Q1 2024 Ocwen Financial Corp Earnings Call

Participants

Dico Akseraylian; Senior Vice President, Corporate Communications; Ocwen Financial Corp

Glen Messina; Chairman of the Board, President, Chief Executive Officer; Ocwen Financial Corp

Sean O Neil; Chief Financial Officer, Executive Vice President; Ocwen Financial Corp

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

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

Eric Hagen; Analyst; BTIG LLC

Presentation

Operator

Good day, everyone, and welcome to today's Ocwen Financial Corporation first quarter earnings. (Operator Instructions) This call is being recorded, and I'll be standing by if you need help. It's now my pleasure to turn the conference over to Dico Akseraylian, Senior Vice President, Corporate Communications.

Dico Akseraylian

Good morning, and thank you for joining us for Ocwen's First Quarter 2024 earnings call. Please note that our earnings release and slide presentation are available on our website. Speaking on the call, the office Chair and Chief Executive Officer, Glen Messina, and Chief Financial Officer, Sean O'Neill, as a reminder, the presentation our comments today may contain forward-looking statements made pursuant to the Safe Harbor provisions of the federal securities laws. These statements may be identified by reference to a future period for use of forward-looking terminology and address matters that are uncertain. You should bear this uncertainty in mind and should not place undue reliance on such statements. Forward-looking statements speak only as of the date they are made and involve assumptions, risks and uncertainties, including those described in our SEC filings. In the past, actual results have differed materially from those suggested by forward-looking statements, and this may happen again.
In addition, the presentation our comments contain references to non-GAAP financial measures such as adjusted pretax income. We believe these non-GAAP financial measures provide a useful supplement to discussions and analysis of our financial condition because their measures that management uses to assess the performance of our operations and allocate resources. Non-gaap financial measures should be viewed in addition to and not as an alternative for the Company's reported GAAP results. A reconciliation of these non-GAAP measures to their most directly comparable GAAP measures and management's view on why these measures may be useful to investors may be found in the press release and the appendix to the investor presentation.
Now I will turn the call over to Glen Messina.

