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Nationstar Mortgage (NYSE:NSM)
Q2 2018 Earnings Conference Call
Jul. 17, 2018 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day, ladies and gentlemen, and welcome to the Nationstar Mortgage Holdings Inc. [Inaudible] 2018 conference call. [Operator instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Amar Patel, chief financial officer, you may begin.

Amar Patel -- Chief Financial Officer

Good morning, everyone, and thank you for joining our second-quarter 2018 earnings call. Before we get started, I'd like to remind you that our quarterly press release and earning supplement are available from the Investor Information section of our website, www.nationstarholdings.com. In addition, we will make forward-looking statements during today's call that are subject to risk and uncertainties. Factors that may cause actual results to differ materially from expectations are detailed in our SEC filings, including the Form 8-K filed today, containing our earnings release and quality supplement.

Information about any non-GAAP financial measure is referenced, including a reconciliation of those measures to GAAP measures, can also be found in the earnings release and in the quarterly supplement available on the website. I'd like to now turn the call over to Nationstar's Chairman and CEO Jay Bray.

Jay Bray -- Chairman and Chief Executive Officer

Thanks, Amar. Good morning, everyone. Before discussing the quarter, I wanted to provide a brief overview of our business. Nationstar is a truly unique platform with a set of assets that are unlikely to be replicated in our lifetime.

We are currently the third largest servicer in the United States. We support homeownership for over 3.2 million customers and earn fees in our servicing portfolio of almost $500 billion. We are also the 15th largest originator originating over $20 billion in loans annually. Our originations segment provide solutions to our customers and allows us to recapture existing customers and gain new customers at attractive returns.

Xome is our high-margin fee-based real estate services business, which supports Nationstar and third parties with a range of services, including title, close, valuation and property preservation and inspection. Over the last year, we have fulfilled over 424,000 services orders and sold over 11,000 properties. Our platform has never been stronger and we have an opportunity for continued growth across all segments. Now let's look at the second-quarter results.

We, again, delivered solid operating results with all segments experiencing growth. We reported GAAP net income of $58 million or $0.59 per diluted share and adjusted earnings of $52 million or $0.53 per diluted share, which is a 20% increase from the prior quarter. Servicing generated 5.8 basis points of adjusted profitability on a servicing portfolio of nearly $500 billion. Originations earned $33 million adjusted pre-tax income and delivered $5.5 billion of funded volume.

Xome earned $13 million adjusted pre-tax income and sold over 3,700 properties and completed over 117,000 service orders with added third-party influx. Let's take a closer look at servicing. Servicing had a fantastic quarter. They performed ahead of expectations, achieving $72 million of adjusted pre-tax income or 5.8 basis points of profitability in the quarter.

The increase in profitability of approximately 5% from the prior quarter was mostly with the result of lower expenses. Expenses improved by $16 million or 9% quarter over quarter as a result of improved efficiencies in the business. Prepayment and delinquency trends also continued to be favorable for the business. We boarded $20 billion throughout the quarter and ended with $498 billion portfolio with 3.2 million customers.

We already have $65 billion scheduled to board over the second half of the year. These transfers, along with other normal market transactions, will help achieve our targeted growth to $533 billion by the end of the year. In addition, the opportunities for further growth are significant for both MSRs and subservicing. We believe our capabilities to capture these opportunities are unmatched, and we will maintain the same discipline in evaluating them as we have historically.

Equally exciting for servicing is our servicing transformation project, which we have named Project Tighten. We have established a project management office and already identified several work streams to increase efficiency, while improving the customer experience. Implementation of a few work streams are currently under way to produce $30 million in annual savings by the end of the year. This is clearly Phase 1, and we expect to continue to execute on more initiatives to reduce a meaningful portion of the $418 million in annual servicing expense over the next 24 months.

But I'm super excited that we have already identified $30 million in our first phase. A low prepayment environment, portfolio additions, and identified cost savings for 2018 will drive continued improvement in our results and allow us to achieve our stated target of 6-plus basis points of adjusted servicing profitability. Now let's move on to originations. Originations delivered $33 million in adjusted pre-tax income.

