Mr. Cooper Group Inc (COOP) Q3 2020 Earnings Call Transcript

Mr. Cooper Group Inc (COOP 2.35%)
Q3 2020 Earnings Call
Oct 29, 2020, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Mr. Cooper Group's third-quarter earnings call. [Operator instructions] Please be advised that today's conference is being recorded. [Operator instructions] I would now like to hand the conference over to your host, SVP of Strategic Planning and Investor Relations Ken Posner.

Sir, please go ahead.

Ken Posner -- Senior Vice President of Strategic Planning and Investor Relations

Good morning, and welcome to Mr. Cooper Group's third-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; and Chris Marshall, vice chairman and CFO.

As a quick reminder, this call is being recorded, and 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 -- Chairman and Chief Executive Officer

Thanks, Ken, and good morning, everyone, and welcome to our third-quarter call. Let's start, as always, by reviewing the highlights. Net income was $214 million or $2.18 per share. Excluding the mark, the pre-tax operating income was $348 million, equivalent to an ROTCE of 51% and tangible book value increased to $23.95.

This was another quarter of exceptional results from Mr. Cooper, reflecting the power of our balanced business model. The origination segment produced record pre-tax income of $438 million on record funded volume of $15.6 billion. And Xome generated $18 million in pre-tax income.

The servicing margin was roughly breakeven as expected, given continued low interest rates and high prepayment fees. In total, we were quite pleased with the overall results. Strengthening the balance sheet was another important theme this quarter. As you know, this is one of our strategic pillars.

In early August, we retired $100 million of senior notes and refinanced $850 million in a transaction, which was 3 times oversubscribed. We issued the new debt at a coupon of 5.5%, which is down significantly from the levels of 8% to 9%, where we finance the WMIH merger. And our new bonds are trading above par, indicating a very positive market response to our balance sheet strategy. As a result, not only did we bring our fund -- bring down funding costs, but we extended our liquidity runway until mid-2026, which means we have no senior note maturities for more than five years.

We further strengthened our liquidity by obtaining a two-year committed line for Ginnie Mae advances. We were the first servicing company to obtain this type of financing and it is a real game-changer for us. It brings our total unused advanced capacity to $1.5 billion, which we feel positions us for an extremely adverse economic scenario should one occur. And if one does not occur, it provides dry powder for future Ginnie Mae acquisitions.

Chris will give you an update on forbearance, but I'll just mention we feel increasingly optimistic about the trends. Based on our robust liquidity and cash flow, we bought back 1.2 million shares and paid down some working capital facilities and still ended the quarter with $946 million in unrestricted cash. As Chairman and CEO of Mr. Cooper, it's generally my practice to comment on financial results rather than the stock price.

But I do think it's appropriate for me to point out that our valuation, which is below 1 times tangible book value and less than 6 times 2021 consensus earnings doesn't seem consistent with the results we just shared with you, whether it's the 51% ROTCE or the stronger balance sheet. Also, as a reminder, Xome is a very valuable asset, which does not show up in book value. And in our opinion, its value is not appropriately reflected in our share price. Given the valuation disconnect and the fact that we're seeing a number of market participants in the process of going public, I'm going to spend a few minutes reviewing the company at a high level and then we'll dive into the details of the quarter, as we always do.

I'd sum up our story by pointing to our people, our technology, and our balanced business model as the key sources of strength. If you'll turn to Slide 4, I'll share with you a very simple philosophy. If you don't have happy team members, you're not going to deliver the results that customers need. We demonstrate our commitment to our team members in many ways.

When the pandemic struck, we moved 97% of our employees to work from home in a matter of days and productivity actually increased. We care about making Mr. Cooper a positive environment for our people and we've been recognized by the MBA with a leadership award for diversity and inclusion. I'm especially pleased to report that we've been certified as a Great Place to Work for the second year in a row.

This certification is based on an in-depth survey that goes out to all our employees. This year, we had an 88% participation rate and 87% of our team members describe Mr. Cooper as a great place for them to work. These metrics place us within a small group of special organizations worldwide.

Earlier this fall, we announced plans to add additional capacity. To give you an update, we brought onboard a thousand -- 1,100 new team members so far, many of whom will be helping us build capacity in originations. To my teammates, I'd like to say welcome to our family. I'm delighted that you've chosen to join our team.

Now let's turn to technology. You've heard us talk about it in many different projects over the years. You'll recall that we spent almost $70 million in 2018 and 2019 on a series of investments that we call Project Titan, designed to upgrade our proprietary servicing platform, cut costs, improve the customer experience, and position us for the next chapter of growth. One of the Titan investments that's paying dividends right now is the work we did automating modifications.

In another Titan Project called ICE, we partnered with Google to develop an innovative approach to imaging files, which increases the accuracy of optical character recognition from 70% to over 90%. This capability is critical to improving the efficiency of claims processing and it also significantly speeds up the onboarding process for bulk acquisitions. We've recently been awarded three patents for this technology. You'll recall Home Advisors, which we talked about last year, is a hybrid sales and service concept, where we use algorithmic techniques to identify customers with high propensities to refinance and route them to especially trained agents.

This concept has driven a significant gain in lead-to-lot conversion, compared to the traditional model, which entails transfers from service reps to mortgage originators. With the servicing platform in good shape, many of our current projects are now focusing on originations. Last quarter, we commented on Project Flash, which is designed to automate what we call the middle office of originations by digitizing repeatable tasks. Flash is just the tip of the iceberg, however.

We have several projects under way designed to lower origination costs, drive faster cycle times, and improve the experience for both customers and team members. Suffice it to say, advanced technology is a core competency of Mr. Cooper. It's something we've been investing in for years.

It's one of the reasons we were able to grow our servicing portfolio to $600 billion and it's one of the reasons we were able to print a 51% ROTCE this quarter. Now if you'll turn to Slide 6, I'll comment on our balanced business model. We're different from most of our peers and that we have a bigger balance of servicing relative to originations. In fact, as you can see from this chart, our ratio is more than twice our public peers.

This balance is by design because we believe that creating a strong customer relationship and retaining it for the life of the loan are the key to long-term value. For now, we see strong originations stretching into 2021 and possibly 2022. However, we know the refi boom won't last forever and our large servicing portfolio will help sustain strong returns once it's over. Before I turn the call over to Chris, I want to talk about our priorities for the $946 million in cash on the balance sheet.

This is an important topic with respect to the stock price because when it comes to capital allocation, the board and management team are acting as your stewards. As we discussed last quarter, our commitment to balance sheet strength is nonnegotiable. Strong liquidity and capital will always be our top priorities. For now, we're in excellent shape, thanks to the huge progress we've made over the last year in terms of deleveraging and expanding our committed facilities.

