservicing volumes by 6% year over year, measured in UPB due to transactions with existing and new capital partners as well as winning new clients already in 2024, we have signed contracts with counterparties to board over $29 billion of UPB in the first six months of the year. This amount is 1.5 times the entire full year 2023 subservicing volume adds. So we're off to a good start. The other driver was continued cost improvements with technology, continued migration away from paper and other process improvements.
Please turn to page 14 for a snapshot of profit and liquidity drivers enabled by special and reverse servicing skill sets. We lowered advances on our legacy asset book year over year by 14% as we reduced the UPB of these assets by 10%. This improvement in lower borrowing costs and servicing advances, which helps our net income and allows us to divert liquidity to other areas, whether it is our own book that we are servicing or clients book. Our goal is to improve returns via better performance of the assets. Each special servicing portfolio is unique, and we have a broad range of skills and expertise to manage different legacy pools.
On the reverse side, our existing reverse servicing insight and valuation expertise helped us to execution, execute a transaction in the second quarter of 23 that generated significant excess liquidity and pretax income, and we're expecting to leverage this expertise for more transactions in 2024.
Please turn to Page 15 for an overview of the origination segment, both forward and reverse in originations. We continue to maintain profitability despite seasonally slower fourth quarter volume. The main driver was again our correspondent and co-issue channels, which overcame small losses in the reverse and consumer direct channels. While volumes were lower quarter over quarter in all three channels. The right graphs demonstrate robust margin management and focus on MSR cash yields to maintain margins in correspondent and reverse and only suffered a slight deterioration in the CD channel. Although we remain a top 10 correspondent lender and a top five reverse lender, we are committed to profitable growth versus ranking.
Page 16 gives a view on our stock price, which is now performing in line with the Russell 2000, but slightly underperforming a group of our peers, the discount to book just prior to this earnings release was around 55%. And as a reminder, while we may trade in line with some originators, we are primarily a servicer and the bulk of our profits and book value improvement have come from the servicing business for the last seven quarters. The discount to book in the lower graph is measured as the share price following our earnings release versus our quarter-end book value with the exception of the fourth quarter bar on the right, we continue to believe our positive growth trends and adjusted pretax income. The growth in our servicing book our ability to run originations at a profit during a difficult market period, as well as our ability and willingness to reduce our senior secured debt. Our support a stronger share price than we currently have.
There is a road map on page 17 that gives guidance to profitability targets in 2024. I won't go through the details other than reaffirm our target of 12 plus percent adjusted ROE for the full year.
Before I turn the mike back to Glen, I wanted to point out to investors a few additional data points in our appendix, we continue to provide data on fully diluted shares and equity. We have a page on MSR valuation assumptions that is incredibly transparent and can be used versus peer data and surveys where we show many valuation parameters.
With respect to our balance sheet, we provide a more granular view titled condensed balance sheet breakdown, which delineates assets that require matching asset and liability gross-ups under GAAP treatment. I invite you to look at these and other pages in the appendix to help you with your analysis back to you, but thanks, Shawn.

Glen Messina

Please turn to slide 18 for a few wrap-up comments. Before we go to Q&A, I'm excited about how we're entering 2024 and believe we are well-positioned to navigate the market environment ahead and deliver long-term value for our shareholders. Our balanced and diversified business creates opportunity, mitigates risks and supports our ability to perform across multiple business cycles. We're executing a focused prudent capital-light growth strategy, leveraging our superior operating capabilities to grow subservicing across multiple investor and product types. We have expanded our client base, growing our origination volume mix from higher-margin channels and products and continue to improve recapture performance and believe our origination platform. It didn't take advantage of declining interest rates.
We have a strong pipeline of subservicing morning commitments and we've expanded our MSR capital partner relationships to accelerate subservicing growth. Our servicing platform delivers top-tier operational performance levels, resulting in measurable improvements for clients, farmers and investors through our investment in technology, global operating capability and process improvement. We've built a scalable servicing platform with the best practice cost structure and capacity for growth that delivers improved borrower and client satisfaction.
Lastly, we are prudently managing capital and liquidity for economic and interest-rate volatility and deleveraging. Our balance sheet is as excess liquidity permits to further improve financial performance and mitigate capital structure risks. Overall, we're excited about the potential for our business, and I believe our recent share price is reflective of our financial position, growth opportunities for the strength of our business. And with that Joel, let's open up the call for questions. Thank you.