That's a 32% improvement quarter over quarter. This was led by higher volume and lower expenses. Complemented by our servicing portfolio, our origination business has performed quite favorably this year relative to the industry. In the quarter, we funded over 25,000 loans, totaling $5.5 billion, which was composed of $2.6 billion from the consumer direct channel and $2.9 billion from the correspondent channel.

In the consumer direct channel, we have maintained refinanced recapture rates in excess of 50%. We've recently begun to push to purchase recapture and new customer acquisitions. To help us succeed with this initiative, Francis Lobo recently joined our team as chief business and product officer. I'm very excited to have him on board to lead our product and digital transformation just as he has previously done in other innovative companies.

We have tremendous opportunity to help nearly 750,000 of our existing customers consolidate debt and improve cash flow, digitally driven customer-focused tools, like our home intelligence app will help optimize the personal balance sheets for our customers and drive additional volume for this business from both existing and new customers. With new talent, tools and products, we are confident in our abilities to provide solutions to our customers and expect continued growth in the second half of the year. Given the current interest rate and market environment and the required investment in home intelligence and new customer acquisitions, our full-year target for 2018 is $120 million of adjusted pre-tax income. Now let's move on to Xome.

This quarter, Xome earned $13 million in adjusted pre-tax income. Both the exchange and services segments experienced sequential growth as property sales and completed order volumes increased. The exchange business sold over 3,700 properties in the quarter. That's a 16% increase.

Third-party listings accounted for over 45% of total property sales as the segment continues to attract third-party business and referral listings. The exchange business added six new institutional clients during the quarter. In addition, the services business completed over 117,000 orders in the quarter, which represents a 5% increase. The field service business started taking initial orders last quarter.

The processing of property inspection and preservation orders is continuing and is expected to be fully ramped capturing the $100 million revenue opportunity by the end of the year. While Xome has a proven track record of incubating, launching and expanding services, we have also opportunistically progressed on acquisitions. We believe there's going to be many opportunities in the marketplace and we look forward to taking advantages of those opportunities to support revenue and third-party growth. Nationstar is targeting Xome adjusting pre-tax income of $60 million for the full year of 2018.

Moving on to the next page. The second quarter generated solid operating results. Servicing profitability improved ahead of expectations, and significant opportunities exist for growth. Originations grew profitability in volume and is focused on providing solutions for our 3.2 million customers.

Xome's sale and order volumes increased with continued addition of new third-party clients. Our targets for 2018 are 6-plus basis points profitability for servicing, $120 million for originations, $60 million for Xome and $30 million in year-over-year savings for corporate. We are focused on achieving these targets and executing on our initiatives. In closing, I'm truly excited to announce that we will be closing our merger transaction on July 31 as we have received all necessary approvals.

We appreciate the support of our shareholders, the WMIH shareholders, and all our partners, who have provided these approvals. We firmly believe that this transaction creates value for all shareholders. Post-merger, we will be a better-positioned business with additional free cash flow created by cash tax savings. We plan to utilize this increased cash flow for continued investments and disciplined capital management.

I have been here for over 18 years and I can tell you I've never been as excited as I am now about the future of this platform. Given all the opportunities for each of our segments, we look forward to growing our different -- differentiated platform and building value for our shareholders and customers. I'll now hand it back over to the operator for Q&A.

Questions and Answers:

Operator

Thank you. [Operator instructions] Our first question is from Bose George with KBW. Your line is now open.

Bose George -- Keefe Bruyette & Woods -- Analyst

Hey, guys. Good morning. First, just on the guidance on the servicing side. Your guidance of the 6 basis points mentions lower prepayments, and I was curious does that assume any change in rates? And then just given how low prepayments are right now and apart from seasonality, just curious how you think prepayments will trend?

Amar Patel -- Chief Financial Officer

No, I think it's really just consistent as they are now. We're not really assuming that rates are going lower that prepayment fees are going lower. We're just kind of assuming that it's going to maintain throughout the rest of the year, Bose. I think the real way to think about servicing is, we have $65 billion in additional portfolios like down for the rest of the year.

We think $50 billion of that will come in the third quarter and, call it, $15 billion of that in the fourth. And that will be a mix of both subservicing and MSR. And so we feel great about the ability to continue to grow the portfolio, and that's really what's going to continue to drive kind of the overall profitability. And then, I think we still see, as we have talked abou a lot, runway on the expense side with the launch of Project Tighten with some other things that we have done to tighten down losses, etc.