Glen Messina

Thanks, Diego, and good morning, everyone, and thanks for joining our call today. I will share our results for the first quarter and take you through our progress in executing our strategy and financial objectives to deliver long-term value for our shareholders.
Please turn to Slide 3. We're excited about the progress we made in the first quarter and pleased to report improved performance on many of our key financial metrics. We reported adjusted pretax income of $14 million, which results in an annualized adjusted return on equity of 13.8%. Both metrics have improved on a sequential quarter and year-over-year basis, we reported GAAP net income of $30 million or diluted earnings per share of $3.74, the highest level in six quarters.
Our results were driven by improved performance in servicing and originations as well as favorable MSR fair value change. Net of hedge book value per share also improved to $56, we continued to grow subservicing with $19 billion of subservicing additions for the quarter. Average servicing UPB for the first quarter was below prior year due to the timing of additions and runoff. Quarter-end subservicing UPB was up 4% versus prior year.
We exceeded our deleveraging objectives for the first quarter with corporate debt repurchases of $47 million. Total liquidity at quarter end was $219 million below year-end 2020 three's level, reflecting our capital allocation to debt retirement. We intend to continue to pay down debt in 2024 as excess liquidity permits. As we look ahead, third party estimates for industry volume have been revised lower, reflecting the expectation that interest rates will remain high for longer. We continue to believe our balanced business positions us well in any interest-rate environment.
Please turn to Slide 4. Guided by our strategy. We transformed Ocwen into a balanced mortgage originator and servicer with the capabilities to create positive outcomes for clients, homeowners and investors. We built up from our foundation in special residential and small balance commercial loan servicing with the PHH and RMS acquisitions to include performing agency and reverse mortgages. We've added multichannel origination capabilities to replenish and grow our servicing portfolio and provide earnings balanced through interest rate cycles.
We've invested in technology to replatform the entire business in the cloud, modernize and expand digital interface channels and implement various automation tools to enable low cost, high performance and improve the customer experience. We focus on growing total servicing portfolio through capital-light, subservicing with MSR capital partners and industry clients to reduce capital demands and interest-rate risk exposure and to enhance returns. We continue to focus on asset management transactions that leverage our core competency in special servicing.
Today, we're a top 10 non-bank servicer by UPB with broad capabilities and multiple industry awards for delivering top-tier industry performance for our customers and investors for a top 10 correspondent lender and a top five reverse lender by volume and endorsements, respectively. And we are continuously improving our portfolio recapture capability. Our technology enabled global operating platform is scalable with a highly competitive cost structure, which we believe will deliver improved profitability as we increase our total servicing UPB.
Our servicing portfolio is 56% subservicing with over 100 subservicing clients and multiple MSR Capital Partners, which we believe will enable total servicing portfolio growth without additional MSR investment support our deleveraging objectives and enhance return on equity, and we're executing asset management transactions, including clean-up calls, claims processing, asset recovery to drive incremental income and liquidity. We've meaningfully improved business performance capabilities and potential for growth and we believe the continued execution of our strategy will deliver long-term value for our shareholders.
Now please turn to Slide 5. We're excited about our recently announced plans to rebrand Ocwen to Ana to group, reflecting the evolution of our culture and transformation of our company into one of the strongest operators in the industry. We bring to honesty signifies the confidence we have in our business, our capabilities and our team. Our new brand identity was derived from the phrase, honor and conveys action and our dedication to dependability performance and supporting consumers.
Clients and investors reflects our hardworking culture and our focus on delivering on our commitment to achieve positive outcomes. We expect to formally change our name and begin operating as audited group next month, subject to shareholder approval, concurrent with our name change, will begin trading on the New York Stock Exchange under the new symbol on it ONIT. Our primary operating brands, PHH Mortgage and Liberty reverse mortgage will retain their names. At this time, we expect to rebrand PHH and Liberty to REIT mortgage later this year. We're excited about this new chapter for the company, and we look forward to operating under the ANA brand.
Let's turn to Slide 6 to discuss our financial objectives. Our first quarter financial results demonstrated another sequential quarter improvement in adjusted pretax income adjusted ROE, reflecting the continued execution of our strategy and financial objectives.
Our financial objectives start with sustaining the performance improvements we achieved during 2023 through disciplined MSR, investing with optimized hedge coverage, continued cost improvement and maintaining a prudent risk and compliance management approach.
Next, we're focused on improving return on equity and capital ratios by growing subservicing while maintaining our target MSR investment level deleveraging as it as excess liquidity permits and improving the profitability of our legacy owned MSRs.
Lastly, we're focused on capitalizing on market cycle opportunities. In this regard, we believe our originations platform has the agility to adapt to any interest-rate environment and fulfill its objective to replenish and grow our servicing portfolio. We continue to focus on asset management opportunities and closed another asset recovery transaction in the first quarter, which we expect will be accretive to income over the next several quarters. We also continue to dynamically manage our owned MSR portfolio to capitalize on differing views of market values amongst our market participants. As always, we remain flexible and committed to considering all options in this dynamic market to maximize value for shareholders. We're pleased with the performance improvements we've driven so far and are committed to executing our financial objectives to further deliver value for our shareholders.
