Ocwen Financial Corporation Stock

Hello, and welcome, everyone, joining today's Onity Group's Second Quarter Earnings and Business Update Conference Call. [Operator Instructions] Please note, this call is being recorded. [Operator Instructions]

It is now my pleasure to turn the meeting over to Valerie Haertel, Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to Onity Group's Second Quarter 2026 Earnings Call. Please note that our earnings release and presentation are available on our website at onitygroup.com. Speaking on the call will be Chair, President and Chief Executive Officer, Glen Messina; and Chief Financial Officer, Sean O'Neil. As a reminder, our comments today may contain forward-looking statements made pursuant to the safe harbor provisions of the federal securities laws. These statements, which speak only as of the date they are made, may be identified by reference to a future period or by use of forward-looking terminology and address matters involving assumptions, risks and uncertainties, including those described in our SEC filings.

In addition, the presentation and our comments contain references to non-GAAP financial measures, such as adjusted pretax income. We believe these non-GAAP measures provide a useful supplement to discussions and analysis of our financial condition because they are measures that management uses to assess the performance of our operations and allocate resources. Non-GAAP 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 the most directly comparable GAAP measures and management's reasons for including them may be found in the press release and the appendix to the investor presentation. We made changes to our non-GAAP methodology this quarter and encourage you to review the presentations note regarding non-GAAP financial measures.

Now I will turn the call over to Glen Messina.

Thanks, Valerie. Good morning and thank you for joining our call. We're looking forward to sharing our results for the second quarter, as well as reviewing our strategy and financial objectives to deliver long-term value for our shareholders.

Let's get started on Slide 3. In the second quarter, our sound strategy and strong operating fundamentals delivered double-digit year-over-year revenue growth and record origination volume. Our balance business performed well with rising interest rates driving increased adjusted pretax income and servicing, offsetting declining adjusted pretax income and origination. We're excited to report we've completed the reverse asset sale to Finance of America, as well as transferred most of the legacy subservicing back to Rithm.

We believe these transactions simplify the business, improve profitability and focus an increased strategic flexibility. The second quarter net loss includes roughly $33 million of pretax costs related to these transactions, as well as market-driven unfavorable asset fair value adjustments. Finally, considering persistent geopolitical instability, inflation and market volatility, we expect our full year 2026 adjusted ROE to be at the low end of our guidance range.

Let's turn to Slide 4 to review a few key financial highlights. We again delivered double-digit year-over-year revenue and servicing UPB growth, as well as record origination volume with improved revenue margins versus last quarter. Total servicing additions were up 2.8x versus prior year, driven by our strong originations and subservicing additions, which exceeded our first half expectations. Consumer Direct continued to perform well, delivering funded volume up about 3x over last year with improved refinance recapture rates.

Our net loss includes $9 million of pretax costs related to the reverse asset sale and legacy subservicing transfer, as well as $24 million of pretax asset fair value change, of which about half is related to reverse. John will provide more details on these costs later in the presentation.

Origination adjusted pretax income increased over 3x versus last year, reflecting lower interest rates driving higher industry volume levels, as well as improved execution. Servicing adjusted pretax income decreased over 60% versus last year as lower interest rates drove an increase in MSR runoff of almost 80% versus prior year levels. Our presentation of adjusted pretax income now reflects MSR runoff based on actual servicing UPB runoff and all changes due to rates, inputs and assumptions are classified as notables. We believe this approach is consistent with certain of our peers and addresses feedback from investors.

Let's turn to Slide 5 to discuss the actions we're taking that we believe will improve long-term ROE performance. We are taking focused and deliberate actions to improve ROE long term that we organize into 3 categories: servicing scale, portfolio optimization and technology-driven productivity. Regarding scale, every $50 billion in servicing can reduce fixed cost per loan by 13%. We continue to target a roughly 50-50 mix of owned servicing and subservicing to grow our portfolio on a capital-efficient basis, as well as balance EPS growth and ROE. Our organic growth strategy focused on delivering positive outcomes for customers has driven steady servicing portfolio growth.

Next is optimizing our own servicing and subservicing portfolios. We've reduced our investment in reverse MSRs because yields are 2 percentage points lower than forward and are not easily leveraged and they have a higher relative volatility. We are leveraging machine learning using client assets and consumer data to identify what we believe are the most profitable MSRs to focus our origination activities and improve returns.

In subservicing, we've largely exited the Rithm subservicing and are growing in commercial and reverse, which is more profitable and requires specialized skills and systems, which we have. Finally, technology-driven productivity has been a foundational element of our strategy embedded in our business culture. We've significantly reduced expenses since the acquisition of PHH, while delivering servicing portfolio growth and building a top 10 nonbank originations platform from scratch.

Robotic process automation, intelligent document processing and natural language processing have reduced manual effort, as well as transform document management and customer engagement. Future investments are focused on driving additional productivity, improving recapture and enhancing the customer experience.

Let's turn to Slide 6 to review what I believe differentiates Onity from our peers. We've built a strong foundation and a growing customer-focused business by consistently delivering positive and differentiated outcomes for our customers. We're a top 10 nonbank originator servicer and subservicer with a balanced and resilient business built to perform through business cycles. Our award-winning technology-enabled platform has been recognized as a top-tier servicer by Fannie Mae, Freddie Mac and HUD for 5 consecutive years.

Our platform delivers superior operating outcomes for our customers, which when combined with our enterprise sales model, expansive product suite and diverse capabilities fuels meaningful portfolio growth. We've built a strong foundation by shedding in profitable assets and relationships, investing in talent and technology and building trust with clients by delivering a positive experience and targeted solutions that create measurable value. We're now growing from a position of strength with a more focused and simplified business with increased strategic flexibility.

Let's turn to Slide 7 to review our balanced business model. While there may be variability in any given quarter due to evolving market dynamics, our balanced business continues to demonstrate long-term resiliency to changes in interest rates. The complementary profitability dynamics of origination and servicing balance each other as interest rates have declined in the 12 months ended the second quarter of 2026 versus the 12 months ended second quarter of 2025. And with interest rates increasing in the second quarter, servicing adjusted pretax income has improved, offsetting declining origination income.

We continuously optimize operations capacity and scalability, as well as our MSR investment profile to enable our balanced business model to operate as intended through interest rate cycles.

Let's turn to Slide 8 for more about our growth focus and actions. Our enterprise sales approach and focus on delivering value for clients is producing terrific results. In the second quarter, our originations grew 64% versus prior year, outpacing industry volume growth and achieving record levels since we built our platform. We've improved our refinance recapture rate to 51% in the second quarter, up 3 percentage points versus the prior year, with a roughly 3x increase in refinance payoff volume.

Our recapture performance has continued to exceed the ICE industry average for the last 12 months, and we believe we're delivering top-tier recapture performance versus our third-party origination-centric peers. With mortgage interest rates increasing, we've seen a doubling of home equity product volume versus the second quarter of last year. We believe this is a valuable product for consumers and one that helps us manage operating capacity and improve customer retention.

As a reminder, we do not include home equity volume in our refinance recapture rates. Our originations team is performing very well, and we're continuing to invest in technology and process optimization to enhance the customer experience, reduce costs and improve scalability and competitiveness.

Let's turn to Slide 9 to see what we're working on. We're embedding AI, analytics and automation across our lending platform to improve our recapture rate by increased capacity and improving human performance. We are using voice agents to support customer communication across several aspects of the lending and servicing process. Voice agents create historically unparalleled capacity to engage borrowers seeking to refinance or access their home equity and generate actionable leads for our sales team.

This is driving improved connectivity with customers and increasing engagement, which in turn drives increased locks and fundings. AI call monitoring analytics provide insights to optimize marketing, improve opportunity identification, fine-tuned value propositions and improve sales performance. Real-time agentic AI integration through our partnership with Blend is aimed at optimizing customer and employee workflows and providing a faster more guided experience. Technology allows us to turn interactions, borrower signals and workflow events into intelligence that drives superior recap performance and customer experience. It's clear that our investments are delivering tangible results, and we remain excited about the future potential of our investment pipeline.

Let's turn to Slide 10 to discuss subservicing. The disruption created by industry consolidation among subservicers continues to create opportunities. We are winning new clients with strong platform performance and a compelling value proposition. First half subservicing additions of $35 billion exceeded our guidance with key wins with capital partners, banks and independent mortgage banks, and we continue to have an active opportunity pipeline across all 3 segments. We're excited about the growth we're seeing in business purpose residential and commercial subservicing driven by our expanded product offerings. UPB is up 25% versus prior year, and we were named the servicer on our first single-family rental securitization for a top-tier client in that space.

We continue to invest in technology to improve transparency, increase turn times and client service functionality. Our efforts are yielding results as evidenced by our client Net Promoter Score of 70 in the first half of 2026, a level raggling some of the best service organizations.

Let's turn to Slide 11 to talk about how we've grown our servicing portfolio. Total servicing UPB ended the quarter up 10% year-over-year versus total industry servicing growth of 3% with growth in both owned MSR and subservicing. Year-over-year servicing additions net of runoff of $76 billion was largely driven by organic growth and more than offset planned transfers to Rithm and other client asset sale-driven deboardings. With MSR demand keeping prices elevated, we continue to see clients monetize their older MSRs, while replenishing their portfolio with new originations.

There should be no question as to our ability to compete for business and grow our servicing portfolio. Our double-digit portfolio growth despite the Rithm transfer and client MSR sales highlights the strength of our value proposition and the power of our origination capability.

Now I'll turn it over to Sean to discuss our financial results in more detail.

Thanks, Glen. Let's turn to Slide 12, where we describe the impact to GAAP pretax income. The main story here is that the bulk of the decline in pretax income, about $24 million, is due to nonrecurring transaction costs or fair value marks on reverse assets. Ongoing operations and servicing was the strongest contributor to the $6 million increase in GAAP pretax income quarter-over-quarter. The Finance of American transaction and to a lesser extent, costs associated with the Rithm deboarding created a $9 million negative onetime impact in the quarter. This was further exacerbated by a decline in the fair value of the reverse assets due to mark-to-market impacts, primarily less favorable HECM spreads.

The majority of these assets, about 80% of the fair value, have been sold to Finance of America. Thus, the impact of fair value changes on the remaining portfolio will be greatly reduced. Furthermore, the assets we are retaining are older and have less sensitivity to spread movements given their shorter duration. The remaining mark-to-market impacts were due to a mild increase in delinquency as well as hedge costs. Regarding delinquencies, if you refer to the appendix page on MSR valuation, you will see the 30-plus delinquency bucket on GSEs deteriorated. However, the Ginnie Mae delinquency buckets improved quarter-over-quarter. The 30-plus category is the most volatile measure, so we focus more on the longer periods, such as the 60 and 90 plus. We are closely monitoring the portfolio for any indications of longer-term stress on borrowers. The final impact is $4 million due to both hedge costs and fair value inputs, which is a small percentage of the $2.5 billion fair value MSR book that we hedge.

Please turn to Slide 13 for a perspective on MSR fair value impacts. This graph shows 3 different drivers of MSR fair value broken into runoff, rates net of hedge and inputs and assumptions. Runoff is the actual MSR value of unpaid principal balance that either paid in full or amortized during the quarter. Then we show the impact of interest rates net of hedge and finally, MSR fair value changes from inputs and assumptions. This last category includes changes in loan characteristics such as delinquency status, borrower escrow payments, assumptions for prepayments, loan defaults, servicing costs, ancillary income, discount rate and changes in bulk market MSR prices, all of which impact modeled cash flows and MSR fair value.

Runoff is always detrimental to net income and can increase due to several variables, including higher prepayment speeds due to lower interest rates. You can see this impact from Q4 '25 through the current quarter when we had several refinance surges due to a temporary but meaningful drop in mortgage rates. Another driver of runoff is portfolio size, which has been increasing.

With respect to the other categories, both interest rates net of hedge as well as input and assumptions become smaller drivers when considered across multiple quarters in a cumulative fashion. The average of either of these categories shows a volatility of about plus or minus 3 basis points. That's why we showed these impacts in notables, which impacts net income, but do not include them in adjusted pretax income, given the periodic volatility or swings, we believe this is similar to several large competitors in our space.

Please turn to Slide 14 for a similar view of Reverse. Here, you can see that the Reverse book experiences far more volatility than the forward book. The impact from interest rates and inputs and assumptions are both materially greater as a percentage of the total balances in Reverse compared to forward on the prior page. This shows how our recent sale of the majority of this book should lessen MSR fair value volatility going forward.

Please turn to Slide 15 for a recap of key financial measures. Revenue was up 24%, continuing the strong year-over-year growth trend. Both servicing and originations contributed to the year-over-year growth in revenue due to higher volumes and stronger execution, which included improved recapture, reduced servicing advances and better data analytics. Sequential revenue growth was up slightly as servicing increased more than the origination decline. This is primarily due to growth in the owned MSR volume driving revenues. Operating efficiency continued to improve on a 12-month trailing basis, which reflects our long-term focus on cost-effective growth and book value per share is up significantly, about $13 year-over-year.

Please turn to Slide 16 for detail on originations. Originations pretax income grew by over 3x on a year-over-year basis, driven by higher volume across the combined business. The $15.5 billion of funded volume in the second quarter was our largest quarter in history. The strongest contributor was the B2B channel. This is correspondent lending and co-issue. The volume improvement did not come at the expense of margins as those also improved due to our strong enterprise sales efforts and continued improvements on analytics to drive margin management.

Consumer Direct remained profitable but generated lower adjusted pretax income from 2 drivers. The first is lower lock volume in the second quarter by 30% quarter-over-quarter. Lock volume is a key metric for recognizing revenue. The second is elevated consumer direct operating expense due to lagging commissions from the first quarter refinance surge.

With respect to staffing, our objective is to balance efficiency with flexibility. We optimize our capacity levels to balance current earnings growth and accommodate any future interest rate decline. Hence, our origination staffing is at levels to support higher than current volumes. Both B2B and consumer direct channels benefited from a continued focus on growing new products, including non-QM and second liens. Second liens have more than doubled in volume year-over-year with over $70 million funding in the second quarter.

Please turn to Slide 17 for our servicing performance. Starting with the middle graph, strong owned MSR growth helped drive servicing revenues up 13% from the prior year and 3% sequential quarter. Servicing adjusted pretax income improved on a sequential quarter due to better float income and better runoff as mortgage rates stayed elevated in the second quarter. Year-over-year, adjusted pretax income is still lower, driven primarily by higher runoff, which you can see at the bottom of the right graph, which is then partially offset by improved revenues.

Please turn to Slide 18 for details on improved advances in servicing. Building on the strong improvements we saw last quarter, servicing continues to improve the advanced balances with a 33% decline over the last 2 years. This comes even as we grow owned servicing UPB as we focus on the small percentage of loans that drive the most advances. As you can see by the dark blue graph, the bulk of our advances are linked to delinquencies in our non-agency owned MSR book. We have been deploying various strategies such as AI-enabled agents that assist our contact center in quickly providing the most effective range of solutions for the borrower. As we scale AI-powered solutions for our contact center, we are targeting an annual savings of about $3 million at our current portfolio size.

Slide 19 gives our approach to capital allocation. Our considerations for capital deployment focus on organic growth, liquidity and returning capital to investors. Organic growth includes adding owned MSR via profitable originations activity. Other examples include broadening our product offering for both originations and servicing. In parallel, we maintain sufficient liquidity to ensure we meet both regulatory and lender requirements, as well as holding enough buffer for various stress scenarios.

We also consider ways to return capital to investors. Our 10-Q provides information on the recently completed $10 million share buyback, as well as the ongoing $20 million buyback, which reflect the value we see in acquiring shares that are priced materially lower than book value.

On Slide 20, we provide our updated view on 2026 guidance. As Glen mentioned earlier, we are guiding to the lower end of the adjusted pretax income range of 10% to 15% based on current market conditions and the first half results. The other areas we provide guidance on are unchanged. We continue to grow our total servicing book with strong growth this most recent quarter, improve our operating efficiency and maintain strong hedging performance.

Back to you, Glen.

Thanks, Sean. Let's turn to Slide 21 for a few comments before we open the call for questions. Onity is a top 10 nonbank mortgage originator, servicer and subservicer with a balanced and resilient business that is winning and growing in our target markets. Our second quarter results demonstrate that our growth strategy is sound and our operating fundamentals are strong. We've built a technology-enabled award-winning platform that is efficient, delivers differentiated performance and excellent service.