I think, we feel that you will continue to see a positive trend in the overall expense. If you think about it, we're anticipating the boarding of the $50 billion, we've already -- we have the people on board. So you will have the $50 billion of incremental portfolios coming in third, early fourth, without any really incremental expense. So that's how we are -- that's the math that we are using to get to the 6-plus basis points.

Bose George -- Keefe Bruyette & Woods -- Analyst

OK. It makes sense. Can you talk about the pipeline for any larger transactions that are out there?

Jay Bray -- Chairman and Chief Executive Officer

Well, I think we -- when you look at it in totality, it's a pretty large pipeline, right? When you look at just normal servicing transactions throughout the year, that's close to $300 billion and that's just kind of normal trade that you see through some of the brokers, etc. When you look at some of the consolidation opportunities that are out there, some of them publicly announced, some of them not, I mean, that's going to be another 250 to 300. And then just through our normal kind of process of sub-serving opportunities that we see in the pipeline, I mean, you could be talking close to an $800 billion pipeline. And we generally win our fair share of that.

So I mean, we're bullish. I mean, I think we do see opportunities to acquire and grow the subservicing business. Again, I think our approach is going to be no different than in the past, be very disciplined and very thoughtful and look at what really makes sense for the overall platform. But it's -- I'd say, it's larger today than it's been in a long time.

Bose George -- Keefe Bruyette & Woods -- Analyst

OK, great. That's helpful. And then just one more, just on the originations side. The reduction in the guidance, that $20 million, was that mostly volumes, margins? Just what was different from what you had seen earlier?

Jay Bray -- Chairman and Chief Executive Officer

It's really -- it's not that complicated. I mean, when you look at our overall volume expectations, we are hitting those. But we're seeing more coming from correspondent than versus direct-to-consumer. The real change in guidance is almost solely driven to the change in our pay-off mix.

So we had assumed a certain amount of pay-offs in the portfolio would be purchase and versus refinance. We've actually seen more purchase pay-offs than refinance than what we have forecasted. And so it's just a function of that. Our recapture on the purchase pay-offs is quite low, that's something we're working on and frankly have seen a lot of improvement in, but still not enough to move the needle.

So it's really just the change in the mix of our overall pay-offs in the portfolio are more purchase today than we have forecasted versus refinance. The good news is, on the refinance side, we are still recapturing over 50%. And if you look really at the direct-to-consumer channel, quarter-over-quarter revenues are up, expenses are down, volume is up. So that channel is rocking and rolling.

And I think we will continue to have great quarters. But the pond that they are fishing in has just gotten a little bit smaller because we are seeing more the pay-offs in the purchased area. So it's really all due to that. Now if that changes, clearly, we will come back and give you guys an update and we think there could be upside.

But right now, as we see the mix, that's what the shift was due to.

Bose George -- Keefe Bruyette & Woods -- Analyst

OK, Great. Thanks a lot.

Operator

Our next question is from Mark Hammond with Bank of America. Your line is now open.

Mark Hammond -- Bank of America -- Analyst

Thank you. Hi, Jay and Amar. I have three quick questions. So the first one, regarding the recent bond deal.

You have $2.5 billion in debt pro forma. I was wondering if you could give any expectations with regards to the pace and amount of delevering, if any, that the investment community could expect.

Jay Bray -- Chairman and Chief Executive Officer

Well, I think, look, we were, on the positive side, pleased to get the deal done in a tough market. Clearly, we extended the weighted average life of our debt from, call it, two years to over five. And still, when you step back and look at the overall debt and the cost of that, the deal is still cash flow-accretive and so we're -- I think we're overall pleased to have that done and kind of have our capital structure locked in. From a deleveraging standpoint, I mean, one example of that is if you recall in our pro forma, we had assumed 2.7 or 2.75 in kind of the original pro forma for debt.

We actually only went out and raised in total 2.5. So we already kind of put some of our extra liquidity to work in and brought that 2.75 down to 2.5 versus the original pro forma. So I think that's a good story. And then if you look at our track record, it's pretty outstanding, right? We have over the last three or four years, delevered over $600 million-plus in overall debt bringing the debt down from, really, it was around 2.5, all the way down to 1.8, 1.9.

