Ocwen Financial (OCN) Q4 2020 Earnings Call Transcript

Ocwen Financial (OCN 1.31%)
Q4 2020 Earnings Call
Feb 10, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings. Welcome to the Ocwen Financial Corporation preliminary fourth-quarter earnings and business update conference call. [Operator instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Dico Akseraylian, senior vice president, corporate communications.

You may begin.

Dico Akseraylian -- Senior Vice President, Corporate Communications

Good morning, and thank you for joining us for Ocwen's preliminary fourth-quarter 2020 earnings and business update call. Please note that our preliminary fourth-quarter 2020 earnings release and slide presentation are available on our website. Speaking on the call will be Ocwen's chief executive officer, Glen Messina; and chief financial officer, June Campbell. As a reminder, the presentation and our comments today may contain forward-looking statements made pursuant to the safe harbor provisions of the federal securities laws.

These forward-looking statements may be identified by reference to a future period or by use of forward-looking terminology and address matters that are uncertain. Important risks and uncertainties that may cause our results to differ from our forward-looking statements are described in our SEC filings. Our forward-looking statements speak only as of the date they are made and we disclaim any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, the presentation and our comments contain references to non-GAAP financial measures, such as adjusted pre-tax income and adjusted expenses, among others.

We believe these non-GAAP financial measures provide a useful supplement to analysis of our financial condition and an alternate way to view certain aspects of our business that is instructive. Non-GAAP financial measures should be viewed in addition to and not as an alternative for the company's reported results under accounting principles generally accepted in the United States. The reconciliation of the non-GAAP measures used in this presentation to their most directly comparable GAAP measures may be found in the press release and the appendix to the investor presentation available on our website. Finally, this presentation and our comments refer to our preliminary fourth-quarter financial results.

These statements are based on currently available information and reflect our current estimates and assessments. The company has not finished its fourth-quarter financial closing procedures. There can be no assurance that actual results will not differ from our current estimates and assessments, including as a result of fourth-quarter financial closing procedures and any such differences could be material. Now I will turn the call over to Glen Messina.

Glen Messina -- Chief Executive Officer

Thanks, Dico, and good morning, everyone. Thanks for joining us. Let's get started today on Slide 3. We're really energized by the great progress we've made across the company.

We've executed an incredible business transformation. We're a better balanced and more diversified mortgage originator and servicer. We're stronger, more efficient, and better aligned with future market opportunities. We've concluded our strategic review and are excited to announce an expansion of our strategic alliance with Oaktree Capital with their investment in OFC Holdco notes.

We believe our alliance with Oaktree can enable a level of growth and EPS accretion, and potential value creation that we cannot achieve on a stand-alone basis, as well as, support the refinancing of our corporate debt. In the fourth quarter, we continued to improve profitability. We delivered record growth in originations and we continued to reshape and diversify our servicing portfolio. As we look ahead, we believe we are well-positioned to capitalize on potential future growth opportunities in multiple market segments and we're focused on executing five straightforward operating objectives to drive improved value for shareholders.

Let's jump to Slide 6 to discuss the outcome of our strategic review process. Our expanded strategic alliance with Oaktree marks the conclusion to our strategic review process that we announced in May 2020. The objective of our strategic review was to maximize long-term value for Ocwen's shareholders. Our review of alternatives which was overseen by our board and with the support of Barclays and Credit Suisse was fulsome and robust.

Our outreach was aided by our public announcement of the strategic review process which also resulted in inbound increase by parties not included in our initial outreach. Now we had discussions with numerous parties and all options were considered. And at the end of the day, there were really no actionable change of control or merger opportunities that emerged from these discussions. In the absence of a change of control transaction, we believe we need to accelerate our originations and servicing growth, and address the upcoming corporate debt maturities to maximize our value as a stand-alone company.

We concluded through our strategic review that our ability to increase the leverage of the total company using the assets of the operating company was limited by a number of factors, including proposed regulatory requirements that may increase capital and liquidity requirements for nonbank mortgage companies. So to address our growth and refinancing objectives with these constraints, we focused our structured financing solutions that would provide incremental capital to accelerate our growth and position the company to successfully refinance our upcoming corporate debt maturities without encumbering the assets necessarily of PHH, our operating company. We're excited to announce that we've executed definitive agreements with Oaktree for $250 million in incremental capital through Holdco notes issued by Ocwen Financial Corporation. This is our holding company and this incremental capital is in addition to our joint venture with Oaktree MAV.

