Mr. Cooper Group Inc. (NASDAQ:COOP) Q2 2023 Earnings Call Transcript

Mr. Cooper Group Inc. (NASDAQ:COOP) Q2 2023 Earnings Call Transcript July 26, 2023

Mr. Cooper Group Inc. misses on earnings expectations. Reported EPS is $0.17 EPS, expectations were $1.21.

Ken Posner: Good morning and welcome to Mr. Cooper Group Second Quarter Earnings Call. My name is Ken Posner and I’m SVP of Strategic Planning and Investor Relations. With me today are Jay Bray, Chairman and CEO; Chris Marshall, Vice Chairman and President; and Kurt Johnson, Executive Vice President and CFO. As a quick reminder, this call is being recorded. Also, you can find the slides on our Investor Relations webpage at investors.mrcoopergroup.com. During the call, we may refer to non-GAAP measures which are reconciled to GAAP results in the appendix to the slide deck. Also, we may make forward-looking statements, which you should understand could be affected by risk factors that we’ve identified in our 10-K and other SEC filings. We are not undertaking any commitment to update these statements if conditions change. I’ll now turn the call over to Jay.

Jay Bray: Thanks Ken, and good morning everyone, and welcome to our call. Let’s turn to slide 3 and review the second quarter highlights. Starting with financial performance, I was extremely pleased with a 300 basis point gain in operating ROTCE, which hit 11.7%, and the growth in tangible book value per share, which increased to $58.81. At the same time, the capital and liquidity remain at near-record levels. Turning to operations, the servicing team produced excellent results with $182 million in pre-tax income. The portfolio reached $882 billion at quarter end, but if you include pending acquisitions, such as HomePoint, we’re over $950 billion, which is nearly on top of our $1 trillion target. Late last year, we told you to expect a surge in bulk MSR sales with cycle-wide yields, and that is now playing out as we foresaw it.

Also contributing to portfolio growth, we completed the acquisition of Rushmore Servicing, which now makes us one of the largest special servicers. I’d like to offer a hearty welcome to the 300 new team members who joined the Cooper family. We value the world-class skills you bring to our platform and the trusted relationships you’ve built with important institutional investors. Originations reported pre-tax income of $38 million, which exceeded the guidance we gave you last quarter. Despite incredible volatility in mortgage rates over the last years, we’ve never stopped investing in our platform, and I’m very pleased with our progress driving efficiencies through automation and our consistent best-in-class recapture performance. Now, turning to capital management, we repurchased 1.2 million shares for $57 million, which brings us to a cumulative 31% of shares repurchased since inception.

Furthermore, I’m very pleased to announce that our board has approved increasing the repurchase authorization by another $200 million. You should take this as a signal of our very strong confidence in Mr. Cooper’s business model, and specifically the outlook for continued growth and strong returns, which we do not see reflected in the stock price. Finally, we were very pleased to be certified as a great place to work for the fifth consecutive year and with world-class team member engagement, I might add. It’s very important for us to provide a purposeful, inclusive environment for our team members because their happiness is essential to providing our customers with the service and advocacy they deserve. So, let me pause here to say thank you to everyone at Mr. Cooper for making this such a great team to be a part of.

Now, let’s move to slide 4 as I’d like to pull up for a minute and talk about the bigger picture. As you know, when it comes to residential mortgage servicing, Mr. Cooper has the strongest and most consistent growth record in the industry with a portfolio CAGR of 30% over nearly 15 years. Now is not the time or place to dive into the details, but suffice it to say, over the last decade, we’ve acquired hundreds of portfolios totaling over $700 billion from more than 1,500 sellers, which, by the way, gives us a significant information advantage when bidding for pools. What I’d emphasize is that throughout this time, we were constantly investing in our servicing platform. In fact, internally, we talk about perfecting the platform, which, of course, is a never-ending process.

But as a result, today we are the leader in all the key performance drivers, like cost of service, loss mitigation, and recapture. These are decisive competitive advantages and the reason why we are close to becoming the nation’s largest servicer. I don’t think any of our peers would dispute that we’ve earned our leadership position through focus, discipline, creativity, and hard work. Nor do I think there’s much question among investors and analysts about our competitive advantage in servicing. So let’s turn to slide 5 and talk about return-on-equity. In 2020 and 2021, Mr. Cooper capitalized on the refinancing boom, driving ROTCE to very strong double-digit levels, thanks to a fantastic performance in both our DTC and correspondent channels.