We are taking focused and decisive actions to improve ROE over the long term organized into 3 categories: increasing servicing scale, portfolio optimization and technology-driven productivity. To that end, we believe the reverse asset sale to Finance of America and the legacy subservicing transfer simplify the business, improve profitability and focus and increased strategic flexibility. With a strong foundation, simplified business and greater flexibility, we believe we are well positioned to navigate the current environment, capitalize on attractive opportunities and continue delivering sustainable, prudent growth. All of this adds up to a business that delivers adjusted ROE comparable to our peers with increasing scale and market position at a more attractive valuation.

With that operator, let's open the call for questions.

[Operator Instructions] We will take our first question from Bose George with KBW.

This is Frank Labetti on for Bose. I just want to start, you guys nicely laid out the goals for your pretax adjusted ROE range. Can you just help quantify what bridges the gap to the lower end of the range given you're in the 9% range currently and the market is pretty volatile. So, yes.

So, look, we -- based on the ROE expansion actions that we laid out in the presentation on Page 5 in terms of driving improving servicing scale, optimizing the servicing portfolio and then obviously continuing to drive productivity. Look, we believe those are going to help us improve the ROE of the business despite some of the volatility that exists in the marketplace where we really saw some of that volatility hit us in the past is the loan origination pipeline hedging, we saw some -- a lot of noise in that during the first quarter of this year, and that's in the second quarter that seemed to behave a lot better. We saw improved margins in the origination space, even though there continues to be market volatility, and we would have record origination volumes as well, too.

So, look, we feel good about the actions we're taking to drive improved adjusted pretax ROE. And we feel a little bit better about our ability to manage some of the volatility that we've experienced in the first half of the year. So, yes, those are the actions that we think get us into the ROE range.

Sean, anything you want to add?

Yes. Frankie, I'd add that some of the pressure we've seen on adjusted pretax income over the last 3 quarters has been very high runoff. If rates do stay elevated, that theoretically should improve over time. That improves servicing adjusted pretax income, and we continue to show an ability to generate pretax income in originations even a rather difficult quarter like the one that just happened.

Great. That's very helpful. And then just a little more broadly, banks had a pretty meaningful increase in volumes and taking share during the quarter. How do you see them evolving in the market? And then secondly, in the correspondent channel, can you just talk about competition you're seeing there just at the GSE cash would note?

Sure. So, Frankie, look, banks have always been a force to be reckoned with. When they want to play in this space, they typically come in and buy and buy aggressively. And quite frankly, we're seeing a number of bank buyers of MSRs in the marketplace during the first half of this year who have a seemingly insatiable desire for MSR assets. Net-net, we think that's good for valuations, but obviously, creates an interesting competitive dynamic. If the bank capital regulations, proposed relaxing of bank capital regulations for holding MSRs change. Look, I think there's a number of financial institutions, which I should say, banks who have strong mortgage franchises today, they'll continue to grow them.

Based on our conversations with experts around the banking industry, it doesn't seem to be a whole lot of folks who would be considering a wholesale change in their strategy of I'm going to go -- I'm not a mortgages today, I'm going to go gangbusters. That's not the predominant thinking. Those who are in will likely get bigger and increase their franchise. That said, it makes businesses like ours more valuable in the sense that if somebody is thinking about getting into the mortgage space, it's hard to start de novo. If you want to get in, you get in with scale. And you look at a business like ours that has billions of dollars of custodial and escrow deposits, which are considered to be sticky deposits, that's an interesting situation. I think maybe how banks think about looking at nonbank mortgage companies.

In terms of competition in the correspondent space, look, I think our correspondent team is just doing a phenomenal job. They are focused on value-based selling using an enterprise sales strategy. And look, our ability to achieve record origination volumes where, frankly, industry origination volumes with rates up are not looking as encouraging as they were in the first quarter. The team is just doing a phenomenal job. And again, we -- I think Sean talked about margins increased from 23 to 26 basis points as well. So, look, correspondent has always been competitive and it's the most competitive -- well, maybe compared to broker, but it might be second most competitive space in the industry. But I think our team is just doing a terrific job there. Really proud of them. And again, that's part of why we were able to record origination volumes.

Our next question comes from [ Randy Binner ] with Texas Capital.

This is all very helpful. And so I'd like to, if I can, just ask about the ROE again and maybe play some of that back because it was lower in the first quarter, I just want to make sure my model is kind of reflecting getting to that 10%. And so, kind of isolating it to 3 things. And I just want to -- I'd love to kind of hear your thoughts or feedback on this. So one, you're going to have an ongoing buyback. So that helps the denominator. If you can comment on kind of your plan to execute on that, that would be helpful. The second thing is, your other revenue line has been better at least versus our expectation. And understanding what that is and the sustainability of that other revenue line is just marginally helpful. And then the third thing and most importantly is that -- and you've said this kind of quite clearly, the MSR mark should be more stable, I think, because of everything you've laid out your program plus your program is augmented more broadly and reverse going away will make it more stable. But how do we keep tracking that? Do we look at the MOVE index on Bloomberg? Or like how do we judge that lower kind of vol in MSR as we get through the third quarter and even the fourth quarter? So sorry, that was a lot there, but just trying to build the building blocks of the low end of the ROE.

A couple of things here. So, let me start with the share buyback program. We completed the $10 million authorization from the Board. The Board then reauthorized another $20 million in share repurchases. When our Q comes out later today, you'll see in our Q the amount of shares we bought back and the dollar volumes and average share price, and we're continuing to -- it's a 10b5-1 program. It continues to execute, and that's going to run its course. So, the share buyback should continue generally at the rate that we saw in the second quarter. And again, that will be disclosed in our Q.

As it relates to MSR volatility, I'd say the volatility in our MSR forward MSR, so I want to separate forward from reverse. Volatility in the forward MSR certainly has been, as Sean pointed out in his charts, within the range of what I call the reasonable expectation for volatility. So, net-net, when you look at the forward MSR change due to rates, inputs and assumptions, it was about a $4 million net expense or net cost in the second quarter versus basically breakeven in the first quarter. So, a slight deterioration on one of Sean's charts. I think he showed a $4 million unfavorable change.

But when I look at it, it's -- it was $0 to $4 million loss, right? So, on $150 billion, $170 billion of MSR UPB, very small range there. Delinquency trends that was the next thing Sean talked about. We did see an improvement in the Ginnie Mae delinquencies as we would have expected. We did see a slight -- we saw an uptick in GSE delinquencies, Sean. It looks like those are beginning to abate, and we're seeing those return to normal. So, we feel pretty good about the consumer. We're not seeing anything that would suggest in the next 6 months, there's going to be a radical shift in consumer payment behavior. It's going to be seasonality that always happens, right? So, I think the forward MSR volatility is much -- I think it's well controlled and it's within the range. Our capital markets team is doing a terrific job managing that asset.

On the reverse side, I got to tell you, we saw an extreme amount of volatility in that asset between the first and second quarter. To give you an order of magnitude, in the second quarter, net unfavorable fair value adjustments to rates inputs and assumptions of about $12 million on the reverse MSR, and that's on a UPB of about $10 billion -- sorry, $12 million on $10 billion, which when you think about it in a relative scale as compared to the forward side, just the volatility is off the charts. And that -- in the first quarter, it was a $4 million good guy, right, or a $3 million good guy, and that's how you get to the $15 million swing that Sean showed on this chart.

So, by virtue of decreasing, we're selling about 80% of our MSRs to Finance of America, who is much better equipped as a solely reverse mortgage-focused company to deal with that volatility and address it. I think on a go-forward basis, we would expect to see much less volatility in the reverse MSR.

Randy, I may have missed your second point?

Yes. That was super helpful. And I love the detail is helpful just to have confidence and kind of modeling a lower ball around the MSRs. The other part -- the third question I had, and these are just -- again, this is just me looking at the numbers and trying to identify the 3 kind of moving pieces. But incrementally, at least for me, the other revenue line has performed well year-to-date. And so, the question is what's in that other revenue line? What is -- and then is it sustainable to kind of deliver $20 million of rev because it's consistently had that number $19.1 million and $20.4 million in the first and second quarter, respectively. So, is that sustainable? And what is it?

Sean, I'll turn it over to you. You just as maybe just to tee it up for you. There's probably escrow earnings and things like that are falling into that other revenue line, but I'll turn it over to you.

Yes. Randy, how is it going? Yes, that is driven somewhat by ancillary income that we get off of higher owned MSRs. And so, as you see the growth in our owned MSRs, you're going to see that both on the top line where you see servicing and subservicing fees and then as well as some that in other revenue net. And so yes, we think that is sustainable and continue to look for that as well as gain on sales to continue to drive growth.

All right. Great. And then if I can just do one follow-up on a comment that Glen made that I had observed in the market as well. So, I love your insight. But you said you mentioned some of the GSE delinquencies had bumped up and then -- but now are improving. I just want to focus on that. Is that what you -- is that the case? And if so, do you know what kind of caused those to go higher and then improve?

Yes. So, we did see a bump up in particularly the 30-day bucket in GSE delinquencies. And you'll see that if you look at our earnings supplement, there's the MSR valuation page. And you'll see that the delinquencies in GSE spiked up and largely sitting in the 30-day bucket. Look, our -- based on some of our work looking historically over the past couple of years, there's this unusual seasonal spike in delinquencies right around the 4th of July holiday. And I don't know what it is and what the consumer psyche is around it. But we do see -- tend to see delinquencies, 30-day delinquencies rise just in the month of June before the 4th of July holiday and then fall after the 4th of July holiday. So, Sean, any more insights you want to put into that?

Our servicing leaders speculate that that's because people actually end up missing depending where the holiday falls, and they make 2 payments in the month of July. And you'll see seasonally a lot of times the 30-plus recovers in the following month. So, until we see details on July, we can't go too much into that. But I'd add that changes in 30-plus are kind of -- could be seasonal, could be driven by many things. We tend to look at the 60 and the 90-plus metrics for longer-term impact. We'll continue to monitor that going forward, of course.

I guess people are just too busy going to the beach and living their lives to pay that bill. So -- but they catch up. So, I guess that's good.

[Operator Instructions] And at this time, there are no further questions in queue. I will now turn the meeting back to Glen Messina for closing comments.

Thanks, Nicky. And certainly, thanks to all our shareholders and our key business partners for your support of the Onity business. I also want to thank and recognize the Board of Directors and the global business team for all their hard work and commitment to our success. And I look forward to updating you on our progress on our next earnings call. Thank you so much.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Hello, and welcome, everyone, joining today's Onity Group's First Quarter Earnings and Business Update Conference Call. [Operator Instructions] Please note, this call is being recorded, and we are standing by if you should need any assistance.

It is now my pleasure to turn the meeting over to Valerie Haertel, Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to Onity Group's first quarter 2026 earnings call. Please note that our earnings release and presentation are available on our website at onitygroup.com. Speaking on the call will be Chair, President, and Chief Executive Officer, Glen Messina; and Chief Financial Officer, Sean O'Neil.

As a reminder, 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 or by use of forward-looking terminology and address matters that are uncertain. 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 and our comments contain references to non-GAAP financial measures, such as adjusted pretax income. We believe these non-GAAP measures provide a useful supplement to discussions and analysis of our financial condition because they are measures that management uses to assess the performance of our operations and allocate resources. Non-GAAP 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 reasons for including them may be found in the press release and the appendix to the investor presentation.

Now I will turn the call over to Glen Messina.

Thanks, Valerie. Good morning, everyone, and thank you for joining our call. We're looking forward to sharing our results for the first quarter, as well as reviewing our strategy and financial objectives to deliver long-term value for our shareholders. Let's get started on Slide 3.

In the first quarter, we delivered double-digit year-over-year growth in adjusted revenue, origination volume, subservicing additions, and total servicing UPB. Our balanced business performed well in the face of record prepayments with origination profitability partially offsetting higher MSR runoff in servicing. First quarter results were impacted by heightened interest rate and financial market volatility, higher-than-expected refinancing activity, and increased FHA late-stage delinquencies driven by recent changes to the FHA loan modification rules. We are taking decisive actions to address these items while continuing to execute on our growth initiatives and the fundamentals of our balanced business model, which has proven resilient over the long term. As a result of discussions with Ginnie Mae, we've revised our recent proposed strategic partnership with Finance of America Reverse and resubmitted the transaction for approval. Finally, considering ongoing market volatility due to geopolitical events, we are revising our full year 2026 adjusted ROE guidance to 10% to 15%.

Let's turn to Slide 4 to review a few key financial highlights. We increased revenue double-digit year-over-year, reflecting strong growth in origination volume, subservicing additions, and total servicing UPB. Elevated refinancing activity, driven by lower interest rates and higher-than-expected consumer refinancing response, helped Consumer Direct increase origination volume by nearly 4x over the first quarter of last year. Net income attributable to common shareholders for the first quarter was $7 million, or $0.74 per share diluted, down from $21 million last year.

Similarly, our adjusted pretax loss of $6 million was below prior year and last quarter adjusted pretax income levels as origination income only partially offset higher MSR runoff. While origination adjusted pretax income of $34 million was up 3.5x over prior year, it included the impact of both market volatility effects on origination pipeline hedging and loan sales performance and capacity limits due to the elevated consumer refinancing response. Servicing income was down $54 million versus prior year due to higher-than-expected MSR runoff and higher FHA late-stage delinquencies due to the recent FHA modification rule changes.

Let's turn to Slide 5 for a discussion about the first quarter market environment. During the first quarter, we experienced increased volatility in key drivers of mortgage activity resulting from the GSE's announcement of their intent to purchase mortgage-backed securities compounded by the impacts of the war in Iran. This is reflected in the intra-quarter high and low points of the ICE BofA MOVE Index, an indicator of U.S. Treasury bond volatility, as well as 30-year mortgage rates and the MBA Refi Index. This increased volatility contributed to reduced origination pipeline hedge effectiveness and lower loan sales performance. On the right is a comparison of the refinancing response for mortgages originated in 2023 and later in the second half of 2024 compared to the 6 months ending March of this year. In a little more than a year since the last refinancing surge, a less severe rate drop from high to low and marginally lower mortgage interest rates produced almost a 38% higher refinancing response in this most recent refinancing period, exceeding the level we predicted.

Let's turn to Slide 6 to review the actions we're taking to address these items. In total, we believe addressing the factors that affected our results in the first quarter can deliver up to $27 million in incremental adjusted pretax income. We believe the origination pipeline hedging and loan sales performance has a quarterly adjusted pretax income improvement opportunity of between $5 million to $7 million. We are naturally exposed to variation in hedge and loan sales performance due to market and spread volatility. Historically, this impact has been both positive and negative, and we expect this can naturally reverse with reduced volatility.

Next, the higher-than-expected borrower reaction to the first quarter decline in mortgage rates exceeded our origination staffing capacity based on modeling from past experience. We believe this prevented us from realizing $8 million to $14 million of adjusted pretax income in the first quarter. We've updated our capacity planning models to reflect recent borrower behaviors, have increased our Consumer Direct staffing level since the end of Q4 by 34%, and we are continuing to invest in AI tools and enabling technology to increase origination scalability.

Next, we believe there's a $4 million to $6 million quarterly adjusted pretax income improvement opportunity with the normalization of FHA delinquencies. We've improved borrower communication, frequency of early intervention, and introduced digital tools to assist borrowers. We continue to expect FHA delinquencies will normalize by the end of the second quarter. Lastly, we are using machine learning to evaluate loan-level runoff and recapture propensity to inform our investing decisions and recapture strategies. Over time, we expect this can have a favorable impact on MSR runoff in future refinance-driven markets, and the improvement opportunity will vary depending upon interest rates.

Let's turn to Slide 7 to review our balanced business model. While there may be variability in any given quarter due to evolving market dynamics, our balanced business continues to demonstrate long-term resiliency to changes in interest rates. As interest rates have declined, and despite the significant impact from market volatility, origination income has increased over 2.5x versus the prior 12-month period. Our strong originations income has helped to offset a reduction in servicing income in the most recent 12 months versus the prior 12-month period, despite a doubling of MSR runoff. We remain committed to executing our growth initiatives and the fundamentals of our balanced business model, which works as intended over the long term.

