Stonegate Mortgage's CEO Discusses Q3 2013 Results - Earnings Call Transcript

| About: Stonegate Mortgage (SGM)

Stonegate Mortgage Corporation (NYSE:SGM)

Q3 2013 Earnings Call

November 14, 2013 8:30 AM ET

Executives

Michael McFadden – IR

Jim Cutillo – CEO

John Macke – CFO

Analysts

Douglas Harter – Credit Suisse

Bose George – KBW

Jim Fowler – Harvest Capital

Mark DeVries – Barclays Capital

Operator

Good day ladies and gentlemen and welcome to Stonegate Mortgage’s Third Quarter 2013 Earnings Conference Call. My name is Jackie and I will be your operator today. At this time all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of the call.

I would now like to turn the call over to Michael McFadden. Please go ahead.

Michael McFadden

Thank you, Jackie. Good morning everyone. Please note that a recording of this call and accompanying presentation material can be found on Stonegate Mortgage’s Investor Relations website at www.investors.stontegatemtg.com. Please refer to that website for important materials, including the Q3 earnings press release. A replay of this call will also be made available on the website.

Financial results that will be discussed on today’s call and located in the press release are unaudited. Additionally today’s discussion and accompanying materials include forward-looking statements and as such are subject to risks and uncertainty that we have discussed in detail in our documents filed with the SEC. Specifically our final prospectus which was filed with the SEC on October 9th of this year which identifies important risk factors that can cause actual results to differ from the forward-looking statements.

Finally, the financial results and matters that we will be discussing today contains non-GAAP measures that Stonegate’s management uses in evaluating company performance. GAAP-to-non-GAAP reconciliations are located in the press release and appended to the slide presentation.

At this time I would like to turn the call over to Jim Cutillo, Founder and Chief Executive Officer of Stonegate Mortgage. Jim?

Jim Cutillo

Thank you, Mike and welcome everyone to our Q3, 2013 earnings call. Joining me today on the call is John Macke, Stonegate’s Chief Financial Officer. Since I founded the company in 2005 our focus has been on building a profitable and sustainable business. In 2013 we have raised over $220 million in new equity capital.

In October we completed our initial public offering. We believe this positions us to be a leading non-bank originator, financer and servicer in the emerging mortgage market. As you know the third quarter was challenging for our industry. Originations decreased by 25% due to rising interest rates and decreasing refinance activity.

Gain on sale margins contracted and interest volatility led the GAAP earnings pressure, driven primarily by fair market value adjustments to derivative assets. Towards the end of the quarter and into the fourth quarter banks and others began to shed excess capacity as profit margins eroded.

On a positive front the GSEs and MBA recently revised our 2014 origination forecast upward to an average of $1.3 trillion driven by stronger purchase demand. I will let John walk you through the details of our financials momentarily but just to start off with a quick overview.

GAAP revenue for the third quarter was $32.3 million while adjusted revenue was $37.8 million. Adjusted net income for the third quarter was $6.1 million or $0.35 per diluted share. Our financing activities produced $2.1 million in net interest income and our servicing fee income grew 14% to $6 million. Even with the industry headwinds Stonegate was able to continue its origination growth by turning in company records for both originations and lock volume.

Purchase transactions remained our focus for Stonegate, representing 73% of our total origination volume in Q3 compared to 46% for the industry. Stonegate was not immune to the contracting gain on sale margins as it caused our net costs to originate to increase.

We were able to offset some of the gain on sales contraction with operating efficiency. Non-interest expense as a percentage of originations decreased by seven basis points from Q2, which is the result of our investments in technology and scale. Additionally the net interest income provided by NattyMac also offset the contracting gain on sale margins. Our servicing fee income grew 14% from last quarter as our servicing portfolio grew to $9.7 billion.

At this point I would like to turn the call over to John Macke, Stonegate’s Chief Financial Officer to discuss third quarter financial results. John?

John Macke

Thanks, Jim. Turning to slide six, Stonegate produced GAAP revenue of $32.3 million in the third quarter. This represents a 27% decline from the previous quarter and a 3% increase from the same period last year. As a management team we also focus on adjusted revenue as it adjusts our fair market value changes that are impacted by market forces outside of our control. For example Jim previously outlined the interest rate trend in the third quarter.