Last quarter, the board authorized $100 million stock repurchase program, which we told you would take us 12 months to complete. Today, with 1.2 million shares retired so far, we are exactly in line with that guidance. Given our low valuation, we'd like to be buying more than this. However, I'd like to remind you that given the large DTA we own as a result of the WMIH merger, there are limits to how much stock is prudent to repurchase without jeopardizing our tax benefits.

On the third anniversary of the merger which will be in August 2021, we will have significantly more flexibility. At that time, if the stock price still looks undervalued to us, we will be in a position to consider a much larger return of capital. In the meantime, we have cash available to deploy into the servicing portfolio. You should see solid growth in UPB in the fourth quarter and we look forward to welcoming these new customers and working with them in the months and years to come.

And on that note, I'll turn the call over to Chris.

Chris Marshall -- Vice Chairman and Chief Financial Officer

OK. Thanks, Jay, and good morning, everyone. I'm going to start on Page 7 with a summary of our financial results. So net income was $2.18 per share.

Pretax operating income was $348 million. Discretionary steady state cash flow was $383 million and fully taxed ROTCE was 51%. And as Jay said, we were obviously very pleased with these results. On an operating basis, we certainly categorize this as a record quarter.

Because if you remember on our last call, we pointed out that the second quarter benefited from $34 million in revenue that we would normally have booked in Q1, but we didn't because we took a very cautious view of any potential pipeline fallout that could have resulted from the pandemic. So adjusting for that extra Q2 income, operating earnings in Q3 grew 10% sequentially. Now the story remains very simple. Originations and Xome produced excellent results while the servicing margin reflected the current low interest rate environment.

The servicing benefited from another investor settlement, which contributed $46 million in the quarter and I'll comment further on that in just a minute. But now turning to the balance sheet, you can see that our very strong earnings translated into very nice growth in tangible book value, which increased to $23.95 a share. And at the same time, the DTA declined by $47 million. The DTA declined more rapidly as a percentage of TBV, falling from 71% to 62% in a single quarter and that's a big positive in terms of the quality of our capital and it should strengthen analysts' views on the valuation of our stock.

And you should expect the DTA to continue declining relative to TBV as long as we remain in this interest rate environment. Also, and just as a reminder, with the election only a few days away, if there is a change in the administration that results in higher corporate taxes, then you should expect a very significant write-up in the value of the DTA. You may have noticed our weighted average diluted share count increased this quarter to 95 million, even after we bought back 1.2 million shares. Now that increase is driven by the improvement in the stock price in the quarter, which impacts the dilution associated with the equity grants that are part of management compensation.

Following the WMIH merger, the board decided to shift a portion of management's comps from cash to stock to better align the interest of the organization with investors. And to make sure there's transparency into what this means for the share count, we've provided a sensitivity table for you, which shows what the diluted share count would have been if the stock price had averaged $25 or higher for the quarter. Now let's turn to Slide 8 and discuss the MSR, which increased by a single point to 100 basis points of UPB. The mark was relatively small, $29 million this quarter, which reflected the impact of two offsetting items.

On one hand, the 23-basis point decline in mortgage rates in the quarter did lead us to raise the CPR assumption. However, the MSR also benefited from an offsetting positive $46 million estimate of revenues associated with a portion of our Ginnie Mae loans that are expected to go through streamlined mods as they exit forbearance. As a reminder, under GAAP, the MSR is carried at fair value that's based on assumptions that reflect the view of market participants. And in this case, we'd point out that that view is much more conservative than our own outlook.

Now each quarter, we provide you with an estimate of how many of our customers could save at least $200 per month by refinancing, which translates to roughly 35% of their monthly mortgage payment. With rates having drifted downward during the quarter, this number now stands at about 820,000 and that's pretty conservative of a bar. There are another 536,000 customers that could lower their payments by $100 a month, which is still meaningful savings. And additionally, we have hundreds of thousands of customers with substantial equity in their homes who could benefit from cash-out refinances, which is not counted in that number.

So on that note, let's turn to Slide 9 and talk about the originations segment, which posted a 45% increase in funded volumes quarter over quarter to a record $15.6 billion. Pretax income was a record $438 million, up from $434 million in the prior quarter. And as I just mentioned, excluding the $34 million in Q2 income that was delayed from Q1, origination pre-tax income grew 10% sequentially. As you may recall in the second quarter, we slowed down correspondent volumes as we evaluated the environment.

But since then, we've been aggressively ramping it back up. In fact, we had record correspondent volumes this quarter of 6.5 billion. Now we look at correspondent as a channel for new customer acquisition rather than as a meaningful driver of profitability. For now, we like the margins available in correspondent, compared to bulk and we'd expect to continue growing this channel using the same technology-enabled strategy that's proved so successful for DTC.

The DTC channel turned in another exceptional quarter, responding to huge customer demand and producing excellent margins. Despite the heavy volumes, the refinance recapture ratio was stable at 31%. And some of you have asked what we're doing to raise recapture and the answer is, continue expanding capacity with both technology and people. Jay mentioned the 1,100 new teammates we've hired since late summer and some of the many technology projects under way to improve cost and speed.

But to help you better understand our recapture and compare it to other originators, let me give you some more color on our capture rates for different parts of the portfolio. We operate with what we call a B2B2C strategy, meaning that we acquire customers through B2B channels, such as bulk and correspondent, and then we convert them to Mr. Cooper customers by providing them with excellent technology and customer service, and in many cases, by helping them refinance their loans. Now a large portion of our portfolio originated through bulk acquisitions, and in many cases, these were older loans with smaller balances that have limited refinance opportunities, and for those loans, our recapture rate is generally lower and this third quarter was only 24%.

For newer loans recently sourced through our corresponding channel, our recapture rate was higher. It's 41% in the quarter. And finally, for those customers with whom we've established a relationship by already refinancing them, the recapture rate is even stronger at 63%, which compare to our competitors on this basis is already quite strong. And going forward, as we continue investing in technology and people and as our portfolio shifts over time from initial bulk and correspondent purchases to DTC, we see significant upside potential in the overall in capture rate.

So shifting gears to the margin. It compressed in the quarter from 302 to 195 basis points, right in line with our intra-quarter guidance as we shifted back to a more typical channel mix. Correspondent was 42% of overall volume, up from only 18% in the prior quarter. Now everyone's focused on margin and we are planning for margins to eventually compress to normal levels starting in the correspondent channel.

But so far, through the end of October, we see pricing is stable. We expect margins to remain very attractive in the DTC channel for longer because of the much deeper relationships with our customers in the high-quality service we're known for. Looking ahead, please remember that the fourth quarter has a shorter day count and typically, at this time of the year, locks slow relative to fundings due to the holiday season especially in the DTC channel. As you've seen in past fourth quarters, this often has the effect of temporarily compressing margins.