When combined with MAV, we expect the over $460 million in capital provided by Oaktree can enable us to potentially increase our earnings per share by 65% or more once the proceeds are fully invested. We believe the Holdco notes also support our corporate debt refinancing on more favorable terms while increasing capacity for secured financing and share repurchases. Now for these reasons, the board found the Oaktree offer to be the most compelling opportunity to enable a level of growth, EPS accretion, and potential long-term value creation that we could not achieve on a stand-alone basis. We believe the Oaktree investment enhances our ability to compete and prosper, as well as, demonstrates their confidence in and commitment to Ocwen's long-term success.

Now let's turn to Slide 7 for some of the details on MAV and the Holdco notes. Yes, starting with the Holdco notes. These are structured with the collateral package limited to a second lien on the assets of OFC, the holding company. There is no lien on the PHH assets or guarantees from PHH.

This is a substantially reduced collateral coverage and more deeply subordinated position in our capital structure versus our existing high-yield notes. The limited collateral package and deep subordination enables us to treat the proceeds from the Holdco notes that gets contributed to PHH, our operating company, as equity. And we expect this will increase our ability to leverage the assets of PHH with first lien debt and secured financing. You know this deeply subordinated position in our capital structure relating to the Holdco notes does translate into pricing that's close to equity.

The Oaktree notes have a face value of $285 million with a $35 million original issue discount for net proceeds of $250 million. The coupon is 12%, plus about 2% for the effective annual cost of the OID. In addition, Oaktree will receive warrants for 12% of the fully diluted shares of Ocwen. In terms of use of proceeds, we intend to use $100 million of the proceeds to pay down and support the refinancing of our existing corporate debt in a concurrent refinancing transaction.

We expect less restrictive covenants, eliminating amortization, and relative to existing corporate debt, extending the maturity with an expected tenure of six years on the Holdco notes. Concurrent with the refinancing, we'll pay off our existing corporate debt per their respective terms. The remaining $150 million in proceeds from the Holdco notes will be used to support our on book growth objectives through MSR purchases and funding a portion of the MAV investment. We do expect the incremental capital in the operating company will allow us to improve the terms of our existing MSR financing which can create up to about $75 million in additional capital from our existing MSRs.

The proceeds from Oaktree will come in two tranches. The first tranche is $175 million and that will come in concurrently with the closing of the corporate debt refinancing. The remaining $75 million will come in concurrent with the closing of MAV. Moving on to MAV.

As we announced in December, we formed a partnership joint venture with Oaktree Capital to launch an MSR asset vehicle. This vehicle will purchase MSRs. Oaktree will own 85% and Ocwen will own 15%. You know, MAV expects to leverage up to $250 million in capital that will be contributed by Oaktree and Ocwen, respectively, based on our relative shares to purchase MSRs and this will be leveraged up roughly one for one with secured MSR financing.

So that gives us the capacity for up to about $60 billion in MSR UPB. Now PHH will be the sole provider of originations, subservicing, and recaptured administrative services to MAV. And Ocwen will also earn MSR investment returns on its capital contribution and from profit sharing on returns in MAV above 12%. Now MAV is expected to close in the first half of 2021, subject to GSE and regulatory approvals.

In terms of benefits, MAV supports our servicing and subservicing growth objectives on a capital-efficient basis and will help generate increased cost efficiency through increased origination and servicing scale. Moving on to Slide 8. In terms of the financial impact of the Oaktree investment in Ocwen, we estimate that a -- on a combined basis, the Holdco notes and MAV can contribute up to $78 million in annualized pre-tax income from full deployment of the capital provided by these two structures. We estimate full deployment of the proceeds can generate roughly $5 per share in incremental earnings on a fully diluted basis.

This translates to over a 65% increase above our potential baseline EPS range which assumes an after-tax ROE range of roughly 10% to 15% on about $414 million of equity. Using a PE multiple range of some of our peers of roughly 4 times to 6 times forward earnings, the potential incremental value creation is roughly $20 to $30 per share. This is a 7 times to 10 times multiple of the potential book value per share dilution, assuming the warrants are fully issued and the corresponding increase to our equity from the proceeds related to issuing the warrants. The incremental investment capital will allow us to further expand our originations activities and expand our participation in the bulk purchase market.

We expect to source roughly up to $200 billion in incremental total volume over the next couple of years. And again, it's estimated to source up to $200 billion in incremental volume over the next two years. The total growth in volume will allow us to grow our total subservicing portfolio to roughly $300 billion by the end of 2022, assuming the NRZ subservicing contract does not renew. So again, strong growth in the servicing portfolio resulting from the originations.

We believe it's a great time to invest in MSRs. Pretax cash IRRs in our MSRs generated in December were about 12% before MSR financing, that translates to roughly 18% after MSR secured financing. Now in addition, we'll continue to opportunistically evaluate M&A transactions to expand our originations and servicing capabilities which might provide enhanced returns versus MSR investments. These estimates are based on the judgment of management and based on our current assumptions which may be subject to change based on market and industry conditions, among other things.