The interest rate environment during the quarter resulted in negative fair market value adjustments. Stonegate’s fair market value adjustment to its interest rate loss pipeline and mortgage loan portfolio totaled a negative $7.6 million in the third quarter compared to a negative $600,000 in the previous period. Adjusted revenue also adjusts for fair market value changes in our mortgage servicing assets which totaled a positive $2.1 million in this period compared to a positive $5.5 million last quarter. Therefore adjusted revenue for the third quarter totaled $37.8 million, a 4% decline from Q2 and a 50% increase from the same period last year.

On the following slide we graphically depict the adjusted revenue reconciliation for the third quarter. Additionally we show the bridge from our second quarter gain on mortgage loans held for sale of $25.4 million to the third quarter number of $13.2 million. As you can see cash gain on sale and the fair market value change in the derivative asset accounted for the decline.

Moving to slide eight Stonegate reported GAAP net income of $1.7 million or $0.10 per diluted share. After adjusting for the previously mentioned changes in fair market value and other non-routine and ramp expenses our adjusted net income was $6.1 million or $0.35 per diluted share. This represents a 28% decline from previous quarter.

On slide nine we take a look at our expense trends. Total expenses in the third quarter were essentially flat from the second quarter at $29.8 million even as loan origination volume increased 12% and our servicing portfolio grew by 28%. We also prepared for an IPO and recommenced operations in NattyMac during the quarter. So we were pleased with our ability to manage expenses.

In the lower left hand graph we show our non-interest expense and basis points of mortgage origination. Non-interest expense totaled 113 basis points in the third quarter, which is down 6% from Q2. These numbers include servicing expenses on our growing servicing portfolio and other expenses related to future growth opportunities in non-agency and technology.

We are also seeing a continued shift in our revenues toward the servicing and financing lines of business and away from originations which is shown on the graph on the lower right. During the third quarter over 35% of our revenues were loan servicing fees and interest income compared to less than 10% for the same period last year.

I would now like to turn the call back over to Jim to provide an update on each of our businesses and our strategic initiatives that were outlined in the S1. Jim?

Jim Cutillo

Thanks, John. Please turn to slide 10. As we discussed earlier originations in Q3 for the industry were down 25%. Stonegate was able to increase its origination volume in the third quarter due to our diversified origination business, geographic expansion and strategic initiatives. The $2.3 billion in originations and $3 billion in loss are both record quarterly numbers for Stonegate. We expect to continue this trend as we continue to execute on our strategic initiatives.

Purchases represented 73% of our origination volume in the third quarter while the industry average 46%. We remained focused on purchase transactions and believe they are more stable and tend to have slower prepayments fees in the early years making the mortgage servicing rights more attractive. In the month of October we lost on average $52 million per day compared to $46.5 million in the third quarter showing continued growth in our originations going into Q4.

The servicing side of our business continued to produce strong results, our ending servicing UPB was $9.7 billion, a 28% increase from the previous period and a 229% increase from Q3 of 2012. As our portfolio continues to grow we continue to benefit from scale. Our direct cost per loans serviced was $95 compared to a $123 per loan in the same period last year. Our high quality portfolio has on average 90 days delinquency of 0.3% and a weighted average coupon of 3.71%.

Turning to financing on slide 12, in July we recommenced NattyMac operations after integrating it into our platform. It should be noted that we retained all employees when we acquired NattyMac in Q4 of 2012. So we were positioned to operate the platform after completing the integration. In the current market our corresponding and wholesale clients lack capital to grow their businesses and therefore their growth is constrained by the size of their balance sheet. Because our focus has been and will remain on small to midsized originator we’ve created a warehouse lending model that allows them to grow in a capitally like manner versus traditional warehouse lenders.

We believe our financing platform allows us to compete with bank-owned mortgage originators who have historically offered warehouse financing as a means to building wallet share and generating fee and net interest income. This is a competitive advantage over other non-bank originators and servicers who do not have warehouse lending operations.

Since we recommenced operations we have issued $78 million in commitments. With over 700 currently active accounts there is a large pipeline of potential NattyMac customers. Financing activities produced $2.1 million in net interest income in Q3 which translates in to nine basis points of origination volume which serves as a natural hedge for contracting gain on sale margins. It also positions us to offer a qualified mortgage compliant solution to brokers who wish to transaction to mortgage bankers.

I’d now like to provide an update on the industry and how Stonegate is positioned to benefit. Large banks continue to deconsolidate their origination and servicing business. Small to midsized originators lack the capital and technology to compete. As the economic recovery continues rising interest rates should extend the duration of mortgage servicing rights. Stonegate proprietary technology positions the company to be a leading aggregator of both agency and non-agency residential mortgages.

