Walter Investment Management Corp (WAC)
September 11, 2012 10:30 am ET
Whitney K. Finch - Vice President of Investor Relations
Mark J. O'Brien - Chairman and Chief Executive Officer
Denmar John Dixon - Vice Chairman, Executive Vice President and Director
Keith Anderson - President of Green Tree
Patricia L. Cook - Executive Vice President of Business Development
Kevin Barker - Compass Point Research & Trading, LLC, Research Division
Whitney K. Finch
Good morning, everyone, and good morning as well to those of you listening on our webcast. I'd like to welcome you all to the Walter Investment Management Corp. 2012 Investor and Financial Analyst Day.
For those of you joining us on the webcast, your agendas and presentations are available online. For those of you in the room, let me orient you quickly to the materials that you've received. You have today's agenda, the bios of today's speakers and a printed deck of presentation. On the agenda, please note that we plan to take a brief break following Mark Atencio's presentation. During that time, those of you joining us on the webcast will hear some music. When we reconvene for presentations, we will, of course, rejoin you at that time.
I'd like to cover some of today's logistics for you. We plan to start lunch at 11:30 and we'll be eating in here in the presentation room in order to handle any additional Q&A that we may have. I'd ask that you hold your questions for the Q&A session following the management presentation. Please make sure you have a microphone in hand prior to asking your question to ensure that those participants joining us on the webcast have an opportunity to hear your question. At this time please mute all iPhones, BlackBerries and iPads so as not to disturb anyone around you or distract any of our presenters this morning.
Before we begin, I will remind you that some of today's presentations may contain forward-looking statements. Please refer to the slide titled Legal Disclaimers and our SEC report for information about forward-looking statements and factors that could cause actual results to differ materially from our forward-looking statements.
Additionally, some of our presentation contain non-GAAP financial measures. Information about these non-GAAP financial measures, including reconciliations to GAAP can be found in your materials, in our SEC report. So with those housekeeping items out of the way, ladies and gentlemen, it's my privilege to introduce to you to our CEO and Chairman, Mark O'Brien.
Mark J. O'Brien
Thank you, Whitney, and good morning, everybody. I think you'll enjoy today's presentation. We enjoyed dinner last night and certainly thank you for coming. Many of you in the course of the last couple of years have requested that we have one of these sessions and so we're having it. I think when you hear the various presentations today, you will understand the enthusiasm and the passion that the people, the executives in the company that do all the daily work, the passion they have for the business and it'll be clear to you the chiefly the reason that we are successful. We're really very pleased with the transformation, which has occurred in our company. We started a little over 3 years ago as a capital-intensive REIT. We have transformed ourselves into a, basically, a fee-for-service capital-efficient company with a very blue-chip customer base and we've added to that portfolio, with our recent announcement of Mark Helm's company, Reverse Mortgage, and I think you will certainly enjoy that presentation.
When I think back to late 2010 and early 2011, when we were still a REIT, it was pretty clear to us that there was a secular and cyclical change going on in the industry. The cyclical piece of that change was going to be of a shorter life than the secular change. And we were grappling with how we could participate in that and it was clear to us that those changes were going to dramatically change the landscape, particularly the credit-sensitive borrowers. It was clear to us that the cyclical change, the value of the damage collateral, the collateral going down in the housing sector was making a material difference. And people like us and Green Tree who had experience dealing with these matters were going to feel much better than those that did not and we would add a lot of value to the portfolio. What we have discovered as we've got into this in a very deep fashion is that it is a very big pig and a very large snake. So it is going to take a while for all of this to happen. I don't think any of us knows how long, but I think we're looking at, at least probably 3 years for all of this to occur. The secular piece of this, I think, has been made clear in that pretty much universal acknowledgment in the industry that the traditional players that were geared up to collect and remit payments didn't have a clue nor the desire to deal with collateral or the mortgagors which is what we do and we do it very well. When you add to that the regulatory compliance issues that have made the business even more complex, you pretty quickly get a picture of why so many of the traditional, larger servicers want to exit the business.
One of the natural results of those activities is that those of us who want to remain in the business and grow are the beneficiaries of those who want to escape and get out. So the growth in our portfolio, has pretty clearly produced some very attractive financial results. Our cash flows have been stable and strong. Over the course of the last 18 months, we've reduced our debt by almost $90 million over $3 a share. Our EBITDA has gone from 3.9% to about 3.2%. So we continue to do well and our EBITDA continues to grow. So that when we look at the ratios going out of that, they continue to improve. The wonderful slide here that I think we all enjoy but I have to remind myself that this is a point in time, but it's a very happy point in time for us and those of you who have been participating with us for some time. We don't see any reason to think that that's going to change dramatically. In fact, we see enough opportunity, I think, in front of us to continue to do very well.
Today you're going to hear from Keith and Brian and Tom on the servicing side of the business, the regulatory side of the business. You'll also hear from Mark Atencio, he sees our clients and our client management business. And I think you'll find that fairly interesting. All of you, I'm sure have had a chance to talk to Denmar. If you don't maybe you haven't had a chance to talk back to Denmar, but I'm sure Denmar has spoken with you. And if you've done that, you'll know that we've been pretty close to some capital partners as we try and sort out how we're going to continue to participate in the MSR sales that I think are continuing to gen up.