Look, the bottom line here is, we're really excited about our alliance with Oaktree and the opportunity it provides to enable a level of growth and EPS accretion and potential value creation that we could not achieve on a stand-alone basis. Moving on to Slide 9, maybe a little bit about the fourth quarter. So look, during 2020, we demonstrated exponential total volume growth, total cost improvement and built a scalable and efficient platform to support our future growth. Adjusted pre-tax profitability was up roughly 15% in the fourth quarter over the third quarter despite declining origination margins.

Annualized adjusted pre-tax profitability has improved over $380 million over the second-quarter 2018 baseline for Ocwen and PHH combined. Our multichannel origination platform continued to deliver really strong results. Flow origination volume in the fourth quarter was up 49% over the third quarter and up over 7 times as compared to 2019. So again, just really great performance by the originations team.

And as we talked about earlier, we're focused on accelerating our growth trajectory in 2021. Yeah, we are focused on driving efficiency in our operating expenses. And as a result of that efficiency and our continuous cost improvement, operating expenses are down 44% over the second-quarter 2018 baseline for Ocwen and PHH combined. That's over a $400 million cost reduction.

So again, just great performance by the team in really rethinking and reimagining our business infrastructure. You know, we're disappointed that settlement discussions with the CFPB did not resolve this matter and especially since we've resolved all state regulatory actions filed against Ocwen in 2017. We engaged with the bureau in good faith throughout the course of mediation and numerous related discussions and took all actions in an attempt to reach a fair and reasonable resolution. We increased our legal and regulatory accrual related to the CFPB matter by $13 million in the fourth quarter, resulting from our efforts to resolve the matter in mediation.

We remain steadfast in our belief that the CFPB's claims regarding Ocwen's past servicing practice are unsubstantiated and the bureau settlement demands do not reflect the merits of this case. While we remain committed to attempting to resolve the matter prior to trial, our pending motion for summary judgment which was filed on June 5th, 2020, supports our position on this matter, and we expect to continually -- continue to vigorously defend ourselves going forward. Look, it was a great quarter, the fourth quarter, a great year in 2020, and I could not be proud of the team of what they accomplished. Yeah, moving to Slide 10.

Maybe a little bit about the originations platform. We delivered a record total volume of $30 billion in the fourth quarter. It translates to roughly an annualized run rate of about $60 billion from our flow channels and about $60 billion annualized from bulk. Total volume for 2020 was $59 billion versus $26 billion last year, so we've doubled total volume.

Full-year flow and co-issue originations were up 8 times over last year. Full-year bulk and subservicing adds were up over 48% as compared to last year. Our correspondent and flow seller base increased about threefold since the fourth quarter of 2019. You know, all of our channels delivered strong double-digit growth quarter over quarter.

As I mentioned before, cash yields and MSRs continued to be very strong, and our portfolio replenishment was exceptional. In addition, in the fourth quarter, we were awarded multiple subservicing contracts with projected volume of $16 billion to $24 billion that we expect will board in the first and second quarter. Now margins as well continued to contract in the fourth quarter. We had expected that.

The average margins fell to about 56 basis points versus our expectation of 77 basis points for Q4. This is really solely due to higher-than-expected third party volume. Margin compression by each channel was actually slightly less than expected. Again, here, great performance by our originations and capital markets teams and I believe we've got more room to grow.

We'll talk about that in a minute. Turning to Slide 11. Our servicing platform continued to deliver very strong performance in the fourth quarter. Our servicing leadership team is doing a great job of driving continued improvement in efficiency and effectiveness and helping customers navigate through the crisis.

Our call center continued to outperform the MBA reported industry averages. Our key claims metrics also continued to perform with nearly 100% effectiveness. We continued to invest in technology to lower unit costs, improve performance for investors and enhance the customer experience. Despite almost all of our people working remotely, we've continued our unparalleled track record of helping homeowners in need.

In 2020, we provided forbearance relief for over 180,000 consumers and we completed about 40 virtual borrower outreach events to reach consumers potentially impacted by the pandemic. The strength of our originations have allowed us to grow our servicing portfolio slightly in the fourth quarter. And we achieved roughly a 50-50 mix of owned servicing and subservicing. Again, here, I'm really proud of how our servicing team has transformed their operation.

All our hard work over the last two years really positions us well for profitable growth, leveraging a scale -- a scalable and efficient platform for 2021. Turning to Slide 12. In 2021, looking ahead, the market, we expect the total originations will be down roughly about 17%, with much decline in the second half of the year. You know Black Knight is reporting that there's still about 16 million to 17 million borrowers who are eligible for refinancing which should continue to drive the refi market in the near-term.