So we have a good track record of that. When you look at cash flow of the overall business, I mean, we feel like we're still going to be able to make the investments we need to grow the portfolio and continue to delever. We would like to bring, call it, over the next three years, debt back down to the level it was kind of premerger. So that's, in general, how we're thinking about it.

And that will depend on what market opportunities exist and where we can deploy capital and what the returns are in the marketplace. But we're very focused on delevering. We always have been. I think we've got a good track record of doing it, and we see a pathway to do that.

But we're going to balance that with the $800 billion pipeline and what some of the other opportunities in the marketplace are.

Mark Hammond -- Bank of America -- Analyst

Great. Thanks. That's helpful. Speaking of the pipeline, in the prepared remarks you mentioned opportunities in servicing and subservicing.

Would you be able to comment on any opportunities within reverse servicing specifically that you're seeing?

Jay Bray -- Chairman and Chief Executive Officer

Reverse is a -- it's just such a smaller fund, right. If you step back and think about what's going on in that business, you're seeing originations shrink dramatically, which we think were prudent steps taken on the origination side of the market, and so it's just a smaller pond. When we looked at reverse historically, it's been a, I would call it an opportunistic opportunity where there were just trades that really made sense. We have a great platform now.

If there are portfolios that make sense for us, we'll certainly take a look at them. But when we speak to the pipeline, we're really focused on forward. We don't really include reverse in the pipeline because we just see this as more one-off opportunistic-type transactions.

Mark Hammond -- Bank of America -- Analyst

Gotcha. And then the last one would be, do you have the percentage of your primary forward servicing that's Ginnie Mae offhand.

Jay Bray -- Chairman and Chief Executive Officer

It's going to be...

Amar Patel -- Chief Financial Officer

With the MSRs, it's roughly about 15% to 16%. And over the broader portfolio, including MSRs and subservicing, it's close to 18%.

Mark Hammond -- Bank of America -- Analyst

Thanks, Amar. Thanks, Jay. I appreciate it.

Jay Bray -- Chairman and Chief Executive Officer

Sure, thank you.

Operator

Our next question is from Henry Coffey with Wedbush. Your line is now open.

Henry Coffey -- Wedbush Securities -- Analyst

Yes. Good morning, everyone. So in sort of conjunction with less retail from the recapture business, maybe you can just give us some sense of where sale margins are for both retail and correspondent?

Jay Bray -- Chairman and Chief Executive Officer

Yes ,they actually did quite well. I mean, we tend to quote kind of revenue and profit. But if you look at the direct-to-consumer, Henry, I think quarter over quarter, our revenue actually grew. Let me just get that number in front of me.

So we're 4.43% in direct-to-consumer revenue in the first quarter. We are at 4.9% -- I'm sorry, 4.8% in the second quarter. So you saw about an 8% overall increase. In correspondent...

Henry Coffey -- Wedbush Securities -- Analyst

So it went from 4.43% of volume to 4.8%?

Jay Bray -- Chairman and Chief Executive Officer

That's right.

Henry Coffey -- Wedbush Securities -- Analyst

OK. And then correspondent?

Jay Bray -- Chairman and Chief Executive Officer

Correspondent was pretty flat. Actually, it went from – again, I'm giving you the revenue side of the equation, call it, 56% to 50%. So that's down a little bit, but pretty flat for correspondent.

Henry Coffey -- Wedbush Securities -- Analyst

And frankly better than industry if you look at what the majors have been reporting. And that mix change is likely to continue given your comments on the call unless we're going to see more correspondent and maybe slightly less retail.

Jay Bray -- Chairman and Chief Executive Officer

I don't think you'll see a change materially from the second quarter. I mean, you may see correspondent tick up slightly. But what we had really forecasted like I said for the remainder of the year is, the direct-to-consumer volume would be slightly higher just due to the more refinance pay-offs. But I don't think you'll see a change that much, Henry, because we are ahead -- if you look at overall, again, originations is pretty remarkable story, 32% up quarter over quarter.

If you look at the volume, we're actually ahead of kind of where we thought we would be from an overall volume standpoint. And so I don't think you will see a huge shift in that mix. So we will keep you posted on that.