You'll also hear from Patty Cook who leads our business development effort. She has maintained a pipeline that's solidly in the $300 billion range, about 1/3 of which we think will be subservicing, another 1/3 MSRs, and another 1/3 some combination of those 2. As you listen to her, she will obviously have to protect those things that we think give us clear advantages. But it's a very, very compelling story. You'll also, I think, get the sense for a unique skill that she brings to that task and that is the relationships that she, and therefore, we have been able to build with our clients and customers over the years. This is, I think -- we are viewed as a strategic partner with many of our biggest clients. That is not an accident. There's tremendous amount of work and diligence that goes into that. As you can imagine, last year when Green Tree transferred to something north of 400,000 accounts, it wasn't just that it was done, it was done well. And that wasn't lost on our clients and counterparties. That's a massive undertaking, particularly if you own the credit and all 400,000 of those people now have to make their payments to a different place and understand the different protocols that, that entails. So that is an -- we have an opportunity that others don't have and that is to build on our past successes. Not only did they/we do those transfers seamlessly. I think it was a clear demonstration that our ability to take large transfers, large numbers of clients over a very short period of time. And if you're the counterparty and you're thinking about dramatically reducing your servicing business, it's not lost on you that you want a counterparty, us, or somebody very much like us that can get this stuff done and get it done well quickly and easily.
You will also hear from Marc Helm, who is the President of Reverse, of our reverse business that we just acquired, on how he sees that business. It's -- clearly, the reverse business, is different than the forward business. And as you listen to him and hear him describe the business, you will understand, I think, the opportunity that we see going forward there. I will also spend some time today on Landmark and our ARM business, our deficiency business. I think Tom, are you going to cover that?
Mark J. O'Brien
Tom will cover that. That's an interesting business, it has been quite profitable for us. When you think about the business model that we've put out consistently now over -- well over 1 year, 1.5 years, the spoke and the wheel idea that the servicing drives it and we have all these ancillary businesses. The deficiency business is a natural offshoot to that. Many of our clients, I think, were reluctant to engage in that. It's a difficult business when you come up short after you've sold off the collateral in foreclosure. But there's still a debt remaining. And the creditor's entitled to some recovery on that. So we've spent -- invested some time and some money over the last 1.5 years building out an agency model. We believe that model will add to the profitability of the company.
So with that, what I summarize -- what I think is the opportunity today and what we'd like for you all to take away is that we are in a growing business that has tremendous upside in the near term. I suspect that if the pundits are right, we may be on the tail-end of the cyclical change that's going on but we are by no means through the secular change that's driving a lot of this. I think we've got a best-in-class platform and I know we have a best-in-class group of executives. So as we go through this presentation, the principal has told us that we will do a Q&A at the end. If you have a question that you just can't stand not to ask of any of the presenters, go ahead and do it. I'd ask you to hold it right at a minimum or we will all be at the principal's office after school and that won't be very much fun. So with that I will turn it over to Denmar who I think will take you through -- I don't think, I know, he will take you through the strategic opportunities that are in front of us and then we will get down to the heavy list things about how we run the business. Thank you.
Denmar John Dixon
Thanks, Mark, and thanks again for everybody taking the time to be here. We're very happy that we could do it for you. As Mark mentioned, Whitney asked me to be crisp and that's difficult for me, but I'll do my best. I think I've got maybe the task to kick this off where we really think about -- let's talk a little bit about the strategy so that you get that in a simplified way, if you will, and then I'll walk through kind of where I see things today. One of the questions as you would expect, we get everywhere we go is, "Things are interesting now, where are you, 3, 5, 7 years out?" And I think we're trying to do a better job of drawing that picture for you, if you will, and giving you our view of where we are today and where we'll be on a go-forward basis.
So I think just starting with the strategy. I think the best strategies that I've ever seen over time in my career are those that are simple and you can execute on. And ours, I think makes hits on both of those tenets. It's very simple in that, what we have is an incredibly powerful core to the business, which is the Specialty Servicing business. The Green Tree platform, their history, Walter's history, our experience in the business is really the core competency that we're driving the business from. We identified, as Mark mentioned, a secular change that was coming. I think it's come a little bit bigger and faster than even we saw. But that's a good miss on our part. And we put ourselves in front of it with a platform that directly speaks to that opportunity. So when you think about the tenets of how we grow this business over time, the first bullet is really what we live by in today's world because there's a lot going on. We need to maximize our opportunities that are currently presented in the market and the good news is there are many. But we do that, not only in a today vision for what we're after, but positioning the company for sustainable growth in the future. And I think that's the question we need to spend a little bit more time on with you to get everyone comfortable on where we end up over time.
Dynamic sector, you have to be able to adapt, you have to be fleet of foot, you have to have a great platform and a great management team. And I think we've got those basic tenets, and we're working very hard to capitalize on those opportunities that are in front of us. So the strategy is simple, really leverage the core. We can grow the core organically, our subservicing business, purchased MSR, originations will be a growing piece of replenishment of the base. You heard us talk about flow agreements that are coming, et cetera. So we are always focused on growing the core because that's the base leverage in the business.
Growing around the core on the ancillary type businesses where we've extended our deficiency business, we are extending that product, is really all about leveraging the core. So where we can we find an ancillary business to the core that we can drive better than market returns because we've got leverage in the 1 million accounts or the client base or some of the core competencies that come with the basic platform. Instead of reaching out to a business where we don't have leverage or can't earn an above market type return, let's stay around the core and leverage the opportunity in the return.
And lastly, in today's market, there are strategic opportunities. Those could be around the core, around the ancillary businesses but probably more opportunities that are a little bigger, a little more upside in the them, maybe a little more risk. But the strategic opportunities are presenting themselves today and will continue to present themselves over time. Do we switch?
So let me step back. The strategy is pretty basic on how we're attacking the market. We worked on this slide to try and do a clear job of where we think we are today and where we think the market goes over time. And Mark made a statement that I think is very, very important and addresses the question, when we are on the road just recently, we heard a couple of times, wow there's been a nice little run in the sector, have we missed it? The answer is, you didn't miss it, you probably in inning 2 or 3 so you're just getting in on the front end.