During 2022, we passed through a transition period where origination earnings eased off due to the fastest mortgage rate increase in generations. And while it took a few quarters for servicing margins to kick back in, thanks to our balanced business model and the contribution from our large portfolio, returns are now back on the cusp of our minimum target of 12%. We are of course pleased with the direction returns have been tracking, but honestly we’re focused on more ambitious goals. And I would add there’s a lot of excitement internally about the potential for creating shareholder value as we continue to execute our plan and demonstrate to the market a sustained higher return on equity profile. So let’s talk about some of the strategic initiatives we’re working on.

First, our strategy is premised on cost leadership. Based on benchmark data, we believe we already enjoy a significant cost advantage over peers. Nonetheless, we’re working to drive further reductions in unit costs, which will help us generate greater operating leverage as we deploy capital into portfolio growth. And while at the same time deepening our competitive mode until no one can compete with us. Second, our DTC platform is extremely profitable and we’d like to see it make a bigger contribution to overall results. That means continued work on cost, speed, and customer experience while we explore new products and channels. And third, we’re working to grow our self-servicing business, which leverages our platform and provides incremental income, including gain on sell from recapture, without tying up capital or liquidity.

We’re in active discussions with potential new clients and we’re also building out our asset management capability in preparation for launching an MSR fund later this year. In closing, I’ll comment that we were quite pleased to see the stock price reached a new high since the WMIH merger in 2018. However, with the stock still trading at a discount, we don’t think the market fully appreciates our competitive advantages, the benefits of the HomePoint acquisition, and the progress we’re making on strategic initiatives. And with that, I’ll turn it over to Chris to discuss our strong operating results.

Christopher Marshall: Thanks, Jay. Good morning, everyone. Hey, before I begin my comments, I also want to add my thanks to all my teammates at Mr. Cooper for their tremendous effort, which directly translated into the great results we had this quarter. I’m also extremely proud of being certified as a great place to work for the fifth year and also being named one of the best places to work in Texas. With all these accolades, you can assume things are going very well at Mr. Cooper right now. So with that, let’s turn to slide 6 and talk about servicing, where we earned a record $182 million in pre-tax operating income. Based on these results, as well as the pending acquisitions we’ve announced, we’re raising our full-year guidance for operating income by 17%, from $600 million to $700 million.

And this doesn’t include one-time gains from a trust collapse we’re working on, which we expect to close in the second half and which will contribute an additional $50 million or more. Now this healthy contribution is exactly what you should expect from our balanced business model, as low CPR means limited activity for originations, but much stronger servicing earnings. And while many firms talk about having balance, you can see that our overall results are considerably more stable and consistent than our peers. However, while cyclical trends are favorable right now, the real story in servicing is our relentless focus on perfecting our platform, which is honestly like a religion for us. Currently, we’re laser focused on our customer call center, where we have a year-end goal of taking out 50 million dollars in annual operating costs, while improving our customers’ experience.

Our strategy is to drive lower call volume by making information much easier for customers to access on their own, which is a win-win for them and the company. We’ve been steadily making progress here, as you can see from the chart on the upper right, where calls per loan have dropped by 26%, with progress accelerating in the last few quarters. This is a huge productivity driver for us, as you can see in the chart on the lower right, where call center headcount has actually declined, even as our portfolio has grown. As you may recall, last year we upgraded our IVR to a state-of-the-art system, which allows us to better leverage customer data and machine learning. And now we’re starting to see very meaningful improvement in IVR containment, especially in areas like authentication and payments.

We’re also having considerable success with chat technology, including both human chat agents and the use of chatbots for standard servicing questions, where we’re seeing excellent rates of first chat resolution. By putting the information they need at their fingertips, we’re making life easier for our customers. And needless to say, for those customers who need help with more complicated issues, our people are always there to help them. Now let’s turn to slide 7 and take a closer look at our portfolio growth. As Jay mentioned, the portfolio ended the quarter at $882 billion, but factoring in pending transactions, it would have been $957 billion. I’d add that based on our internal forecast, we’re expecting to hit our trillion-dollar target by year-end, which would be 12 to 18 months ahead of schedule.