On slide 14 you can see that the origination and servicing businesses are shifting from banks to non-banks. As refinance applications decreased bank continue to shed capacity and prepare for a smaller origination market. You can also see that Stonegate was the fastest growing originator and servicer in the first half of 2013. This will probably be more pronounced once we have Q3 data as originations for most of our peers have contracted by 25% or more.

On the next slide we provide an update on the strategic initiatives we outlined in the S1 and discussed on the road show. At the top Stonegate expanded in to six additional states in Q3 which represents over 30% of the U.S. origination market. In October we hired a team of executives with expertise in acquisitions, operations, capital markets, sales and marketing in both bank and non-bank origination platforms to lead our tuck-in acquisition strategy.

We have also signed a definitive agreement to acquire Crossline Capital which has originated $374 million in mortgage loans through September. Additionally we announced last week we signed a definitive agreement to acquire certain distributed retail assets from Nationstar. At this time we expect to hire 57 loan officers through this transaction which should result in additional retail production in late Q4.

As discussed previously we continue to invest in technology in the third quarter. We view our technology as a differentiator in the market and also as a vehicle to achieve greater operating efficiency. Our latest release reduced our manual diligence by 18%. We also continue to invest in our non-agency platform and began selling whole loans to investors creating a conduit type structure for best execution. We believe that technology will transform how loans are aggregated and sold in both an agency and non-agency investors.

In addition to the retail assets we acquired from Nationstar we also signed a definitive agreement to acquire their wholesale business which originated $3.3 billion in mortgage loans in the first half of 2013. We’ve hired 38 account executives as a result of that transaction which will expedite our channel shift towards wholesale and mini correspondent and our geographic expansion in the states such as California and certain Mid-Atlantic states. The new account executives are been trained this week in Indianapolis and we would expect to see business from this team in Q4.

On the following slide we discussed two opportunities that will provide significant origination growth in subsequent quarters. From a geographic standpoint we are currently licensed in 39 states and Washington DC. Since June we added states of California, Montana, Oregon, Rhode Island, Virginia and Washington. Just to give you some perspective on what this means for our growth these six states represent approximately 30% of the overall residential mortgage origination market.

It takes time to get a state ramped up which included hiring loan officers and account executives and approving third party originators. As of December 31, 2012 Stonegate was licensed in 30 states which represented approximately 50% of the overall U.S. mortgage market. Through the third quarter of this year 92% of our originations have come from those 30 states. Therefore 92% of our origination volume is coming from half the total mortgage market.

As a result we expect to see the newly licensed state and those to come provide a considerable amount of origination expansion opportunity. We believe that recent addition of 30 account executives from Nationstar will accelerate our entrance in the whole, mini-correspondent and warehouse lending in key states such as California. We continue to add third party originators and capture a larger percentage of their wallet share.

In the third quarter we had 715 active accounts meaning 715 different third party originators sold us at least one loan in the third quarter and on average we receive $3.1 million of business from each account in the quarter. This represents a 19% increase from the same period last year.

On the following slide you can see the graph that retail, wholesale, mini-correspondent, gain on sale margins had held up better than the correspondent channels since the third quarter of 2012. Stonegate’s correspondent channel has experienced rapid growth over the past few years and represented over three quarters of our origination volume in the third quarter which contributed to our overall gain on sale contraction.

Fast forward to 2014 we expect the correspondent channel to represent less than 50% of our over overall origination volume due to our focus on retail, wholesale and mini-correspondent. The growth in wholesale will be provided in combination of organic growth and the addition of the acquired Nationstar wholesale channel which was the seventh largest wholesale lender of the first half of this year. The growth in our retail channel will be mainly provided by our tuck-In acquisition strategy which we will outline on the following slide.

Stonegate has over 700 active third party originators which serves as great potential target acquisitions. We have accumulated vast amounts of data on these originators so we are already have a level of familiarity with them. These originators are small to midsized originators like Crossline with origination volume between $400 million and $1 billion annually. They are currently constrained by the size of their balance sheet and lack the tools and technology to compete in today’s market.

Stonegate has the capital, management expertise, tools and technology to quickly and efficiently integrate these originators into our platform. We provide an illustrative example of converting one of our correspondents, Crossline in this space into a wholly owned retail subsidiary of Stonegate. Through September Crossline has originated 374 million in loans. If we assume we receive 30% wallet shares of correspondent clients this would translate in the 113 million or servicing UPB with a net cost to originate of a 100 basis points.