But factoring that in, based on what we've seen in October, we're looking at another very strong quarter with expectations of operating EBT in the originations segment somewhere in the range of $380 million to $420 million. Now let's turn to Slide 10 and review the servicing portfolio. Total UPB ended the quarter at $588 billion, which was roughly stable with the second quarter. CPRs rose to 30%, but we were able to replenish most of that runoff with stronger correspondent volumes.

Going forward, we'd expect to see solid single-digit growth in the fourth quarter and much of that growth will come from correspondent and flow originations, and we're also becoming more active with opportunistic bulk acquisitions. In the third quarter and first half of October, we've won about $8 billion in small bulk portfolios, which will close in the fourth quarter and early next year. And as I've said before, we expect to see more deals coming to market as issuers who've been holding on to production and hopes of higher prices begin to capitulate, and more importantly, as the agencies and Ginnie Mae grow more comfortable approving transfers. As Jay mentioned, we expect to see solid growth in the UPB in the fourth quarter and part of this will come from subservicing.

As we disclosed last quarter, we've entered into a contract with one of the largest, most prestigious investment firms in the world and we expect to see loans boarding in the fourth quarter. And we're very proud that this client shows us because of our excellent technology and service standards and our strong recapture capabilities. And we're hopeful this will be the start of an even larger, long-term, and mutually beneficial relationship. Now let's turn our attention to the servicing margin on Slide 11.

Excluding the full mark, the servicing margin was a negative 0.1 basis points, which was in line with our intra-quarter guidance of approximately breakeven. Now as I mentioned earlier, the margin benefited from a $46 million investment settlement. So without that, it would have been negative 3 basis points. And as painful as that is, it's exactly what you should expect in this low interest rate environment with CPR at 30% and interest rates near zero.

As the chart on the right illustrates, the margin has compressed by 6.5 basis points over the last year from higher amortization and lower income earned on custodial deposits. In fact, just the impact of higher amortization year over year is $156 million annualized, which we'd recover into earnings of CPRs reverted to year-ago levels. Now of course, at the same time that we've absorbed higher amortization costs, we've certainly benefited from stronger DTC profits. If you combine servicing and DTC together, that would be equivalent to an all-in margin of 20.7 basis points of UPB, which we're obviously extremely happy with.

Now we have another potential settlement in the fourth quarter, but right now I'm expecting it will slip to Q1, which means the servicing margin is likely to remain negative. But looking ahead into 2021, we'd expect CPRs to decline somewhat from these current historically high levels. And also, you should start to see some contribution from incentive fees and EBO gains as we help customers exit forbearance. If you consider a scenario with a sudden rise in interest rates, then we'd expect to enjoy recovering the service margin and a write-up in the value of our MSR.

As Jay commented, the balance we have now between servicing and originations is a differentiator for most of our peers, and we certainly believe this warrants a much higher valuation for our stock. Jay commented on the self-service digital tools that we've been using to help our customers with forbearance. Now we show you some examples on Slide 12 of how we make information available to our customers through a forbearance dashboard. Seventy-eight percent of our customer base is digitally enabled, meaning they respond to emails, and they manage their accounts online.

And in terms of forbearance activity, 61% of our customers have used our forbearance dashboard to enter forbearance and 43% have used it to exit. Now these are fantastic results, demonstrating our best-in-class technology and that technology provides a very simple and streamlined experience to those customers who are comfortable with that process. And at the same time, it allows our modification specialists to focus on those customers who need more assistance. In terms of an overall update on our forbearance status, as of October 25th, 6.1% of our customers were on forbearance, which is down from a peak of 7.2%.

And of these customers, 17% were still current in their payments and more customers are now exiting and entering. So we're feeling a great deal, more confident in the outlook today compared to earlier this year. So turning to Xome on Slide 13. Pretax operating income was $18 million this quarter, up from $13 million in the second quarter, thanks to continued strong performance in the title unit, which benefited from declining interest rates.

And then also, included in those results was a one-time benefit of $2 million related to a settlement with an insurance carrier. Now on the subject to our stock price, I'd like to add my personal opinion that the market is failing to recognize the real value of Xome, which is an outstanding technology-driven business with an excellent management team. As a reminder, Xome operates in four segments. Our title broker is called Title 365 and the team has done a tremendous job putting it on track to generate about $60 million in pre-tax income this year.

Title 365 also owns a 49% stake in X1 Analytics, which offers an industry-leading automated title data and decisioning engine. Our REO exchange is a proprietary digital foreclosed property platform that has very attractive margins. And as you recall, prior to the pandemic and the moratorium on the foreclosures, we were bringing in record volumes to third-party clients. Now obviously, the title exchange is idle right now, but we expect it to enjoy a surge in activity once the moratoriums are lifted.

Now finally, the valuation and field services units offer significant upside as we continue to reengineer those businesses and optimize their performance really as feeders for Title and the REO exchange. As Jay mentioned, the Xome doesn't show up in book value. So to capture the value properly, you'd have to apply a separate, and obviously, much higher P/E multiple appropriate for a diversified data and technology-driven operation, as you would see from any appropriate comps. Now to monetize the value of Xome, we're pursuing two strategies.

As you remember, we brought in Mike Rawls, one of our most experienced executives to lead the unit with a mandate to grow market share and earnings. Additionally, we're now actively evaluating broader strategic options for Xome. You should assume that everything is on the table from securing a minority investment from a strategic partner to issuing debt to a potential sale of the unit in parts or altogether. And I look forward to updating you on our progress, both with regards to our organic strategy and these other potential transactions.

All right. Let me shift your focus to the balance sheet and talk about liquidity. If you turn to Slide 14, steady state cash flow was quite strong in the quarter at $383 million. In addition to redeeming the senior notes and buying back shares, we also paid down our MSR lines by $179 million.

The originations business consumed some incremental working capital due to the surge in volumes. But even so, net-net, we ended the quarter with $946 million in unrestricted cash. Advances were essentially flat quarter over quarter, but we guide you to expect some increases in advances in the fourth quarter due to typical seasonal trends as we begin funding Escrow accounts for upcoming tax payments this time of year. Now earlier this summer, we disclosed the terms of a new two-year, fully committed financing facility for Ginnie Mae mortgage servicing rights and advances.

In the past, we had no way to finance Ginnie Mae advances. Now we have a $900 million facility, which is really a significant amount of funding capacity. And what this means is that should we encounter any adverse scenario, the drag on our discretionary cash flow would be limited to the haircut on advances. And as Jay mentioned, this is really a game changer for us in terms of liquidity.

I'm happy to say that progress in deleveraging and liquidity, together with our strong operating results, has resulted in upgrades from both Moody's and S&P, who both raised our outlook back to stable. Now let's finish up with some comments on capital and leverage on Slide 15. Back in the spring, we disclosed the leverage target defined as the ratio of tangible net worth to assets of 15% or higher. And in the third quarter, we faced some headwinds on this ratio, which climbed at 10.1%, but that decline was due to a sizable increase in Ginnie Mae loans eligible for buyout from $1.2 billion to $5.4 billion, reflecting the jump in forbearance rates we experienced in the first half and the fact that many of these loans are now 90 days past due, which gives us the right to buy them out.