So think about the time frames, and I'll give you this disclaimer, these years are not meant to be specific or my prediction by year. I'm just trying to give you an idea of how we see the timeline unfolding. The first, obviously that get the ball rolling, is the period of market disruption, right? Severe economic impact downturn, portfolios rollover, poor performance, the servicing model proves to be broken, the regulators step in, capital becomes an issue. So all the catalysts you've heard us speak about before really cranked up late '07 into '08, '09, it's still ongoing. There's disruption in the market as we speak today and I think that tapers some as we're coming to the end of the period but we're still in the period where there's market disruption. The market is not peeled. There are still surprises. There's still downside risk to the market. So we see the first phase having been the catalyst and it's playing out in maybe the later innings but we're still in the market that has significant disruption from what I would say would be a steady state base.
Where we're really playing today at Walter is in what I like to call the aggregation phase. Mark mentioned the big pig in the long snake, I think that's true. We're early in that. It kind of kicked in late '09, early '10. It built this year. Last year was a big year. This year is going to be a bigger year, I think. You can see some of the public deals enter into the market. In this phase, it's all about us taking advantage of the massive servicing transfers that are going to happen and growing our portfolio substantially and in a stairstep fashion, not in a percent growth per year basis. I think the opportunities are much bigger than that given the type of transactions that are out in the market today, both subservicing and MSR. So in this aggregation phase, which again I think, extends for many years, several years on a go-forward basis, it's all about us building the base servicing business to a high level. It will put us in a position where we've got a very large book of business with a lot of free cash flow that will be kicked off over time, which sets us up for really where we do end up through, what I'd term, the transition phase. So think about right now it's all about growing the business on a stairstep basis. We are early into that. I think we're, again, inning 2, 3, 4 maybe. We've got the middle innings and I think the final innings are going to show some fireworks at the same time just given the overall size of the opportunity, which is in the trillions.
Moving forward, think about the transition phase. It's in the early, maybe inning 1 now. So we're starting to figure out what the market may look like. We're starting to think about how we transition into a sustainable model. I think the earliest evidence of that coming is the flow agreements. We've had some of the big depositories declare what's core and noncore to them. They've declared they want to outsource certain of this business. So these are the early signs that we're starting to be able to transition to a market that over time will be very sustainable and still a high growth market for the specialty servicers, if you will. So think about flow agreements. They kind of kicked in on a delinquency flow basis or are kicking in as we speak. They are also kicking in now on a new origination phase as you've heard some of those announced. We have a lot to go in the transition phase and to figure out as the whole market is redefined, where do the GSEs go? Private label, does it return? Originations, we think will be more specialized and we will play a role in those. So I think as we think about the business, we're growing through the aggregation at a rapid pace now, and at the same time, transitioning to a model that's extendable and sustainable into the future as the secular shifts kick in. The large depositories are going to outsource noncore business over time, private label securities, in my view, will come back over time, have to come back into the market. The investors that are buying those securities are not going to stand forward the old model, they're going to want a model where their assets is the owner of the credit or first of all some of the credit are protected and that means getting them or having the mechanism to get them, if not, starting with the specialty servicer transitioning to a specialty servicer. So we see all of those shifts really taking us into a phase where as the market normalizes, we see it normalizing to our favor where we'll have more share and sustainable growth.
So in the here now, I think it's worth just touching quickly on how we're capitalizing on the opportunity today. Patty is going to take you through in more detail, business development and the pipeline, et cetera. But the pipeline is a solid $300 billion actively today and that's business that we are prosecuting as we speak in different phases. We still believe the $1 trillion, $1.5 trillion assets are expected to move in the next several years. I think some of our competitors are out with larger numbers. It's possible that they're right. If I had to bet, maybe over under, I'm on the over. So I think we tend to be a little conservative, $1 trillion, $1.5 trillion, I think that number could be bigger. So the pipeline is huge. It's here. It's now. It's actually accelerating from what we saw in the first part of the year, and we expect it to continue for quite some time. I think that some of the headlines in the sector, in the transfer may fade over the next year or so. The actual work to get the assets transferred and in the right hands and for the big depositories to finish the work they want to do is multiple years. It's not the next year or so. You won't be able to move that kind of volume in that time. Make them out of the headlines but it's still going to be a great opportunity for us.
Mark mentioned capital availability. I think we've said on multiple occasions that we are paying very close attention to what's happening in the market as there is a supply of MSR coming that we think is robust. And we need to be positioned to access capital opportunistically to bid MSR, those that fit our platform, and we think we can get very solid returns on. And we have bid MSR with capital partners. We will continue to do so. We will continue to work on options. And I think that runs the gamut from full excess spread type deal like you've seen in the market to those that want to purchase and subservice to us to potentially are having a more managed capital heavy entity that we use on a go-forward basis. So we are advanced on all those fronts is probably the right way to say it and paying a lot of attention to the market. I think the upside, and we had this discussion at the table a little bit last night, is that the MSR opportunity is not past us, it's just starting. So the supply is large and actually what you don't see often in the market, capital is flowing to the market, cost of capital is coming down but because of the amount of supply that's coming, pricing has not changed materially. It's held firm or flat, if you will. So we like the dynamic. We didn't have to be early to this. We didn't miss anything. We think the opportunity is really in front of us to access capital at the right cost and then hit the supply opportunistically of MSR that's coming to the market.