Please start to slide 7. We have balanced and diversified our business to operate profitably in both high and low interest-rate environments. Our Servicing business positions us to deliver strong earnings and cash flow performance in the current high rate environment. While originations today is not a material earnings contributor, as you can see in 2021, when interest rates were lower originations delivered more substantial earnings.
Our diverse capabilities in both originations and servicing create multiple opportunities to generate earnings growth and returns. We have a top 10 or better market position in both originations and servicing multiple volume acquisition channels and diverse capabilities, which have enabled multiple asset recovery transactions and growth in performing and delinquent small-balance commercial loan servicing. We're excited about the potential opportunities in these high margin areas.
Lastly, we have substantially improved our portfolio mix over the past several years, increasing client concentration and reducing liquidity demands with over 85% of our servicing portfolio in subservicing and GSE owned MSRs, where we have materially lower exposure to advances.
Please turn to Slide 8. We've continued to make good progress executing on our capital-light growth strategy. Subservicing additions of $19 billion in the first quarter was equal to subservicing additions for the entire second half of 2023, and subservicing continues to represent most of our total servicing additions, subservicing UPB with capital partners continues to grow as well. Our efforts to diversify these types of relationships are evident with roughly 46% of our total capital or subservicing UPB comprised of non-mall partners.
Our capital partner relationships also create the opportunity for subservicing growth by way of MSRs acquired by them in the open market which comprises roughly 39% of our capital partner subservicing at the end of the quarter. I want to thank Oaktree and our other MSR Capital Partners for the trust and confidence they have placed in our team. We help them achieve their growth and profitability objectives. Our subservicing growth with mortgage banking clients and MSR Capital Partners continues to offset the runoff in the written subservicing portfolio, our average subservicing UPB, excluding revenue, was up 4% versus 2023 and up 38% over the last two years, reporting over $100 billion in subservicing additions in the last 24 months.
And our pipeline commitments to board $29 billion in subservicing UPB in the first half of 2024. We continue to target $69 billion in subservicing additions from all sources for the full year. Our investor driven approach to MSR purchases, results in a capital efficient growth helps manage our exposure to MSR valuation changes due to interest rates and introduces an added level of price discipline, the originations business.
Please turn to Slide 9. Our enterprise sales team delivered solid performance in the first quarter, origination volume was up 3% and total servicing additions up 32% versus prior year. It continues to be a highly competitive market so far in 2024 market leaders in the correspondent and co-issue channels continue to have what we believe is an aggressive view of MSR values.
We remain disciplined in originating MSRs, consistent with our yield objectives, which is reflected in the 10 percentage point increase in mix and total additions from higher margin channels and products versus prior year were dynamically managing our owned MSR portfolio in a range of $115 billion to $135 billion using strategies of both buying and selling MSRs and using excess spread transactions as we have done for the past three years. This helps us optimize MSR returns, manage interest-rate risk and supports our objective of repurchasing debt as excess liquidity permits.
Consistent with the strategy we have entered into letters of intent to sell up to $6 billion of select MSRs above our book value, taking advantage of differing views of MSR values. Nab has also entered into letters of intent to solve the $10 billion in MSRs where market pricing exceeds its view of long-term value. While this may temporarily suppress total sum total servicing growth, we believe it's overall accretive for our shareholders and our enterprise sales team can replenish sold MSRs over the next six months.
Please turn to Slide 10. We have been relentlessly focused on building one of the best performing servicing platforms in the industry while maintaining a highly competitive cost structure. Our platform has been recognized by Fannie Mae, Freddie Mac and HUD with top-tier industry performance awards for several years. We continue to achieve lower delinquency levels compared to the industry average as reported by Inside Mortgage Finance.
And since the fourth quarter of 2020, more of our borrowers have exited forbearance either as current paid in full or with an active loss mitigation plan than industry average as reported by the MBA to complement our operating capability, our focus on continuous cost improvement has positioned us with a highly competitive servicing cost structure based on the results of the MBA's annual operating servicing operating study for 2022, our fully loaded residential forward servicing costs and basis points of UPB and cost per loan are favorable to our large banks and independent mortgage bank peers, which have an average forward residential servicing UPB more than twice our size.
Our cost competitiveness comes from a relentless focus on continuous process improvement, global operating capability and strategic investments in technology. Our enterprise-wide technology platform is multi-cloud based and leverages optical character recognition, robotic process automation and AI at over 100 processes to facilitate transaction processing, customer engagement, information extraction and document management. And not just in servicing from originations, HR, IT, finance and compliance with roughly 35% of our servicing costs are fixed or semi-variable, and our culture of operational excellence and continuous cost improvement. We believe we can further improve our efficiency as we grow total servicing UPB.
Now I'll turn it over to Sean to discuss our results for the fourth quarter of first quarter.