Let's turn to Slide 8 for more about our growth focus and actions. In the first quarter, our originations team doubled volume year-over-year versus 44% growth for the overall industry. In Business-to-Business, our enterprise sales approach, product breadth, and client service delivery model have been highly effective growth enablers. In Consumer Direct, our continued investment in talent and technology enabled volume growth of 4x versus prior year as declining rates increased consumer refinancing demand. Refinance payoff units in the first quarter were up 3.6x prior year level and up 35% versus the prior quarter. Despite these headwinds, our Consumer Direct team improved the refinance recapture rate 3 percentage points versus the prior quarter. And our last 12 months refinance recapture rate continues to outperform the ICE industry average. We're continuing to invest in technology and process optimization to enhance customer experience, reduce costs, and improve scalability and competitiveness in both Business-to-Business and Consumer Direct.

Let's turn to Slide 9 to see what we've accomplished in subservicing. The disruption created by the trend of industry consolidation among subservicers continues to create opportunity for us. The level of interest from prospective clients exploring subservicing options and alternatives remains high. First quarter subservicing additions were up 94% versus prior year, driven by new relationships and existing clients. Also in the first quarter, we signed 2 new clients and have 5 more agreements under negotiations. We believe we're on track to achieve our first half subservicing additions target of $28 billion and achieve over $50 billion for the full year. We continue to invest in technology with the next generation of our LASI client-focused AI assistant technology to drive an exceptional client experience.

Our continued AI investment and strong servicing performance have helped us achieve a client Net Promoter Score level rivaling Amazon, Apple, and Google. In specialty subservicing, we continue to expand our business purpose residential and commercial subservicing portfolio, increasing UPB 28% versus last year. While the requirements are more complex than performing residential servicing, the returns are better. We have the expertise, and we're investing to enable continued growth in 2026. Overall, we believe we're well positioned to take advantage of the disruption in subservicing market, and we continue to invest in our sales and operating capabilities to pursue a robust opportunity pipeline.

Let's turn to Slide 10 to talk about how we've grown our servicing portfolio. Total servicing UPB ended the quarter up 11% year-over-year versus total industry servicing growth of 3%, with growth in both owned MSR and subservicing. Year-over-year servicing additions net of runoff of $53 billion more than offset planned transfers to Rithm and other client deboardings. With MSR demand keeping prices elevated, several of our clients have taken the opportunity to monetize their MSRs and are replenishing their portfolio as industry origination volume increases. Our ability to grow our servicing portfolio while our clients execute opportunistic MSR sales highlights the power of our origination capability and success of our growth strategy.

Now please turn to Slide 11 where our technology is continuing to enhance our business performance. We're integrating AI into every stage of the borrower journey across our business with a keen focus on maximizing our recapture rate. Our investment focus for 2026 is on 3 key areas: lead generation, lead conversion, and platform scalability. In lead generation, we're increasing signal detection for refinance-ready borrowers, leveraging unstructured data to inform our marketing and messaging. In lead conversion, we're maximizing conversion with targeted value propositions and workflow assignments. In platform scalability, we're focused on expanding engagement capacity and taking work out of the process to maximize human capability.

These actions are having a tremendous impact. Leads on payoffs that resulted in new loans are up 40% year-over-year, and lead to lock conversion has improved 60% year-over-year. This includes a 34% increase in engagement and an 8% increase in conversion for conventional loans, the toughest to recapture. We've seen a 25% improvement in contact rate on leads coming through our digital channels with our AI-powered voice agent, and over 350 document types are categorized and data extracted with 95% accuracy, driving increased scalability.

While lots of companies are talking about AI these days, we are one of the few companies that are delivering tangible results across both servicing and originations. We remain focused on integrating AI and machine learning to improve how we invest, enhance borrower understanding and engagement, maximize opportunity conversion, and improve outcomes across our business.

Now please turn to Slide 12 for an update on our transaction with Finance of America Reverse. As disclosed in our public release this morning, our proposed transaction with Finance of America Reverse was not approved as submitted. However, based on discussions with Ginnie Mae, we've revised our transaction and resubmitted it for approval. In the revised transaction, we'll be selling approximately 57% of our owned reverse servicing portfolio to Finance of America, representing approximately 77% of our reverse MSR investment. We expect between $70 million to $80 million in proceeds before holdbacks and pricing adjustments as of March 31. The origination, product marketing, and subservicing elements of the transaction remain consistent with the original transaction terms. We expect about 70% of the remaining reverse servicing portfolio will run off in 4 years.

As before, we will continue to engage in reverse mortgage asset management transactions and activities. Overall, benefits of the transaction remain largely the same. We will establish a significant subservicing relationship with the reverse mortgage market leader, reduce our balance sheet exposure to HECM assets and liabilities, improve our liquidity and capital ratio metrics, and we'll enhance our focus on other high-growth business areas. The transaction is still subject to Ginnie Mae approval and is currently under review.

Now I'll turn it over to Sean to discuss our results in more detail.

Thanks, Glen. Let's turn to Slide 13 for a recap of key financial measures by quarter. Revenue was up 26%, continuing the strong year-over-year growth trend, which increased from last quarter's impressive 20% year-over-year growth. Sequential quarter revenue growth was flat due to seasonal Q1 decline in float income, which was $8 million lower quarter-over-quarter and is a component of servicing revenue. Originations delivered continued strong revenue growth over 2x year-over-year and 7% sequentially. Operating efficiency continued to improve on both year-over-year and sequential quarters, which reflects our long-term focus on cost-effective growth. Book value per share is up $17 year-over-year and up $1 on a sequential quarter basis.

Now let's turn to Slide 14 for a detailed view of adjusted pretax income by segment. On the left side, Originations adjusted pretax income was significantly higher year-over-year by $24 million. This reflects an improvement in our recapture efforts as well as lower mortgage rates in February. A later slide will show the continued trends of record levels of funded origination in both our Consumer Direct and B2B channels. Year-over-year servicing adjusted PTI declined by $54 million, predominantly driven by high MSR runoff in the last 2 quarters and partially offset by growth in float volumes and other positive operational improvements from growth of our servicing portfolio.

The illustration to the right is an approximation of where the first quarter 2026 adjusted PTI could potentially have landed had we been able to address 3 key drivers: first, the ongoing elevated FHA delinquencies impacting servicing income due to the loan mod change in the fourth quarter. We saw delinquency cures from FHA mods starting to trend back to a normal level at the tail end of the first quarter. We are taking action to address this area through improved borrower communication, early intervention, and digital tools to assist borrowers. Second, the impact of rate volatility on our origination pipeline marks and associated hedge costs. Third, the need to have a more fully scaled Consumer Direct operations to capture the heightened response by borrowers on interest rate sensitivity.

We've updated our capacity planning models to reflect recent borrower behaviors, increased our Consumer Direct staffing levels, and we are continuing to invest in machine learning to maximize portfolio recapture. Had we been able to address all of these drivers, combined with the process improvements we now have in place, we believe we could have significantly mitigated our $6 million adjusted pretax loss up to an approximate $21 million adjusted pretax income.

Please turn to Slide 15 for observations on how we allocate additional capital. Our previously stated considerations for capital remain unchanged. On the left, we show an increase in capital is typically immediately deployed to delever and replace mark-to-market MSR debt with longer tenure non-mark-to-market high-yield debt. Then, other deployment avenues are considered. These include M&A opportunities, increasing growth-oriented assets such as MSRs, buying back shares, or other deleveraging options. The right graph provides an illustrative view of incremental MSR purchases and the projected 2-year adjusted pretax income improvement.

Please turn to Slide 16 for a deep dive on Originations pretax income trends. Originations pretax income grew by 3.5x on a year-over-year basis, which was driven by more than doubling of volume across the combined channel view of the business. The strongest contributor for either year-over-year or sequential quarter income was the Consumer Direct retail channel, which benefited from the ongoing recapture enhancements as well as higher staffing levels, resulting in a sevenfold increase in adjusted PTI. Both B2B and Consumer Direct channels benefited from a growth focus on new products, including non-QM and closed-end seconds. As a reminder, we don't include closed-end volumes in our recapture calculations.

Please turn to Slide 17 for a channel view for originations. The B2B channel, which includes both correspondent and co-issue activities, saw about a 2x increase in volume year-over-year and slightly better margins than the first quarter of 2025. On a sequential basis, it had roughly the same volume but saw margin pressure late in the quarter due to interest rate volatility. Consumer Direct had even better performance, posting strong volume gains year-over-year of 4x and a 50% increase on the sequential quarter. However, we did see lower margins in the first quarter, again, driven by interest rate volatility. We also showed some improved metrics for Consumer Direct with higher revenue per loan and improved cost per loan versus prior year.

Please turn to Slide 18 for our Servicing segment performance. Servicing revenues were up 12% year-over-year, but down slightly from last quarter. The quarter's decline was driven primarily by lower float revenue from a typical seasonal dip. This is due to escrow tax disbursements that lowered deposit volumes late into the fourth quarter and early in the first quarter. Servicing-owned UPB is a driver of both revenue and income, and it grew about 18% year-over-year, and total UPB grew about 10% year-over-year. Our Servicing segment experienced the first quarter of adjusted pretax loss in 16 quarters, primarily driven by MSR runoff and seasonal float income declines. As you can see in the lower right, the impact from runoff tripled year-over-year from $33 million to $99 million. This is mainly driven by higher prepayments linked to borrower interest rate sensitivity and the lingering delinquencies from the FHA mod changes in the fourth quarter, which we expect to normalize in the second quarter.

Please turn to Slide 19 for details on improved advances in the Servicing segment. Over the last 2 years, we have decreased advances by almost 30% while we have grown our owned UPB simultaneously by a similar rate. As you can see by the dark blue graph, the bulk of our advances are linked to delinquencies in our PLS or nonagency-owned MSR book. We have been deploying various strategies and process improvements to reduce these advances, which then assist the P&L with lower interest expense. These strategies range from increased digital contact with borrowers to AI-enabled agents that assist our contact center in quickly providing the most effective range of solutions for both the borrower and the MSR owner. Regarding digital, we continue to experience approximately 90% of our inbound contacts being handled with digital channels such as chats, the mobile app, or website responses.

Please turn to Slide 20 for an assessment of our continued strong hedging performance. Once again, our MSR hedge strategy continued to perform well and as intended in the first quarter. Our strategy is designed to mitigate interest rate risk, and the hedge has been effective in minimizing the impact of interest rate on our MSR valuation net of hedge for the last 9 quarters. We frequently review and assess our hedge strategy to manage risk and optimize liquidity and total returns. Of note, we insourced our MSR valuation process in the first quarter. This was accomplished by adopting an MSR model used by many industry participants, including third-party valuation agents. This gives us more agility to run numerous scenarios to both ensure our valuations are consistent with current data and adjust our hedge accordingly. We continue to use multiple third-party valuation agents to provide guardrails to our valuation.

On Slide 21, we provide our updated view on 2026 guidance. As Glen mentioned earlier, we are widening our adjusted ROE range from 13% to 15% to 10% to 15%. This is to accommodate ongoing and potential future interest rate volatility. Our updated guidance on adjusted ROE is not dependent on the Finance of America transaction closing. The other areas we provided guidance on are unchanged. We continue to grow our total servicing book, $338 billion, or up 11% on the year, improve our operating efficiency, and continued strong hedging performance.

Back to you, Glen.

Thanks, Sean. Let's turn to Slide 22 for a few comments before we open the call for questions. We delivered solid performance in several key areas of our business, including double-digit year-over-year growth in adjusted revenue, origination volume, subservicing additions, and total servicing UPB. We've built a technology-enabled, award-winning servicing platform that is efficient, delivers differentiated performance, and excellent service. We've been recognized for the fifth year in a row by Fannie Mae and Freddie Mac for delivering top-tier servicing for our owned portfolio or for our subservicing clients. We are taking decisive actions to address the items that impacted our first quarter performance while continuing to execute on our growth initiatives and the fundamentals of our balanced business model, which has proven resilient over the long term.

We remain focused on accelerating profitable growth in 2026 and creating value for all stakeholders, supported by expanded use of AI-powered technologies to drive service excellence, reduce costs, and grow revenue. Finally, subject to Ginnie Mae approval, we look forward to completing our transaction with Finance of America Reverse, which will establish a subservicing relationship with the market leader, permit capital reallocation, and enable greater focus on other high-value growth opportunities. Overall, we remain optimistic about the potential for our business.

And with that, operator, let's open the call for questions.

[Operator Instructions] And we'll take our first question from Bose George with KBW.

Actually, first, on the MSR runoff. I think last quarter you noted that the higher FHA delinquency issue was $14 million impact. What was that number this quarter? And just trying to figure out how big a piece of that $17 million increase in MSR realizations came from the FHA.

Bose, we sized that at approximately $4 million to $6 million in the first quarter. And as we noted last quarter, we did expect that there would be some carryover effect into the first quarter, again, $4 million to $6 million. But again, we're expecting delinquencies to normalize by the end of the second quarter based on some of the things that Sean talked about in terms of seeing modifications begin and resolutions begin to flow again.

Okay. And so the rest of the increase in the realized cash flows was from actual increase in prepayments that you saw quarter-over-quarter?

That's correct, Bose.

And then in terms of -- is there a P&L impact as well from the higher FHA delinquencies? So next quarter, if delinquencies stabilize at these levels, I assume that the marks decline or go away, but is there a P&L impact we should think about if delinquencies remain somewhat elevated because of this issue?

Yes. If delinquencies, let's say, don't change, so if they just stay flat, Sean, correct me, but I think that would produce 0 impact from a runoff perspective. If delinquencies actually improve, that would be a favorable impact to runoff or a reduction of runoff. So as delinquencies move around, again, if they go up vis-a-vis end of the first quarter, it could be increased runoff. If they get better, it could be less runoff.

And then just one on the pipeline hedging. You noted the volatility there. Does that just flow through the gain on sale so that, that shows up as a slightly lower margin?

That's correct, Bose. That would show up through gain on sale. And again, I think as you know, when you have a lot of market volatility, unfortunately, it does increase hedge costs and reduce hedge effectiveness as a result of pull-through in your pipeline, your actual pull-through deviating from your estimates. And that all boils down into a gain on sale impact.

[Operator Instructions] We'll move next to Doug Harter with BTIG.

As you think about the updated guidance, how much of that is just reflecting the fact that the first quarter came in below that range versus what -- as we think about what the expected range for quarters 2 through 4 would be?

Doug, it's Sean. The range of expected guidance incorporates both the reduced adjusted ROE we're seeing this quarter as well as anticipating high rate volatility and essentially elevated rates for a longer period of time. And so it's a combination of both.

And then as you look at Slide 6 with the opportunities that you lay out, what would be the time frame that you would expect really for the first 3, obviously, the fourth one is more challenging. But how do you think about the opportunity or the time line to achieving those first 3 items on Slide 6?

Doug, on the first one for the origination pipeline and loan sales effectiveness, again, that could vary from quarter-to-quarter. So that is relative volatility. We have seen that move in both directions over time. Case in point would be the second quarter of last year when Liberation Day and the tariffs were announced, there was an adverse impact on the quarter, and it reversed out the next quarter. So timing is going to be market volatility dependent.

On the Originations scalability, that takes -- obviously, that is going to be dependent upon the level of refinancing activity and a refinancing surge. So that is somewhat market dependent. But the incremental staffing and the incremental investments, we'll start to see improvements of that in Q2, Q3, Q4, right? So that will take into effect through the balance of the year. And the magnitude is going to be a function of what is the surge in refinancing volume since that's basically what we're quantifying here was the lost refinancing opportunity. On the FHA modification changes, we expect delinquencies to normalize by the end of the second quarter. So assuming that they do normalize, we'll see most of this bleed through in the second and third quarter.

[Operator Instructions] And it does appear that there are no further questions at this time. I would now like to hand back to Glen Messina for any additional or closing remarks.

Great. Thank you, Chloe. Look, we'd like to thank our shareholders and key business partners for their ongoing support of Onity. And I also want to thank and recognize our Board of Directors and global business team for their hard work and commitment to our success. And we look forward to updating everyone on our progress on our next earnings call. Thank you very much.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

Hello, and welcome, everyone, joining today's Onity Group's Full Year and Fourth Quarter Earnings and Business Update Conference Call. [Operator Instructions] Please note this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Valerie Haertel, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to Onity Group's Full Year and Fourth Quarter 2025 Earnings Call. Please note that our earnings release and presentation are available on our website at onitygroup.com. Speaking on the call will be Chair, President and Chief Executive Officer, Glen Messina; and Chief Financial Officer, Sean O'Neil.