As well, the millennial generation is driving significant growth in the number of first-time potential homebuyers which should, long-term, also bode well for the purchase market. Our reverse origination platform is positioned to support the financial needs of our growing senior population by tapping into an estimated $7.8 trillion of untapped home equity. Our special servicing expertise and track record of creating non-foreclosure outcomes for consumers, you know, positions us to support the roughly 1.8 million homeowners who are still on forbearance who may need loss mitigation assistance. We estimate that roughly 85% of these borrowers are delinquent and we further estimate that about 25% will need loss mitigation assistance.

We expect the increase in Ginnie Mae workouts as foreclosure alternatives will drive increased EBO, early buyout gain opportunities, in Ginnie Mae servicing, and the current low interest rate environment can create opportunities to drive increased realization of gains for executing call rights. As most of you know, as rates rise, total industry volume will decline. We also expect margins will contract and we've seen some of that this year. However, rising rates can increase the value of our owned MSRs by extending duration and MSR amortization will slow as prepayments decrease.

The increase in MSR values, this rate rise will positively impact book value per share. Turning to Slide 13. You know, our focus for 2021 will be on executing five key business initiatives that we believe will help us capitalize on the opportunities that are available in the market ahead. Those are accelerated growth, strengthen our recapture performance, improve our cost leadership position, maintain high-quality operational execution, and expand servicing revenue opportunities.

Yeah, from a regulatory perspective, we are monitoring and we'll continue to evaluate the impact that the Biden administration's key agenda items may have on our industry. We'll also closely monitor -- be monitoring statements from the CFPB regarding any planned priorities or areas of focus. And the President has already signed an Executive Order calling for various federal agencies to extend foreclosure and eviction moratoria, and the administration's enhanced stimulus plans could include additional protections with respect to forbearance and foreclosure, and eviction moratoria. Any changes at the federal level will, obviously, be uniform across all competitors in the industry, and thus far, Ocwen alone, as well as, the industry has proven to be adaptable in a dynamic regulatory environment.

We expect the successful execution of our key initiatives will allow us to deliver positive GAAP earnings in 2021, with low double-digit to mid-teen after tax ROEs again by mid-2021, assuming no adverse changes in the market, industry or business conditions or legal and regulatory matters. And June will take us through our road map for 2021 later. And maybe I'd like to share a little bit more about each of these initiatives for 2021 on the next few pages. Turning to Slide 14.

In 2021, our goal is to achieve over $100 billion in volume with the 40-60 mix of owned servicing and subservicing, respectively. Our fourth-quarter run rate kind of puts us on track for those levels. We focused on several actions to accelerate our growth trajectory by leveraging our multichannel platform. Now we're targeting to grow our seller base again, over 450 sellers in 2021 to support our growth in correspondent and flow volume, as well as, performing and special subservicing opportunities.

We believe our broad portfolio of services, including subservicing, specialty servicing, MSR purchase through multiple delivery methods, provides a compelling value proposition. We're also focused on expanding our product reach, so expanding our share in the Ginnie Mae market through correspondent, in the Ginnie Mae co-issue market and correspondent. We're also working to introduce Jumbo and non-QM products, as well as, expanding our service to include best efforts and non-delegated delivery methods. In subservicing, we're expanding our small balance commercial loan business.

That's begin to grow nicely for us. And finally, MAV will allow us to expand our participation in the bulk market significantly which will help us create synthetic subservicing. And finally, as I mentioned earlier, we continue to evaluate opportunities to enter higher-margin channels based on market conditions. Now turning to Slide 15.

We continue to target achieving at least a 30% recapture rate for our recapture platform and we believe our recapture performance is only limited by our operating capacity to address available opportunities. And our recapture team has consistently, over the last four or five quarters, grown our closings quarter over quarter and has marched up the recapture rate quite nicely, but we've still got more room to grow. So we expect to increase staffing levels by over 40% through the course of 2021. We're continuing to hire and train new team players in every position and intend to do so throughout the year.

We are focused on process and technology as well. We're focused on helping new team players improve their productivity as they mature in their roles. We're also driving continuous process improvement with our process improvement teams, leveraging our global workforce, and we're focused on implementing new technology to support expanding our capacity across the entire loan origination life cycle. Yeah, moving to Slide 16.

We remain focused on driving productivity to improve our cost leadership position while maintaining high-quality operational execution. We're targeting to reduce our servicing operating cost by roughly 2 basis points of UPB in this year and reducing corporate overhead expenses by roughly 1 basis points of UPB. We're executing over 60 technology-enabled projects across the business to drive productivity, cost reduction, improved customer experience, and support growth. We'll continue to focus on high-quality execution at our operations relative to comparative industry benchmarks to further improve our customer experience and create value for investors and clients.