Sean O Neil

Sorry, thank you, Glenn. Please turn to slide 11 for the first quarter financial highlights. Overall, this was a strong quarter for financial results, both GAAP and adjusted pre-tax income, and I remain excited about our financial outlook for 2024, regardless of the interest rate environment due to our balanced business model and capital-light approach, the headline is both our servicing and originations businesses continued their profitable trend and demonstrated yet another quarter of improving positive adjusted pretax income as well as positive GAAP net income and growth in book value per share.
Starting with the blue column to the right. Our material improvement in GAAP net income to $30 million versus the prior quarter's loss of negative $47 million was driven by two main items. First, an MSR valuation adjustment net of hedge due to higher rates as well as an active MSR market with elevated demand as well as strong operational performance. Operational performance is reflected directly in our adjusted pretax income, which is up to $14 million for the quarter, driven primarily by servicing with a small contribution from originations. This resulted in an adjusted pretax ROE of almost 14%, and we are maintaining our guidance for 2024 of 12 plus percent.
Gaap net income also continued to benefit from utilization of our NOL deferred tax assets reflected in the previously disclosed tax adjusted EBITDA for the US subsidiary of over $180 million at the end of the year 2023 currently fully offset by evaluation allowance. As shown in our 2023 10 K, key shareholder metrics would be the $3.23 increase in book value per share to approximately $56 and diluted earnings per share of $3.74, both metrics up from prior and year over year quarter. For a more detailed view of our progress on deleveraging.
Please turn to Page 12. During the first quarter, we repurchased in the open market at a discount and then subsequently retired approximately $47 million of our PMC senior secured notes. This exceeded the initial plan we discussed last quarter. We were able to do this while maintaining appropriate liquidity by leveraging assets, reducing legacy servicing advances and executing another successful securitization securitization was preceded by an opportunistic whole loan purchase, which was driven by a combination of our servicing and origination expertise.
Another indicator of the strength of our balanced business model. We still target a debt to equity ratio below 3.9 by year end, and we believe this will facilitate future transactions to refinance, extend or replace our PMC. and potentially the LSC. senior secured notes to do so. We will evaluate all options, which could include new debt, junior securities or other structures we may pursue any transaction in anticipation of the maturity of our PMC. notes, which include market considerations among other factors.
Before I leave this page, I would point out that Moody's ratings upgraded our corporate family rating in April to B. three and left our debt rating intact at the two. This is in recognition of improving profitability, focus, deleveraging efforts and capable liquidity management among other things.
Please turn to Page 13 for an overview of our servicing segment, which covers both forward and reverse servicing servicing yet again, improved its contribution to adjusted pretax income for the quarter. And you can see this in the upper left graph, this was driven by higher revenues that overcame seasonally lower float income due to tax and insurance disbursements and higher operating expenses, which we typically see in the first quarter. Reverse servicing increased its profitable contribution with higher gains on loans held for sale even as volume contracted.
Finally, a reminder that our small but very profitable commercial loan servicing results sit within the forward servicing data on this page. And commercial requires substantially less UPB growth to drive good results. Our average subservicing volumes declined slightly in the quarter. As Glenn mentioned, however, we added substantial new volume late in the quarter. So our quarter end UPP metric improved, but not the average UPB.
In addition to routine runoff, the average balance decline was impacted by subservicing clients selling into a strong MSR market. Our capital partner relationships remains highly effective, and we anticipate an additional $9 billion of UPB to board in the second quarter. Underlying the strong results is the ongoing effort on continued cost improvements driven by technology, as Glenn previously mentioned, and traditional process improvements across both forward and reverse servicing, as well as lower advances on our legacy book, which had decreased 14% year over year.
Please turn to page 14 for an overview of our origination segment, both Florida and reverse originations. Despite rising rates further depressing seasonally low origination volume, we are pleased to say all of our channels returned to profitability in the quarter. Higher margins on lower volumes drove the profitability with reverse origination. Seeing the largest improvement. Lower profits in correspondent were offset by gains in reverse and bringing Consumer Direct back to breakeven. We continue to see improvements in our cost per loan metric. Consumer Direct is seeing solid improvements in recapture, which helped both revenue and cost per loan. Thus, we continue to operate in originations business that is agile, profitable and should be effective even if rates are higher for longer as current market expectations indicate, I would like to point out to investors a few key data points in our appendix. We provide data on fully diluted shares and equity.
On page 27, we have valuation metrics for the MSR on Page 28. These are designed to be transparent and can be used versus peer data and surveys where we show many valuation parameters across the major investor types, more detailed balance sheet data on page 19 shows you the assets that require matching asset and liability gross-ups under GAAP treatment, usually driven by three different buckets. Our MAB and MS., our partner capital assets are one reverse Hakim assets or to the Ginnie Mae MSRs that are eligible for an early buyout or the third ESS. assets sit within the all other bucket on the far right of that page back to you.