Although, as always, that would be subject to our first priority, which is returns. Among these pending transactions, the largest is the HomePoint acquisition at $83 billion in UPB, which is scheduled to close in the third quarter. Now as a reminder, we’re not taking over any operations, so there’s no integration to speak of post-closing. We’re planning to onboard the HomePoint loans in late 2023 or very early 2024, at which point we’ll realize the full economics of this transaction. We also have $25 billion in pending bulk acquisitions, which include a large portfolio we’re acquiring from a seller we know quite well. And what I’d share with you is that this seller values our strong customer service and very smooth on boarding process. And we continue to see a buyer’s market for MSR with plenty of attractive pools trading at unlevered pre-tax yields in the low double digits for conventional loans and even higher for Ginnie Mae, which is exactly what we guided you to expect when we shared our proprietary forecast late last year.

What’s new since then and what you’ll find interesting following the turmoil earlier this spring, we’re now seeing a sharp increase in regional banks bringing MSR pools to market. We’re also excited about opportunities to grow our subservicing business. We have a very experienced executive team with very deep industry relationships calling on potential new clients, including originators, banks, and MSR investors. Additionally, as you know we’re in the process of launching an MSR fund, which is intended to be another source of subservicing. We’re expecting our acquisition of the platform company to close in the third quarter, subject to regulatory approval, positioning us to begin a fundraising campaign in the fourth quarter. And finally, we’ve expanded our menu of subservicing products with our new special servicing capability.

So let’s turn to slide 8 and spend just a minute on this. During the quarter, we closed on our acquisition of Rushmore Servicing, and we’re now integrating Rushmore onto our platform and merging it with our existing special servicing unit, RightPath. Since Rushmore is a well-established and highly regarded player, we’ve decided to operate under their existing brand, and I’m pleased to share that we’ve not only retained Rushmore’s existing clients, but we’re already signing new ones. Should the credit cycle take a turn for the worst, Rushmore could play a very constructive role in the marketplace, helping MSR investors and other servicers manage delinquent portfolios, while working to keep as many customers as possible in their homes, which of course is everyone’s goal.

Now, recession remains a concern for many economists, but if the economy were to hit a speed bump, we’d be in a very strong competitive position. Not only would Rushmore turn into a major growth opportunity for us, but we’ve constructed a high-quality portfolio of owned MSR, where most of our borrowers enjoy sizable equity cushions and low mortgage rates. As of today, we’re not seeing any signs of strain, with our 60-day delinquencies continuing to decline during the second quarter on both an overall basis and in each individual loan category. Now, we’ve gotten some questions recently about the end of student loan forgiveness coming up in September. As you know, there are millions of homeowners for whom this represents a potential payment strain.

As of June 30th, 16% of our customers had student loans outstanding, and as you’d expect, we’re monitoring these borrowers and standing by to provide any assistance they may need. However, we’re not anticipating any major impact for the simple reason that borrowers are generally better served prioritizing mortgage payments over other obligations, so it’s not to put their home at risk. And we’ll update you more on this next quarter as we have more data. So let’s shift gears and turn to Slide 9 and talk about Originations, which was another great story this quarter with $38 million EBT, which was above the high end of our guidance. During the quarter, we saw continued outstanding execution by our DTC platform and somewhat more rational competition in the correspondent channel.

However, with mortgage rates hovering at 7%, we’re going to keep our guidance unchanged at $20 million to $30 million per quarter. And additionally, the second quarter of the year is traditionally the high watermark for originations, so seasonality may come into play in the coming quarters. Jay mentioned our ambitions to expand the scale and scope of our DTC platform, which is best in class in terms of refinance recapture rates and margins. Nonetheless, we’re continuing to invest in the platform with the goal of making further gains in speed and efficiency and producing an even better customer experience. You’ve heard us talk about Project Flash, which involves digitizing and automating tasks in the originations workflow. And just to give you an update, you can see in the chart on the upper right, how we’re driving impressive efficiency gains with direct processing cost per loan down 45% over last year.

Not only does this mean lower cost today, but this progress bodes extremely well for our ability to scale up in the next cycle whenever that might occur. In addition to Flash, we’re making a number of investments in our DTC sales platform, for example, rolling out more self-served tools for digital savvy customers and implementing much more powerful CRM databases. These investments will contribute to a more streamlined customer experience while driving further efficiency and scalability. Our recapture performance continues to be best-in-class with refinance recapture at 80% in the quarter, which is close to 4 times the industry average. This is extraordinary execution considering that most of our customers come to us through the correspondent and bulk channels.