Lastly, we are working and couldn't be more pleased with the RMS acquisition and the addition of those executives in that platform to the Walter team. We are looking at extending the platform. RMS, I think, is just a great example of ancillary right off the core, leverage the core, that leverage is our client base. There's cross clients, if you will, the GSEs are important there, the GSEs are important to us. Many crossover places we can help them on the shared services side with legal, finance, compliance, et cetera, which free's Mark and his team up to go do more business, which we are very focused on. So I think when we've talked about extending the platform, RMS is a great example and we are looking and will continue to look at other opportunities.
Tom will talk to you a little bit, I think, about the implementation of our agency model in the ARM business. Right down the middle of the fairway, take a business that we're in and is ancillary to the core and extend it further in order to garner solid growth. And then lastly, expansion of our core platform's product offerings. I think a good example there would be Ginnie Mae servicing. We've got a project underway to really review that, understand the economics, make sure that we like the risk return that's involved there. But it's a very big piece of the market that we're not accessing today and we likely will access in the future, so an opportunity to extend our platform.
So I think the quick summary on the strategy is it's not very fancy. It's pretty simple. We can execute on it. It's built around the core. And then the opportunity itself, we are in the early innings of the growth phase of what's going to happen here. We're extremely well positioned, and we're very excited about our ability to really leverage the business on a go-forward basis and grow the company in a more stairstep basis, both on revenue and earnings on a go-forward basis. With that, I'll turn it over to Keith.
Thank you, Denmar. Good morning, everyone. I'm going to spend the next few minutes walking through Green Tree's 5 different businesses and how we run those businesses, what we focus on day-to-day, the risks and opportunities that we face in each one of those.
The origin or the true driver of Green Tree is our third-party servicing business. It's really the engine that drives all the other businesses and all the other main activities. As you guys know, from a financial and economic perspective, it is our largest business. It's our key driver of bringing in other businesses and it's really the core or foundation of what we do. Around that engine, I'd describe it as the spokes on the wheel. The 4 other businesses, the Investment Management business, the Agency business, the Originations business and the ARM business, each one of those were derived in different ways from our core platform along the third-party servicing business. The gray boxes on the outside of the 4 key businesses are opportunities that we're looking at today are in execution phase of adding to each one of those core businesses. As Denmar and Mark both talked about, each one of our core strategies is to expand what we do well in our core competencies. And if you look at some of these ways, this is a way that we can drive new business to our existing businesses while taking advantage of core customers, core competencies and continue to add value.
Each of our businesses have a well-defined revenue stream that once the new business is boarded. We are amazingly accurate predicting revenues and expenses once that business is boarded from a modeling perspective and managing to that operationally as a company. We have strong disciplines within the company that control our expenses, that look for the revenue opportunities that exist in each one of our new businesses that we board and maximize those revenue streams. Each of our businesses is very capital sufficient. They're self sustaining from a cash perspective and each of them take very minimal credit risk, if at any at all. These are the businesses that are, each one of them are managed on a cash basis. There's very few, what I would call from my old CFO days, complicated accounting conventions. We long left behind our famous gang-on sale assumptions where we had to book originations and look out 7 years and predict prepayments and defaults. It's way beyond us. Henry, you remember those days, it was tough days that we don't want to relive again.
From our organizational chart, you will see the team today and others that aren't here today with me, it's a really strong core. This group has been around for a number of years together. We've seen a lot of different battles. We've seen a lot of different playing fields. We've managed under very different ownership structures, different capital structures. And we've obviously executed under different business strategies. But I think what's most important about this team on this page is we understand our clients, we understand our customers and most importantly, we understand our most valuable asset and that's our people.
Talking later today, as Mark laid out will be Brian Corey. Brian is our General Counsel. He's really the leader of our compliance group. He's the one that's out in front of our businesses today, making sure we're looking out for any risks that could confront us, both from a customer perspective, from a regulatory perspective and from a client perspective. Tom Franco, who runs our servicing business, Patty Cook who runs our business development group and then Mark Atencio, who runs our business control group.
From a Green Tree presence perspective, I'm not going to talk a lot about this time, we will go into a little bit more detail. But we have a different model. We have a decentralized model, which we think has been a key driver of the success that we've had over the last few years. It is one of the primary reasons why we have better contact rates with our customers than anyone else in the industry. If you go to our clients, the #1 thing they will talk about what differentiates Green Tree from other servicers that they may utilize is how we're able to reach out to that customer. So I think you're going to hear that time and time again this morning. Of why that is such a core competency, how do we do that and then how do we take advantage of those key contact rates.
This decentralized model also helps us from a staffing and hiring perspective. Obviously, we spread our risk of retention. We are not domiciled just in one major market or 2 or 3 like many of our competitors. We are able to hire quickly and train very rapidly in times like what we faced last year when we added those 420,000 accounts and almost 500 associates. It was really this model that allowed us to do that. We spread that hiring over 8, 10 locations rather than some of our competitors looking at 1 or 2 locations, it just makes sense.
Denmar talked a little bit about how we are planning on sustaining growth and I'll just expand on that a little bit. Growth for Green Tree is no different than any other company. It's important. We think about it in 4 different ways as far as meaningful ways that we can continue to grow. Obviously, historically, we've focused on the lower left-hand side of the capital, light subservicing model. That's 75% of our servicing business today, it's been key. Patty's going to talk a lot about our relationships. But fundamentally, one of the strongest pieces of Green Tree is those relationships where we get repeat business time and time again from some of those major credit owning institutions. Whether it's the GSEs, whether it's some of the large bank institutions. That's kind of our core bread-and-butter where we drive our business. Obviously though, given the market conditions that the MSR arena we're going to be growing and emphasizing more, much more in the next 18 months than in the past 18 months. As Denmar mentioned, there's plenty of opportunities out there in the industry. There's plenty of different ways that we can structure capital to make that efficient for the company and we are focusing on that.