Glen Messina

Now please turn to Slide 15 for a few wrap-up comments. Before we go to Q&A, I'm excited about how we started 2024 and believe we are well positioned to navigate the market environment ahead and deliver long-term value for our shareholders. Our balanced and diversified business creates opportunities mitigates risk and supports our ability to perform across multiple business cycles for executing a focused, prudent, capital-light growth strategy, leveraging our superior operating capabilities to grow subservicing across multiple industrial product types
We've expanded our client base, grown our originations, volume mix from higher margin channels and products and continue to improve recapture performance. We believe our originations platform is positioned to operate effectively in any interest-rate environment. We have a strong pipeline of subservicing boarding commitments, and we've expanded our MSR capital partner relationships to accelerate subservicing growth. Our servicing platform delivers top-tier operational performance levels and results in measurable improvements for clients, borrowers and investors through our investment in technology, global operating capability and process improvement. We built a scalable servicing platform with the best practice cost structure and capacity for growth that delivers improved borrower and client satisfaction.
Lastly, for prudently managing capital liquidity for economic and industry volatility and de-leveraging our balance sheet as excess liquidity permits to further improve financial performance and mitigate capital structure related risks. Overall, we're excited about the potential for our business and do not believe our recent share price is reflective of our financial position growth opportunities for the strength of our business.
With that, Natalie, let's open up the call for questions.

Question and Answer Session

Operator

You at this time, if you would like to ask a question, please press star one. You may remove yourself in the queue. Our first question will come from George Bose with KBW.

Bose George

Actually, I wanted to ask first on hedging. On the fourth quarter call, you guys noted that your hedge ratio was up to 100% and then obviously you've had a pretty nice mark on the MSR here. Can you just walk through where your MSR hedges? And also with the move up in rates now in the second quarter, could we see more positive marks on the assets from a Bose morning.

Sean O Neil

We continue to maintain a relatively high ratio for our hedge coverage ratio. So we're operating in the 90 to one 10 range as of the end of April and maintained similar ranges throughout the quarter. And what that will do in the long run is it will mitigate both upward and downward impacts of interest rate moves and some of the some of the gains that you're seeing in the MSR fair value net of hedge were driven primarily due to the very strong market that we're seeing with, I would say, a very strong demand as well. And so that results in our external valuation experts are taking a slightly higher view of the valuation of both Ginnie Mae and the GSE MSRs.

Bose George

Okay, great. That's very helpful. Thanks. And then in terms of capital allocation, you guys noted that a lot of the growth now is on the subservicing side in terms of capital use, could we see more of the earnings go towards debt repurchase and then sort of the earnings growth being fueled more efficiently just through subservicing.

Glen Messina

Yes, but that is that is exactly our plans. So yes, we are intending to grow our subservicing portfolio, holding our total owned MSR UPB in that $115 billion to $135 billion range, with excess liquidity from operating activities being used to deleverage the balance sheet and derisk our derisk our balance sheet that is the point.

Bose George

Okay, great. Thanks.

Operator

And will come from the line of Matthew Howlett with B. Riley.

Matthew Howlett

First, congratulations on the debt repurchases. It's really nice to see. I want to go to Slide 12. When you look at the target under 3.9 times, can you kind of break that? I mean your equity is going to grow with the with the ROE guidance you're giving, how much can we expect in terms of knocking down that by the end of the year?

Glen Messina

So look, we want to get down to that three, 3.9 to 1 or lower level on and look the as we continue to work with our financial advisors and get more informed about where on where we think we could refinance our corporate debt that will drive how much we intend to pay down on our total corporate debt stack. So right now, we're our primary objective is to first breakthrough that you stated are the 3.9 to 1. And then as we get closer and closer to executing a refinancing and get feedback from the markets and from our financial advisors will be able to zero in on the exact amount of capital we need to allocate to that reduction.

Matthew Howlett

Well, in terms of before you asked about the refinancing, let me ask you this the $6 billion that you're going to sell above book, how much cash. Is that going to free up for potential debt paydowns after you pay off the the credit facility?