By the way, we recently signed a letter of intent to provide recapture services to a leading MSR investor on a white label basis. And this is the first for us, and it represents a brand-new growth channel for DTC. We’ll update you more on this after our contract is signed, and hopefully, that will be next quarter. Regarding the correspondent channel earlier in the year, we saw some signs of irrational competition in terms of pricing and MSR valuation assumptions. But since then, some of the more aggressive players have backed off, market pricing has improved and as you can see, we nearly doubled volumes in the quarter. As a reminder, we’re totally focused on returns and are completely channel-agnostic. And at this point in the cycle, we continue to see higher returns in the bulk channel due to the huge volume of sellers and a relatively concentrated network of buyers with limited capacity, but more rational pricing and correspondent is creating a more compelling environment.

Now if you’ll turn to Slide 10, I’ll provide an update on Xome. Last quarter, we guided to Xome breaking even on strong sales momentum and that’s exactly what’s happened to a 25% improvement in sales and EBT actually being slightly positive. And while profitability is an important milestone, we’re obviously looking ahead to the time when this unit is generating the much larger it’s capable above. Now it’s hard for us to be precise on timing because many variables are in play. Across the entire market, foreclosure volumes are starting to pick up with one data source citing a 13% increase year-over-year. However, not seeing much movement in the FHA data, whether you look at foreclosure inventories or sales where levels are still quite low relative to pre-pandemic levels.

Now bear in mind, FHA data lags by a few months. So perhaps we’ll see more movement in the next report which would be more consistent with the sales momentum we’re seeing on our own platform. And if the economy deteriorates and you see some weakness in the labor housing markets, foreclosures could move meaningfully higher which would be a huge positive for Xome. On the other hand, I’d comment in the second quarter, the FHA extended its pandemic era streamlined and partial claims programs to all delinquent borrowers and it subsequently sought comments on additional programs that could help borrowers facing financial hardship. Now as a servicer, we think these are good borrower-friendly programs, and we’re seeing strong initial take-up rates among our own customers with upwards of 20% of delinquent customers taking advantage of them since they were rolled out a month or so ago.

Now there may be significant recidivism as well. But nonetheless, we’d expect these programs to slow the pace of normalization and foreclosures. To summarize, we can’t offer perfect clarity in the long-term outlook with respect to both macro and policy drivers. However, in the meantime, the Xome Exchange is doing an excellent job with execution and market share and I guide you to positive third quarter results with plus or minus $3 million in EBT, fueled by continued sales momentum. And with that, I’ll turn it over to Kurt.

Kurt Johnson: Thanks Chris, and good morning, everyone. I’ll start on Slide 11, which gives you a summary of the financials. I’ll call out four items to start. First, let me provide some color on adjustments, which consisted of $6 million in deal costs related to the acquisition of Rushmore, $1 million in severance and a $4 million loss associated with equity investments, largely related to. Currently Sagent is spending at an elevated level, in line with our expectations to integrate servicing technology under cloud-based core, after which it will go to market with the first ever cloud-native servicing platform. Second, regarding the acquisition of HomePoint, I’d like to remind you that we guided to roughly $1 per share gain in tangible book value at closing, and we continue to feel very good about that accretion.

Upon closing, HomePoint bonds will be assumed as part of our financing structure and will benefit from the same guarantee as our other bonds. For modeling purposes, you should expect an additional $9 million in interest expense as part of our quarterly run rate beginning in the fourth quarter of this year. Third, turning to the MSR. We marked up the MSR by $139 million to account for higher interest rates and lower CPRs, leading at quarter end valuation of 156 basis points of UPB and a multiple of 5.1 times the base servicing fee strip. Offsetting the markup, we incurred hedge losses of $111 million, which equates to coverage of 80%. This is within our communicated policy tolerance as we continue to target a hedge ratio of 75%. The mark line also included a $33 million gain from the sale of the excess servicing strip on our conventional MSR portfolio.

As you may recall in recent quarters, we retained a bigger servicing fee strip from securitized pools above the 25 basis point contractual minimum as a strategy to optimize capital market execution. With this transaction, we’ve unwound this trade and in addition to the gain, the sale generated $294 million in cash which we used for portfolio growth and stock repurchase. Finally, I’d like to update you about $50 million change in our deferred tax assets in the quarter. The DTA on our balance sheet currently totals $657 million. We continue to utilize our DTAs on an annual basis to offset taxable income and minimize our cash tax payments, which strengthens our cash flow. Now let’s turn to Slide 12 and review liquidity. In the second quarter, we added a new MSR line, which increased our overall capacity by $0.5 billion, resulting in liquidity of $2.3 billion, up $176 million sequentially, completely consistent with what we communicated to you last quarter.