On the other hand if we acquire the correspondent we now receive a 100% of their business and reduce our net cost to originate to approximately 40 basis points. Therefore the acquisition translates into a lower net cost to originate for Stonegate Mortgage. The purchase price in this case is estimated at 2.5 times 2014 net income of Crossline. We have an active pipeline of tuck-In acquisitions and hope to be able to announce another transaction on our Q4 earnings call.

At this time we’d like to open the call up for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Douglas Harter with Credit Suisse.

Douglas Harter – Credit Suisse

Thanks. I was hoping you guys could go into a little bit more detail about what caused the pipeline inventory change in valuation?

Jim Cutillo

Yes, Doug, good morning, this is Jim. As we previously discussed during the roadshow and with various calls with you guys the interest rate volatility that we experienced the last couple weeks of the month caused us to take an adjustment on our pull through. Pull through dropped from 73% to roughly 62% during that last two weeks of the month.

Douglas Harter – Credit Suisse

Okay, and then assuming your interest rates stay relatively constant you know would the gain on sale for the fourth quarter look more like that the adjusted number that you are showing?

Jim Cutillo

If I would have got asked that question about two weeks ago I probably would had a different answer. So I think as a whole what we are seeing in the industry right now is kind of a levelizing of the gain on sale during November. But again if there is additional interest rate volatility up or down you will continue to see adjustments in the fair market value estimates, not only in the derivative assets, meaning the interest rate lock commitments in the loans held for sale but also then the mortgage servicing rights either again positively or negatively depending on the way interest rates move.

Douglas Harter – Credit Suisse

Got it, all right, thank you.

Operator

Our next question comes from the line of Bose George with KBW.

Bose George – KBW

Hey, guys good morning. Just a follow-up on the hedge issue. Is there going to be, again if remain stable, is there going to be any hedge offset or is the offset really going to come through whatever higher volumes that’s reflecting the fact that basically there is going to be increased volume offset?

Jim Cutillo

Well obviously if the volume continues to grow the pipeline grows and the derivative asset grows and then you know to your question about will there continue to be additional adjustments if interest rates remain stable then obviously the pull through would rise from the 63% at the end of third quarter back to a more normalized which we typically run in the mid-70s, mid to higher 70s.

So I think we talked about this when we were on the roadshow with most of you guys and all the investors that that fair market value, interest rate lock commitments and loans held for sale is a non-cash estimate and pull through which is big component part of that drove a lot of that.

Bose George – KBW

Okay, great. And then just in your MSR growth, did you guys acquire any MSRs during the quarter?

Jim Cutillo

We acquired a very small package here in Q4 but not in Q3.

Bose George – KBW

So the whole growth in Q3 was just organic?

Jim Cutillo

Yeah, all organic growth and if you noticed we were able to get dig in and reduce our servicing cost per loan pretty nicely as well.

Bose George – KBW

Okay and then actually switching to the acquisition you guys made from Nationstar, the volumes for the first half of the year their volumes were $3.3 billion roughly on the wholesales side and if there is any feel for how much of that do you guys can retain?

Jim Cutillo

Well again we hired 30 account executives that were a big part of the $3.3 billion and we also hired three sales executives who have been with this team for a while. So we feel very fortunate to have been able to retain the team. We have them here all week in training. They are a fabulous group of account executives who are very experienced and tenured in the market. Many of them used to work for Wells and Bank of America who as you know were big wholesale.

What we are bringing to the table that they didn’t have available to them at Nationstar was our mini correspondent program which is what we are most excited about which has meant I would the small and midsized originator a warehouse line of credit as well. So we feel like we are not going to have – other than getting them trained and transitioned to the Stonegate platform we are hoping to not lose a whole lot of momentum.

Bose George – KBW

Okay and then actually the $3.26 billion does that include the distributed retail volume as well or is that kind of incremental to that?

Jim Cutillo

No, that was just the wholesale channel and then on the retail side like I said we are still working through the details with them but I think we are looking at somewhere between 50 and 60 loan officers right now that are going to move over to our retail platform.

Bose George – KBW

So there should be pretty meaningful incremental volume over that what’s coming over on the wholesale side.