One of the newer boxes that we're spreading and focusing more time on is the origination business. You may know, and if you don't, Green Tree has been in that business for 30 years. We have a long history in originations. Each one of the managers on that previous page have run originations businesses. We understand the risks, we understand how that market changes, we understand the pitfalls of that. So we're walking rather than we're running. And we'll spend a little bit more time on that in the following slides, but it is a key focus of ours right now.
Product expansion has been key to Green Tree historically. I think we still have plenty of opportunities to find new ways to expand our businesses. As Denmar mentioned, Ginnie is one of the ways that we're looking at that today. The agency model was something that we've spent some capital on over the last year and we now have the agency/landmark model up and running in our ARM business. Each one of those are going to be key for us going forward to continue to expand and grow.
I'm going to spend a few minutes on some of the individual businesses. I'm just trying to make a few key points. Our long servicing business has experienced some nice growth over the last 3 or 4 years. We continue to see plenty of opportunities out there. But we are balancing everyday how fast we grow, where we grow, how we grow with the risk of taking that on. As many of you know, the loan servicing business is highly regulated. There's a lot of things that you can do wrong if you don't dot the i's and cross the t's, that's why we put so much emphasis on our day-to-day activities of compliance. It is the fundamental framework of how we do business today, is to stay well within the boundaries of how you do business. Things like charging fees to customers and handling customer complaints. We don't take any of those things lightly. We always want to be well inside the boundaries. We don't want to push any of the boundaries on any of those activities. So where there's opportunities to make another $0.05 or $0.10 and some fee opportunities and we don't see that it's well-defined within state regulatory requirements, we're going to pass on that. We're going to leave that money aside because we're more comfortable managing in a tighter box.
From a profitability perspective, as you can see in the lower right-hand box, we're proud that we've not only increased the book of business but the earnings stream has continued to form nicely. On the new business side, each one of the new pieces of business we board goes through a very expensive, what we call, the new business committee. What that is comprised of is senior officers from around the company, both on Walter and Green Tree side. Examining the new business, examining the opportunities and the risks, looking at the models of our pricing economics and getting comfortable, frankly, with doing that within our boundaries. There is much discussion I guess I would say, on many of the deals and we've vet those discussions and we come to the right answers. But I'm very proud that we've been able to add the type of business, $85 billion, over the last 4 years and show the kind of profitability returns that we have.
On the third-party servicing side, one of the key things that has evolved over the last 4 years is where we're doing business, primarily with our credit owners being across the table. We have to align our interests with them. And one way we do that economically is through incentive structures that we have devised through a number of our programs. Virtually all the new business that we added last year all had incentivized structures and we like that because we are able to keep our base fees or our contractual fees very competitive and where we exceed or excel is in credit performance, that's where we see the upside in our margins. And it's frankly, an easier sale job when you're talking about reducing their credit losses on their balance sheet.
Another point I'd like to make is the stable foundation, I guess, I would call it, in our loan servicing business is our manufactured housing book. It is our legacy, I guess, 370,000 accounts. The margin that we have on that business is very large and the best thing about it is it's just a stable book of business that has been out there now 10 years from a vintage perspective, and we think the average future life is another 6 years. So very stable foundation, 3% delinquency. Even through the worst economic times, it was probably the best performing asset class on Wall Street.
The diversification of our loan servicing book is something that we also like to point out. As you can see in the upper left-hand box, not only from the manufactured housing side but we have our first lien residential book. We have a large book of junior liens, second lien book that we've done with a number of our KeyBanc constituencies and also some of the monolines that we have great relationships with. But you can see that our book of business is a little bit more diversified than many of our competitors. And then as I mentioned in the lower right-hand side, today, it's about 75% subserviced. I wouldn't doubt if that does swing slightly toward the MSR side over the coming years.
Page 20 from a recurring earnings perspective. As you can see, each one of the new layers on the cake that we so describe it has been very profitable for Green Tree. One key thing that you'd point out is through this year, through 2012, over 60% of the EBITDA that we earned in our servicing book actually related to business back from 2010 and prior. It just shows you how stable that book is over time as you've added that business. It's just additional layers that we can then predict quite accurately the future cash flows that will come out of that business.
Our ARM business, Tom will spend a little bit more time on this. But it's -- what's kind of interesting is this business is really just over 4 years old. It's experienced rapid growth. We were actually in this business back in the late '90s, early 2000s, then we sold the business through a restructuring of the company and we got back in it because we thought it was such a core competency of the company. When you really get down to this, this business is all focused on customer contact, relationships, data and history you have on that customer. We have all those. We are steps ahead of our competitors. Much of this business comes over from the open active loan servicing side. But we also have standalone clients that have just given us either highly delinquent or charged off pools. It's key business for us because it -- we still see a lots of opportunities for growth. As you can see, its a very high margin business. It's high margin for one really key reason is, we staff to control that margin, so where we see more opportunities for top line revenue growth, we can add more associates to focus on certain portfolios or certain strategies. But we control that. This business doesn't have the protocols and some of the tighter standards that you have to service to and match to. We can really drive our revenue and expense base as we see fit and as we see opportunities. However, it is a highly controlled and regulated business and that's something that Brian will talk more about in the future.
You can see in the lower left-hand corner the type of growth that our portfolio has experienced, up over $12 billion today. This has primarily been on the mortgage side but as we'll talk a little bit more about later today, with the advent of our agency landmark business, we think we'll be expanding this product array into things like credit cards, subprime models, student loans, really the models, the statistical structure that we use to collect from is really portable across all kinds of different product types.