And as we did in 2020, we stand ready to support consumers in need of forbearance relief and loss mitigation assistance as they come off forbearance. On Slide 17, finally, we're focused here on several actions aimed to expand our servicing revenue opportunities. We're preparing for a surge in loss mitigation related to expiring Ginnie Mae forbearance plans. We expect this will also create a potential surge in early buyouts and modification related redelivery gains.

We're tracking roughly $300 million in RMBS call right opportunities. We expect roughly $125 million will be eligible to call in 2021 and we'll continue to evaluate the variables that impact eligibility and economics of executing these calls throughout the year. And finally, we continue to evaluate opportunities to expand our capabilities in both forward and reverse servicing. And now I'll turn it over to June to go through our financial performance for the quarter.

June Campbell -- Chief Financial Officer

Thank you, Glen. Please turn to Slide 19. This is our fifth consecutive quarter of positive adjusted pre-tax income. Revenue decreased quarter over quarter, driven primarily by lower NRZ subservicing fees, resulting from UPB transfer and runoff.

We've been awarded multiple subservicing contracts with projected volume $16 billion to $24 billion and closed approximately $15 billion of MSR bulk purchases which should largely offset the lost revenue. MSR adjustment decrease is driven by fair value calibration for higher one-off which reduced the fair value of MSRs in the third quarter. We also recorded $3 million of higher gain during the quarter, largely driven by higher MSR purchase volumes. Operating expense improvement is from leveraging technology and productivity actions as we continued to invest in our originations platform.

Adjusted pre-tax income is $15 million, $2 million higher than prior quarter, as favorable MSR valuation and lower expenses offset lower revenue. Notables in the fourth quarter include a $13 million additional CFPB accrual and $4 million in other legal accruals. We had higher income tax expense during the quarter which excludes tax benefit on fourth-quarter legal accruals which we expect to recognize when paid in 2021 and fourth-quarter period adjustment to the CARES Act benefit for higher pre-tax income than previously estimated for the year. We reported a GAAP net loss of $7 million, $2 million improvement over prior quarter and after the $13 million of additional CFPB accrual I previously mentioned.

Please turn to Slide 20. Our balanced business model is operating well. Originations growth and profitability is replenishing the servicing portfolio and offsetting one-offs. On the left side of the slide, you can see that our multichannel platform is fueling strong originations volume with growth up 164% quarter over quarter.

Servicing originated volume is up almost 4 times quarter over quarter, driving strong replenishment of 267%. Adjusted pre-tax income was $35 million, $2 million lower than the prior quarter as higher volume was offset by expected margin normalization and $5 million of investment in our platform. On the right side of the slide, our servicing segment is demonstrating strong performance through the refinance cycle, delivering improved results quarter over quarter. UPB runoff is being replenished through newly originated servicing and subservicing despite a $16 billion transfer of the NRZ portfolio previously terminated in 2020.

We have a strong subservicing pipeline with our top 15 prospects at approximately $85 billion, with additional opportunities from MAV. We continue to optimize our cost structure through rigorous process redesign and increased automation, driving improved efficiency. Please turn to Slide 21. Our total exposure to loans on forbearance continues to diminish and tracks favorable to our forecast.

You can see on the left that both the total number of forbearance plans and the forbearance plans where we have ultimate responsibility to advance continue to decline. As the chart reflects, there's a significant difference between total forbearance plans and the amount where we have ultimate responsibility to advance. This is a function and a benefit from our strategy to maintain a mix of owned servicing and subservicing. On the upper right chart, you can see that our owned servicing portfolio is performing favorable to other nonbank servicers in terms of percent of loans on forbearance.

We are seeing roughly 53% of our borrowers on maturing forbearance plans reinstate and 40% extend. Roughly 4% have progressed to loss mitigation and we are awaiting decision for direction from the borrower on about 3% of plans that have matured. Our expectation is roughly 75% of borrowers on forbearance will reinstate and less than 25% will need some form of loss assistance. Please turn to Slide 22.

We ended the quarter with $285 million in liquidity. We have made significant investments in bulk MSR market opportunities and originations during the quarter. We invested $190 million in cash before financing to fund $25 billion of MSR originations, $18 billion higher than the prior quarter, largely driven by opportunistic bulk MSR acquisitions. Our originations generated strong cash-on-cash unlevered yields of approximately 12% across all channels.

Servicing advances continue to track favorably and actual advances were 29% lower than forecast. Lower advance originations were largely driven by higher prepayments and more forbearance plans performing. Please turn to Slide 23. We're focused on our five operating objectives, as highlighted by Glen earlier to achieve our profitability goals.