Of the $2.3 billion, $517 million was in cash, with the remainder consisting of available liquidity on our MSR lines, which is fully collateralized and immediately available. Finally, I’ll comment briefly on advances, which declined 11% year-on-year despite growth in the portfolio. Now this is completely consistent with the favorable credit quality trends that Chris just discussed. While we are not seeing credit pressure at this time, we continue to maintain nearly $1 billion in borrowing capacity for advances, which we believe be more than sufficient to manage through a turn in the cycle. Our servicing group is focused on streamlining and recoveries as a further means to enhance service and profitability. Now I’ll wrap up my comments on Slide 13 by talking about our capital position.

Our capital ratio remains rock solid at 30% as measured by tangible net worth to assets, which is well above both rating agency and regulatory requirements. Now we’ve stated that we would deploy some of this capital, but we would do so in a disciplined, patient and opportunistic manner. And that’s exactly what we’ve been doing. As Jay commented, we’re on the cusp of our minimum target for our OTC and the pending acquisitions, including HomePoint as well as our strategic initiatives will help us lift returns and sustain them going forward. The primary driver of incremental returns in the future will likely be profitability rather than leverage, but one, we’re mindful of regulatory expectations, including Ginnie’s risk-based capital rules, which take effect at the end of 2024.

Additionally, our preferred source of long-term debt financing is the high-yield market, and we just don’t view current spreads as consistent with our strong credit profile. We’re focused internally on the strategic initiatives we shared with you, including lower unit costs and continued operating leverage for servicing, investing in and expanding our DTC platform and growing our base of subservicing clients. And of course, we’ll continue to deploy capital into both MSR acquisitions and stock repurchases in search of the best returns for investors. With that, I’d like to thank you for listening to our presentation. And now I’ll turn the call back to Ken for Q&A.

Ken Posner: Yes. Thanks, Kurt. And Chris, can we now start the Q&A session, please?

Q&A Session

Operator: [Operator Instructions] Our first question will come from Kevin Barker of Piper Sandler. Your line is open.

Kevin Barker: Good morning, thanks for taking my questions. Congrats on a great quarter. Can you give us a little more detail on your expectations for prepay speeds going into the back half of this year and maybe even early 2024? Just given your guidance for $700 million in pretax servicing income, service — prepay speeds are obviously running well below any expectations we’ve had. Love to hear what your view is on it, just given the macro environment.

Kurt Johnson: Sure, Kevin. It’s Curt. So in the forecast with the $700 million, we’re forecasting our speeds to be slightly up even from where they were in the second quarter and — but not significantly. Again, we’re seeing activity around kind of the 6% CPR continuing in our book, and we’ve seen that up to this point in time in July.

Christopher Marshall: And Kevin, it’s Chris. I’d say offsetting that slight increase is we talked a little bit about the efficiencies in our call center and some of the other process work we’re doing. That’s building as we go through the year. So you’ll see a slight increase in CPR but more expense saves as the year goes on. And of course, you’ll see all that annualized in 2024.

Kevin Barker: Okay. And then going — you long had an ROE target, I believe, was several quarters ago, you put out there 12% to 20%. And you’re right there at the low end of that now or very close to it. Do you anticipate continuing to operate in that ROE range over the long term, just given where you are today? Or do you expect that to drift towards the higher end given the outlook for servicing income? Thank you.

Christopher Marshall: Well, I think the trend and the higher guidance that we’ve guided to says that we’ll be comfortable in that range. And again, when we put that out, it was over the long-term, we expected to stay in that range, absent a big spike in originations, which we saw. And certainly if we see that come back to us, which will eventually, then we’d be at the higher end or higher. But over the long course, we think 12% to 20% is a reasonable range for us to operate in without any macro change in the market.

Kevin Barker: Just a follow-up on that. Do you feel like the current macro environment would allow you to operate in the midpoint or maybe the higher end of that range, just given the efficiencies, particularly within the Servicing segment?