Question and Answer Session

Operator

Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the one on your touchtone phone. You will hear a three-toned prompt acknowledging your request and your questions will be pulled in the order they are received. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question your first question comes from Bose George with KBW. Please go ahead.

Bose George

Good morning. I wanted to ask just on the new the 100% hedge ratio, does that also hedge the escrow income component. So like if the curve if the Fed cuts and the curve steepens and with long rates remaining somewhat somewhat elevated EBITDA, how does that look in terms of the hedge effectiveness?

Glen Messina

Yes, good morning, Bose. Any The short answer is yes. We're hedging all components of MSR fair value change. I think as you may know, is Well there's two ways in which the escrow can impact the P&L. There's the initial day one mark to market as interest rates change that's covered in our hedge coverage ratio of 100% hedge coverage ratio target. But on an ongoing basis, obviously, if interest rates, the short end of the curve drops, we have less float earnings that on an ongoing basis accretive to our P&L. And that's really hedged on on an ongoing basis with our floating rate debt, right. So sort of that curve comes down, our floating rate interest expense will come down with that as well, too. So we've got both components effectively.

Bose George

Got it. Okay, great. Thanks. And then just switching over to the debt repurchases, can you you've got the PMC and you've got the two senior debt, which ones are you repurchasing? And when you talk about the refinancing, is that the 2026 that you're focused on?

Sean O'Neil

Well, some papers have shown here that we can actually repurchase either debt. Currently, we've been repurchasing the PHH debt, and that's because we can buy that at a discount and generate a gain as well as that is maturing a year earlier than the OFC. debt. And yes, when I referred to a debt refinance, I was referring to the earlier maturity, which is 360 million of principal balance, which matures in three of 26.

Bose George

Okay. Okay, great. Thanks a lot.

Operator

Your next question comes from Derek Sommers with Jefferies. Please go ahead.

Derek Sommers

Good morning. I was wondering if you could walk through the puts and takes of better industry participation in the reverse market. On one hand, there be obviously more competition on the other, there might be increased customer awareness of the reverse product and better secondary market liquidity. Just want to get your thoughts on that.

Glen Messina

Yes, so Block A, one of our firm view has been the reverse mortgage product has really suffered from a lack of distribution. It has been a small niche based industry on players and focused principally on reverse products, and we think that limited the growth potential of the product in our view. So yes, we were named as one of the partners of the Year by the National Association of Mortgage brokers for our efforts to educate the broker community on reverse mortgages. And we're supporting a number of our clients correspondent clients in the forward space and their distribution of your reverse mortgage product, your look because we participate in all segments of the reverse industry from an originations perspective. So on the direct to consumer wholesale and correspondent, yes, look, we tend to we would expect to benefit the most in our correspondent channel by growing on or seeing a growth in forward originators moving into the reverse product space and then obviously, as a one of the only originators who services and sub services reverse MSRs as falls originate now creates additional growth opportunity for us on the servicing and owned MSR portfolio. So we're excited about forward players getting into this industry. We think it, yes, there's a large untapped potential out there that needs distribution.

Derek Sommers

Got it. Thank you. And then just looking at slide 17 with your 24 guidance and can you talk about what kind of interest rate environment is embedded into that guidance?

Sean O'Neil

Yes, we forecast our volumes and most specifically origination activity on a flat, yes, non flexing interest rate view. So if interest rates decline from where they finished the year, that will help this forecast, if they increase, it could slow down on the origination side with inverse effect on the servicing.

Derek Sommers

Got it. Thank you. Very helpful. That's awesome.

Operator

Your next question comes from Matthew Howlett with B. Riley. Please go ahead.

Matthew Howlett

Okay, good morning. Thanks and I love the guidance and congratulations. I just want to circle back to the 26. I think Sean, you said next five quarters, you think you can look at the of the term market here. And my first question is one where the bonds are trading, where you what do you think you can buy back the bonds today in terms of what played yielded? I mean, you had a nice write-up from S&P. What do you think you could enter the market for a five year 10 year debt. We've obviously seen Cooper do deals at 7% amount that you you're down there yet, but just talk a little bit about market color where your bonds are trading so forth?