From a credit perspective, this should not be a concern. Actually, it's a positive. Ginnie Mae loans are guaranteed by the government, and for this reason, they carry a low risk-weighting. Additionally, under Ginnie Mae's streamlined modification program, we'll have the opportunity to refinance these customers that have been impacted by the pandemic into a new loan with a market rate and immediately redelivered loan for gain on sale.

This is an excellent program for customers as it will help them get back on their feet and it's easy for us to administer since it doesn't require documentation or a trial period. You should see revenues from this activity start to appear in early 2021, at which time the EBOs on our balance sheet should begin to decline. Now we remain committed to the 15% or higher target and expect to remain -- to achieve it in 2021, once we start modifying and redelivering these EBOs. Now meanwhile, to give you another perspective on how Mr.

Cooper's balance sheet has improved over the last two years, you can see a chart on the ratio of debt to tangible net worth. And on this measure, thanks to $300 million in senior notes that we've redeemed over the last year and thanks to strong retained earnings, we're now at a ratio of 1.19, which is just a hair above where we were prior to the WMIH merger. We will continue to delever the balance sheet. But as we said all along, the timing will be opportunistic, it's not going to be on a regular cadence.

The final tranche of the high-cost debt issued with the WMIH merger becomes callable next summer and we expect to take additional steps at or before that time. So with that, I'll turn the call back over to Ken for Q&A.

Ken Posner -- Senior Vice President of Strategic Planning and Investor Relations

Thanks, Chris. I'm going to ask our operator to start the Q&A session.

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Giuliano Bologna of Compass Point. Your line is open.

Jay Bray -- Chairman and Chief Executive Officer

Good morning, Giuliano.

Giuliano Bologna -- Compass Point -- Analyst

Good quarter. One of the things I was curious about was some of the discussion around DTC and recapture volumes. Is there a way of thinking about the percentage of the MSR portfolio that is -- that has been originated by -- through the DTC channel over time and how that's changed? Just because, you know, in a sense, as you keep originating higher volumes of DTC, MSRs, you'll keep increasing the mix of your DTC originated, which has a higher recapture rate. So just trying to think about that portion of the portfolio as it evolves.

Jay Bray -- Chairman and Chief Executive Officer

Yeah. I don't have those percentages off the top of my head, but I think we -- it's a good question, Giuliano. We'll quickly pull that together. We'll follow-up with you offline after the call.

As -- now that we started to talk about the portfolio the way we did and recapture the way we did, I think we'll probably add a slide in our disclosure next time to break the portfolio out that way.

Giuliano Bologna -- Compass Point -- Analyst

That makes a lot of sense. And then kind of going back to some of the commentary about Xome. Obviously, there's been very strong title performance with the originations segment, which will most likely continue as DTC volumes continue. But thinking forward from that, as the other businesses start to ramp up, I'd kind of be curious around how you think that business will evolve.

And then also, what that business -- what do you think that business is worth in a sense?

Chris Marshall -- Vice Chairman and Chief Financial Officer

Well, the title business has done a great job, but we actually have had a Governor on it because last year, they completed a very large-scale integration of some of the business that we bought from Assurant was integrated into our title business and it was really a distraction. So this year, as volumes have climbed, we have been very conscious of turn times. And so Mr. Cooper has been directing a fair amount of its title business to other providers, just so that we could ramp up volume in a responsible way and maintain all of our SLAs.

I think we're in the process now of transitioning another, I'd say, 10% to 15% of volume to them. So we think they're -- they'll continue -- even though they are benefiting from high levels of refi right now, that volume we expect to actually climb and don't factor that entire number in for the fourth quarter, but you'll see some improvement. And we'll continue to do that into the first quarter of next year. The benefit of the title is -- our title businesses, they also have a very strong default title product line.

And so next year, as the moratoriums lift and the foreclosure process starts, you'll start to see that default revenue start to roll through. So we think it's a -- what Title 365 is one of the premier title companies in the country and it's highly regarded. I think in terms of value, we'll see what that value is. But I certainly think it's a business that's got a lot of -- there's a lot of demand for title companies today.

And I think this is probably the best stand-alone title business, national title business in the industry.

Jay Bray -- Chairman and Chief Executive Officer

Yeah. I think it's a pretty rare asset, right, because it's -- you can do business in all 50 states. It's got a pretty high percentage of third-party business. And even when you look at where our strategic title companies trade and the multiples there, when you take our $60 million growing to $70 million and even use strategic multiples, it's a very -- it's worth a lot of money, for sure.

And I think the -- there's other buyers in that community as well. So we're optimistic. The other thing that's happened this year, I think, is Mike Rawls, who leads that group has done a good job in increasing our margins. So we've seen pretty considerable increases in margin in the title business overall.

And then if you break out the other pieces of the business, auction would be clearly the biggest. And obviously, with the moratorium, they're not producing anything tangible this year at all, but when you look at what's the inventory that's building there, it's very, very large. And I think once the moratorium is lifted, you could expect that to be a huge contributor to Xome's overall earnings. And I think the multiples on the auction or the exchange businesses are, frankly, significantly higher than the title business.

So combined, it's a very valuable franchise.

Giuliano Bologna -- Compass Point -- Analyst

That makes a lot of sense. The only thing I just wanted to touch on briefly was it sounds like the commentary about next quarter's originations, EBT was somewhere in the range of kind of $380 million to $400 million, if I heard you correctly. And the second part of that is, just trying to think about the mix of the volumes. Should we expect DTC -- I guess, the question, should we expect DTC to come in a little bit because of the day count and the holiday? You know the question then, just thinking about the mix of DTC versus correspondent in the quarter?

Chris Marshall -- Vice Chairman and Chief Financial Officer

I think DTC -- you know so far in October, performing right in line with where we were last quarter and we expect that to continue. But there'll be some slight dip because of the holidays. I think correspondent volume will be up very significantly in the quarter. So the mix will change and you should expect that will continue into 2021.

As some of these new hires start to add to our volumes, we should see DTC -- overall DTC volumes pick up. Our correspondent is going to grow quite quickly. I think just looking at the month so far, volumes are extremely strong in correspondent. I mean there are -- and just roughly looking at these numbers, I'd say they're double what we saw in the third quarter.

So now, we'll see as the quarter goes. It's still early, but margins are very strong. There's been -- we see no change in margin. And again, we think fourth quarter is going to be very, very strong.

Holiday will cut into it a little bit, day count will cut into a little bit. But from that range, you should infer that we're expecting continued strong volume. And I think the bigger point is and we try to emphasize the number of customers that we have that could benefit substantially by refinancing. And for that reason, even if rates will start to tick up a little bit, there are -- we have so many customers that would benefit.