Christopher Marshall: Well, without nailing us down to a specific number, I’d say we’re seeing a lot of efficiencies as I said, and we’re continuing to invest in the platform at a rate no one else in the industry is. So I think the future should — the bottom of that range should be much more easy to achieve, and we’re almost there now. So yes, I would hope that we would be more in the middle of that range than at the bottom of the range. And there are a lot of — I mean, the company is performing at a very high level now. So I think if anything, maybe we’ll give guidance sometime in next year that says the minimum rises and maybe the maximum rises. But for now we’re going to stick with the guidance we’ve given you.

Kevin Barker: Okay, thank you Chris, thank you Kurt.

Christopher Marshall: Thank you Kevin.

Operator: Thank you.[Operator Instructions] Our next question will come from Kyle Joseph of Jefferies. Your line is open.

Kyle Joseph: Hey good morning guys. Thanks for taking my questions. And congrats on a strong quarter. I just wanted to move focus more on the origination side. I know you guys maintained your guidance there. But in terms of the gain on sale margin, looks like it came down a bit quarter-on-quarter. Is that just a function of mix shift and kind of give us a sense for your expectations there or what margins we’re doing specifically by channel?

Christopher Marshall: It’s all mix shift, you saw more correspondent. We also had a little bit more purchase and the purchase margins are just a little bit tighter in refi, but it’s just mix shift. There’s nothing else going on. In fact, all of our margins should be ticking up as we are realizing the full year benefit of Project Flash. I think the chart it was, but you saw operating costs are down 45% year-over-year. We’re now in the midst of rolling out Flash and eventually through funding and post close. So our costs are actually coming down. Our unit costs are actually coming down. So that’s helping all the margins, but the mix shift is going to move that overall number around a little bit.

Kyle Joseph: Got it. And then on Xome, obviously, strong sales in the quarter, but inventories were flat. Is that — should we read that as that inventories are getting kind of replace or the pipeline for inventory remains strong to same inventory despite the pickup in sales?

Christopher Marshall: I think in the short term, there’s really not a whole lot of clarity on what’s going to happen with this pandemic mod program. So we’re going to be a little cautious in what we forecast. Keep in mind that when we follow that program to modify a loan, we’re going to paid incentive fees to do it. So Mr. Cooper is making money. And of course as Kurt said we had a reduction in advances of $300 million of cash. We generated a tremendous amount of cash in the quarter so we’re not financing that. So Mr. Cooper is making money no matter what. But there’s definitely going to be a delay in the return to normal sales volume due to foreclosures because of this program. On balance, it’s good for Mr. Cooper, but it’s going to mean a longer — and I don’t know if that’s two quarters or a year of how long it will take to get through the bulk of this pandemic modification program.

So we’re giving you somewhat conservative guidance there because we really don’t know what the uptake rate will be.

Jay Bray: Meanwhile, we’ve continued to invest in the Xome platform. It’s actually never been in better shape. We continue to win clients. We continue to win share, not really a matter of if it’s just a matter of when. And to Chris’ point, the latest FHA program, if it actually comes to vision, could impact that foreclosure and delinquent pipeline more. We just don’t know what the answer is going to be there. But the platform itself is continuing to perform really well and continue to win market share.

Kyle Joseph: Got it. Thanks very much for answering the questions.

Jay Bray: Thank you.

Operator: Thank you. [Operator Instructions] Our next question will come from Eric Hagen of BTIG. Your line is open.

Eric Hagen: Hey how are you doing? Good morning. I think you guys noted the expectation for banks to be sellers of MSRs. Is there any expectation you think, for banks to provide seller financing for those transactions? And even more generally, how you think maybe about the supply and availability of leverage for MSRs and maybe it impacts valuations and demand for servicing from the nonbank community?

Christopher Marshall: I’ll start with that. This is Chris. We’re already seeing banks come to market and depending on what the capital rules mean we’ll probably see more. We’ve talked to a number of banks that we have very good relationships with that are just waiting to see. So we expect to see lots of product come to market. In terms of financing, we have our financing essentially established. We’re not looking for any banks to finance a direct purchase. I actually think that would kind of be unusual and would impact our ability to have a true sale. So I don’t really expect that. But I don’t know that may occur, but it’s not going to affect our financing, nor we’ve had established financing with our partners for many years and don’t expect that to change. Kurt, do you want to add?

Kurt Johnson: Yes. I mean, look, I think that financing for us is very strong. We indicated last quarter that we added another $0.5 billion line that came to fruition. We’ve got financing lined up for the HomePoint acquisition. I think we still see our banking partnerships as being very, very strong and very, very stable. And we do continue to meet with banks on a pretty regular basis. And they’re all interested in lining up financing. So to Chris’ point, I don’t think we necessarily need financing from our sellers. I think we’ve got more than enough from our existing partnerships.