We expect to generate positive GAAP earnings in 2021 with low- to mid-teen after-tax ROE by mid-2021. This page is a road map to achieving these results broken down by operating objectives in originations, servicing, and corporate segments. I won't go through the details on the call here today, but please let me know if you'd like to review at another time as we have to go through the details. Now I'll turn it back over to Glen.

Glen Messina -- Chief Executive Officer

Yeah. Thanks, June. You know, wrap up, let's turn to Page 24. As I said at the onset, I'm just energized about the opportunities and our potential for 2021 and beyond.

We've radically transformed Ocwen. It's a better balanced, diversified mortgage originator and servicer. Our strategic alliance with Oaktree can provide almost $0.5 billion of incremental capital to enable a level of growth, EPS accretion, and potential value creation that we could just not achieve on a stand-alone basis. We're stronger, more efficient, and better aligned to future market opportunities as a result of all the hard work of the Ocwen global team.

We're delivering record growth in originations and we continue to reshape and diversify our servicing portfolio. As we look to the opportunities ahead, we believe we're fairly well-positioned to capitalize on the potential future growth opportunities in multiple market segments. You know in 2021, we're focused on executing five straightforward objectives to drive improved value for shareholders and achieve our goal of low double-digit to mid-teen after-tax return on equities by mid-2021. And you know, none of this would be possible without all the hard work of our global Ocwen team.

So I want to thank our board and global team members for their tireless efforts to transform Ocwen and their service to homeowners, communities, and investors. And with that, Shamali, let's open it up for questions.

Questions & Answers:

Operator

[Operator instructions] And our first question is from Lee Cooperman with Omega Family Office. Please proceed with your question.

Lee Cooperman -- Omega Family Officer -- Investor

Thank you. You've provided a tremendous amount of information here as I have spent some time digesting it, but I congratulate you. Based upon everything you've said, it seems very positive. I'm a little confused and I have a feeling that has to do with time frame.

On Page 3 of the presentation, you talk about low-digit -- low double-digit to mid-teen after-tax return on equity. And then on Page 8, you talk about $10 to $12.10 a share in earnings. Number one, what is the pro forma book value now after the second transaction with Oaktree? What are we looking in terms of book value?

Glen Messina -- Chief Executive Officer

Yeah, Lee, based on the current $414 million of equity capital at Ocwen, our current book value per share and this is on Page 27 of the presentation for future reference is $47.65. And after execution of all the warrants that were granted to Oaktree, and again, assuming the proceeds from those warrants come into the company related to executing those warrants, we would expect the diluted book value per share to be $44.87, again, starting with the $414 million.

Lee Cooperman -- Omega Family Officer -- Investor

OK. So the return on equity of low double-digit to mid-teens should be applied against that $44.87 number?

Glen Messina -- Chief Executive Officer

Um, I don't think so, Lee. So it all depends on when Oaktree executes the warrants, right? So if they execute them right upfront, then obviously, the additional capital comes in the business and the dilution happens. Um, we're assuming in our targets that the warrants aren't immediately exercised. They wouldn't be exercised until some future date.

So our low double-digit to mid-teen returns is really focused on the $414 million of equity.

Lee Cooperman -- Omega Family Officer -- Investor

All right. Well, so the $10 to $12.10 of incremental earnings, what time frame are we talking about? It's obviously not 2021.

Glen Messina -- Chief Executive Officer

Yeah, Lee, we think it will take about two years to fully invest all the proceeds that are coming in from Oaktree, both in terms of MAV, as well as, the on book capital. We'll obviously invest it as fast as we can. And obviously, it's a great market environment now. So I think there's lots of near-term opportunity to invest.

But for purposes of what we laid out here, we are assuming it takes about two years to invest the proceeds.

Lee Cooperman -- Omega Family Officer -- Investor

OK. So the two years generate incremental $10 to $12 in earnings, then the return on equity would be materially different?

Glen Messina -- Chief Executive Officer

Yeah, that's right, Lee. So you know, again, if you do the math coming off of Page 27, it would imply a return on equity of about 22% to 26%.

Lee Cooperman -- Omega Family Officer -- Investor

Right, right. Just a few other questions, if I may. Oaktree has access to information that public doesn't have which is understandable since they've made such a large investment. Can we derive some comfort from their willingness to invest close to $0.5 billion as regards to CPFB litigation?