And you can look at the chart that we just went through and know that there's no reason why you shouldn't expect us to have extremely strong production all through 2021.

Jay Bray -- Chairman and Chief Executive Officer

Yeah. I mean to Chris' point, if you look at kind of our locks per day in the DTC channel, it is very consistent, maybe slightly higher than the third quarter. When you look at correspondent, to Chris' point, I think you could see that double. I mean, we're fully expecting 25% to 35% increase in funded volume for the fourth quarter and the margins are definitely hanging in there.

And when you think about the incremental hires that we are bringing on into -- predominantly direct-to-consumer, I mean, once those get fully ramped, you're looking at 4,000 to 5,000 incremental fundings per month. So I think there's -- to Chris' point, there's a tremendous demand in that channel with our existing customer base. And I think building the capacity is clearly the right thing to do and you're going to see significant earnings come from the additional capacity.

Giuliano Bologna -- Compass Point -- Analyst

That makes a lot of sense. I really appreciate the time. I'm going to jump back in the queue. Thank you.

Chris Marshall -- Vice Chairman and Chief Financial Officer

Thanks, Giuliano.

Operator

Thank you. Our next question comes from the line of Mark DeVries of Barclays. Your question, please.

Chris Marshall -- Vice Chairman and Chief Financial Officer

Good morning, Mark.

Mark DeVries -- Barclays -- Analyst

Hey, good morning. I just wanted to clarify on one point. I think, Jay, you mentioned a date at which kind of the limitations on the buybacks from the DTA expire. What date was that? And also, I think you said, post that, you expect to be able to consider meaningfully larger buybacks.

Could you dimension that at all for us?

Chris Marshall -- Vice Chairman and Chief Financial Officer

Yeah. This is Chris, Mark. There is a -- essentially a 10% safe harbor on buying back shares in the first three years after a merger. So $382 million essentially limits that and that's how we size the $100 million buyback.

So you should think of that as our limit through August of -- you know next summer, August of next year. After which, I think our message was, let's hope our stock improves in value, where it is today and what we expect to build in book value over the next five quarters, we think the stock has tremendous value. If our stock was trading where it was today in August, we'd be buying our shares back in a far more aggressive way.

Mark DeVries -- Barclays -- Analyst

Got it. Makes sense. And then just a follow-up question around kind of the strategy comments on Xome that you mentioned kind of a dual-pronged focus on organic growth and then look at some of the strategic options. Could you just talk about where your focus is among those two? Are you looking more to just drive the growth and hope the market comes around? Or is there some urgency right now to pursuing some of those strategic options?

Jay Bray -- Chairman and Chief Executive Officer

I mean the reality of the matter is, we've had a lot of inbound interests on the Xome platform. So I think it's -- you should assume it's a dual path. I mean we continue to improve the operations within Xome, and I think Mike and his team have done a good job there. Like I said, you've consistently seen the title margins increase significantly.

We think there's more upside in title as we look into 2021 and then the exchange business clearly is all upside from where we're at today. I mean in tremendous upside. As you recall, that business historically has been a big earnings driver and been significant margins, but there are -- there's significant interest in those assets. And so I think you should assume it's a parallel path.

I don't know, Chris, if you want to add any --

Chris Marshall -- Vice Chairman and Chief Financial Officer

But I think Jay mentioned before, you could take the title business and just using public comps, get an idea of its valuation. And in the auction business, I mean, we are No. 2 and a distant No. 2 to auction.com but we are growing our third-party business very rapidly.

If you saw -- if you went back to our last call prior to the pandemic, we were talking about record third-party volumes coming into the funnel. So that is a very valuable business and if you were to apply the valuation metrics that are applied to auction.com and the public comps to the title business, you'd certainly arrive at a number in the $1 billion range. And if you look at our company and say, we're not getting that value in our book and there are a lot of investors in this industry that start with a valuation on book value. We got $1 billion, half of our market cap that we don't get credit for, then certainly, we would pursue that strategy.

Now in the meantime, Mike and his management team, we have an excellent management team. And even in this short period of time he's been there, the changes they've made are dramatic. We are operating that business with a continuous improvement mindset and we love the business. They are very well-run business, highly respected in the industry.

We have a great customer base. And so there's no urgency to do anything but to optimize the share price over time, and as Jay said, there's been a lot of inbound interest and we'll certainly pursue those things. But there are other ways to monetize the company and so we'll consider all that. And now that we've had this conversation, you should expect we'll keep you abreast of that every quarter.

Mark DeVries -- Barclays -- Analyst

All right. Makes sense. Just one last one for me. I think you guys made a decision to move some of the tax prep work over to CoreLogic.

Just curious what motivated that decision. And are there any expense saves which you expect to see from that?

Jay Bray -- Chairman and Chief Executive Officer

Yeah. I mean I think it's -- we had historically been a CoreLogic customer. And obviously, we're very familiar with their platform and had a very good experience with Loreta but as we -- we're a very, as you know, active buyer in the market of MSRs. And so when you look at the seamless nature of working with the party that has the largest market share that was one of the decision factors that led us to move back to CoreLogic.

And yeah, I think there -- clearly, there will be expense saves. They're not material enough, frankly, to move the needle. But obviously, it's a more favorable deal than we had previously.

Mark DeVries -- Barclays -- Analyst

Got it. Thank you.

Operator

Thank you. Our next question comes from the line of Doug Harter of Credit Suisse. Your line is open.

Chris Marshall -- Vice Chairman and Chief Financial Officer

Good morning, Doug.

Doug Harter -- Credit Suisse -- Analyst

I was wondering if you could help us kind of understand the potential revenue or profitability impact from the $5 billion of the Ginnie loans that are available for repurchase.

Chris Marshall -- Vice Chairman and Chief Financial Officer

Well, it's still a little early as to what the timing will be. But -- and I don't want to talk out of both sides of my mouth. I said that we had an improvement in the MSR that was roughly $50 million and that's the first cut that the third parties assign to those volumes. Suffice to say, we think in '21, we'll see 5 times that at least.

So it's in the hundreds of millions of dollars. Now that's going to depend on what path those customers take. And so we're not going to give you a real hard estimate, but those -- helping those customers exit forbearance is absolutely going to be very profitable for us in 2021.

Jay Bray -- Chairman and Chief Executive Officer

Yeah. I mean I think, Doug, the way to think about it is if you look at -- if you take the FHA borrowers in particular, right, the two primary paths or partial claim or a streamlined mine and we're seeing most of our customers -- or I'd say, higher than 60% of the customers move into a streamlined MI because it frankly gives them a market rate, puts them in a great position. And that's our first priority is to do the right thing for the customer. But with the impact of the -- going down the streamlined MI path, that will necessitate a buyout and that then will result in a redelivery of those loans.

So to Chris' point, I think the $5 billion is going to be much larger over time and I think the redelivery proceeds or gains from that will be in the hundreds of millions of dollars.