As a reminder, 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 or by use of forward-looking terminology and address matters that are uncertain. 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 and our comments contain references to non-GAAP financial measures such as adjusted pretax income. We believe these non-GAAP measures provide a useful supplement to discussions and analysis of our financial condition because they are measures that management uses to assess the performance of our operations and allocate resources. Non-GAAP 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 the most directly comparable GAAP measures and management's reasons for including them may be found in the press release and the appendix to the investor presentation. Now I will turn the call over to Glen Messina.

Thanks, Valerie. Good morning, everyone, and thank you for joining our call. We're looking forward to sharing our results for the fourth quarter and full year as well as reviewing our strategy and financial objectives to deliver long-term value for our shareholders. Let's get started on Slide 3.

Our fourth quarter and full year results again demonstrate the effectiveness of our strategy and the strength of our execution. We delivered record earnings through sustained growth and profitability that enabled a significant partial release of our deferred tax valuation allowance. Our balanced business and MSR hedging strategy performed effectively as rates moved lower in the second half of 2025 with higher origination earnings offsetting lower servicing earnings.

Our fourth quarter results were impacted by approximately $14 million of incremental MSR runoff due to higher delinquencies driven by the changes to the FHA loan modification rules and the government shutdown. We believe this will stabilize in the second quarter of 2026. Sean will talk more about this later. Finally, we executed a strategic partnership with Finance of America Reverse to reposition our participation in the reverse mortgage market to simplify the business, which we believe will drive future earnings growth and improve shareholder returns.

Overall, we had a great 2025, and I'm proud of our team and what they accomplished. Considering the macroeconomic environment, our liquidity position, and our continuing investment in talent and technology, we're excited about the potential for our business in 2026.

Let's turn to Slide 4 to review a few key financial trends. Over the last 3 years, we've delivered continued growth in adjusted revenue through steady growth in total servicing additions, servicing UPB, and dynamic asset management. The combination of revenue growth and focus on continuous process reengineering has driven steady improvement in operating efficiency. This has resulted in solid double-digit adjusted ROE over the past several years, notwithstanding the adverse impact of the FHA rule changes and government shutdown, which was roughly a 3 percentage point impact in 2025. Our sustained and growing profitability has driven continued growth in book value per share, which was accelerated this year through the deferred tax valuation allowance release made possible by our actions to transform our business.

Let's turn to Slide 5 for more about the capability of our balanced business. There's no better proof as to the effectiveness of our balanced business model than our results in 2025. You can see on the left the contrast in how originations and servicing contributed to the company's financial performance as interest rates change throughout the year. With higher rates in the first half, both servicing and originations were profitable and servicing was the primary earnings driver. In the second half of the year with falling rates, originations took over as the primary earnings driver. We believe our balanced business is performing as intended, and our scale in both servicing and originations enables us to perform well with high or low interest rates.

Let's turn to Slide 6 for more about our growth actions and focus. In 2025, our originations team delivered 44% year-over-year volume growth versus 18% for the overall industry. In business-to-business, our enterprise sales approach, product breadth, and client service delivery model have been highly effective growth enablers. Consumer Direct is demonstrating strong growth driven by declining rates in the second half of 2025 and improved execution.

We continue to deliver industry top-tier recapture performance versus the industry averages and our target peers. We're launching new and upgraded products and services to expand our addressable market, access higher-margin market segments, and manage operating capacity for surges in refinancing activity. We've continuously invested in technology and process optimization to enhance the customer experience, reduce cost, and improve scalability and competitiveness in both Business-to-Business and Consumer Direct. To highlight how far we've come, our fourth quarter funded volume was the highest we've ever originated.

Now please turn to Slide 7 for an example of how our technology is continuing to enhance refinance recapture performance. We've been investing across four categories of AI, robotics, natural language processing, vision, and machine learning to improve business performance and competitiveness on several dimensions. While not exhaustive, this slide illustrates the approach we follow in deploying AI to improve recapture performance. As we look across the refinance customer journey, we're aligning AI efforts with key points along the journey that contribute to both an improved customer experience and improved refinance recapture rate.

Our biggest performance gains have come from using machine learning to bring together internal and external data about our customers, their loan, and our processes. This has helped us enhance communications, manage capacity more dynamically, and better informed decisions and actions across the borrower journey. We use machine learning to identify customer and loan level characteristics that we believe are predictive to total MSR return, including expected loan performance and recapture propensity. This helps shape our MSR investment and asset management decisions.

Other elements of our AI strategy include large language models and robotic process automation which are targeted to improve the human-machine interface, expand operations capacity, streamline processes, and reduce cost. Ultimately, all these investments result in an improved borrower experience.

Let's turn to Slide 8 to see what we've accomplished in subservicing. We continue to see a high level of interest amongst prospective clients to explore subservicing options and alternatives. Our second half subservicing additions of $33 billion was over 2.5x the first half level, driven by new relationships, our existing clients, and synthetic subservicing with our MSR capital partners. And we expect that momentum to continue into the first half of 2026 with projected subservicing additions of $28 billion from these clients.

We expect to board 8 new clients in the first half of 2026 and have another 8 new agreements under negotiation. We continue to see attractive growth opportunities in small balance commercial, where subservicing UPB is up 31% year-over-year. While the requirements are more complex than performing residential servicing, we believe the returns are better. We have the expertise, and we're investing to drive continued growth in 2026.

Overall, we're excited about the growth potential in subservicing, and we continue to invest in our sales and operating capabilities to pursue a robust opportunity pipeline. Regarding our subservicing relationship with Rithm, we expect the transition to begin in the first half of 2026. As a reminder, the Rithm subservicing is one of our least profitable portfolios before and after corporate allocations. We expect to adjust our cost structure and replace the earnings contribution from the Rithm portfolio with more profitable business that is better aligned with our current growth focus. We do not expect the removal of these loans to have a material financial impact for the full year 2026.

Let's turn to Slide 9 to talk more about how we've grown our servicing portfolio. We've increased our owned MSR portfolio consistent with our objectives to grow earnings and book value as well as reload our portfolio for recapture opportunities. Owned MSR UPB is up 15% year-over-year versus total industry servicing growth of 2% for the same period. Our servicing UPB at the end of 2025 is up 9% over the prior year, with $49 billion in servicing additions net of runoff more than offsetting planned transfers to Rithm and other client deboardings. MSR demand keeping prices elevated, several of our clients have taken the opportunity to monetize their MSRs and are replenishing their portfolio as industry originations volume increases. Our ability to grow our servicing portfolio while our clients execute opportunistic MSR sales highlights the power of our originations capability and the success of our growth strategy.

Let's turn to Slide 10 to discuss our servicing platform. We've built a strong servicing platform that delivers top-tier performance on multiple dimensions. We service 1.4 million loans on behalf of more than 3,000 investors and over 100 subservicing clients, including forward, reverse, and business purpose residential mortgages. We've been recognized by Fannie Mae, Freddie Mac, and HUD for industry-leading servicing performance. And our automation center of excellence has also been recognized by SSON as best-in-class.

Based on the MBA 2025 servicing cost study, our fully loaded servicing operating expenses are materially lower than the large nonbank servicer average for both performing and nonperforming loans. Our continuous focus on improving the customer experience is evidenced with high satisfaction ratings from our borrowers and subservicing clients on key dimensions of our performance. While we're not the largest servicer in the industry, we deliver top-tier performance for customers and investors and are positioned to fiercely compete with anyone regardless of size.

Let's turn to Slide 11 to discuss our perspectives on the industry environment for 2026. We believe the macro environment is largely favorable for housing and housing finance. MBA and Fannie Mae are projecting 15% year-over-year growth in total industry origination volume, driven by strong double-digit growth in refinance volume. The current administration has identified housing affordability as a priority, which could be a catalyst for growth in both refinance and purchase originations.

We believe GSE privatization can be beneficial for the industry to restore competition and foster innovation amongst the GSEs, create opportunities for non-agency product expansion, and attract capital to the industry. MSRs continue to be in high demand, driving strong pricing and values, and M&A activity continues, especially in servicing.

We're equally mindful of potential headwinds that could impact the industry in 2026. We believe the FHA modification rule changes will continue to adversely impact delinquencies and MSR runoff before normalizing through the second quarter at levels slightly below year-end 2025. This assumes no further program changes or general credit quality deterioration. Unfortunately, we are seeing an increased willingness to tolerate frequent and sometimes protracted government shutdowns over budget disputes. We're also seeing increased competition in forward residential subservicing.

There's evidence and discussions of an evolving K-shaped economy, which may give rise to increased delinquencies and defaults in certain portfolio segments. Finally, housing supply continues to be one of the biggest constraints to housing affordability, limiting purchase origination volume. On balance, based on what we know today, we expect the environment to be net favorable, and we believe our balanced business is well positioned and an attractive option for investors interested in the mortgage sector.

Let's turn to Slide 12 to review our priorities for 2026. This year, we remain focused on executing our proven strategy, following through on our simplification actions, and investing to drive profitable growth. We remain committed to driving organic growth enabled by our enterprise sales approach, value delivery model, and new product development. We will evaluate opportunistic bulk acquisitions and M&A if the economics are compelling, and we believe it contributes to maximizing value for shareholders.

Investing in technology remains a key priority to drive recapture, service excellence, and reduce cost using our previously described technology investment prioritization framework. In servicing, we're committed to transitioning out of the legacy Rithm subservicing and focusing our participation in the reverse mortgage market as a subservicer. Finally, we expect to deploy capital to grow high-yielding MSRs and other investments and support our capital structure objectives.

For 2026, we're targeting an adjusted ROE range of 13% to 15%, which is the equivalent to 16% to 18% before the increase in our equity from the deferred tax valuation allowance release. Now I'll turn it over to Sean to discuss our results in more detail.

Thanks, Glen. Let's turn to Slide 13 for a recap of key financial measures by quarter. Revenue continued the strong growth trend exhibited in 2025, up 25% in the fourth quarter year-over-year and 6% sequentially. I would note that typically, the fourth quarter is a seasonally weaker period for originations across the industry. But as you will see, originations at Onity continued to grow revenue and pretax income.

Our adjusted return on equity was 7% for the quarter and 17% when adjusted for the material impact of the governmental actions that Glen referred to. We have shown the magnitude of these actions on our results on every slide with adjusted ROE. As a result of our ongoing profitable operations in servicing and originations and the release of $120 million of our existing valuation allowance in the fourth quarter, our book value per share increased more than $11 quarter-over-quarter and $17 year-over-year.

Now let's turn to Slide 14 for the pretax income results of our Originations segment. Originations adjusted pretax income was significantly higher, both year-over-year and sequentially, reflecting an improvement above the already strong third quarter performance we saw recently. This performance was driven by record levels of origination volume in both our consumer direct and B2B channels. The volume was also supported by an increase in Ginnie Mae volume as well as new product volume from closed-end seconds and our newly launched NonQM product suite.

Please turn to Slide 15 for details on the originations volume. B2B volume continued to top a record third quarter with higher volume and improved margins versus the prior year and quarter. This increased volume and margin was supported by a strong enterprise sales force, the breadth of our product offering, and our ability to deliver a positive customer service experience. Consumer Direct volume was up sharply, reflecting the continued strong recapture performance. Importantly, we improved Consumer Direct's revenue per loan and average loan size versus the prior quarter.

Please turn to Slide 16 for our Servicing segment performance. Servicing was profitable, but impacted by higher-than-expected MSR runoff expense. While both UPB and revenue continued to improve in the fourth quarter, higher MSR runoff more than offset that improvement. Besides interest rate prepayment-driven runoff, the remainder of the runoff was driven by two distinct government actions, the more impactful being the change FHA made to loan modifications that took effect on 1 October 2025, and the second being the 6-week government shutdown from October to November.

The combined impact was higher delinquencies and delayed cures with fewer borrowers moving from delinquent to current status. This impacted November and December runoff expense by approximately $14 million, which is represented on the slide by the dotted box.

Please turn to Slide 17 for details on government actions in Q4 impacting servicing profitability. An FHA program change that was announced earlier in 2025 took effect on October 1 and replaced some COVID era programs with more normative loan modification policies. Some of those included removing the ability to go into a loan modification or MOD without a 3-month trial period. This trial period usually has some percentage of the loans falling out as they fail the trial. Also, the ability to MOD was limited to once for 24 months and some other loss mitigation structures that had existed since COVID were ended.

The effect on the entire industry was a higher overall delinquency rate for FHA borrowers of about 80 basis points in the fourth quarter versus the third quarter. These FHA program changes may accelerate some loans in foreclosure status in the near term that may have benefited from the prior HUD rules. The FHA MOD impact was exacerbated by the longest government shutdown to date, which occurred at the same time, ceasing the delivery of needed paychecks for borrowers over that period, which also contributed to higher delinquencies.

Overall, based on our experience, analytics, and available industry data, we expect delinquencies to continue to trend higher in the near term and stabilize by the second quarter of 2026, down from Q4 levels, but still elevated.

Please turn to Slide 18 for an assessment of our continued strong hedging performance. Once again, our MSR hedge strategy continued to perform well and as intended in the fourth quarter. As a reminder, our strategy is designed to mitigate interest rate risk and our hedge has been effective, as you can see on the graph. Prior to 2024, we increased our hedge coverage ratio such that by the first quarter of '24, we were seeking to hedge the majority of our interest rate risk.

When we compare our results with information in the public domain, we believe we provide an effective MSR hedge at an efficient cost relative to our peers who also hedge a significant portion of their book. Given that an MSR hedge is dependent on the interest rate and related derivatives markets, we frequently review and assess our hedge strategy to manage risk and optimize liquidity and total returns.

Please turn to Slide 19 for an overview of the valuation allowance. On 12/31/25, we released a valuation allowance that was offsetting our net deferred tax asset. This action was part of our ongoing quarterly review per ASC 740, which considered, among other factors, our consistent profitability over the last several years to enable the release. In addition to immediately improving net income in the fourth quarter, which also contributed to our strong improvement in book value per share, the positive impact on our equity improved our DE ratio considerably, moving us to 2.6x.

We will continue to assess the remaining valuation allowance of $26 million, which is predominantly offsetting state tax NOLs. Currently, we don't expect any material changes to the VA in the near future. The increase in equity will bring adjusted ROE down by about 300 basis points, such that our guidance for full year 2026 goes to 13% to 15% versus the 16% to 18% it would be absent the valuation allowance release. Overall, the release of the substantial majority of our existing valuation allowance is another indicator of our recent improvements in profitability and affirmation of our strategy and execution.

Please turn to Slide 20 for observations on liquidity. To start with, at year-end 2025, our liquidity was $205 million, of which $181 million was unrestricted cash and the remainder was MSRs that were pledged but undrawn on a bank line. Then in late January, we opportunistically conducted an add-on high-yield offering, where we issued $200 million of notes identical to our Q4 2024 high-yield issuance, but at an effective yield of 8.5%, which is about 140 basis points better than our 2024 issuance.

We have not yet closed our Finance of America reverse MSR transaction, which is awaiting Ginnie Mae approval. But when that closes, we will recognize roughly $100 million in proceeds as disclosed in a previous 8-K and press release. Our approach to deploying excess capital is to immediately derisk our balance sheet by replacing mark-to-market MSR bank financing with longer-term non-mark-to-market high-yield proceeds. We then consider other uses for the capital, such as increased participation in MSR bulk purchases, higher volumes in the B2B originations channel with retained MSRs, or M&A opportunities.

In addition, we have received Board approval to launch a $10 million share buyback program, which we can fund with liquidity as of year-end 2025. We think these various transactions provide ample capital to pursue various growth strategies in 2026.

On Slide 21, we provide guidance for full year 2026. As Glen mentioned earlier, we expect to deliver an adjusted ROE of 13% to 15%, which includes the impact of the valuation allowance release on increased equity. For modeling purposes, I would indicate our effective tax rate in 2026 is projected to be modestly higher than the federal and state levels due to some permanent expense disallowances, and we presently anticipate an effective tax rate of 28% to 30%.