Eric Hagen: Yes. Yes. That’s good detail. All right. Maybe you could share some detail as well around what you’re expecting to achieve with the MSR fund that you’re launching? Maybe how you’d expect to select MSRs for your own account versus what might go into that fund?

Christopher Marshall: I don’t think we’re going to get into that here where we’ll focus on fundraising in the fourth quarter. Right now we’re focused on closing on the platform, which is an integral part of that. But I think we’ve evidenced over I was going to say a few years, over 10 years. We see every deal in the market, and there’s plenty of product coming to market today, certainly enough to fulfill our needs and not just a fund, but there aren’t that many buyers in the market today. It is a buyer’s market. You can be very selective on what you buy. And the intent of our fund is to — it will be run independently of Mr. Cooper, but it will take advantage of the industry-leading servicing capabilities that we have as well as our ability to source product. So we’ve got very, very strong capabilities in-house that can be leveraged, and we’re going to make that all those capabilities available to our partners in this fund.

Kurt Johnson: And I would just add, if you look at over our track record, I mean, we’ve partnered we’re financial buyers in acquiring portfolios together. And so we have a strong track record of working with others, and we would expect that to continue. And we think there’s a number of financial buyers. So Chris’ point that really look to Mr. Cooper as the leader in acquisitions and want to lean in on our capabilities. So we think that will be a great partnership.

Eric Hagen: Yes, yes. Sounds good. Do you have handy the weighted average price at which you guys have repurchased stock over the last year?

Kurt Johnson: Yes. So over the last 6 months, I believe it’s — it’s a little bit over $48. Let me get you the exact number, Eric.

Eric Hagen: Well, as you hunt for that. Thank you guys, very much appreciate it.

Kurt Johnson: Yes, we’ll put it out. But I think it’s about $48 a share.

Eric Hagen: Thank you guys very much.

Operator: Thank you. [Operator Instructions] Next question will come from Douglas Harter of Credit Suisse. Your line is open.

Douglas Harter: Thanks. You talked about looking to expand the DTC platform. Can you just talk a little bit about what it is you’re looking to accomplish there and whether you would look to do that organically or through acquisition?

Kurt Johnson: I think primarily, Doug, if you think about the universe today, there’s a — if you look at the bank universe, even some of the financial buyers, they’re looking for a strong recapture platform ultimately because there’s tremendous value in retaining those customers. And so we’ve had several inbounds around can those potential partners leverage our capability with respect to recapture? And so the first client that Chris mentioned is a financial buyer that that we’re familiar with, they’re familiar with us, and they want to take advantage of the capability we have in the DTC platform. And if you kind of look out over the next few years, we think there’s going to be a lot of financial institutions and a lot of potential other partners that want to take advantage of that capability. So we’ve built — or in the process of finalizing the build of that white label capability, so we’ll be able to offer that to a number of clients.

Douglas Harter: Got it. So I guess the focus would still remain on kind of recapture and what are you looking to kind of expand the purchase or or new client kind of acquisition while expanding DTC?

Christopher Marshall: Well, we’ve seen significant improvement in our internal DTC purchase recapture, and we expect that to continue. So that would certainly be an element of it, and it’s something that we’re continuing to improve on and invest in, but I think it will be the lion’s share of that will continue to be focused on refinance.

Kurt Johnson: Just quickly, so to answer Eric’s questions for the last quarter but $44-and-change for the year-to-date in terms of the average price of stock.

Christopher Marshall: Year-to-date or full year?

Kurt Johnson: Yes, for the last 6 months. It’s been $44 — a little over $44.

Operator: Thank you.[Operator Instructions] And our next question will come from Bose George of KBW. Your line is open.

Bose George: Hey guys, good morning. I just wanted to go back to the guidance on servicing revenues. Should we see a pickup in 4Q at HomePoint close — just wanted to — does the MSR come on day one and then sort of the when the other — when the boards onto your platform sort of incremental upside there, just to talk about the cadence?

Christopher Marshall: Yes. You’re looking at that correctly, Bose. Although, the biggest part of that is going to board I think right at the tail end of the year. So it will be modest, but of course, you’ll see the full benefit of it in ’24.