Moving onto our agency business. As many of you know, this is a requirement within our pooling and servicing agreements on the servicing side that we have to track and ensure adequate homeowners insurance on all the collateral that we service today. We've been in this business 20-some years. Our portfolio size and our financial position in this business has really driven historically from our MH product. Our MH product has very high penetration rates, 45%, 50% depending on the vintage and product. That is really driven by our 2 key carriers, dominate this space. They have far and away the best product from a pricing and risk perspective. We're lucky enough to be coupled with those carriers and enjoy the benefits of that. Brian Corey will talk a little bit more later today about the force-placed product on this business. It has historically always been highly regulated. That focus has only increased over the last few years and we've got some new discussions that we can talk about on the CFPB front related to that product that he'll shed his views on as well.
The originations business, I know as I mentioned to you, historically we've been in this business for 30-some years. But given the market opportunities that we are now confronting from a retention and recapture perspective, our focus has increased dramatically in this business. Today from the portfolio acquisitions that we've done with our GSE partners, we have over 270,000 current accounts. Those current accounts, when you go through the various eligibility requirements of HARP 2.0 come down to roughly 200,000 accounts that are eligible today, that's Fannie Mae numbers. Over the past 2 years, we have been focused on building out our originations business but that effort has increased dramatically in the last 3 months. As you can see, we've built our infrastructure hiring people, building most of it around our technology, which is -- I'll speak shortly about how we use technology in this business to drive results. It's going to be a key, key component of our success. We think we'll be banking new Green Tree closed loans next month in October and we hope to be at scale by the end of the year. As part of our relationship with Fannie Mae, we've entered into a 3-year strategic or a 3-way strategic partnership with another national lender to face and develop a refinancing program that we're very excited about. Some of the key pieces of that bring that servicing customer back to Green Tree after it's been refinanced. We, also are getting all of our expenses, including compensating interest reimbursed, and we think we'll make a marginal profit on that as well. So it's a key component to our originations recaptured strategy short term.
From a banking business, the key profitability drivers that we've really built the fundamentals of that business on are on the upper right-hand corner. We think we'll drive revenues over 3%. The cost to originate once we're at scale will be roughly 1.5% and we'll be earning net profits on a per loan basis of 1.75% to 2%. This business obviously, we've stepped up our efforts in the last few months to take advantage of the HARP 2.0 opportunity. But in 2013, we'll continue to expand products as well, both from an FHA and Freddie perspective. We're also going to be working with Mark Helm's group on Reverse Mortgages and how we can build synergy between this group and Mark's Servicing and Originations businesses as well. And from a distribution perspective, while we're dancing in the Retail business, we'll also be evaluating whether we want to build out a broker or a wholesale channel. And obviously from this perspective, there's plenty of opportunities to buy platforms, existing platforms in this business, if we so choose, versus build.
From an infrastructure perspective, the headquarters of this business is out in Tustin, California. We have chose to build out 3 different locations to control our hiring risk and training risks along's with Tustin, it will be in Tempe here, as well as in St. Paul. We've also built the model where we focus on our centralized control functions, the quality control group, the compliance group, the legal group, hiring and staffing, as well as internal audit. We'll all be centralized and managed independently than the owner of the business. So we think that's very important from a structural and control perspective.
As I mentioned earlier, one of the key pieces of infrastructure we've been building out over the last few months has been our telepathy and our technology, taking advantage of our existing servicing platform and how it contacts and reaches out to our customers. It's pretty amazing when you look around the chart, all the different ways our customers touch us and all the different ways we touch our customers. So it just seemed natural to us that we take advantage of the 1,700, 1,800 associates that we have on the servicing side and make them a profit center in another way to drive different leads to our originations business.
So elaborating on that a little bit. Whether it's a customer calling in to one of our call centers or whether they are contacting through the IVR, whether it's us making a soft or early-stage collections call, whether it's our website that we have out there, we can direct and control the customers that are eligible for various products simply by directing that customer contact to the right spoke in the wheel, which in this case will be the originations channel. This is a huge advantage from a cost to originate perspective. It's a huge driver of why servicers have a huge fundamental advantage in recapturing and retaining customers via these methods versus cold calling or mailing solicitations or courthouse leads or any other of a number of methods. So we think this will be very important in our future with the originations business.
So lastly, I just want to summarize what I've gone through this morning. We think that there's huge opportunities for continuing our growth channel strategies in our specialty servicing space. We think we will continue to be able to continue our asset light fee income model that we've experienced some success in the past. The regulatory change is a big challenge for us. But it's also our biggest opportunity. I think as you listen to those speak this morning, you'll get a better sense for what I'm referring to there. It is a key, key driver of the change, the secular change, that is going on in the industry, and we're out in front of it. From an originations perspective, this is going to be a key business for us go forward. It's going to be one of those 4 key spokes on the wheel that we use to drive our overall retention of our customers and seeking new customers. So we think it will be a key contributor for earnings for 2013 and beyond as well. And I just want to close with, we believe Green Tree is well-positioned today to take full advantage of the market opportunities that we face.
Thank you, and with that I'll have Mark or -- I'm sorry Brian Corey, our General Counsel, step up and go through a little bit more detail on that regulatory change that I've described.
Thanks, Keith, good morning. I was asked whether I'd be willing to provide a regulatory overview. And, of course, I said I'd be pleased to, really would look forward to it. And then I asked the question, so do I get the entire morning or afternoon session? And the response was 15 minutes, maybe a half hour. So rather than touch on all the different regulatory aspects of our business, what I thought I would do would be to focus on some of the more timely and relevant ones. And just to let you know up front, you will hear this later, but really the most important thing going on in our industry, in the servicing industry, are the proposed regulations that the Consumer Financial Protection Bureau promulgated back on August 10. And I will go through those with you. And they do relate to a number of aspects of our business and I know as Keith has indicated, people are interested in lender placed insurance, which is now called force placed insurance officially by the CFPB and other aspects of what's gone on.