Glen Messina -- Chief Executive Officer

Look, Lee, you know, as you might imagine, Oaktree putting up almost $0.5 billion of capital into the company. They performed the requisite diligence that's commensurate with that size of investment. And look, I think their commitment to the company, the size of their investment and the duration of their investment reflects a strong commitment to the company and our growth potential, and obviously, they evaluated the risks and opportunities associated with the company and we're excited to have them as a partner. I think it takes the company to a whole new level, having Oaktree as a partner.

Lee Cooperman -- Omega Family Officer -- Investor

OK. With this new capital coming in, I assume the refinancing will no longer be conditional. That the refinancing will move ahead?

Glen Messina -- Chief Executive Officer

Look, it's got to be -- you know, certainly, market conditions can always impact any refinancing. But look, we feel really good about the Oaktree Capital coming in and how that sets us up to do the refinancing. It's a great market in the high-yield market. You know, we're going to -- obviously, time is of the essence, so we want to react quickly here.

But again, we think the Oaktree additional investment here is a huge boost in our ability to execute our refinancing plan.

Lee Cooperman -- Omega Family Officer -- Investor

Last question really revolves around cost of capital. You know, people like PFSI and COOP are financing at around 4.5% without warrants. We're taking 12.5% money and giving warrants. Are we cost competitive vis-a-vis our competition, given our cost of capital?

Glen Messina -- Chief Executive Officer

You know, Lee, look, based on where return -- leverage returns are in the MSR environment today and the fact that we're not growing solely through on book capital. We're using MAV, for example, to create additional fee income which enhances our base level of return on equity, I think we are. You know, one of the things that we've done in the business to drive our improved competitiveness is we just relentlessly focused on cost and operational execution and they go hand-in-hand. So just cutting costs without improving operational execution just creates cost in a different way.

So, you know, look, we will continue to be passionate and resolute in driving an industry best practice cost structure in the business which helps offset our cost of capital as it exists today. But look, Lee, as the business improves and as profit improves, we expect it'll produce -- it'll help us lower our cost of capital over time.

Lee Cooperman -- Omega Family Officer -- Investor

Right. And just as an observation, it's far off into the future, it's not now. But given where the stock trades and your pro forma book value and the anticipated $10 to $12 of incremental earnings, are we going to generate the free cash flow to take advantage or miss the Market where we could shrink equity to offset some of this dilution that we're creating through the warrants?

Glen Messina -- Chief Executive Officer

Yeah, Lee, one of the benefits of having this incremental capital come in to support on-book MSR investments is on-book MSR has generated great cash flow. They have very strong cash flow dynamics. So, you know, as we continue to invest and scale up our operation and take advantage of our scalable and efficient platform, we expect cash flow will improve along with the earnings of the company and EBITDA, so to speak, will improve with earnings of the company. And under the current Holdco note structures, as I mentioned earlier, we -- you know, assuming the refinancing gets done, we'll have structurally increased flexibility to execute share repurchases as long as we're on target with our growth expectations and profit expectations.

Lee Cooperman -- Omega Family Officer -- Investor

All right. Thank you very much. Good luck and congratulations on your refinancing.

Glen Messina -- Chief Executive Officer

Thank you, Lee. Appreciate it.

Operator

[Operator instructions] Our next question is from Marco Rodriguez with Stonegate Capital Markets. Please proceed with your question.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Good morning, everyone. Thank you for taking my questions.

Glen Messina -- Chief Executive Officer

Good morning.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Yeah. I was wondering if maybe you could talk a little bit more about the strategic review process. Just kind of -- obviously, I understand the -- what have been done here, terms with Oaktree. But I'm just wondering if you could talk a little bit about the other potentials that you kind of reviewed and just kind of frame them in terms of compare and contrast, if you can, between what you guys basically executed right now?

Glen Messina -- Chief Executive Officer

Yeah, sure. So, Marco, as I mentioned earlier and mentioned during the course of 2020, as the strategic review is ongoing, all options were on the table. So we did have a very broad outreach to many players within both strategic and financial investors, and we did have reverse inquiry come into the business as well because it was a public process. We're open about it.

We looked at a variety of different things from refinancing transactions to potential merger transactions. As I said earlier, there really were no actionable merger opportunities. I want to say that we got great feedback during the strategic review process, people were impressed by the turnaround performance here in the business and the transformation that we've done. But from an M&A perspective or a merger perspective, look, this is a very hot originations market.

As you can see in the press and the papers and the industry, you know, a lot of folks with big originations platforms are looking to monetize their investment and are looking to get bigger in originations. So we found that, look, from an M&A perspective, there, generally, I think valuation expectations are very high among originators. You know, and as a result, I'm just not sure there was anything as compelling, quite frankly, as the Oaktree proposal. You know, as it relates to the Oaktree proposal, there were other similar structures that were presented during the course of the process.