Sean O Neil

Hey, Matt, it's Sean. So I don't think we've disclosed specific trades but typically from Jenny's and GSEs can generate different cash amounts. And then whether you sell on solid asset servicing released will typically generate more cash than servicing retain. But if you sell servicing retained, you maintain the scale on your servicing platform. So we'll probably in the future give more details on transactions as they close. Some of these only have binding and revise at this point, but they do provide cash that is available for deleveraging the debt and to Glen's earlier point. Part of this will be driven by viewpoints of current and potential high-yield investors in terms of what the relevant targets to attain are you may be selling this to one of your NAB or one of your managed genset business?

Matthew Howlett

So I'm hearing you said potentially when you do a servicing retain transaction to any buyer, it just means you stay on as their sub servicer and then servicing release buyer could be literally anyone amass transaction would be servicing retained transactions?

Sean O Neil

You're correct there that. But we didn't indicate where we were sending there selling the assets.

Glen Messina

Yes, Sean And Matt, I think it's fair to say that as we sell these MSR sales for, you know, at a minimum reduce the amount of MSR debt associated with them, right. So yes, it can yield when our K comes out, which be later on this afternoon or this evening, you can go through the math. It shows how much of our MSRs are financed with debt. And yes, generally yes, I'd say between 50% to 75% and that would reduce MSR that at a minimum LTV right at issued January hip, go ahead.

Matthew Howlett

Good yield. That was at Madison Okay, great. Well, I look, I mean, it could be somewhere I may calculate $50 million, but I'll get back to you that on that. So Glen, the bigger picture, bigger picture is is to me the PHH bonds step down to par at, I think January first of 25 than you have, you'll have seen subordinate notes a step that wouldn't January 1, '26, what can you just give us what the cadence is you want to, but I think the depreciation, those are yielding about 10%.
Do you feel like you're going to do a global refinancing where at some point here that I just refinance both of those maturities, you want to do one before the other week because given the sub notes going to step down at a later date. Walk me through, you know what you think you can do. We can do it one, you have just one shot on the PHH know carries a huge yields. It seems like that's going to be not going to be an issue to take care of. So just walk us walk me through how you want to get this refinancing done and what your financial advisers are telling you in terms of pricing and how much you can do so forth?

Glen Messina

Yes, Matt. Look, our primary objective I think as we said last quarter was to address the nearest maturities first, right? So our primary focus is addressing the fear that PHH corporate debt, which matures first in the capital structure, and we'd like to have that addressed before it goes current, right? So within within one year of its its maturity, that said, um, you know, in working with our advisors. And I'd say, look, all options are on the table. If there's an opportunity that's accretive on your for shareholders that addresses both portions of our desk debt stack on we certainly would give it to consideration.

Sean O Neil

So look, I think we're still early in the process. I think it's premature to to to say exactly this is what we're going to do since there's a lot of options open to us, and we're exploring those with our advisers and that matched the debt gets current in March of 25 to the PMC notes in March of 26 for the oh, I see that it's not January.

Matthew Howlett

Okay, so you can call them par part of both those states?

Sean O Neil

From the point where they go current until the debt matures, you can call it at par, that is correct. And then prior to that, I believe it's at about 102.

Matthew Howlett

And that falls into my next question. Obviously, that's going to alleviate significant pressure on the equity me, Glenn, how I mean, you talk with the Board about allocating capital towards share repurchases. I look at your stock trading somewhere between 40% and 50% of forward forward fully diluted book. Again, there's that DTA that could come on at some point that's worth it to be extremely valuable. What's the appetite when you get this refinancing your capital stack figured out to go buy back shares here at this?

Glen Messina

Yes. Well, look, Matt, at once we accomplish our yield, our capital structure objectives and refinanced the corporate that then yes, I think that you have the doors open for the Board to consider a lot of options for capital allocation and allocate capital in a way that produces the most value for shareholders. So yes, I think right now our priority is the corporate debt stack and after that, Tom, we have a lot more flexibility.

Matthew Howlett

Yes. Look, I mean, I should congratulate with the ROE in the guidance. I mean, you're punching above your weight class. You're in line with the peers, which trade way above book as we're all well aware of. So certainly, we would encourage that and I appreciate the progress with the debt paydowns. Thank you very much.