So as we start, really the background is the increasing loan defaults and foreclosures in the housing market downturn led to new regulatory scrutiny of servicing industry and practices. This was kind of after all of the consumer advocates got done focusing on abuse of lending products, the attention shifted to loan servicing as originations decreased. There was a perception by many that it's a relatively unregulated industry. I don't know where people get that perception. We're licensed and examined by virtually every state from examination perspective. And we also have federal regulators that in the past have enforced a number of federal laws relating to servicing practices. Another perception, and this is according to the CFPB, is that many servicers were ill-equipped to handle the high volume of delinquent loans and related foreclosures. And that played out in certain legislative and regulatory responses. On the federal side, as everyone knows, the Dodd-Frank Act from July of 2010, and there were aspects of that related to loan servicing in addition to creating the CFPB as the regulator and examiner for this type of business. The Dodd-Frank Act also amended the Federal Truth and Lending Act and there were 3 changes there and those related to providing notice to borrowers before a rate change on an account, providing periodic or billing statements, and also providing for prompt crediting of payments. With respect to the real estate settlement procedures after RESPA, that was amended to create some additional requirements and one was force-placed insurance would not be permitted nonetheless the servicer has a reasonable basis to believe that insurance does not exist in place. And then there were also some restrictions on charging fees for qualified written request, which are consumer requests for information or to resolve problems on accounts and creating an obligation to investigate and correct errors.
The other aspects were, with regard to providing identification of who the owner of a loan is, servicers under RESPA have 10 days to do that. And then also the amendments to RESPA provided that the CFPB could enact or create other obligations that would be carried out to protect consumers. So Dodd-Frank was enacted while the CFPB was getting up and running. And before these proposed regulations were promulgated, some other regulatory aspects or actions occurred. One was earlier this year in February when, what's called the National Settlement or Multi-State AG settlement and that was with 5 of the largest servicers where they agreed to do a number of things and we'll go into detail with those. I know Mark may speak about those as well. And then back in the spring of 2011, the federal banking authorities entered into consent orders with a number of banks, also relating to their servicing practices. In addition, the CFPB last year published a supervision and examination manual. And the important thing about that, from our perspective, are the 9 modules that relate to loan servicing.
On the state side, there were plenty of developments after the housing crisis. Not only were there increased regulatory examinations and investigations, but there were also new licensing requirements for servicers. And a number of states such as New York passed Mortgage Servicing legislation and also many states under the Federal Safe Act enacted new licensing requirements for loan originators. And you would say, "How does that impact servicing?" The reason is that under those state laws in order to engage in certain loss mitigation activities, particularly loan modifications, a licensed loan originator is needed to offer or negotiate the terms of the modification.
From 2008 forward, there just had been many new laws enacted or promulgated. And I've listed them with regard to offering loan modifications and other loss mitigation prohibitions on dual-track activities that would be engaging in loss mitigation at the same time of foreclosure where consumers may be confused what the status of their account is, are they being considered for loss mitigation? Is it in foreclosure? Are they going to foreclosure sale? Some restrictions on activities in that regard. SPOC is an acronym for Single Point Of Contact, you probably all heard a lot about it. A number of laws attempted to deal with the situation where consumers were confused about who they could contact at their servicer to get a problem resolved. And a Single Point of Contact was one of the answers to that.
In the area of foreclosure, many different laws relating to what needs to be done before a foreclosure is initiated, notice requirements -- required mediation, other aspects of what I would call delaying or allowing customers more time to resolve their financial difficulties. Everyone heard about robo-signing and affidavits and declarations and there were a number of laws passed relating to that as well.
I mentioned the default and foreclosure notices many states adopted. The federal -- on the federal side, there's the Servicemembers Civil Relief Act that provides for reduced interest rates for servicemembers and also places restrictions on initiating legal proceedings to collect on accounts while individuals are in the military and for a period of time after that. And many states, a number of states adopted their own version of laws to protect service members in their states, states-passed laws that restricted creditors' ability to collect deficiency balances on certain types of mortgage loans and this is also played out in courts and in case law. There were restrictions placed on time-barred debt, statured limitations, ability to collect those obligations.
Not only were the states involved, but municipalities got involved. With property preservation and registration laws, there are literally hundreds of those around the country. And you have to be cognizant of those and conform and comply with them as a servicer. And when you're disposing of REO property. The states created requirements relating to pay off statements, lien releases, timeliness of the lien release, correcting errors, some limitations on late fees, how they're charged, the amount that can be charged and then billing statement content and lastly, protections for tenants over who are in homes that were being subject to foreclosure.
So that's kind of the background. Now to bring you up to really what I see as the current environment, the CFPB, as I mentioned, proposed rules to amend Reg Z, which is the implementing regulation for truth in lending; and Reg X, which is implementing regulation for RESPA. These rules are not the only activity -- make sure I'm on the right page here -- are not the only activity that the CFPB is engaged in. From a rulemaking perspective, there are also origination-related rules that I'm not going to go into here, but are relating to integrating some of the requirements from truth in lending and RESPA, like good faith estimates, disclosures prior to the consummation of a credit transaction, some rules relating to high cost loans, HOPA loans, loan originator compensation, appraisals in connection with origination, consumer's ability to repay obligations, escrow requirements and last but not least, mortgage servicing.