Furthermore, the combined impact of the Rithm-related restructuring and Finance of America indemnifications and restructuring costs are expected to be in the range of $19 million to $20 million. Those indemnifications and restructuring will impact GAAP net income, but not our adjusted ROE. We anticipate a 5% to 15% increase in servicing book UPB growth, and this includes the nonrenewal of the Rithm contract, which had roughly $32 billion of UPB at the end of 2025. We expect to continue to maintain a high hedge effectiveness to protect the value of the MSR and continue to control expense growth to be commensurate with revenue growth.

Overall, I am pleased to report a record quarter for net income that substantially increased book value per share for our shareholders. Back to you, Glen.

Thanks, Sean. Let's turn to Slide 22 for a few comments before we open up the call for questions. We remain committed to accelerating profitable growth and creating value for all stakeholders. I'm proud of the team's relentless focus on delivering on our commitments. Our strong 2025 results, led by record originations volume, validate our balanced business and its ability to perform through market cycles.

We've built a technology-enabled award-winning servicing platform that's efficient, delivers differentiated performance, and service excellence. We're delivering profitability comparable to our peers at a more attractive valuation, underscoring our commitment to strong shareholder returns. All of this comes together to suggest a share price that we believe has significant upside, and we intend to continue to take the necessary actions and maintain agility in a dynamic market to harvest that value for the benefit of all shareholders.

Overall, we could not be more optimistic about the potential for our business. With that, operator, let's open up the call for questions.

[Operator Instructions] We'll take our first question from Bose George with KBW.

Just on the FHA impact on the MSRs that you noted. So it was $14 million in the fourth quarter. You noted there would be some impact in the first quarter and the second quarter. Can you help quantify that as well?

Bose, thanks for your question. Yes. Look, we certainly have quantified the impact for the fourth quarter because we go through a very intense analysis looking at every attribute of the MSR portfolio to see what impacted runoff, whether it's scheduled payments, unscheduled payments, escrow balances, delinquencies. Hard to predict right now on a go-forward basis, how customers are going to perform throughout the course of the year.

We've done a fair amount of modeling to support our estimation that we would expect this to stabilize by the second quarter. We think that's enough time for it to set a new norm, so to speak. And once your delinquency is at a new norm level, if you think about it, even if it's higher than it was previously, I'll just pick some numbers. If it was 8% in one quarter and went up to 10%, that's a 200 basis point increase. That's an adverse impact to MSR valuation, and that's similar to what we saw in the fourth quarter. But if it stays at 10% versus 10%, there's really no -- nothing that flows through the MSR runoff line for delinquency because there was no incremental delinquency and no incremental change.

So right now, we're monitoring it closely. We're keeping an eye on how consumers are behaving. But with some of the new rule changes and in particular, both this requirement for consumers who are seeking the modification to do an attestation to say that they have the financial resources to complete the MOD and go through. It's consumer behavior. It's hard to predict. We're keeping an eye on it to see how consumers are reacting to that. So yes, we'd love to be able to give you a number. It's X in this quarter, Y in that quarter. But right now, it's just a little difficult to see.

Okay. Yes. No, that makes a lot of sense. And then just on the origination side with the government shutdown, was there an impact in terms of making it harder to recapture some of those FHA loans as well? Or was the origination side all right even during the shutdown?

Interestingly enough, from a refi perspective, we did not see a material impact as a result of the government shutdown. I mean it was just a tremendous quarter for us or a record-setting quarter from a refinance perspective. And with lower rates, as we can see from the MBA refi application index, it's continuing to chug along quite nicely. So the refi expectations for the industry, at least coming out of the gate, seem to be reasonable and appropriate. So didn't see any impact there. Excited about how our recall or recapture platform is performing and looking forward to working with our team to maximize performance of our recapture platform.

Okay. Great. Actually, just one more for me. The 13% to 15% guidance number, is that a post-tax number? So is that after that 28% to 30%?

No, adjusted ROE is always on a pretax basis. So look I...

So it's pretax.

Yes, it is a pretax. Again, it does take into consideration the $120 million increase to the equity base for our earnings for 2025, which is net-net a good thing. But we are conscious of making sure we can generate competitive return on equity on both a pretax and after-tax basis. And we'll be mindful of there are return on investment hurdles throughout the course of 2026 to make sure that we can deliver competitive returns.

[Operator Instructions] We'll take our next question from Eric Hagen with BTIG.

This is Brendan on for Eric. Do you think that there's an ideal interest rate environment for the subservicing business? And are there any catalysts you see to add a lot of scale in the subservicing business in the near term? Or is that really a long-term growth opportunity?

Brendan, thanks for your question. Look, we've seen steady opportunity in subservicing. And quite frankly, it's not necessarily a function of interest rates, although in particular for the independent mortgage bankers, the privately owned independent mortgage bankers. When people are going through a refinancing wave, there is a tendency for privately owned independent mortgage bankers to hold more MSRs on their balance sheet for tax planning and tax management strategy. And because originations, retail originations, in particular, tends to be cash flow positive during refinancing cycles, it provides more cash for the privately owned independent mortgage bankers to hold MSRs on their balance sheet.

So during the last 2 years, we've seen a cycle where I'll use the term IMBs for independent mortgage bankers. IMBs were selling MSRs to harvest cash because origination margins really quite thin. I think it's an opportunity now with rates coming down for them to reload their portfolio, and we would expect to see growth there.

Over the past couple of years, the big catalyst for subservicing has been, quite frankly, the amount of subservicing platforms that have changed hands. There was probably 5 platforms in the last 2 to 2.5 years that have changed hands. And any time you have that kind of disruption in the marketplace, it creates opportunities. It's an opportunity for subservicing clients to rethink and explore their options and alternatives.

More recently, just yesterday, we saw the announcement of PennyMac's acquisition of Cenlar. First off, my congratulations to David Spector and Jim Daras. I have a lot of respect for both those people. It looks like it was a good transaction for them. But look, I would expect, as we've seen previously, it will create an opportunity for clients to rethink what do I want to do? Do I want to stay here? Do I want to go, whatever? It does create more people coming into the market to consider their alternatives. We love that.

Quite frankly, as you've seen, we've grown our subservicing business quite nicely this year, $45 billion of -- I'm sorry, $48 billion total subservicing additions this year. We've got another $28 billion in the hopper that we expect to board in the first half, 8 new clients signed up that are going to be boarding in the first half, 8 new contracts under negotiations. I love the momentum we have there. I think -- look, the subservicing business has always been fiercely competitive. Cenlar has been a competitor in the marketplace for years, and they're formidable, I expect to continue to be a formidable competitor. But look, I think this creates net-net opportunity to grow bottom line.

And how much capital do you think will become available once the Rithm portfolio is fully transferred?

In terms of capital availability with the transfer of the Rithm portfolio, I don't -- subservicing generally doesn't free up capital because we don't have an investment in that portfolio. So that in of itself won't free up capital. The closing the sale of the reverse mortgage business, the MSRs to Finance of America Reverse, we expect that will free up roughly $100 million of capital. So -- and convert that all to subservicing. And we're just tremendously excited to be partnering with Brian Libman and his team over at Finance of America.

And this does conclude the Q&A portion of today's call. I would now like to hand the call back to Glen for any additional or closing remarks.

Thank you, operator. Look, I'd really like to thank our shareholders and key business partners for their ongoing support of Onity. I also want to thank and recognize our Board of Directors and our global business team for their hard work and commitment to our success in delivering a terrific 2025. And I look forward to updating you on our progress on our next earnings call. Thank you so much for joining.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.

My name is Sean O'Neill, I'm the CFO at Onity. And spend a few minutes telling you a little bit about our company and then see if you have any questions. You can read that at your leisure.

Okay. So this is the place mat of kind of who we are, what businesses we're in. We are a nonbank mortgage servicer and originator. So a servicer means we take care of MSRs for ourselves. Those are the ones we own, we take care of them for other people, that's subservicing. Difference between those 2 businesses is the MSRs you own are a higher risk, higher return asset. You have to hedge them, you have to finance them. If they lose value, that's a problem on your balance sheet and your P&L. And if you're taking care of them for someone else, you don't have to advance on them. You don't have to hedge them.

If they lose money, you typically actually make more money because you get paid more to subservice a delinquent loan, but it's a thinner revenue stream. So we like both of those businesses. Our servicing shop is indifferent. They don't really even know which ones we own and which ones we don't. We like it that way. They just take care of all of them. And we subservice or service forward loans, reverse loans, conventional, that would be conventionals also GSEs, Fannie and Freddie, government, Ginnie Mae. Private, another word for private would be private label securitization, PLS, or non-agency, all really the same thing. Those would be -- think of like jumbos, non-QM, transactions like that, that would fall into that bucket. And then we also do small balance commercial and multifamily. So that's the servicing shop.

On the other side is the origination shop. Sorry, it's not on the other side of this page, my bad. But we primarily operate in 2 channels: correspondent lending, also known as third-party origination and direct-to-consumer, where we're talking to the 1.6 million MSR holders that are sitting in our book, using quantitative modeling, machine learning, all the other fun tools you get to read about nowadays and figuring out who the best candidate are to refinance their loan, recapture, do a cash out, et cetera.

Across the bottom, you see some of our stats either year-to-date or for the quarter as of the third quarter. That ROE number is year-to-date for the quarter, it was 25%. Book value per share, $62 and change, up $2.71 year-over-year. Debt-to-equity ratio, that's as of end of the third quarter, 3.1:1. Strategy has been pretty much the same over the last 2 years.

Balanced model is what I was describing earlier, capital-light growth, that's subservicing, industry-leading cost structure. So we like scale. We like to get bigger, but we like it because scale in the servicing platform gives more marginal net income or marginal spread. We have sufficient scale in today's market to compete effectively with some servicers who are larger than us.

Top-tier operating performance. We have award-winning service recognition from Fannie, Freddie, HUD and several other technology entities.

Dynamic asset management means we rotate our book. If we see a good market, we'll sell MSRs into it. We originate better sometimes than what we can sell them at, so we can replace them internally.

So if you're new to the mortgage market, the number in the dark blue is where you want to start. $1.9 trillion is ballpark, the number of mortgage originations that will happen this year. That's a pretty good number for maybe 5 of the last 10 years. It peaked in 2021 and early '22. It was as high as $4 trillion right after COVID, but that's when the 10-year and mortgage rates went down a lot.

If you think of an MSR having a 7-year wall, you just multiply that 2, and that gets you to the $14.5 trillion servicing market. So typically, the servicing market is going to be 6 to 8x the trailing originations market.

And then the green in the middle is how much of that big blue bubble is subservice. So you may own an MSR, but if you're like an asset manager, you don't really know the care and feeding of the MSR and you don't want to because it's a full-time business. And so you'll call someone like Onity up to subservice that for you.

So investment thesis, whether you're equity or high yield, pretty much the same scenario here. We have profitability comparable to or better than peers at a more attractive valuation from the perspective of equity, meaning our price to book is discounted to book and it shouldn't be. So it's a value play. And in the high-yield space, we deliver a higher yield right now, hopefully not for long. And so if you're looking for something that's got a 9 handle instead of a 7 handle, that's a good place to look.

I already talked about the diversified business model. I got a slide on that, increasing market position. We attract new clients, both in the subservicing space and the origination space that keeps driving us forward. And technology is very big as well as the low-cost structure is just due to a focus on operational superiority and not ever stopping. 12 straight quarters of adjusted pretax income, most recent quarter, $31 million. So that's been a pretty good trend line for a couple of years now. This is the comment on our profitability comparable to peers at a more attractive valuation.

Here's 4 of our public competitors, IMB, independent mortgage banker. So I think names like Penny in the past, Cooper, and when I say penny, I mean, PFSI, sorry. Guild, LDI, Rocket, different players play in the space. There are differentiations. We're a balanced originator and servicer. Other names like Guild are probably more origination heavy. And then you won't find any public subservicing-only companies. It's probably because a lot of them are private, but you're not going to see them in this space.

And then on the right, you see our price to book. So more interesting valuation play on an equity side there. This is just the concept of a balanced business model. We show you different periods of time and how much was contributed by servicing, which is the light blue versus a ridge, which is the dark blue. So 2 years ago, a ridge was basically breakeven. That was coming off of a very rough second half '22 for the entire originations market. Every originator was cutting costs because rates did this. And when rates do this, servicing makes money and originations doesn't.

And so you can see on the right how those different businesses balance each other out. Subservicing is kind of indifferent to interest rates. It's a fee-based business. Dotted line around reverse servicing, I'll touch on that in a minute. But for long-term purposes, you might want to ignore that because we just announced the transaction about 2 weeks ago where we're exiting the reverse subservicing market. I got a slide on that -- sorry, reverse servicing market.

This shows where we're growing in originations in terms of our UPB and then growth rate down at the bottom versus the industry. So you can see year-over-year, quarter-over-quarter, that implies we're gaining share because we're growing faster than the market as a whole.

This is a result of several things. One is an intense focus on recapture, which really helps the consumer direct business. And then on correspondent, it's garnering new clients and then taking care of the clients you have. We probably have about 700 correspondent clients that we work with.

So this is the 2 slides on the reverse transaction. So we just executed or announced the transaction with Finance of America. It's still waiting Ginnie Mae approval. And so that means it will probably be a first quarter or early second quarter close. This is something that we think greatly simplifies our business. So we are selling them all of our Ginnie Mae HECM loans, they call it, which stands for Home Equity Conversion Mortgage. That's a reverse mortgage under Ginnie, didn't have a significant book of private label reverse. And so the proceeds from that, we can redeploy into assets to support growth, think forward MSRs or just regular MSRs.

And then this greatly simplifies our balance sheet. It takes about $9.5 billion off the asset and liability side, converts an asset directly into cash and allows us to redeploy that cash in a number of ways.

Here's a few more comments on it. It's 40,000 loans, $9.6 billion UPB. We have a contract to subservice these assets for the next 3 years. So that more firmly entrenches us in the place of a reverse subservicer as opposed to a reverse owner. And then the fact that we're originating today, but exiting that market could make us a more attractive subservicing candidate to other players in this space. There's only 2 reverse subservicing providers, and we're one of them.

FOA will also acquire the pipeline of reverse mortgage loans. And off to the right, you can see basically the cash proceeds from this deal based on 9/30 valuation is somewhere between $100 million and $110 million. That's after paying down financing lines supporting the pipeline or other assets that haven't been put into a Ginnie Mae HECM MBS security.

So monetizes the assets, gives us more focus on our main business, which is forward originations and recapture, keeps the subservicing business and actually enhances it and then also simplifies the balance sheet as well as simplifies our story. This is getting into some of the subservicing additions, signed 9 new clients this year and have several other large ones under negotiation for next year. So we see a strong growth. So this was half of that pie chart at the very beginning. This is where we talk about capital-light growth because this is other people acquiring the MSRs, we get paid a fee to subservice them.

Also, we announced that Rithm is not renewing the contract we've had with them for probably pushing 10-plus years now. That book has run down significantly. It was a pre-'08 crisis book. And we've said for a couple of years now that at some point, it's not going to be profitable for us or for Rithm. And as we say here, it was one of our least profitable portfolios in the most recent quarter or for the year. And we have enough advanced warning on this that we can adjust our cost structure in accordance with when the loans leave the platform. And so we don't expect this to have any material financial impact for '26 or beyond.

These are some of the awards we picked up. GSEs, that would be Fannie and Freddie do very specific awards for servicers or subservicers. We had picked up those awards at either the -- I think it's gold, silver, bronze kind of like the Olympics level consecutively for the last 4 years, HUD Tier 1 servicer. That's more than just size. You have to hit a bunch of other HUD metrics for that.

And then some of the other comments, we won a global technology award last year, and we were competing against huge companies. I think Honeywell was in there, DuPont, I believe one of the FAANG companies was in there. So it was against some serious competitors. Very competitive cost structure that's using ICE data where our cost to service either performing or nonperforming loans is significantly lower than our competitors.

And then on the right, that's just showing our net performance scores and some of the other -- sorry, Net Promoter Scores, NPS, and some of the other awards we've won.

Everyone's favorite topic for the year, AI. Really, the green buckets are what we focus on. So whether it's machine learning or very old school AI, which is robotic process automation that's been around 10-plus years. We only do it if it does one of these green things. It's either going to improve our cost structure, make our clients happier, have them stick around or attract more of them or deliver operational superiority. We then do one of those things and give us an ROI that's nice to have, but not necessary.