Doug Harter -- Credit Suisse -- Analyst

Now I guess, this quarter, that showed up in kind of the MSR mark, correct? I mean, I guess, going forward, do -- does it show up in the MSR mark first and then kind of come into earnings? Or will it just come into earnings? You know just how should we think about that? That we're --

Chris Marshall -- Vice Chairman and Chief Financial Officer

No, we'll have to see. This is the first time that the valuation firms have had to wrestle with exactly what EBO was -- how it was going to be managed. The rules really just got nailed down. So I expect that the maturity of those estimates will evolve.

Of course, we default to third-party views in terms of the mark that we take. Internally, our projections would suggest the number is much higher and I think as the volumes begin to -- de minimis at this point. But as that volume starts to pick up and the profitability begins to be evident, I think you'll see those firms adjust their estimates.

Jay Bray -- Chairman and Chief Executive Officer

Well, I think historically --

Chris Marshall -- Vice Chairman and Chief Financial Officer

We're going to make the money.

Jay Bray -- Chairman and Chief Executive Officer

Yeah. Historically, it's coming to earnings. It would come into earnings, unless you know -- we'll work through the accounting pieces of it with the different firms. But I think it's going to be a sizable, a very material contributor to servicing profitability in 2021.

Doug Harter -- Credit Suisse -- Analyst

Great. Thank you.

Operator

Thank you. Our next question comes from the line of Mark Hammond of Bank of America. Your line is open.

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

Thank you. Hi, Jay, Chris, and Ken.

Chris Marshall -- Vice Chairman and Chief Financial Officer

Good morning.

Jay Bray -- Chairman and Chief Executive Officer

Good morning.

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

One question I had was about a question around the comment around Xome. One of the options, I understood all of them, but I can't recall if I'm -- I just misheard Chris say something about issuing debt at Xome, is one of the -- is one of the options being considered. And if that is what's said, can you just talk me through the strategy there?

Chris Marshall -- Vice Chairman and Chief Financial Officer

I'm just saying there are options. Xome is an unrestricted subsidiary. We could put debt on Xome. It doesn't carry anything today.

I'm just saying there are ways to demonstrate that Xome has real value. And today, because it didn't show up in our book value, I think a lot of investors, Mark, I'm not suggesting this is you, but do not understand how to properly value it. It certainly shouldn't hold a piece -- the price to earnings multiple that you signed to a mortgage company. I mean the auction platform is a very high-tech proprietary platform.

And I think its competitor probably has a multiple in the high double-digits. So that's one thing, I'd say the title companies are trading at 9.5 times or 10 times earnings. So if you were to apply those multiples, you'd see the value of Xome is quite significant and our real message is it's not captured. So we are going to do something to convert that value into an improvement in our stock price.

Jay Bray -- Chairman and Chief Executive Officer

Yeah. I mean, I think if you look at -- we've mentioned this a couple of times, but if you look at the value -- what Xome earnings are this year, depending, again, on what happens with the moratorium. Clearly, if nothing strategic happens, Xome was going to double their earnings next year. I think that's clearly within the realm of possibilities, if not more, again, depending on the timing of the moratorium, etc.

So that alone is pretty meaningful and pretty impactful and it's a fee-based business that is going to drive -- you know, no capital, no basis that from a multiple standpoint, to Chris' point, should be double digits to 15 times to 20 times. So I think there's opportunity there. But again, we love the business. We started it from scratch, but clearly, the market -- we're not getting any credit in book value today and we don't think it's properly valued within the stock by any stretch of the imagination.

Chris Marshall -- Vice Chairman and Chief Financial Officer

And I'd add the title business, which the title industry is an old line industry but we own 49% of the industry-leading decisioning engine, X1 Analytics. And if there's a disruptor in the industry, that's it. So again, if you think about how you would value them, they certainly wouldn't carry the same multiple as a mortgage company. So we -- we're not saying we're choosing any path and we're not saying we've got to do something with any urgency.

We have to do it smartly but the entire focus here is, what's the best strategic option to maximize share price.

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

Got it. And then just so I'm clear in my head, one of those would be potentially to issue debt at Xome and then dividend back to Cooper and then out potentially, of the many options that might be considered. Is that right?

Chris Marshall -- Vice Chairman and Chief Financial Officer

That's correct.

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

OK. Got it. Thank you.

Operator

Thank you. Our next question comes from the line of Kevin Barker of Piper Sandler. Your line is open.

Kevin Barker -- Piper Sandler -- Analyst

Good morning. Could you outline how much of the title business at Xome is third-party versus how much is derived from Mr. Cooper originations?

Chris Marshall -- Vice Chairman and Chief Financial Officer

It's about 50-50, third-party is growing. And as I said, Mr. Cooper probably allocates about 50% of its orders to Title 365. Those are not exact numbers but it's about that.

So I hate to say that we left some money on the table, but we could have essentially doubled Title 365's volume. But just like everything else, the ramp-up in originations title business was so substantial that this is a business that -- for all our customers, not just Mr. Cooper but our third-party customers. You know we have very strict SLAs we've got to adhere to.

So we took a very slow and deliberate approach to limiting that volume, so they could expand their capacity just like we were trying to do on the originations side. But we will begin or we are beginning to increase that volume.

Kevin Barker -- Piper Sandler -- Analyst

OK. And then I know REO brokerage fees were a large portion of the driver of earnings in the past, but they might have shifted over time just given the growth in the other businesses. Could you provide a breakout for how much did REO brokerage fees account for pre-tax earnings or pre-tax -- or EBITDA on -- or how you measure it for Xome?

Jay Bray -- Chairman and Chief Executive Officer

Well, right now, Kevin, it's virtually zero, right, because we're -- because of the moratorium. So I wouldn't even consider it really for 2020 in any material manner and the -- that business has evolved into your traditional kind of PLS REO, which is what it was historically to a CWCOT program. And so if you think about that universe, you know that's, a, a very large universe; b, it's a mandated process by FHA. They require their servicers to go through an auction process.

And so that's where the lion's share of the growth is going to come from in the future. And you know and don't quote me, I think the fee on that is three points. And you know, again, this is a -- the business itself is primarily technology and so the margins are -- they're strong margins. But that's how you should think about the business in 2021, where it's being sourced from, etc.

Kevin Barker -- Piper Sandler -- Analyst

OK. And then a follow-up on some of the MSRs. The amortization is very heavy. Your CPR rate is running around 30%, but the amortization expense is also a big headwind to servicing pre-tax margins.

At what point do you feel like you're going to -- you should mark down the MSR to reflect where the CPRs are today, just given where it's running? I understand that you're looking at it as, hey, prepaid speeds are probably slow going forward but eventually, you --

Chris Marshall -- Vice Chairman and Chief Financial Officer

We -- I would say we did mark down. We did raise the lifetime CPR in the quarter. If not for -- so we would have had a moderate mark. I'd say, we had a very small mark in the quarter, but we had the offset from the EBO -- that small EBO gains.