Kurt Johnson: And I think we guided at the acquisition and the presentation about a 9% accretion, right?

Bose George: Okay. Great. And then just in terms of the earnings on the Corporate segment, is the difference going forward — I mean, I guess the guidance you gave on Xome plus the $9 million interest expense on HomePoint And then should we assume the rest of corporate is roughly flat?

Kurt Johnson: Yes. I mean I think right now, we’re seeing the rest of Corporate essentially flat. You’re going to see continuation of some of these onetime charges. Obviously, we’ve got some acquisition charges that will come through in Q3 and Q4, along with the continuing operations of.

Bose George: Okay. And then there’ll be the onetime $50 million gain from the deal collapse in the back half of the year as well?

Christopher Marshall: That’s right. So yes, we’re again guiding to that. And then again, the onetime bargain purchase gain from the acquisition, which we initially said was $1 per share, and we’re very comfortable that’s fairly conservative around that.

Bose George: Okay, great thanks.

Operator: Thank you.[Operator Instructions] Next question will come from Giuliano Bologna of Compass Point. Your line is open.

Giuliano Bologna: Good morning and congratulations on another great quarter of performance. Maybe switching back to the origination segment. Obviously, DTC has been a hit the platform there. And I realize there’s some timing components in terms of forwarding new MSRs, but that portfolio mostly feeds off of leads from the MSR book that you own and sub-service. Should we expect DTC volumes to continue to increase roughly in line with portfolio growth, albeit kind of on a delay as sort of those new books? And is that a material source of growth that should help the DTC platform continues to grow into ’24?

Christopher Marshall: Yes. That’s exactly right, Giuliano. It’s — with more inventory, we got more opportunity. And so there’s some — granted every pool is not exactly the same. Coupons are a little different. All those things are different. But on average, the more portfolio we have, the more originations we’re going to do.

Giuliano Bologna: That makes sense. And then one quick one related to Rushmore, it looks like there was a $23 million intangible recognized in the quarter. I thought that was $0.34 a share. Is that the rough kind of impact of tangible book value from the transaction?

Kurt Johnson: Yes. And look, that was due to the purchase of the Rushmore platform and the contracts. So you’re spot on. That will probably be amortizing over time. We do — we did see Rushmore make money for this quarter even and we expected to see it on a go-forward basis. But that $23 million will accrete downwards and offset the earnings from the platform.

Giuliano Bologna: And then one last one as taking the business all the time, but to be material in the future. Thinking about the transaction and the partnership there. Do you have a sense of if the whole platform has been integrated and if they’re marking it to clients already? Or is it still in the integration phase and soon to be marketed declines?

Christopher Marshall: Yes. I think — I wouldn’t say they’re marketing it. They’re discussing it with clients. Clients are calling them because of — this is the first time there’s been a new technology even available on servicing in 40 years. The integration is not complete. There’s probably another nine months to go before. And again, this is the integration of our technology with Fiserv’s new cloud-based score referred to as Finxact. So there’s still some time to go. I think things are progressing well working very, very closely with not just the team but the Fiserv team. And look, we feel it’s a great technology. For us, we can look directly at our operations and see enormous amount of manual work coming out. I think that’s going to apply — that’s going to be very, very attractive to other servicers.

But I wouldn’t think of this as a ’24 we’re going to turn the corner. I think they will begin heavily marketing it probably in the middle of ’24 with the expectation that clients will start migrating to that platform, maybe at the end of ’24, the beginning of ’25. So this is a long-term project for us. But the company is making very large investments in this integration and the technology itself; both ours and Finxact are world class. So I think the upside is very, very promising.

Kurt Johnson: And really, the partnership with Fiserv is probably more exciting today than even has been historically. If you look at the Fiserv client base, once we complete this integration, and the ability to take it not only to kind of existing servicing clients but move through the Fiserv client base, it’s really attractive. And so I think we’re extremely excited about the opportunity here.

Giuliano Bologna: Okay thank you so much for that color. I really appreciate for answering the questions and I’ll jump back in the queue. Thank you.

Christopher Marshall: Thank you Giuliano.

Operator: Thank you. I see no further questions in the queue. I would now like to turn the conference back to Jay Bray for closing remarks.

Jay Bray: Thank you everybody for joining the call, and we’ll be available later today for questions. Really appreciate it.

Operator: This concludes today’s conference call. Thank you all for participating. You may now disconnect, and have a pleasant day.