Capital allocation structure. We are focused on organic growth. Organic growth means a lot of different things to different people. This is like old school. This just means where can we find assets, grow the net income through something other than M&A. We're a small cap company.

Our goal here is to maintain profitability, discretely grow our client base, provide the right value and generate more net income that way. Optimizing liquidity is a constant focus of ours. Servicing produces cash, origination uses cash and you need an appropriate amount of liquidity to handle the swings as a servicer. And then obviously, whether you're talking to an equity investor or a debt investor, you want to drive long-term returns.

Here was the guidance we put out at the beginning of the year. We've told the market we expect to exceed our ROE of 16% to 18%. talk about our UPB growth, high hedge effectiveness rate. That just means we hedge out the majority of our interest rate risk on the MSRs and the originations pipeline. Efficiency ratio just means we like to grow revenue faster than we grow costs.

And then we've announced earlier in the year that we expect to release a significant portion of our valuation allowance, which is basically a reserve against our net deferred tax asset. The numbers that you're seeing are what they were as of end of '24 because we calculate the DTA once a year. So that will -- that number is a bit dated, but it doesn't change in a material fashion, plus or minus $10 million every year.

So strong outlook, not just for the rest of this year, but for '26 as well. The balanced business continues to deliver results. We've made money in up and down in static interest rate markets over the last 3 years.

Technology and a low-cost platform continues to be a focus of ours. And we've already talked about the profitability comparable to peers at a better valuation.

All right. Questions?

[indiscernible].

Yes, sure. So there's -- my favorite slide right here. This is an eye chart. All you really care about based on that question is, I get to use this. This is so cool. Right there. So you want to look at this box, which is the most recent quarter, that's the total delinquency number. I also tell people focus on 60 and 90-plus, not 30-day delinquencies. People who pay their mortgage like on the last day of the month or on the next paycheck can swing 30 days delinquent back and forth. It's not -- it's an interesting stat. Don't get me wrong, but it's not what I would use to set long-term trends.

Loans that are going 60 and 90 plus, if those numbers deteriorate, that's more the canary in the coal mine indication. As you can see, our -- I would focus on the GSEs. Our [ goumvy ] book is a little more credit challenged than some others because we have some old Ginnie Maes in there. The GSE book and the [ goumvy ] book and the non-agency book all have improved delinquencies.

I think the agency market as a whole -- and when I say agency, I mean, Ginnie, Fannie, Freddie all collectively, I think the agency market as a whole is a little more static to slightly down in the third quarter. I can't give you any commentary on delinquencies since 9/30 because we don't release that data. But if you look at what Ginnie publishes monthly, you can usually get a pretty good indication of how their whole book is progressing.

And amongst the agencies, Ginnie is usually the canary in the coal mine because it's a higher risk, higher reward. That's why at the bottom here, you see we demand -- it deserves a higher discount rate than the agencies or -- sorry, than the GSEs do. Any other questions?

[indiscernible]. I mean any comments from you guys on whether you're looking or who's looking or what the competitive landscape kind of looks like maybe for next year?

Yes. So -- so 2 of the bigger names recently have been Bayview buying Guild and obviously, Rocket buying Coop. Prior to that, there were several private servicers that had changed hands, SLS, SPS, one went to Rithm, one went to Sixth Street, I think. Home Point was acquired. So a lot of names have been changing hands over the last 8 quarters. And then the Coop-Rocket transaction made a lot of MSR owners step back and look at their subservicing providers. So if you only have one subservicing provider and they fall into "the wrong hands." So I'm just going to part [ Matt Ispia ] from UWM. He wasn't a fan of Rocket holding the servicing reins on his portfolio for good reason and Rocket are somewhat competitors there. And so he's like, yes, I'm out of here.

And so when companies make decisions like that, they're going in 1 of 2 directions. They're either going to bring the servicing in-house. That's not a small lift. Now I'm sure UWM has the resources and the bandwidth to accommodate that, but that is a big ask or you switch servicers. That's the simpler ask. And so plenty of midsized banks, you wouldn't believe the number of banks in the U.S. that obviously own MSRs and sometimes don't want to service them themselves as well as other IMBs are constantly looking at this.

Not very many people have the same model we or Coop had, which is like to both own subservice and originate. PennyMac starting to get into the subservicing business. But for the most part, originators such as Guild or Rocket may hold MSRs, but they're usually holding them either for convenience for a better cycle to sell them or just because they have enough capital that they don't have to sell them and it serves to be a nice buffer against your origination pipeline because it moves in the opposite direction. But smaller originators usually have to roll those off their balance sheet fairly quickly.

Think of nonbank credit card financing in the past is a similar model where to keep the flywheel running, you've got to securitize and get cash. Well, here you sell the MSR and get cash. So long answer, but basically, consolidation and M&A attention in the industry remains pretty active. From our perspective, we've said for years that we're a public company, we're for sale every day. If we get an actionable offer that can increase shareholder value, we'll seriously consider it. That hasn't changed. All right. Anyone else?

Thanks for the second question. You guys have talked about the expansion of commercial mortgage servicing, specifically subservicing and the strong economics there. Can you give us a sense of the opportunity for you guys and where we stand today on that front?

Yes. So when we talk about commercial servicing, we're talking multifamily or small balance. So we're not talking Rock Center, this hotel. I'm sure this has a nice MSR attached to it or 7 or 8, except [ Michael Dillon ] and it may just be in the family office, I don't know. But we're talking about smaller properties, think $500,000 to $5 million range. Multifamily being 5 to 15 units, strip mall type tenants, that kind of thing. That's a fabulous servicing market because there, just like in reverse, there's not a cogent set of great servicing providers. A lot of people do this for themselves, especially a bank. They'll just -- a lot of banks are in commercial real estate and a lot of banks own their own servicing.

But as one of my friends in the industry said a long time ago at a bank, the servicing shop is what you get when you walk down the long hallway to the trash at the back of the office, and it's the last door on the left, like banks, I used to work at a bank. You pay literally that much attention to servicing at a bank. And so people that own commercial away from banks are very interested in getting a competitive servicer. We're seeing that. And so we've picked up 1 or 2 significant clients in that space. And the margins are just better. So we really like that. It does take extra work, different staffing levels. But once you've done it for one client, then you can replicate and continue to build scale. So that's an example of an interesting, what I'd call product extension in servicing.

Okay. If no other questions, then thanks for coming. Appreciate your attention. Have a good day.

Good day, and welcome to the Onity Group's Third Quarter Earnings and Business Update Conference Call.

[Operator Instructions]

Please be advised today's program will be recorded.

It is now my pleasure to turn the program over to Valerie Haertel, Vice President, Investor Relations. You may begin.

Thank you. Good morning, and welcome to Onity Group's Third Quarter 2025 Earnings Call. Please note that our earnings release and presentation are available on our website at onitygroup.com.

Speaking on the call will be Chair, President and Chief Executive Officer, Glen Messina; and Chief Financial Officer, Sean O'Neil.

As a reminder, 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 or by use of forward-looking terminology and address matters that are uncertain. 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 and our comments contain references to non-GAAP financial measures such as adjusted pretax income. We believe these non-GAAP measures provide a useful supplement to discussions and analysis of our financial condition because they are measures that management uses to assess the performance of our operations and allocate resources. Non-GAAP 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 reasons for including them may be found in the press release and the appendix to the investor presentation.

Now I will turn the call over to Glen Messina.

Thanks, Valerie. Good morning, everyone, and thank you for joining our call. We're looking forward to sharing our third quarter results and reviewing our strategy and financial objectives to deliver long-term value for our shareholders.

Let's get started on Slide 3. Our third quarter results again demonstrate the effectiveness of our strategy and the strength of our execution. Our balanced business delivered sustained results with lower interest rates driven by originations profitability offsetting MSR runoff. Record origination volume and steady servicing profitability drove increased adjusted pretax income versus the second quarter and continued book value growth. Adjusted ROE exceeded our guidance for the quarter and year-to-date, and we're expecting to exceed our guidance for the full year, underscoring our commitment to strong shareholder returns.

Let's turn to Slide 4 to review a few highlights for the quarter. We delivered adjusted pretax income of $31 million and annualized adjusted return on equity of 25%, driven by strong originations performance and favorable fair value gains on reverse buyout loans and servicing. GAAP net income and earnings per share of $2.03 reflect a $4 million or $0.48 per share tax provision expense related to tax planning strategies to support future utilization of our deferred tax asset. Average servicing UPB continued to grow steadily, fueled by year-over-year volume growth, which exceeded total industry originations growth for the same period.

And finally, book value increased to $62 per share, up 5% versus prior year. We believe our third quarter results demonstrate our effectiveness in navigating changing market conditions with a balanced business model working as designed.

Let's turn to Slide 5 for more about the capability of our balanced business. We believe our scale in both servicing and originations enables us to perform well with high or low interest rates. You can see on the left, our total business is delivering improved performance as we have grown servicing and improved overall productivity. Originations is responding well to changing market conditions with profitability increasing as rates have generally declined in the second and third quarter.

If interest rates were to materially decline like in 2021, we believe industry origination volume and margins would increase while higher MSR runoff would reduce servicing earnings. In this scenario, we would expect originations to again deliver most of our earnings. Regardless of interest rates, we're always maintaining agility to capitalize on asset management and other opportunities consistent with our strategy to create value for shareholders.

Let's turn to Slide 6 for more about our growth focus and actions. We delivered servicing portfolio growth versus the prior quarter and prior year, driven by double-digit originations growth in the same period. We've increased our owned MSR portfolio, consistent with our objective to retain more MSRs to grow earnings and book value as well as reload our portfolio for recapture opportunity. Ending total servicing in the third quarter is up $17 billion or 6% year-over-year with $39 billion in servicing additions net of runoff more than offsetting planned transfers to Rithm and opportunistic client MSR sales.

With MSR demand keeping prices elevated, several of our clients have taken the opportunity to monetize their MSRs and are replenishing their portfolio as industry origination volume increases. I believe our ability to replenish and grow our portfolio while our clients execute opportunistic MSR sales highlights the power of our origination capability and the success of our growth strategy.

Now please turn to Slide 7 for some highlights on our originations performance. In the third quarter, our originations team delivered volume growth of 39% and 26% versus prior year and prior quarter, respectively, in both cases, exceeding the industry and many of our public peers. Consumer Direct is demonstrating strong growth driven by declining rates in the third quarter and improved execution. In business-to-business, we leverage an enterprise sales approach to deliver our wide range of products, delivery methods and services, coupled with a strong focus on client service.

We've continuously invested in technology and process optimization to enhance the customer experience, reduce cost and improve scalability and competitiveness in both business-to-business and consumer direct. We're launching new and upgraded products and services to expand our addressable market and access higher-margin market segments, create alternatives for our customers and manage operating capacity for surges in refinancing activity. To highlight how far we've come in origination, our third quarter funded volume was the highest we've recorded with a market size that's only 41% of the 2021 market peak.

Let's turn to Slide 8 to discuss our recapture platform. Our consumer direct team is delivering top-tier recapture performance to enhance MSR returns for us and several of our subservicing clients. As you can see on the left, funded volume was 1.8x the prior year level with an interest rate environment that is comparable between the 2 periods, reflecting the success of our investments. Based on our refinance recapture benchmarking, our third quarter year-to-date recapture performance, excluding home equity products, is better than several of our peers and the ICE reported average. In addition, our refinance recapture rate where the previous loan was originated by our consumer direct channel is 85%, on par with other retail originators. This points out the significant upside in recapture as we continue to improve our first-time recapture capability.

We continue to invest in talent, AI tools, predictive analytics and leverage internal and external data sources to help us better understand our customers, proactively identify opportunities and further improve our capability and the customer experience.

Let's turn to Slide 9 to discuss our near-term expectations for subservicing. We continue to see a high level of interest amongst prospective clients to explore subservicing options and alternatives. We've signed 9 new clients so far this year and have 6 new agreements under negotiation. We expect subservicing additions in the second half of $32 billion or over 2.5x the first half level, driven by these new relationships, our existing clients and synthetic subservicing with our MSR capital partners. And we expect that momentum to continue into the first half of 2026 with subservicing additions from these clients of over 2x the first half of 2025.

One area where we are seeing attractive growth opportunities is the small balance commercial segment, where our subservicing UPB is up 9% versus the second quarter and up 32% year-over-year. While the requirements are more complex than performing residential servicing, the returns are better, we have the expertise, and we're investing to drive continued growth here. Overall, we're excited about the growth potential in subservicing, and we continue to invest in our sales and operating capabilities to pursue a robust opportunity pipeline.

Regarding our subservicing relationship with Rithm, we have received notice of nonrenewal and expect to transfer this portfolio to them starting in the first quarter of 2026. Approximately $8.5 billion of UPB requires trustee and other consent, the timing and success of which are uncertain. We appreciate the opportunity to have served Rithm and its customers for nearly 10 years. The Rithm subservicing is a shrinking portfolio of mainly low balance pre-2008 subprime loans and accounts for over half our delinquent loans and borrower litigation. The portfolio attributes result in a high cost of servicing and declining profitability.

For the third quarter of 2025, the Rithm subservicing was less than 5% of our total adjusted revenues and one of our least profitable portfolios before corporate allocations. After corporate allocations, it lost money in the last 2 quarters with third quarter loss increasing over the second. For the past several years, we've assumed in our planning the subservicing would not be renewed for the coming year, and our plans for 2026 assume the same. We expect to adjust our cost structure and replace the earnings contribution with more profitable business that are aligned with our current growth focus and not our past. We do not expect the removal of these loans to have a material financial impact for the full year 2026.

Let's turn to Slide 10 to talk about our continued investment in technology. We've been investing across 4 categories of AI. Robotics, natural language processing, vision and machine learning to improve business performance and competitiveness on several dimensions. We've cultivated our own award-winning robotic process automation center of excellence and technology innovation lab, which support projects of increasing size and complexity. These projects typically focus on 4 desired outcomes: drive cost leadership, accelerate revenue growth, maximize customer retention and deliver superior operating performance. I'm proud of what the team has accomplished through focused and purposeful investment to enable a highly competitive platform, top-tier recapture performance and an improved customer experience.

We continue to utilize this 4x4 approach to technology innovation and to ensure our investments are aligned with delivering outcomes that matter most to our stakeholders.

Let's turn to Slide 11 to see what we've accomplished and where we're taking our technology program. We believe our AI investments have been an important enterprise-wide performance enabler, creating value for all Onity stakeholders. Our past investments in AI have been focused on improving cycle times, processing cost, customer access and self-service, scalability of operations, customer opportunity identification and reducing delinquencies. The outcomes of these efforts are reflected in the center column of this slide. And as you can see, they've had a profound impact on our business.

Today, our focus is continued integration of robotics, large language models and machine learning across all operations to empower our people and processes where every process is optimized, every decision is data informed and every outcome is superior. For our people, our goal is to provide them with enhanced tools and data-enabled intelligence that drives heightened responsiveness, real-time decisions and superior outcomes. For our customers, our focus is increased personalization, enhanced self-service, continuous improvement in ease of use and anticipating their needs. The opportunity here is exciting, and the potential impact is incredibly powerful.

Now I'll turn it over to Sean to discuss our results for the quarter in more detail.

Thanks, Glenn. Let's turn to Slide 12 for a recap of the key financial measures. 2025 continues to be a strong year for us as evidenced by the following third quarter results. Revenue grew by double digits, both year-over-year and over the trailing quarter. This was driven by both the servicing and origination operating units. Our third quarter adjusted return on equity was 25% and exceeded our full year 2025 guidance, both for the quarter and year-to-date. Our ability to deliver steady net income added over $2 to book value per share in the quarter.

Please turn to Slide 13 for a historical trend of our adjusted pretax income, which is positive for the 12th straight quarter. We posted a strong quarter for adjusted pretax income of $31 million. This shows the strength of our balanced business where originations and servicing each support growth in a diverse range of interest rate environments. The year-to-date adjusted ROE was 20% above the upper end of our guidance. And as mentioned, we expect to exceed our full year adjusted ROE guidance of 16% to 18%. GAAP ROE was 14%, and the appendix has a walk from net income to adjusted PTI to help you understand the differences.