So I'd say there would have been another $50 million mark. I'm trying to remember what the quarter-over-quarter change was. But of course, we are marketing for current CPR, we did raise the lifetime CPR. We do expect it to moderate in '21 and we're expecting to see that in the tail end of '21.

But again, we expect -- unless interest rates change, production is going to be very strong. We're not the only one who's going to have strong production next year. So you should assume that our mark reflects the current environment and is -- totally reflects the high CPR that we're experiencing.

Jay Bray -- Chairman and Chief Executive Officer

I mean, Kevin, you know this better than anybody, right? I mean I think we've taken -- and Chris can correct me, but what $1 billion to $1.2 billion in the last 12 months of writedowns to the MSR, predominantly driven by rates. And so I think along the way, we've clearly marked that appropriately. And the other thing that I think is something that we always think about is that none of the recapture value is in the MSR, right? And that's one of the slides that we have to kind of show the overall impact of the recapture economics combined with the servicing business, what does that look like? So just from a GAAP accounting standpoint, you can't really recognize any recapture benefit in the MSR. You can't recognize any benefit from Xome in your MSR.

And so I think when you think of that asset, we've always thought of that asset as there's multiple ways to help the customers and there's multiple ways to generate revenue streams from that asset. But if you look at the writedowns over the last four or five quarters, they've been very material.

Chris Marshall -- Vice Chairman and Chief Financial Officer

Yeah. So $1.1 billion of the $1.2 billion is from rates. Now as painful as that was and as much as we're looking to enjoy a very strong production through '21, if rates do begin to rise, we're going to see a lot of that value come back into the portfolio. But I can assure you, we have an outstanding team that manages our MSR portfolio and their capabilities in modeling are as good as anyone in the industry.

And we use two highly regarded firms to mark our MSR and we are always in line with them. And to the extent there's any difference like there is on the value of EBO gains, we defer to their estimates. So you should assume our MSR is thoroughly scrubbed and completely reflects the elevated CPR speeds.

Kevin Barker -- Piper Sandler -- Analyst

Got it. Thank you for taking my questions.

Operator

Thank you. Our next question comes from the line of Henry Coffey, Wedbush. Your line -- your line is open.

Henry Coffey -- Wedbush Securities -- Analyst

Good morning, everyone, thanks for taking my questions as well. Just to kind of keep picking at the numbers. You mentioned that there was a $46 million settlement in servicing? Is that co --

Chris Marshall -- Vice Chairman and Chief Financial Officer

That's right.

Henry Coffey -- Wedbush Securities -- Analyst

And is that captured? I know I'm looking at your earnings release. Is that captured in this adjustment between pre-tax GAAP and operating net? Or should we also be taking that out of the number?

Chris Marshall -- Vice Chairman and Chief Financial Officer

I don't think you should take it out of a number because if you look back at our quarters, we have -- although we don't have a settlement every quarter, we have an inventory of things that will settle over time. It's the nature of some of our large transfers. We don't -- we -- just given the volume of what we do, we aggregate things with our investors and periodically true those up. So while I can't say they'll be there every quarter, we certainly don't view them as one-off nonrecurring items.

They -- we -- you'll see them probably in five of the last seven quarters that I've been here.

Henry Coffey -- Wedbush Securities -- Analyst

Can it be some --

Jay Bray -- Chairman and Chief Executive Officer

And the nature -- the nature of it, Henry, is it's operational in nature, right? We really were looking to establish the rules of the road on pieces of the portfolio. And so we had been accruing, if you will, liability for that. Once we got to the definitive answer on what the operating rules of the road are going to be, then that's really why we went ahead and recognize that. But it's also a go-forward process that'll continue to impact positively the operations.

So that's how I think about it.

Chris Marshall -- Vice Chairman and Chief Financial Officer

I'd probably just misspoke when I just say settlements because there are settlements where they are the -- a series of transactions, trust collapses, for example, which we do -- we don't do them every quarter, but we do them with regularity. So I'd say that category of revenue is more common than not.

Henry Coffey -- Wedbush Securities -- Analyst

Can you give me some sense in the last couple of quarters what that number has been?

Chris Marshall -- Vice Chairman and Chief Financial Officer

Yes, I could, but I can't pull it off the top of my head. But we'll follow up with you after.

Henry Coffey -- Wedbush Securities -- Analyst

I'll get it. I'll get it, yeah. I'll get it from Ken later. Looking at the business dynamics, I know we've talked a lot about title of -- and I just want to kind of get the numbers straight again.

So the contribution from title this quarter you said was $60 million, is that correct, of revenue?

Chris Marshall -- Vice Chairman and Chief Financial Officer

Xome was $60 million, virtually all of that was title because the exchange business is essentially --

Henry Coffey -- Wedbush Securities -- Analyst

So, OK. Xome had $108 million of revenue, right? Oh, and $15 million of net. So the $60 million is just annualizing that number?

Jay Bray -- Chairman and Chief Executive Officer

That's right. That's exactly right.

Henry Coffey -- Wedbush Securities -- Analyst

OK. OK. So when we think about title as it stood today, can you give us some sense of the revenue that was generated in the title business this quarter?

Jay Bray -- Chairman and Chief Executive Officer

Let's run in about and correct me if I'm wrong, Chris. I think it's in the 28% to 30% margin is what we're earning in the title business. So we have to do that math.

Chris Marshall -- Vice Chairman and Chief Financial Officer

Yeah.

Jay Bray -- Chairman and Chief Executive Officer

But if it's making $16 million, $17 million a quarter, you know, that would basically give you what the margin is.

Chris Marshall -- Vice Chairman and Chief Financial Officer

I mean, we are hesitant to do -- we don't break out revenue for the business lines in Xome separately. We only disclose them as a whole but that gives you a general idea of what revenue is.

Henry Coffey -- Wedbush Securities -- Analyst

Yeah. So the title business is probably about $70 million or something this quarter. I'm just doing this off the top of my head. That's dangerous.

Chris Marshall -- Vice Chairman and Chief Financial Officer

Yeah.

Henry Coffey -- Wedbush Securities -- Analyst

The attachment -- the percentage of internal loans, which would be your DTC business, is about 50%. But with direct-to-consumer, you generally control that and you can continue to grow that part of the business. Is that how --

Chris Marshall -- Vice Chairman and Chief Financial Officer

That's right.

Henry Coffey -- Wedbush Securities -- Analyst

And so -- and so really, this is just your way of getting a better, we'll call it, wallet share. There's -- there's a certain amount of money that's generated with every mortgage transaction and about half of it goes to the mortgage company, and this is your way of growing that by increasing that penetration. And that's something that's just a function of what you can do operationally. Correct?