Jim Cutillo

Yeah I think what it does is that, yeah correctly what I would caution everyone on is that this was in our plan. So when we talked about even retail tuck-in acquisition I would look at the Nationstar transaction and say that’s kind of similar, little different than Crossline but the idea is that rather than building a branch organically and doing it one loan officer at a time we are moving a group of managers and sales folks over to the platform at the same time.

So I think it’s just part of what we communicated we were going to do with you guys when we were out on the roadshow, same thing with the wholesale.

Bose George – KBW

Okay, great. Thanks.

Operator

(Operator Instructions). Our next question comes from the line of Jim Fowler with Harvest Capital.

Jim Fowler – Harvest Capital

Hi, good morning and thank you for taking the question. Just two clarifications on my mind, on the pipeline $7 million I think you characterized that as just a change in assumption. I wanted to clarify that isn’t a lower pull through that has caused to pair of some short TBA in a pipeline hedge. Is that correct? It is just to change valuation estimate?

Jim Cutillo

Yeah. Good morning, Jim. No, it’s a change in assumption, not an actual pair off or any hedge-related losses. When interest rates, again this just happened in the last…

Jim Fowler – Harvest Capital

I got the interest rate part. I just wanted to make sure…

Jim Cutillo

No, no, it’s just the change in pull through assumption.

Jim Fowler – Harvest Capital

Got it. And then one more clarification, I got little confused between the two group, the two numbers that you put out in terms of different employee additions. On slide 15 you got three sales executives and 30 account executives and then you mentioned 57 loan officers. Could you just clarify all of that and just like take a note?

Jim Cutillo

Yeah, again the Nationstar transaction we really inherited resources from both their wholesale channel which works directly with mortgage brokers and the retail channel, which works directly with consumers originating loans. So on the wholesale side and that’s the team that had originated for Nationstar, about $3.3 billion through the first half of this year, we inherited 30 of their account executives and three of their sales executives. So about 33 sales related resources came over on the wholesale side.

On the retail side of the transaction we are looking to add about 50 to 60, 57 is the number right now, loan officers that we believe are going to come over to our platform as a result of that transaction. So we are hiring folks from their wholesale channel and we are hiring folks from their retail channel.

Jim Fowler – Harvest Capital

And do these groups have pipeline that come with them so you will have some closing or does that stay with Nationstar and these guys are starting with scratch for a few months?

Jim Cutillo

Nationstar retained the pipeline and for lack of better word we are starting from scratch. However these guys are currently originating loans and they are also the relationship that Nationstar had with these wholesale accounts in essence we are working to transfer those over to Stonegate. So we can keep that momentum going as well.

Jim Fowler – Harvest Capital

And I guess the attractiveness, to you whereas Nationstar found this not a core business segment is mostly in your mini correspondent channel?

Jim Cutillo

Well the attractiveness is you know we have a choice and it’s kind of similar to the way we have been building retail over the years. We can start and go one account executive at a time or five or six. This really was a unique opportunity to move a whole business like over that has been working together for many years even before Nationstar, a lot of them worked together and it’s just I would say more synergistic and allows us to scale faster.

So here’s the way I would say, we were going to hire about 75 account executives next year on our third party origination side. This front end loads it I get 30 before the year even starts so I kind of get a running start if you will into some even new states. So I think we provided you guys with a map that shows there really wasn’t a lot of overlap in our business in our wholesale business and Nationstar. So this gives us West Coast penetration and submitted lag penetration after than what we probably anticipated in our numbers.

Jim Fowler – Harvest Capital

Great and then the one thing that on page 12 of your deck I was interested, just a little tail around this QM compliance slide, I’d just love to hear a tiny bit about it and then thank you for taking the questions.

Jim Cutillo

Well the QM compliance there’s a lot to QM beyond the ability to repay one of the areas of QM kind of limits the amount of points that a broker can actually charge at 103 for a loan and in some markets that’s okay but in other markets brokers sometimes charge more than that. And so if we can convert them from a broker to a banker where they actually close the loan in their own name then that requirement of being captive 103 actually goes away.

So we are seeing a lot of broker’s raise their hand and say, we would like to become a correspondent. And so we look at and say, we are going to take some of our wholesale clients and make a mini correspondent because that’s obviously more accretive to us from an overall financial perspective because then we pick up in addition to the origination economics, we pick up the financing economics as well.

Jim Fowler – Harvest Capital

And what’s the minimum capital requirement you have for somebody, that you will put in your NattyMac, your warehouse lending business program?