Henry Coffey -- Wedbush Securities -- Analyst

And then with Xome, I mean, it just sounds like it's a second-half story that you get more -- the September quarter seasonally is a big one. And then, you have the property preservation business kicking in by the fourth quarter?

Jay Bray -- Chairman and Chief Executive Officer

Yes. I think it's -- I think that's the simple way to think about it. I mean, the good news on Xome is the third-party machine is working. I'm pretty proud of the guys.

We signed 11 new third-party customers in the second quarter, five in the exchange business, six in the services business. When you look at overall percentage of third party that continues to climb, we actually had some huge wins in the quarter, one large win with one of the GSCs, couple of big wins with some very large financial institutions. So I think you are just going to see steady momentum in the services and exchange business. And then to your point, field services is doing well.

I think it's on track, and you'll continue to see that climb throughout the rest of the year. So I think you're right. Net-net, that's the way to think about it. But I feel like we're a bit ahead on our kind of third-party wins, and hopefully that momentum will continue into the third.

Henry Coffey -- Wedbush Securities -- Analyst

Cool. Thank you.

Jay Bray -- Chairman and Chief Executive Officer

Sure.

Operator

Our next question is from Doug Harter with Credit Suisse. Your line is now open.

Douglas Harter -- Credit Suisse -- Analyst

Thanks. Jay, as you're looking at the pipeline, can you just talk about how the presence of the DTA changes your appetite for doing transactions, whether they be MSRs versus subservicing versus whole companies? And whether there's anything else sort of that makes more sense given that DTA?

Jay Bray -- Chairman and Chief Executive Officer

Yes. I think net-net, Doug, it doesn't change a lot. Obviously, I think it certainly puts us on a level-playing field with any financial buyer that's out there in the marketplace. And it certainly, obviously, is a positive.

But, I don't know, Amar, if you want to comment on anything else there on how it would change our philosophy?

Amar Patel -- Chief Financial Officer

Yes, I mean, I think as we -- as Jay said previously, we kind of have a pretty disciplined approach when we look at MSR deals and the route we go with them, whether we go to fully commit our capital or we engage a capital partner or we do subservicing. I think that mindset in terms of targeted yields that we want to achieve is going to stay the same. The DTA is likely a good benefit for us, and it's something that our shareholders can benefit from in the future. But our mindset is to continue to be disciplined with how we invest our capital and making sure we get the right returns for the level of risk we're taking with our investment and with our capital.

Douglas Harter -- Credit Suisse -- Analyst

And then if you could talk, you talked about, again, an active pipeline. Can you talk about where you see your -- the scale on the servicing side, the ability to kind of add additional balances and how much additional headcount you might need to add just so we can get a sense of incremental profitability up for that pipeline?

Jay Bray -- Chairman and Chief Executive Officer

Yes. I mean, I think the -- I mean, I'd start with where we're at today, right? I think the $50 billion for the third quarter, we feel good about. And we don't need to add any incremental heads and kind of did that in the second quarter and still reduced expenses overall. I think the 15 in the third are clearly -- I'm sorry, in the fourth, we don't need to add any heads for that.

It's not of the size that we would need to add. When you think about the pipeline overall, I think, it depends, Doug, on the size and complexity of the opportunity. An easy way to think about it is, we can add, if you take $15 billion in kind of current servicing, we probably need less than 100 heads for that, right? If you take -- if that's a mix of delinquency, then you're going to need more. But we -- when you think about the size and scale of the platform, there is really, in my mind, no strategic buyer out there that can compete with us.

I mean, given the scale, given the machine that we have today, I don't see anyone competing with us. But as we think about -- as these new opportunities have opened depending on the size and complexity of those. But we don't anticipate for the remainder of the year to get to that $530 million needing to add, frankly, anybody at all. I think it will be a very small number.

Amar Patel -- Chief Financial Officer

And when you think about overall capacity and larger opportunities, it's all about technology, people and space. From a technology standpoint, we have $3.2 million loans on our platform today. The platform has been tested to take on close to $6 million loans without any real significant investments in incremental technology spend. We can grow beyond that obviously if we invested more.