Sean O'Neil

Sure. Good morning, Matt. So right now, our bonds, the high-yield bonds, the 360 balance I mentioned a minute ago. Those is trading somewhere between 91 and 92. So that's a rough yield to maturity of, call it 12.5%. And we think that as the bonds shorten in tenor and get closer to maturity, typically in the high yield market that drives up the yield to maturity. In addition, if we continue to demonstrate the ability to pay down the existing debt that improves our leverage ratios, which should also improve the coupon at which we can refinance these. So on, I think we'll be competitive for say, you know, five to seven year non-call two type high yield product when it comes time to refinance. But I think we also need to demonstrate to the debt investors an ability to reduce the existing leverage prior to that transaction, is there a ratio you could actually get possibly upgraded or read the S&P report fit sort of outlined a few metrics where you could get upgraded Yes. So that report specifically reference debt to EBITDA we think will be inside or lower than their projected target for the end of year 2024. Then we do show that our we intend that our debt to equity ratio measure just on a kind of pure debt balance sheet metrics, it is going to continue to improve throughout 2024 so it should come in better. The debt to equity should come in better than the 3.9 that we have always kind of a high high watermark there.

Matthew Howlett

So that would be terrific. And then just moving to Glen, I missed the comments on you're selling the owned MSR book and I see the guidance for 2015 at one 35 assuming the low end of that guidance assumes yourself some owned MSRs. But what's the case for against selling today, more owned MSRs to what are your managed funds and deleveraging that way, would that improve your credit profile? I mean that I mean, obviously, you lose the earnings from the owned MSR, but just walk me through why wouldn't you start in that immediately, what's holding you back in a little bit, why couldn't even go lower than one 15 on the owned MSRs?

Glen Messina

Yes. I mean, I'll start here and then get charged. You can you can jump in. So look, one of the things that Sean talked about was maintaining the flexibility to come. If market conditions are appropriate, opportunistically sell MSRs with one of our capital partners. He has said to one of our capital partners and converted to subservicing. So we could we'd pay down additional debt. And in those type of transactions here because we are bifurcating the MSR into an owned MSR and subservicing. We have to make sure there's no value leakage in the transaction. So yes, that is going to be opportunity dependent and look, we are keeping that as a lack of better term and arrow in our quiver to accelerate debt reduction if possible, yes, if opportunities permit, Sean, anything you want to add?

Sean O'Neil

Yes. Just Matt, I'll just restate that broadly speaking, as you noticed, as you noted, owned MSRs generate better cash flow and better earnings. And so we do a lot of analysis to look at our own book and ensure that the kind of bottom range that we provide adequately covers not just our debt service coverage ratios, but also ensures we have excess operating cash to run the Company comfortably hedge and be prepared for any kind of extreme swings in interest rates.

Matthew Howlett

Yes. Look, I look at and I totally understand you have to evaluate all these factors, I guess, where I'm going with this. So you're growing the subservicing. I mean, you're over half. I mean, it's tremendous, you're keeping margins you're efficient. You've guided to $75 billion, $80 billion. I mean, I think you said $24 billion in the first quarter alone. And yet I'm assuming you're being conservative for the ads for the '24 guidance.
I guess my bigger question is, and I do think Ocwen venture will just be a subservicing business alone and on any MSRs just be capital-light, completely subservicing and I guess just can we talk about where the wins coming from Medis? I know you had these capital partners, but are you also doing a lot of other people? Just just walking through directionally where subservicing, though long term for the Company, why you're being conservative in the guidance in terms of adds in 24 and where the wins are coming from two primary sources for our subservicing.