It was a -- obviously, people executed confidentiality agreement. So, you know, we didn't necessarily share information across people, but you can't do that. So -- but look, Oaktree was not the only proposal with this kind of structure, but it certainly was the most competitive. And you know, we believe the aggregate commitment of capital, and again, their relationship on the MAV side, as well as, the PHH side, the Ocwen side of the house, creates a terrific alignment of interest across the business.

So, you know, we intend to work cooperatively, built a great relationship with folks over at Oaktree, we're excited about working with them going forward.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Got it. Very, very helpful. And then in terms of your origination volumes in the quarter, pretty substantial growth sequentially, can you maybe talk a little bit about the drivers there?

Glen Messina -- Chief Executive Officer

Yeah. Our originations team is doing a terrific job. The enterprise sales model that we've put in place, which again, allows us to sell the total portfolio of what we do. So bulk purchase of MSRs using the agency co-delivery methods, the cash window, our correspondent channel, offering portfolio recapture services, offering subservicing, our special servicing capability, it's a very broad and comprehensive product set.

Our enterprise sales team does a great job selling that. You could see we had -- you know, we've tripled the number of sellers that we deal with in our flow and co-issue and correspondent program. And the team continues to ramp up, right, so we're targeting 450 for next year and we're going to continue to expand products and introduce Ginnie Mae and non-QM and Jumbo and expand our services as well. So bringing in our best efforts delivery and non-delegated as well.

So look, the enterprise sales model for us has just been terrific. You know, we've gotten bulk. We've gotten subservicing. New S&P sellers, it's really helped us build the originations platform, but look, we're not done.

I think there's more opportunity here. And frankly, I think we're just scratching surface. There's a lot of services and products we could bring into our originations channel that other competitors have today and we don't. So we think there's an opportunity to enhance our competitive position here.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Got it. And last quick question here for me. Just looking at your earnings and profitability framework for 2021. Can you maybe just talk a little bit about what you see as the biggest growth drivers there and then perhaps also frame where you might need to do a little bit more work to kind of obtain these goals, if you will?

Glen Messina -- Chief Executive Officer

Yeah. So the biggest growth drivers are, obviously, on-book servicing, so building or rebuilding that owned MSR portfolio, and as well, enhancing that by substantially building out our subservicing capabilities, our subservicing earnings contribution from MAV. So those are really the two drivers of what's going to fuel the earnings performance of the business. And as I mentioned to Lee, it also, obviously, the owned servicing has very strong cash flow dynamics.

So that helps build the cash flow performance of the business which then creates capital to reinvest, right, in more MSRs. So it becomes kind of the flywheel effect as you begin to move the business forward. You know, it's all about scaling up originations for us in terms of delivering that capability. Now we are expecting to see a relatively robust bulk market.

It has been very active so far in the first quarter. It was very active in the fourth quarter. We closed $15 billion of bulk transactions. We are seeing activity here in the first quarter.

So continuing to expand our activities in the bulk market kind of job one, right? So that helps us fill MAV and fill our books quickly. But we also want to continue to grow that correspondent seller base and grow our flow programs. Again, I think we're just scratching the surface. If you have a mature correspondent platform, you probably have 600 to 700 sellers, active sellers at any given point in time.

And again, we're only half of that, right? So, you know, scaling up the originations team, scaling up our sales team, getting more feet on the street, getting out there, and being more present and visible in the market, expanding those products and services will really help us fuel the growth of the correspondent platform.

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

Got it. Thanks a lot, guys. I really appreciate your time.

Glen Messina -- Chief Executive Officer

OK. Thanks, Marco.

Operator

And we have reached the end of the question-and-answer session. And I will now turn the call over to President and CEO Glen Messina, for closing remarks.

Glen Messina -- Chief Executive Officer

Thanks, Shamali. Hey, everyone, thank you so much for taking the time to be on our business update call today. Again, just couldn't be more energized about the opportunities we have in front of us for '21 and beyond. The whole Ocwen team here has just been moving at an incredible pace to radically transform this business and create significant amount of opportunities ahead for us to grow and mature and expand our business.

I'm grateful and appreciative to the team at Oaktree who worked tirely -- tirelessly with us as well through the strategic process and just very much appreciate their vote of confidence in the business and our leadership team. So thanks, everyone. Appreciate your support and look forward to talking to you at the end of the first quarter.

Operator

[Operator signoff]

Duration: 50 minutes

Call participants:

Dico Akseraylian -- Senior Vice President, Corporate Communications

Glen Messina -- Chief Executive Officer

June Campbell -- Chief Financial Officer

Lee Cooperman -- Omega Family Officer -- Investor

Marco Rodriguez -- Stonegate Capital Markets -- Analyst

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