So getting to that higher customer account would not require big investments from our standpoint. We've shown – from people side, we've shown we've been able to increase headcount as necessary because our training programs are great and we can get people ramped up pretty quickly. And then space, obviously our principal locations in Dallas, we've got another center in Arizona, and we've got capacity in all those locations to currently add space for the people as well.

Douglas Harter -- Credit Suisse -- Analyst

Thank you.

Operator

Our next question is from Kevin Barker with Piper Jaffray. Your line is now open.

Kevin Barker -- Piper Jaffray -- Analyst

Thank you. In regards to the amortization expense this quarter, the net $48 million, which was in line with last quarter, yet you had an acceleration of CPRs to 12.1% from 10.7%. Was there a reason the amortization expense basically remains the same and just slightly higher on basis points this quarter even though CPRs went higher?

Amar Patel -- Chief Financial Officer

Yes, fair question, Kevin. The actual gross amortization actually went up. We reported net $48 million, which includes gross amortization net of co-invest accretion and so prepay did go up marginally from Q1 to Q2 and so gross amortization did go up. But because of the mix of the prepays depending on where it was between our excess servicing spread pools versus our unencumbered pools, there was a bit of an offset there.

And that's why we had a net no change in amortization and that's one reason why we exceeded our expectations for Q2.

Kevin Barker -- Piper Jaffray -- Analyst

OK. And then what are your expectations for CPRs in your guidance for 6-plus basis points of servicing EBT?

Amar Patel -- Chief Financial Officer

Well, we've said that our estimate is 11% net of recapture. And if you look at where we're at today in Q1 and Q2, we're slightly below that. With seasonality factors, Q3 is intended to be higher, but we're seeing the trends pretty favorable, meaning the pay-offs requests and the volume of prepays is not as high as we've been expecting.

Kevin Barker -- Piper Jaffray -- Analyst

So when you're saying net of recaptures, are you including some recapture earnings in your servicing profitability or?

Amar Patel -- Chief Financial Officer

No.

Kevin Barker -- Piper Jaffray -- Analyst

So what would be the gross CPR in that guidance?

Amar Patel -- Chief Financial Officer

It will be around 12.7%, and we're not including earnings. It's really just volume and UPB metric.

Kevin Barker -- Piper Jaffray -- Analyst

Got it. OK. And then what is the cost basis to your MSR in the second quarter in basis points? And then what amount of fair value mark-up was associated with -- that came through fair value that was amortized?

Jay Bray -- Chairman and Chief Executive Officer

Yes. Cost basis is approximately 80 basis points. And the difference between the fair value and the cost basis that came through in Q2 was $31 million.

Kevin Barker -- Piper Jaffray -- Analyst

And then in the pipeline that you laid out roughly, I believe, it was $800 billion, is that right?

Jay Bray -- Chairman and Chief Executive Officer

Yes.

Kevin Barker -- Piper Jaffray -- Analyst

And then what is the expected yield that you would have on new acquisitions given the type of pipeline that's out there today?

Amar Patel -- Chief Financial Officer

Well, it would depend on how we would structure the transactions, right? The $800 billion would include $350 billion of normal market. On average, there is about $150 billion to $200 billion that trades via the bull market. There's another $150 billion that trades via the flow market. And then, we've got other consolidation opportunities and then we've got a subservicing pipeline as well where we've got active clients who we're pursuing to give more subservicing volume in.

So the returns are all different for those types of acquisitions. Typically, if we want to invest for capital, we want to get close to mid-teens type of returns. And we do believe that we have that opportunity with some of the portfolios that we're looking at, and that is currently where we are investing if we're going to fully commit our capital to it. But then we can also engage a capital partner when we're working alongside someone for MSRs.

And then, with subservicing, obviously, there is no capital required, but we trade at 25% to 35% margins in that business.

Kevin Barker -- Piper Jaffray -- Analyst

So on the mid-teens returns, are you referring to a pre-tax ROE? Or is that -- and is that considered on a levered basis? Or is that on a gross unlevered basis?

Amar Patel -- Chief Financial Officer

Yes. That is an unlevered return on a pre-tax basis.

Kevin Barker -- Piper Jaffray -- Analyst

OK. And then, you mentioned, correct me if I'm wrong, you said 50 basis points gain on sale margin in the correspondent channel this quarter and...