Please turn to Slide 14 for the pretax income results for the Originations segment. Originations adjusted pretax income was significantly higher year-over-year and versus last quarter. This was driven primarily by strong execution of recapture and improved performance in our B2B channel, which drove record funding levels and improved margins in most channels. Consumer Direct continued another strong quarter, driven by recapture performance, resulting in elevated funding volumes. We also benefited from stronger closed-end second volumes.

Business-to-business saw elevated volumes and margins as well with growth in our Ginnie Mae mix. Reverse originations maintained profitability with higher margins on lower volumes. This was a breakout quarter for originations as we were able to post margin gains amid record volume.

Please turn to Slide 15 for the Servicing segment. Servicing remained a solid contributor to adjusted pretax income with $31 million for the quarter. Forward servicing again experienced growth in average UPB with higher revenue both sequentially and year-over-year. The revenue lift from servicing growth was offset by higher runoff in the third quarter. This was driven by a greater amount of owned MSRs as well as higher prepay speed. The ability to capture some of this runoff is measured in the recapture metric.

Reverse servicing pretax income rebounded to a positive $4 million in the quarter, driven primarily by stronger gain on sale on the reverse assets. Regarding delinquency, our owned MSR portfolio exhibited improved delinquency statistics again this quarter. For example, our Ginnie Mae MSR portfolio had better delinquency metrics than the broader Ginnie Mae market. Please see the MSR valuation page in the appendix for more details on delinquency by investor type.

Page 16 will give you an assessment of our continued strong hedging performance. The hedge strategy on the MSR continues to perform well and as intended. As a reminder, our strategy is designed to mitigate interest rate risk and our hedge has been effective in minimizing the impact of interest rates on our MSR valuation, net of hedge, as you can see on the graph. Over the last 2-plus years, we have increased our hedge coverage ratio such that by the end of 2023, we were seeking to hedge most of our interest rate exposure.

When we compare our results with information in the public domain, we believe we provide an effective MSR hedge at an efficient cost relative to our peers. Given that an MSR hedge is dependent on the interest rate and relative derivatives market, we frequently review and assess our hedge strategy to manage risk and optimize liquidity as well as total returns.

Please turn to 17 for commentary on our guidance for full year 2025. As mentioned, following the strong quarter of net income, we now expect to exceed our 2025 adjusted ROE guidance. Note that this guidance on ROE is not dependent on the release of some of the valuation allowance, but is rather driven by our view of the strength of the operating businesses. Our UPB growth for the full year is now estimated to be between 5% and 10% versus the prior guidance of 10-plus percent.

We don't believe the positive but smaller growth will have an adverse effect on our '26 forecast as we are generating growth in higher-margin servicing areas that need less UPB to deliver comparable pretax income. Consider Glen's earlier comments on commercial subservicing as an example. Overall, I'm pleased to report another good quarter that grew book value per share and delivered a continued strong return on equity for our shareholders.

Back to you, Glen.

Thanks, Sean. Let's turn to Slide 18 for a few comments before we open the call for questions. We're focused on accelerating profitable growth and creating value for all stakeholders. I'm proud of the team's relentless focus on delivering on our commitments. Our strong third quarter results led by record originations volume validates our balanced business and its ability to perform through market cycles. We've built a technology-enabled award-winning servicing platform that is efficient, delivers differentiated performance and service excellence.

We're delivering profitability comparable to our peers at a more attractive valuation, and we expect to exceed our adjusted return on equity guidance for the full year, underscoring our commitment to strong shareholder returns. All this comes together to suggest a share price that we believe has significant upside. And we intend to continue to take the necessary action and maintain agility in a dynamic market to harvest that value for the benefit of all stakeholders. Overall, we could not be more optimistic about the potential for our business.

And with that, Aaron, let's open up the call for questions.

[Operator Instructions]

And we will go first to Bose George with KBW.

Just on the Rithm, the transfer that's going to happen. When you look at that portfolio, just based on your commentary, what's the -- like the present value of that, was it basically flat or even negative? Just how do you think about that?

Yes. To put it in context for you, Bose, look, that portfolio is about 25% of the size it was about 5 years ago. So it's really run down quite a bit. From a contribution perspective, look, we said it was one of our lowest margin portfolios. Look, if you compare it to Ginnie Mae owned servicing, for example, Ginnie Mae owned servicing has about 4x the profit margin of the Rithm portfolio. And looking at it on a dollar value basis, our $5 billion commercial subservicing portfolio generates a multiple of the dollar profit before corporate overhead. So it's really run down quite a bit.

We -- the portfolio probably had maybe another year of marginal profit contribution associated with it. Again, that has a lot of assumptions baked in it and stuff like that. But look, it's gotten to the point where the portfolio is so small, delinquencies are high, cost of servicing is high. I'm sure for the Rithm team, they've got servicing oversight responsibilities. It's just at the point where it's pretty much getting to where it's uneconomical for us and our clients to maintain the current relationship. And I've said it throughout the course of this year and even last year, this was an eventuality. It was inevitable, and we're at that point.

And yes, so we're going to get on with it. We'll transfer the portfolio, adjust our operations accordingly and feel good about the growth pipeline we have to replace the business. And again, there's many areas of our business have a much higher profit margin than the Rithm portfolio. And we've got a strong team that is demonstrating incredible growth, outpacing the industry and many of our peers.

Okay. Great. And then just your ROE guidance, I assume it's based on your current capital, but by the end of the year, your DTA gets reversed and your capital goes up, I guess, as that happens and the ROE on that, obviously, I guess, will be a little bit lower because of that. Is that right? Or if you can -- you'll have a GAAP tax rate that will run through next year as well. So where does that kind of shake out after that?

Yes, Sean, I'll turn it over to you.

Sure. Bose, Yes, generally speaking, the directional changes you indicated are what will occur. It's all dependent on the amount of the valuation allowance that we do release at the end of the year. But you are correct, that will flow through. It will increase equity. And therefore, all else being equal, we'll have to generate a higher return to maintain the same ROE. And then the tax rate -- the effective tax rate will go up once we release the VA. If we release all of the VA, it would look in line with any other normal corporate taxpayer. I think 21% federal and a couple more for states. And then if we do a partial release, it will be somewhere in between.

[Operator Instructions]

We can go next to Eric Hagen with BTIG.

With the valuation allowance expected to be released, can you comment on how that drives the appetite to hedge the portfolio? I mean, do you feel like that changes the interest rate risk profile of the capital structure in any way?

Yes, the bottom line is the short answer is no, we don't, right? Look, we -- our decision of hedging -- our hedge strategy and approach and hedge coverage ratio, instrument selection and all those things is really a function of protecting book earnings, I should say, GAAP net income, book equity. And as well, we do have secured MSR financing. So we take into consideration the pluses and minuses of margin calls on our derivative instruments as well as margin calls on our debt obligations. So when we take all those factors into consideration and as well the recapture -- performance of our recapture platform as well, too, and that's done on a portfolio basis, agency versus government and the like. Yes, whether or not we -- how much of the valuation allowance gets released, I don't expect will have a material impact in terms of how we think about hedging our MSR.

Okay. Got you. Any perspectives on prepayment speeds through September and October? I mean, can you share how flow MSRs are pricing over these last 6 or 8 weeks? And has the cash balance changed since the end of September as you guys have backfilled or presumably backfilled some of the MSR portfolio?

So from a speed perspective, Sean, (sic) [ Eric ] when we release the Q, there'll probably be some information in the Q where we can go and calculate speeds. I mean, obviously, speeds are up. I think if you look at Slide 24, which is our MSR valuation page, you'll probably notice that speeds -- the presumed life of portfolio prepayment speeds and the valuation have increased versus periods when they were lower, the interest rate environment was higher and the coupon was lower relative to current market conditions. So yes, we did see an uptick in prepayments in the third quarter. We did see an uptick in MSR runoff. But again, the balanced business, originations performed very, very well and frankly, more than offset that, which was really pretty good.

In terms of the fourth quarter and what we would expect, look, we -- I don't think anybody's crystal ball on interest rates is magically correct. When we look at the MBA and the Fannie Mae industry forecast, they are expecting origination volumes for the fourth quarter to be roughly consistent with where they were in the third quarter. Mix shift is a little bit different, though. They are expecting a little bit more or some growth in refinancing volume and a decline in purchase volume. So if you look at that and parse that data, it would suggest that perhaps speeds may pick up a bit in the fourth quarter. But again, it is going to be highly dependent upon where the average 30-year fixed rate mortgage rate settles in for the fourth quarter.

Yes. That's good color. I appreciate you guys. Can I sneak in one more? I mean, do you guys ever shock the MSR portfolio for changes in interest rates? And what is sort of the max drawdown, if you will, you think you guys can tolerate on the MSR portfolio? And aside from a change in rates or like speed assumptions, what are the variables that you feel like could lead to a correction in the MSR valuation? How do you harness that risk?

Yes. Yes, Eric, we do a fair amount of benchmarking to bulk trades in the MSR marketplace as we think about our valuation of the MSR. We use that as benchmarks to make sure that our portfolio fair value is stated correctly. We look at market transactions in the secondary market or bulk market to support that. As you know, we have historically from time to time, sold portions of our MSR either on a subservicing retained or servicing release basis to take advantage of what we believe are valuations in the market that are better than what we see as intrinsic value in the mortgage servicing rights. Last year, we did a couple of trades like that. This year, we haven't largely because our recapture platform is performing so well. I don't want to give up the recapture opportunity in the portfolio, right? So that's not necessarily a focus for us.

And from a portfolio balance perspective, we may from time to time consider synthetic subservicing trades with our capital partners to balance our 50-50 mix of owned servicing and subservicing. So Look, we are -- we take a dynamic approach to asset management and our MSR management. We don't fall in love with any of our assets. But we do like that 50-50 mix and think that serves best for us to optimize earnings growth, dollar earnings growth and return on equity.

In terms of the MSR sensitivity to interest rates, the chart that Sean talked about showed the effectiveness of our derivative hedging program on the MSR. It's performed very, very well. Super proud of our CIO and his team and the work they're doing to manage the MSR interest rate risk. And a good portion of that is our originations team and how they're doing from a recapture -- how well they're doing from a recapture perspective. So the combination of the operational hedge and the financial hedge really gives us, we believe, nice protection on fair value changes to the MSR.

As a matter of our -- when we look at our hedging performance, we do rate shock analysis for plus or minus 100 basis points. We do target a hedge coverage ratio. And I think we've talked about all those things in the past. So really pleased again with how the MSR is performing, how our hedge program is performing. And we'll continue to take a very dynamic approach to managing MSRs. And if there's an opportunity to sell at a value above what we believe is intrinsic value, as we have in the past, we'll harvest that opportunity.

[Operator Instructions]

At this time, there are no additional questions. I'd like to turn the program back over to Glen Messina for any closing remarks.

Thanks, Aaron. I'd like to thank our shareholders and key business partners for supporting our business. We also would like to thank and recognize our Board of Directors and global business team for their hard work and commitment to our success. I look forward to updating all of you on our progress at our next quarterly earnings call. Thank you for joining.

Thank you for your participation. This does conclude today's program. You may disconnect at any time.

Good afternoon, everyone. My name is Miguel Walker. I'm the Managing Director of the Financial Institutions Group at Barclays. And It's my privilege and pleasure to welcome you to today's session with Onity Group. Onity is a leading nonbank financial services company, providing mortgage origination and servicing solutions through its primary brands. That includes PHH Mortgage, which is one of the nation's leading market servicer as well as Liberty Reverse Mortgage, which is one of the nation's largest for reverse mortgage lenders.

Founded in 1988, Onity has been serving its customers for more than 3 decades. And today, operates in the U.S., the U.S. Virgin Islands, India and the Philippines. We're honored to be joined by Mr. Glen Messina, Chair, President and Chief Executive Officer of Onity. Mr. Messina brings decades of leadership experience, including a PHH Corporation and General Electric and has guided Onity's growth and strategy since joining the company in 2018.

Please join me in welcoming Mr. Glen Messina.

Thank you, everyone. Yes, let me tell you a little bit about Onity. So we are, as Miguel said, a mortgage originator and servicer. From an originations perspective, we focus on correspondent and co-issue markets and consumer direct for portfolio recapture inside of our own portfolio. And on the servicing side, we service a variety of different mortgage types to include forward and reverse mortgages. We do own servicing, we do subservicing, and we also do business purpose residential and performing in specialty servicing. So very diverse skill set as part of our business.

Our servicing portfolio is balanced 50-50 between owned servicing and subservicing. We believe that's the right target mix to optimize the returns associated with our business as well as minimize the capital deployment in the company as well, too. From an industry ranking perspective, we are one of the top 10 nonbank mortgage originators and servicers. And you can see in various segments of our business, we have moved up quite remarkably over the last 5 or 6 years since I've been here. Go back, the foundation of Onity is really Ocwen Loan Servicing, which was a specialty servicer.

And today, we are a much better diversified business with better profitability and results. You could see year-to-date, 18% adjusted ROE, which we'll see in a couple of charts, is highly competitive with our peer group. And at the top end of our guidance range, continuing to grow servicing and book value and have been steadily walking down the debt-to-equity ratio of the business. Over a year ago, we were slightly over 4:1 debt-to-equity ratio.

The business has transformed pretty materially over the last 6 or 7 years, again, from a small, quite frankly, shrinking specialty servicer with a very bloated cost base, unprofitable to what is now today a balanced and diversified business our transformation and the results you saw us deliver on the previous page was really as a result of executing a 5-pillar strategy around balance and diversification, prudent capital-light growth, industry-leading cost structure, top-tier operating performance and dynamic asset management. And a constant and relentless focus on those 5 pillars has built the business into a very formidable competitor that punches well above our weight class today.

Our priorities for 2025 and going forward are really focused in 3 areas. First off is accelerating growth, and our focus there is expanding our addressable market with new products, retaining more MSRs, certainly increasing win rate and recapture rate and then continuing to expand our asset management capabilities. From an operating performance perspective, from our -- we are focused on delivering differentiated operating performances, and this is about delivering superior financial and operating outcomes for our clients and our consumers and as it relates to the assets that we own. And it's all about delivering value to our clients and customers based on the metrics that matter most to them.

And then lastly, elevating the customer experience and creating customer experience that promotes portfolio recapture and essentially captivates our customers. And that's about making it personalized, high level of engagement, high touch but high tech and low effort from a customer perspective.

Yes. From a mortgage market industry overview, I think most of you are familiar with the mortgage industry. Look, it is a fairly sizable, probably the largest financial services segment for the consumer. $14.4 trillion of mortgage servicing outstanding. Of that $4 trillion is the amount of subservicing that's outstanding. And over the last 12 months, the industry has seen about $1.8 trillion worth of originations. I'd say, look, where we are in the third quarter, it's never been busier. We've seen interest rate slide almost 80 basis points, the 30-year fixed rate mortgages has reduced about 80 basis points over the course of the third quarter.

And look, lower interest rates means more refinancing opportunity. That's consistent with the MBA and Fannie Mae forecast for the industry for the third quarter. It's also seasonally a high from a purchase market volume perspective in the industry. So while you could see there's expected double -- strong double-digit growth in refinancing volume by the Fannie Mae, Freddie Mac averages for the full year and single-digit growth in the servicing portfolio. I think servicing portfolio growth remain relatively consistent with industry estimates. The origination market in a lower interest rate environment is actually looking quite robust, quite frankly. So really like the environment that's in front of the company.

So the question is, look, why Onity and why now? And the bottom line is, look, we are delivering profitability comparable to our peers at a much more attractive valuation. Second, as we have built the business to be an all-weather business. So our balance and diversified model is set to perform whether interest rates are high or low. And we do have the originations capability, the recapture capability to take advantage of interest rates that are trending in the direction that they are today. We've been constantly increased market position for the business and have won new clients and have grown the business largely through organic efforts. And this is winning one client at a time and winning them from our competition by delivering superior results for our customers.

And then lastly, we'll see it in a moment that look, we are not disadvantaged, I believe, from a cost structure perspective or a capability perspective based upon our size relative to some of the mega players in our industry. We focus on technology, continuous process improvement and global operating capability to create a highly competitive, highly scalable platform. And again, we believe punch is well above its weight.