Glen Messina

Thanks, Matt.

Operator

Once again, ladies and gentlemen, sorry, we'll take our next question from Eric Hagen with BTIG.

Eric Hagen

Yes, thanks. Good morning. And hope you guys have a target. I think you noted a $6 billion of MSR sales that you've done in the second quarter taking place above book value. Are those wholly owned or they own with math, but just any kind of detail that you have in terms of just kind of what we should expect as a realized gain from that sale? Thanks, guys.

Glen Messina

Yes, so it's up to $6 billion. And those were PHH Ocwen owned MSRs, not by NAB. So here's a view that 100% of economics would come to us. I did separately mentioned that NAB selling up to $10 billion, and again, 15% of those economics come to us. And like I'm sorry, Eric, we just don't disclose the trading prices of our of our MSRs. So they were done about both. We're excited about that. We believe that yes, certainly demonstrates the accuracy and validity of our MSR mark, but we don't disclose specific trades detail.

Eric Hagen

What would you say is driving the sales that we had to take place right now? Is it is it just a really good. It could be that you guys are seeing? Or is it some our intention of free up more liquidity to buy back debt? Or like what was the intention?

Glen Messina

Yes, first and foremost, it comes down to economics from Eric. Look that the bids that we have received from are far in excess of what we could model from a long-term economic value on these MSR. So yes, we've said before that we are market leaders have an aggressive view of MSR values. That is still the case, and we took the opportunity to take advantage of that, particularly if we don't see our way to you realize that economic value long term. And obviously, it does create capital and liquidity to support our debt refinancing. But first and foremost, the Mascot to work in this case, it is more than that, yes.

Eric Hagen

Okay. That's helpful. On the marks of the MSR itself, I mean, does the cost efficiencies that you guys are discussing factor to the fair value mark at all? Or how should we think about some of the tangible benefits that you might call it reap the cost to service and how that's maybe showing up on the balance sheet or the market itself?

Glen Messina

Yes. So Eric, the we use market-based assumptions, I should say our valuation expert uses market-based assumptions to value the MSR on it. So our specific cost to serve and any. Yes, I think we certainly look for reasonableness on individual assumptions, but we don't escalate price to our specific assumptions where that would come through the P&L effectively is day-to-day operations, right? So as we continue to operate and service loans, if we can service them for a cost per loan, that's lower than what the vendor's model has baked into it, then we get deal accretive and operating earnings to the business about what would have been modeled.

Eric Hagen

Okay. I had just one more on the modeling. I mean, looking at the servicing and subservicing fees of $205 million in the quarter, I mean, looking year-over-year, what may have driven that decrease is there a breakout for how much came from sub-servicing? Thank you, guys, again, appreciate.

Glen Messina

Yes, there is one big thing that would have driven the decrease that we did on. Yes, at the end of last year, deconsolidate a portion of the rhythm subservicing, which I should say I deconsolidate, but direct in the highest rate of change. That's the appropriate terminology from we used to prior years. This quarter, last year, we used to recognize the full subservicing fee it through revenues as if it was an owned MSR. And then there was a contra expense, which was the amount of servicing fees paid out to rhythm on. Now that transaction has just reported U.S. attritional sub-servicing deal. When our Q comes out, you'll see the details in it. And if we chat later on today or the next couple of days, Sean and Francois could take you through on the numbers and how to reconcile.

Eric Hagen

Is there a number for how much came from sub-servicing from that $205 million?

Sean O Neil

I'm going to have to check on that, Eric. I don't think we split it out on a revenue line item that way.

Eric Hagen

All right. Appreciate it, guys. Thank you.

Glen Messina

Thank you.

Operator

And it appears that we have no further questions at this time. I will now turn our program back over to the presenters for any additional or closing.

Glen Messina

Thanks, Natalie. I want to thank all of our shareholders and our key business partners for their support of our business. I also want to thank and recognize our Board of Directors and global business team for the hard work and commitment to our success. I look forward to updating everyone on our progress next quarter earnings call.

Operator

Thank you so much through today's program.
Ladies and gentlemen, thank you for your participation. You may disconnect at any.