Amar Patel -- Chief Financial Officer

That is the revenue, yes.

Kevin Barker -- Piper Jaffray -- Analyst

The revenue. And so when you refer to the net gain on sale margin versus peers, would that 50 basis points be apples-to-apples? Or is that backing out the significant part of expenses that you would otherwise see at some of your competitors?

Amar Patel -- Chief Financial Officer

I can't comment on our competitors. From our standpoint, right, we earn 50 basis points in revenue and that can range anywhere from 50 to 55 basis points. And our costs are typically 25 basis points, and we make 25 basis points of profitability on net margin on correspondent.

Jay Bray -- Chairman and Chief Executive Officer

I mean, that's the way we typically have managed the business, Kevin, it's looking at what is the net kind of profitability and how we view that again as just another way to acquire MSRs. And so we're maintaining that 25 basis points of what we call profitability kind of EBT, earnings of before tax, and that's how we think about it.

Kevin Barker -- Piper Jaffray -- Analyst

OK. And then one more. What would the average capitalization of an MSR on your origination channel this quarter given CPRs have been relatively low?

Amar Patel -- Chief Financial Officer

I don't have the exact number in front of me, but I believe it's in the 110 basis points range.

Kevin Barker -- Piper Jaffray -- Analyst

OK. Thank you for taking my questions.

Operator

Our next question is from Sam McGovern with Credit Suisse. Your line is now open.

Sam McGovern -- Credit Suisse -- Analyst

Hey, guys. Thank you for taking my questions. I'm just following up on the last question. I was hoping you could talk about where transactions are happening for MSRs, both from newly originated and also for Ginnie and then seasoned MSRs, and whether those transaction values have changed much over in the last quarter or two?

Jay Bray -- Chairman and Chief Executive Officer

Sure. If you look at Q2, we boarded $20 billion. Of that, $14 billion was MSRs, $6 billion was subservicing. And looking at the $65 billion that we've already got scheduled to board over the second half, it's around $35 billion subservicing, $30 billion MSRs.

And so that averages to about 50-50 between the MSR and subservicing mix. And we're seeing returns fairly flat quarter over quarter, Sam. I mean, from our standpoint, we're able to invest at the required returns and with our -- how we can kind of invest capital and getting how partners have introduced subservicing, I think we can have plenty of opportunities to further penetrate the pipeline. We haven't really seen -- to your question, we haven't really seen a big change in the yields across those products.

Sam McGovern -- Credit Suisse -- Analyst

Got it. That's very helpful. And then just in terms of the latest credit stats, I was hoping you could provide an update in terms of where those numbers are. I can't imagine that they have changed much since the deal was marketed.

But if you have those numbers at hand, that would be helpful.

Jay Bray -- Chairman and Chief Executive Officer

I'm sorry, Sam. What was that credit stats?

Sam McGovern -- Credit Suisse -- Analyst

The latest credit stats, whether it's debt-to-EBITDA or...

Jay Bray -- Chairman and Chief Executive Officer

Sure, for the corporate debt, yes, it hasn't changed at all. Our corporate debt-to-EBITDA is going to be around 1.1, and our debt-to-EBITDA coverage is likely going to be close to 4.5 to 5.

Sam McGovern -- Credit Suisse -- Analyst

OK. Great. Awesome.Thank you, guys, and I'll pass it along.

Operator

And I'm showing no further questions. I would now like to turn the call back to Jay Bray for any further remarks.

Jay Bray -- Chairman and Chief Executive Officer

Thank you, guys. We appreciate you participating. We'll be having calls throughout the day. So thanks a lot.

Operator

[Operator signoff]

Duration: 37 minutes

Call Participants:

Amar Patel -- Chief Financial Officer

Jay Bray -- Chairman and Chief Executive Officer

Bose George -- Keefe, Bruyette & Woods -- Analyst

Mark Hammond -- Bank of America Merrill Lynch-- Analyst

Henry Coffey -- Wedbush Securities -- Analyst

Douglas Harter -- Credit Suisse -- Analyst

Kevin Barker -- Piper Jaffray -- Analyst

Sam McGovern -- Credit Suisse -- Analyst

More NSM analysis

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