Glen Messina

So one is with our capital partners. And obviously, that could be either and that could be newly originated MSRs that way fund with them at the time of origination. That's historically what we've called MSRX. There are yield portfolio sales transactions that we've executed in the past. We've sold existing MSRs are seasoned MSRs to them. And then our capital partners go out and buy bulk transactions and we get that as well to match you with Eos in the bulk market all the time in a win deals as our some of our other capital partners and we get the benefit of adding that to our subservicing portfolio of the second group of clients is your traditional independent and small regional community bank mortgage clients. So that is guerrilla warfare that hand-to-hand combat with all the competitors in the subservicing marketplace. And as they have their sub-servicing contracts come up for bid or they're dissatisfied with their current provider?
Yes, we participate are Kris. We solicit them some of these on your potential subservicing clients or even our correspondent clients in some cases and we win business from them as well.
To you know, in terms of guidance being conservative, aggressive, what we've we're focused on it, we've got $29 billion of commitments from clients support subservicing with us in the first half of the year last year, we yes, we did see a number of clients because of the difficult originations market we have really tapped the brakes on converting some switching subservicing providers largely because they had bigger buyers to deal with on the origination side of their business. And in some cases, actually sold MSRs, right? And while they had an opportunity, they needed to raise cash and they sold MSRs completely. So yes, I think as we look forward into 2024 yes, we're excited that we've got a robust on pipeline of committed boardings with us. It's 1.5 times the I&E boardings we had in 2023, but we have to see how the environment unfolds and whether or not there's going to be more.
Yes, I am be selling selling MSRs, but make no mistake about it. It's a priority for the business and we want to grow it and grow it aggressively. And we certainly believe on an apples-to-apples comparison, we as a service provider in the subservicing space, compare very, very well to any of our competitors.

Matthew Howlett

Yes, I would absolutely agree. Appreciate it, Glen and Sean.

Glen Messina

Thank you.

Operator

Ladies and gentlemen, as a reminder, should you have a question, please press star followed by the one. Your next question comes from Eric Hagen with BTIG. Go ahead.

Eric Hagen

It has good morning. You guys talked about the MSR advances dragging on earnings can you say how dilutive to earnings there was you had last quarter and last year and it feels like the credit environment is kind of priced to perfection to a degree I mean, where do you feel like we could see improvement from that portfolio from this point or?

Glen Messina

Yes. So for servicing advances, you have an app is actually pretty pretty simple on it. We've got $458 million of advances it, Sean, I don't know if we disclose publicly what the average advance rate is for servicing advances. That's probably to be in the K, right. If you look at one of the tables indicate and calculate the advance rate and actually the weighted average cost is going to be they'll be in there as well to see if we can go through the extended now and calculate that, it's if you assume an 8% borrowing costs and some advance rate times the balance. That's just what the carrying cost.
It's right. So you're at $458 million is it's a pretty meaningful number. So everything we do to leverage our special servicing skills to drop that balance. And we're proud of the progress we've made. We've got to continue that momentum and build that flywheel effect and continue to drive that balance down.

Eric Hagen

Yes. Okay. Tax, how do you feel like shorter-term volatility of the MSR portfolio could change the way you think about buying back the debt? I mean what a big swing going the other way, would that trigger you guys being in the market?

Sean O'Neil

We're frequently buying back on that. So Eric, are you are you saying if MSR if interest rates drop precipitously and we lose value. Will that alter our thought process on buying back to that? I'm not sure I'm tracking the question.

Eric Hagen

Yes, that is the question. And then also going the other way, like if the market were to improve with that also change?

Sean O'Neil

I wouldn't say broadly speaking, no, which is why we like to hedge the MSR. And you know, are even moving up from a 70% to closer to 100% hedge coverage ratio. And the objective there is to it makes us less concern on a day-to-day basis with the interest rate and ensure that you have an offset with the hedge to cover it swings to the pro with time, obviously with a very high hedge coverage ratio, if rates go up, you don't realize as much of the gains you've lit if you had an unhedged MSR and same math, conversely in the other direction. But I would say are our efforts to repurchase the debt, you know, are contingent on liquidity, but we also hold excess liquidity for and larger interest rate moves.

Eric Hagen

Okay, thank you, guys. Again, I think there are no further questions at this time.

Operator

I will now turn the conference over to Glen Messina. Please go ahead.

Glen Messina

Thanks, for everyone to join. Look, I want to thank our shareholders and key business partners for supporting our business. I'd also like to thank and recognize our Board of Directors and global business team for their hard work and commitment to our success and I look forward to updating all of you on our progress of our next quarter earnings call. Thank you.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.