So in terms of some of the numbers, profitability as compared to peers, you could see, we're -- for year-to-date so far in 2025 as of the end of the second quarter, we were delivering 18% adjusted ROE. That's highly relevant and commensurate with our large public peers. Similarly, our guidance range is right smack in the middle of where our large public peers are as well. But from a price-to-book perspective, our stock is still trading at a relatively low price to book. And some of this just really has to do with what management focus has been. And that is over the last 6 to 7 years, mostly 6 years, we've been focused internally on delivering and building the capabilities and performance that we have today and really have not focused on marketing the company. And at the end of 2024, we hired a full-time Investor Relations person, Valerie Haertel, who is sitting here in the first row. And we have really begun to put a full court press to really get out and tell Onity's story and show the growth and the performance that we've developed in the business.

We talked earlier about balanced business model being part of the core strategy of the company and how we would expect to reform through interest rate cycles. You could see here on the left that, look, when interest rates were very low during the pandemic, the originations platform was the primary earnings contributor to the business with servicing profitable but a much lower portion of the total earnings of the company. As we look forward to where we were in the second quarter of this year with interest rates almost double what they were during the depth of the pandemic, servicing is really the profit driver. And while originations is profitable, is real focus is on replenishing and growing the servicing portfolio.

And overall, our adjusted operating earnings for origination servicing have gone up because we've grown the business and we've improved profitability. And as you could see in the column here with rates down, which is the environment that we've been experiencing most recently, we do expect that originations volumes and margins would increase, forward own servicing values and runoff would -- values would go down because runoff goes up. The reverse servicing is a nice hedge against forward, those values appreciate. And then subservicing really doesn't have a material financial impact whether rates are high or low directionally, there's no real change in the profitability profile of that.

So let's talk a little bit about our growth. From a growth perspective, we've been focused on just a few simple things, but doing them extraordinarily well, and that is delivering better operating outcomes for our clients, delivering better financial outcomes for our clients and ease of doing business and delivering a better customer experience and customer satisfaction. And look, we started the originations platform from scratch in 2019. And you can see here by mid-2020, we had about 600 correspondent clients. And even though the market has shrunk dramatically since 2020, we've been able to more than double that client base. So we're now over 1,300 clients on the origination side. And a lot of that has to do with, again, the value delivery model that we employ and the enterprise sales strategy of offering multiple products within our portfolio the single correspondent client.

On the subservicing side, we've grown that business as well, too. Although in the subservicing side, we've done more of a transformation. So we rotated out about 44 of the legacy clients, subservicing clients that Onity and PHH had because of the relatively average low balance per client servicing -- loan balance per client that we were servicing and it was really not profitable servicing for us. But we've added 56 new clients over that 4-year time frame by, again, winning them from the competition with better performance and a better customer experience. And what that's allowed us to do, as you could see, over the last several years, even though the industry volume has been cut in half from the 2022 COVID pandemic days, we've been able to double our originations capability both in terms of owned servicing and total subservicing additions.

And similarly, that's resulted in growing the portfolio, and growing our portfolio quite nicely despite our focus on dynamic asset management of rotating and selling MSRs when we think the relative value of selling the MSRs is higher than retaining them in our portfolio. So we've sold over $20 billion of MSRs during this time frame and have dealt with 1 subservicing client book that's running off quite materially, and we've still net-net grown the business.

From a recapture perspective, this is really critical to maintaining the value of our MSR portfolio and quite frankly, growing the business. It's much easier to retain customers and grow than it is losing customers and trying to grow off of that base. And you could see our recapture platform has done really, really well over the last 12 to 24 months. So we have more than doubled volume year-over-year as of the second quarter. And we're now delivering recapture rates, as you can see on the right-hand side of the page that are at the top tier as compared to our public peers.

So based on the last 12 months, Onity being the blue column, we were roughly second in terms of our large third-party origination-focused independent mortgage banks. And for the second quarter alone, our recapture rate was the highest out of that peer group. So continuous investment in people, process and technology and more sophisticated use of data and analytics to identify customers with a high propensity of the refi and having a compelling value proposition for the consumer has helped us maximize this portion of our business.

On the servicing side, again, it's all about delivering superior outcomes for clients, homeowners and investors. And you could see from a servicing capability for 4 years running, we were a top-tier servicer rated by Fannie Mae and Freddie Mac. And for HUD, Department of Housing and Urban Development for FHA and VA insured loans, again, we are a top-tier servicer as ranked by Ginnie Mae.

We'll talk in a minute about our investments in technology, which has helped build the platform capability that we have today, but our investment in technology was recognized by the shared servicing outsourcing network with their Technology Center Automation Center of Excellence Award and as well from a cost structure perspective, again, here you could see we punch well above our weight based on the 2025 Mortgage Bankers Association average, I should say, annual cost study for servicers, we fall into the large servicer peer group, which includes some of the largest in the industry, the Mr. Coopers, the PennyMac and the like as well as several large banks. And our performing cost of loan servicing is 23% better than the peer average and our nonperforming servicing cost is more than 50% lower than the peer average. And again, this is not by virtue of scale, it's by investments in technology, continuous process reengineering and maintaining a global operating presence.

Now all of that investment in technology also helps the customer experience. You can see on the right-hand side of the page that whether it's the borrower experience into our call center, the loan boarding experience and/or our subservicing clients and how they rate us. So again, we've been very highly rated across all 3 dimensions. And to put it in perspective, that 55 Net Promoter Score from clients, Net Promoter Score is a measure of customer satisfaction, and that's consistent with companies like Apple and Google and Amazon. So very top-tier performance.

From a technology side, technology is the lifeblood of, I believe, of our business and the future of the industry. And we've been taking -- or taking what's called -- what we call a 4x4 approach around our investments in artificial intelligence. And there's really 4 baskets of technology under artificial intelligence, and that's robotic or robotic process automation, natural language processing, think voice bots, chatbots, there's vision or optical character recognition and neural network data extraction. And then there is machine learning and it's how you use that data for predictive analytics. And we use that to drive a number of different elements of our business and that's driven our growth. We drive the customer experience. We drive the operating cost structure of the business, and we drive the operating performance and financial outcomes for clients.

So in terms of what we've invested in, what it's accomplished and where we're going, look, across each basket, you could see, there's tangible use cases in terms of how this technology has impacted our business. So in the second quarter, 88% of customer inquiries were handled through digital interface channels. We have over 190 processes that have been automated using robotic process automation, and that results in saving over 50,000 hours of manual work effort per month, which is the equivalent of about 400 employees per month in our servicing factory.

So again, we're continuing to drive this automation across our platform to create a more consistent experience for clients, consumers and investors to create better outcomes and to drive a better customer experience. One of the things that we're really excited about is in the subservicing space in late first quarter, early second quarter, we announced our new artificial intelligence-based search engine for subservicing clients called LASI, LoanSpan Information Retriever, where our clients can ask freeform questions into LoanSpan, and it goes and extracts data automatically for the clients. So instead of have to rely upon them going in and searching for the data through our portal or asking one of our client service representatives to get data for them, they can merely ask our LASI artificial intelligence agent to go get the data for them. It's been a huge lift for our company.

In terms of capital allocation, we are focused really on driving organic growth. So our capital allocation to date, following a pretty significant balance sheet structuring last year, where we eliminated 2 tiers of corporate debt, paid down our corporate debt by -- corporate and MSR debt by over $140 million, refinanced and extended the maturity on our corporate debt into a single tranche. We are and delever the company. We're now focused on driving organic growth and organic earnings to grow our equity base and deleverage the company by growing our equity.

And again, from -- to support originations and optimize liquidity, we are, again, making sure that we have a lack of a better term, prudent liquidity to manage a volatile interest rate environment. So what we saw through the first half of 2025 was lots of volatility in interest rates, which we do hedge our MSR at close to 100%. And as a result, there's cash moving one direction or another, and we need to be prepared for that. And finally, as we continue to invest in MSRs, invest in returns, invest in technology for our business to drive performance, it does drive long-term value for our shareholders. So again, our disciplined approach to capital management has paid off very well for the company to drive the high teen adjusted ROEs for the company.

In terms of guidance at the end of the second quarter, we did confirm our guidance of a 16% to 18% adjusted ROE range. You saw for the first half of the year we're at the top end of that range. We're targeting to grow our servicing UPB by about 10%. And that's again with a 50-50 mix of owned servicing and subservicing. Again, that's year-over-year. And again, maintain our operating efficiency ratios, which have performed quite nicely over time. And then lastly, we did mention that it is reasonably possible that there will be some release of the valuation allowance that we have against our deferred tax asset. That represents future tax benefits or reduction in our future cash taxes paid. We have been taking advantage of that.

But during the transition and turnaround of Onity, we were not allowed to realize the deferred tax asset on our balance sheet, and we have a valuation allowance against it, and we would expect some portion of that to be released during the course of this year, which again will further help deleverage and improve the balance sheet of the company.

So look, we're excited about the opportunity we have here in front of us. It's been an extremely busy year. Originations at the end of the second quarter was up 35% year-over-year in an industry that grew by probably in the 20 percentage range, 25%, 28% year-over-year. So we're growing at a rate faster than the marketplace. The balanced and diversified platform is performing well. We think we're positioned for the lower rate environment. We've got a track record of increasing growth and scale by winning new clients and not being dependent upon bulk acquisitions or whole company acquisitions to grow and scale the business. We grow the old-fashioned way by winning one customer at a time.

And from a scalability perspective, our investments in technology and process reengineering and global capability has given us a highly scalable platform that delivers superior performance for our customer and investors alike. So that's a little bit about Onity.

Excellent. Thank you for that, Glen. Very insightful look at how the business has evolved and how well you're positioned for the opportunity in front of you. Maybe at this time, I'll open things up for Q&A. [Operator Instructions]

So Glen, I appreciate the comments. Also, look, I think for anyone following the story and following the company closely, it's clear that you've -- since you've joined, there's been a real significant transformation and evolution of the business. It appears that evolution may not be fully appreciated by the market in terms of what's been accomplished. And you alluded to some of it in terms of you've been head down, focused on doing the work, maybe have had the opportunity to chose it from the mountain. But as you think of the things that may be misunderstood about the business by analysts or investors, what are some of those elements be?

Yes. So one of the questions we get asked frequently is, geez, is your size or scale a disadvantage, right? So you're not big like some of the mega players and how do you compete against some of the big mega players. And as we started the transformation with the company, one of the things that we firmly believed in, size doesn't cure all evil. Size alone doesn't make you a competitor in the marketplace and size alone doesn't guarantee continuous steady growth in the business.

So what drives growth is just a few simple things. One, delivering better operating outcomes for your customers and investors. Second, delivering better financial outcomes for your customers and investors. And third, delivering a better experience for your customers and investors. And we have been laser-focused on those dimensions of our business to drive the growth and the growth has come. And I know when we've talked to shareholders one-on-one about how we've grown the business and just how we've won clients from competitors, again, with 56 new subservicing clients boarded over the last 4 years, we've competed -- you name the competitor from a subservicing perspective, we've competed against them with going from 0 to 1,300, over 1,300 correspondent clients, they're not all new customers, right? We won that share of wallet. We won that market share from our competitors.

And sustainable competitive advantage comes from investments in technology to create those differentiated outcomes. So rather than focus on going out and doing bulk acquisitions and going out and buying whole companies, our focus was really to drive performance through capability and creating an intrinsically low-cost structure by virtue of leveraging technology and continuous process reengineering. So there's always a question about, geez, do you feel you're disadvantaged from a scale perspective? And the answer is not at all. We go up competitors of any size, of all sizes all the time. Amazon was a small company at one point in time. Apple was a small company at one point in time, right? They didn't necessarily acquire the way to where they are today. They just operated really, really well, right? So that's kind of, I would say, point one.

Point two, again, building that capability created -- we were focused internally. We were not going out and selling the company. So we did not have a full-fledged shareholder relations effort, right? So now that we're actually going out and selling the stock essentially and telling people about what we've done with the company and how formidable competitor we are, stock price is moving and it's catching up to our peers, and we've had over a 40% growth in share price over the last year. And that's not just by virtue of going out and selling and tying our story, but it's about the performance of the company, right? So we've delivered consistent, sustainable performance here that's at or above our peer level.

Helpful. Anything from the crowd? I'll keep going. Maybe Glen, just to switch gears a bit, and you referenced some many of your competitors from a strategic perspective, in terms of acquiring the size. It's been clearly an active market from an M&A perspective. I think the 800-pound gorilla when you look at space is Rockets acquisition of Mr. Cooper. Personally, I think that deal kind of validates the importance of servicing capabilities when you think about the kind of mortgage business model. But I'm curious to get your thoughts on that transaction activity as a whole in the space, what it means for opportunities for Onity.

Yes. So look, we are not frightened by that transaction. As a matter of fact, we're excited by that transaction. We're excited by that transaction because we think net-net, it creates opportunity in the space that we play, particularly in the subservicing space and in the correspondence space, frankly.

On the subservicing side, the Rocket acquisition of Cooper was the fifth subservicer that changed hands in the last 2 years. And that has caused a significant amount of subservicing customers or clients really thinking about, okay, who do I want to have as a partner that I'm subservicing with? And if you have a retail origination platform and you now are subservicing loans with somebody like Mr. Cooper and you now know your loans are going to go to Rocket mortgage and your subservicing is going to be co-branded with Rocket because that's required in several states, you can't private label subservice, you have to co-brand. You really scratch your head and going, do I really want my customer knowing that Rocket Mortgage is servicing their mortgage. And the answer is probably not.

So we don't have a retail origination channel. We have direct-to-consumer which focuses only on recapture for us and recapture for our subservicing clients who want it. And we've seen more activity on the subservicing side today than we've seen in any year in the past 4 or 5 years. There's lots of clients who are really looking for, trying to explore their alternatives. So the reverse inquiries are high. Whenever we go to one of our marketing events, we are -- our dance card is booked. So it's been quite robust and quite active.

So yes, I think in some spaces, you may be frightened by it as we think about it, it creates opportunity. Any time there's a big transaction like that, it's a disruptive event for the industry, disruption creates opportunity.

And maybe a final question from my end. There's been a ton in the news just around the GSEs and activity there. We've seen this rodeo before. Obviously, it does have a certain degree of certainty around at this time around. So just curious if you think about your business for people out there, if the GSE was to get out of conservatorship, is there anything or exposure to your business? Or how would you think about the impact to Onity from that?

Yes. So again, I think it's an area where there are opportunities and risks. So I'll start with the opportunity side, right? So having Fannie Mae and Freddie Mac, both out in the public domain and competing with each other for market share and competing with each other for business and competing for clients is good for the industry. I think it creates innovation. The GSEs have been one of the big innovators historically in the industry. So innovation from a product perspective, innovation from a technology and a delivery perspective. So I think from that angle, it's good, right? More competition, more innovation, I do think is helpful.

As well, I do think as you look at what happened with the GSEs historically where they drifted from their mission and their buy box got really big, I would expect that the government guarantee will be focused and narrowed and constrained and there's not going to be just an open checkbook again. I don't think the government will go through that movie twice. And that's going to create new product opportunity. I think that creates more opportunity for development of private label products, non-agency products. There is a robust private label mortgage-backed security securitization market again for second liens for self-employed loans for vacation properties, so on and so forth, right? So I do think it creates an opportunity to be more innovative on the product side outside of their scope.

So those -- and net, it brings more investors. And with the GSEs now in the marketplace, I think it brings more investors and more investment capital into the space. On the concern side, would be again, what happens to GPs, right? Do they raise or lower GPs and does it make the GSE product more or less price competitive. So what's going to happen with GPs. And one of the concerns the industry has with the GSEs before they went into conservatorship was are they trying to cut mortgage bankers out of the pie, and are they trying to interact directly with consumers.

So if they still work through distributors essentially like us, which are nonbanks and banks to be the mortgage aggregators and they really just become the issuer of the mortgage-backed security, that's good. But if they try to disintermediate the business, that could be bad. But that didn't go up with them the last time.

We'll see how things evolve this time around. Any final questions from the crowd? Well then, I really appreciate your time, and thank you for taking time to speak with us. It's been impressive to see the story and see the work you and your team have put in, building and evolving the business over these last few years. And glad to see that starting to finally come through in the stock price and long made that continue.

Thank you. Appreciate you. Appreciate my team, too. Thanks, everyone. Appreciate your interest in the company.