Jim Cutillo

We have a minimum requirement of $75,000 tangible network however. Certain states like State of New York required 250,000. So we have an internal and then there is in some cases state and regulatory requirements associated with that.

Jim Fowler – Harvest Capital

Thank you so much for taking questions. Good luck.

Jim Cutillo

Thanks.

Operator

Our next question comes from the line of Mark DeVries with Barclays.

Mark DeVries – Barclays Capital

Yes, thanks. I know it’s still relatively early days, but could you just give us an update on the traction you are gaining signing up new customers in your NattyMac platform and also traction you are gaining a greater share of their wallet in their correspondent business?

Jim Cutillo

I would say that we are very happy with the application flow, like so in other words the customers engaging us and talking to us about getting signed up. We are, as you know we just recommenced operations in July. So we are being what I would say is, somewhat more methodical about it to make sure that we don’t grow that too fast but for the accounts that we have already started to do some business with that what I would call we’re in the early adoption phase, we have seen an increase in the amount of loans that are coming to Stonegate.

So we are hoping to by the end of Q4 Mark I think we are going to be in a better position to actually benchmark and quantify that but right now as you can see, we turned a pretty big number from a negative net interest to a positive net interest in a short quarter considering the fact we just really kind of turned that around in July. So we are very bullish on that part of our business and feel like what we communicated to you guys was our plan in 2014, we are on track.

Mark DeVries – Barclays Capital

Great, and then just turning to Crossline, I see you mentioned in a release the numbers the states in which they are licensed does that in anyway accelerate your expansion are they in states where you have applications pending at this point?

Jim Cutillo

Yes.

Mark DeVries – Barclays Capital

Or is there more overlap than where you are already kind of licensed?

Jim Cutillo

There is obviously some overlap. In the press release I believe, yeah I think it’s in the press release, we actually provide the states that they are in so you can kind of do one-to-one match. I think there is like four states right now where they got a license and we have applications pending. And so we just signed a definitive agreement and our counsel and the licensing folks are working through kind of that whole strategy but we intend to operate them as a wholly owned operating subsidiary at Stonegate.

So their licenses, will remain intact, they will continue to originate, they do business both as a branch, they have several branches and then they run a very efficient call center which is also one of the reasons why we were attracted to them because for portfolio retention and scale we will be able to use that platform, I think to build our call center direct to consumer business as well.

Mark DeVries – Barclays Capital

Okay, and I think you mentioned during your prepared remarks that you are paying roughly two and half times 2014 revenue, is that so I hear that correctly?

Jim Cutillo

It’s actually earning and it would be pro forma and probably half of that is a two year earn out. So it’s not like we are right at the chapter closing. So I mean again if for whatever reason their earnings were to say not be there in the next 12 to 24 months, that purchase price will be adjusted downward accordingly or we could make even Tim could probably, we anticipate him doing better, we are pretty bullish on where he’s located. He’s hired some new loan officers that aren’t really and its current run rate is stable, predominantly purchase driven. So we are very bullish on Tim and him ability to grow that platform.

Mark DeVries – Barclays Capital

Okay great, and then finally on the pipeline of other tuck-in acquisition you are seeing, is that still pretty robust at this point?

Jim Cutillo

Yeah, it is actually and its funny I mean we have them in small, medium and large sizes and as the market got tougher and the headwinds have got tougher, our ability to be a buyer in this market and have the capital on our balance sheet, really we have no debt, I think puts us in a position of strength to be a big consolidator of these platforms. And so we are looking at a whole bunch of stuff. The nice thing about $400 million to $1 billion is fast and easy, there is typically not a lot of management overlap and systems overlap and integration.

So it get a little above that target, you get into a situation where, they are maybe doing secondary marketing and things like that in an advance way sort of like we are but Crossline had about $30 million servicing portfolio, it is approved by Fannie but it wasn’t easy, he’s predominantly an originator. So, we are looking for small to midsize originators who are either brokers or correspondents and we believe even the Nationstar guys they do a lot of business in what’s call the MSA so they have contracts with realtors and builders where they got a lot of their business. So we are being selective and there is still a lot of opportunity out there.

Mark DeVries – Barclays Capital

Great, appreciate the commentary.

Operator

There appear to be no further questions at this time. I’d now I turn call back over to Michael McFadden for any additional or closing remarks.

Michael McFadden

Thank you everyone for your participation and support. We look forward to hearing from you soon. Have a great day.

Operator

Thank you. This concludes today’s conference call. You may now disconnect.

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