Chris Marshall -- Vice Chairman and Chief Financial Officer

That's correct.

Jay Bray -- Chairman and Chief Executive Officer

And then there are some, let's say a state limit. I think the max market share we could get to, Henry, would probably be 80%. So it's not 100% because there are some restrictions there. So you're talking probably 80% if we -- but look, the thing that you know -- one of the reasons we -- or not one of, the primary reasons we bought Assurant, Title 365, and others was to have a balanced model.

And you know that's what we've done. I mean you've got 50% of the revenue now coming from title, and frankly, -- I'm sorry, coming from third parties and I think you're going to see -- we are seeing market share growth with existing clients and we're seeing growth with the new clients. So you know I think it's a very balanced model today, which was one of our kind of medium-term objectives. And I think, again, Mike and team have done a good job accomplishing that.

Henry Coffey -- Wedbush Securities -- Analyst

And with those third-party clients, are those usually also are correspondent clients or?

Chris Marshall -- Vice Chairman and Chief Financial Officer

No, they're not actually. They're -- most of them are large originations, large banks. I mean we have a very -- there's a mix of clients but very, I'd call them blue-chip names.

Henry Coffey -- Wedbush Securities -- Analyst

So it really, is it a -- so half the business is a very robust stand-alone product and half the business is coming from your existing book.

Jay Bray -- Chairman and Chief Executive Officer

Yeah. Yeah. And I think they're both quite robust. I think to Chris' point, zero is coming from correspondent or let's just say, it's a fraction.

I mean the majority of the third-party business would be large financial institutions or large nonbank originators that you would be quite familiar with.

Chris Marshall -- Vice Chairman and Chief Financial Officer

I think I would look at it as 90% of the top 25 lenders use Title 365 in some way, not exclusively but we get a share of their business. It's rarer than any large lender who uses a single title company but our third-party business is growing quite rapidly. I mean this used to be a business that was all Mr. Cooper and so -- although we can direct additional business to a limit, as Jay said, I think the real growth is coming from third parties.

Henry Coffey -- Wedbush Securities -- Analyst

I'm going to -- this is going to come off as a question, but it might be considered in editorial. Is there anything different about the upcoming fourth quarter seasonality that is different than anything any of us have seen and whether it's 20 years, 30 years? We've all looked at mortgage for a really long time, and yet every time you mentioned the word seasonality, it seems stocks sell off. But now you were down big on the open and now less and less and less, but I share your frustration.

Chris Marshall -- Vice Chairman and Chief Financial Officer

Well, yeah.

Henry Coffey -- Wedbush Securities -- Analyst

But I mean this business has been seasonal forever, but every time investors hear about it, they seem to react.

Chris Marshall -- Vice Chairman and Chief Financial Officer

You knnow it wasn't really seasonal last year. So if you go back and look at the fourth quarter last year, we had a record quarter. We expected seasonality and it never happened. Now by seasonality, I mean, December shuts down.

Henry Coffey -- Wedbush Securities -- Analyst

Right.

Chris Marshall -- Vice Chairman and Chief Financial Officer

And that didn't happen, we had production right through the end of the year. And now, of course, people are going to take it -- some of our MLOs are going to have to -- there will be a day, they have to take off. They -- we will not have everyone charging hard, but we said that we are expecting very minimal decrease in DTC profitability. There's a range there but it's minor.

So, no, we don't expect the typical seasonality. We expect a little bit of a slowdown and but --

Jay Bray -- Chairman and Chief Executive Officer

I mean, Henry, it's going to blow away current consensus, in my opinion. The range that Chris gave on originations couldn't be more clear, obviously. So we expect it to be strong. When you look at the locks per day we're getting in direct-to-consumer, it is in line with what we were seeing in the third quarter.

Correspondent is frankly, up considerably from the third quarter. So I think you're going to start to see the EBO gains kind of start to come into servicing. Again, it won't be material in the fourth as it will be in '21, but the short answer is no, no, you know. If something happens on November the 3rd and the world goes into a different place, I mean we can't predict that.

But when you look at the fundamentals of the business, they are tremendously strong and I think you'll see very little impact, frankly, from seasonality. When you look at Xome's done --

Henry Coffey -- Wedbush Securities -- Analyst

But you're not actually -- even though people seem to worry about it, you're actually beating the trend. You're beating the long-term trend.

Jay Bray -- Chairman and Chief Executive Officer

Yeah, yeah. I mean, we're very bullish on the fourth quarter, and frankly, very bullish on 2021. And I mean -- and it's based on kind of the fundamentals of what we're seeing in the business. I mean we're not hiring 1,000 people just so they can come in and not produce loans.

I mean we fully expect to see incremental fundings in the fourth quarter and moving into '21. So I do think there's a ton of runway. When you look at what Chris commented on it, when you look at our customers, we can help a lot of customers. I think it's one of the unique things about the platform.

And one of the great things about the balance of the platform is that, we've got 862,000, I think, was the number of customers that could still save $200 a month. And so that's a lot of customers that we intend to improve their lives and there's -- we got to keep building capacity and that's what we're doing.

Henry Coffey -- Wedbush Securities -- Analyst

I was at a conference where you were on a panel with one of our colleagues who said, what's 2020 going to look like? And you said $3 trillion and everyone kind of shrugged their shoulders and we're way past that. Do you have your own thoughts about how big the market could be next year?

Jay Bray -- Chairman and Chief Executive Officer

You know I think, we would tend to -- I think the MBA forecast is too conservative. I think we would probably lean more toward the Fannie and Fred forecast. I don't know that we're quite at $3 trillion, but I think we're definitely significantly higher than where the MBA is at.

Henry Coffey -- Wedbush Securities -- Analyst

Great. Thank you for answering my questions. And it's not a great year and we've seen some real solid returns. So thank you for the effort.

Jay Bray -- Chairman and Chief Executive Officer

Thank you, Henry.

Chris Marshall -- Vice Chairman and Chief Financial Officer

Fourth quarter is going to be just as strong, so keep it in mind.

Operator

Thank you. At this time, I'd like to turn the call over to Chairman and CEO Jay Bray, for closing remarks. Sir?

Jay Bray -- Chairman and Chief Executive Officer

Great. We really appreciate everybody joining the call. Hope you have a great day, and we'll be available for questions throughout the next couple of days. So, thanks a lot.

Operator

[Operator signoff]

Duration: 80 minutes

Call participants:

Ken Posner -- Senior Vice President of Strategic Planning and Investor Relations

Jay Bray -- Chairman and Chief Executive Officer

Chris Marshall -- Vice Chairman and Chief Financial Officer

Giuliano Bologna -- Compass Point -- Analyst

Mark DeVries -- Barclays -- Analyst

Doug Harter -- Credit Suisse -- Analyst

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

Kevin Barker -- Piper Sandler -- Analyst

Henry Coffey -- Wedbush Securities -- Analyst

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