In the mortgage servicing areas, there really are 9 major topics and not all of those were specified in Dodd-Frank. And the CFPB, after analyzing the marketplace, receiving input from the industry, from consumer advocates and others, added some additional requirements to those that I mentioned earlier that were specified in the Dodd-Frank Act. The 4 that were not specifically required by Dodd-Frank relate to incorporating elements from the national settlements that I mentioned. There were a number of aspects of those that the CFPB felt would be helpful to protect consumers and those relate to foreclosure and bankruptcy, loss mitigation, some restrictions on servicing fees and then forced placed insurance.
With regard to the Reg Z Amendments, the periodic billing statements, the changes to that, the timing, the form and the content of those statements, we have looked at that, have been adjusting our billing statements over the last 2 years and we are of the belief that if the rule is adopted as promulgated that it would not create an issue for us with regard to billing statements. Other changes were related to interest rate, change notices. So that before the first adjustment on an adjustable-rate loan, a servicer would be required to provide a written notice of that 210 to 240 days prior to the change. For subsequent changes, the notice would be 60 to 120 days before the change.
The -- another amendment to Reg Z relates to the prompt crediting of payments. It doesn't seem like it'd be very complicated. You apply the payment as of the day of receipt, which is typical for virtually every servicer in the industry that I'm aware of. But there are some issues when consumers pay less than the full amount. And what do you do with those partial payments? Put them in a suspense account, how are they handled, how are the consumers aware of that? So that's what the regulation relates to, and then also placing prohibitions on pyramiding of late fees and what that means is a late fee in 1 month can't generate a late fee in the following month if the customer makes the full P&I payment.
And then lastly, on the truth in lending side, payoff statements, basically, the requirement is an obligation to provide a payoff statement within 7 days of receipt of a written request. In the RESPA area, the Reg X amendments, number 1, RESPA was expanded to cover subordinate lien transactions, closed down [ph] subordinate lien transactions. And then with regard to forced placed insurance, there are very specific requirements. And basically, it comes down to the servicer can't obtain, actually it's to charge the borrower for forced placed insurance, unless the servicer has a reasonable basis to believe that the borrower has failed to maintain the hazard insurance. The next requirement in forced placed insurance is to provide notices to the customer that proof of insurance hasn't been received by the servicer. And there are then our requirement for 2 written notices with prescribed content before you can charge the customer for the coverage. First notice has to be at least 45 days before the charging of the premium or any fee, and then a reminder has to be sent at least 30 days after the first notice. The next requirement is the servicer must cancel the forced placed insurance within 15 days if the borrower provides proof of coverage and must refund that the premium for the period that the borrower's coverage was in place.
All of the charges related to forced placed insurance must be bona fide and reasonable. And the important aspect here is that bona fide and reasonable charge is defined as a charge for service actually performed by the servicer and it must bear reasonable relationship to the servicer's cost of providing the service. The aspect that I would like to point out to you is that this bona fide and reasonable charge requirement does not apply to insurance premiums and rates. So the regulation specifically says that charges that are subject to state regulation as the business of insurance as well as charges related to federal flood insurance are excluded from this requirement.
What does it mean for Green Tree? We do not charge fees related to lender-placed insurance. We have, as Keith pointed out, an insurance agency that earns a commission. It's a licensed agency. It's being paid a commission and that is under this exception that I referenced, the business of insurance. We're not involved in setting rates in any instance and those are set by the state regulators after the insurers submit approvals to them, a request for approved rates to them. One of the new requirements for many servicers will be providing prior notice before renewing or replacing lender-placed insurance, the CFPB, as it examined the marketplace, concluded that while there were notices being provided upfront before the first placement, a number of servicers were not providing notices prior to renewal, so that requirement has been put in place. And then on loans where there's an escrow account, the servicer must make payments for the hazard insurance from the escrow instead of force placing even if insufficient escrow funds exist. And again, this is not a change for our practices at Green Tree. This is what we do.
What I would tell you with regard to lender placed insurance is that these requirements are some -- are such that we don't anticipate any problems implementing them. Any issues, we've provided notices beyond what the CFPB is requiring. There are some model notice forms to send to consumers before lender placed insurance. We've been doing this for more than a decade with the types of disclosures that are now required to the consumer about the cost of the coverage, earning a commission that the insurance may not cover liability or contents coverage. All those things have already been in our notices for a long period of time.
The other areas that were amended relating to RESPA under the proposed rules relate to error resolution and information requests. And the types of errors that are really focused here are misapplied payments, improper fees and things like that. And then there are some procedures established for the servicer such as acknowledging the receipt of the request for correction or a notice of the error, if acknowledged back within 5 days. And then correct, the error respond to the customers concerned within 30 to 45 days. The interesting aspect of that from my perspective is that this information, error resolution information, request does not require the servicer to delay a foreclosure, unless the error relates to something specific to the foreclosure process.
The information management policies and procedures, rules relate to primarily record retention and employee access. The concern is that a number of employees or many employees of servicers don't have ready access to customer loan information and this is to really change that. The CFPB realizes that there's some reasonableness involved here and the reasonableness of what's going to be required would depend upon the size and the nature of the servicers' operations.
And then the next requirement relates to the continuity of contact with delinquent borrowers and I would call this kind of your spotlight, if you will. It's not a single point of contact. It can be multiple individuals. And those -- the continuity of contact, the employees have to be dedicated or assigned within 5 days after the early intervention notice. And I guess I skipped over the early intervention notice, so I want to go back to that for a second. Basically, that's just to -- it requires servicers to engage in a good faith effort to notify borrowers of what loss mitigation options they may have. And the notice can be verbal within -- when the loan is 30 days late, and at 45 days delinquent or late, a written notice is required. And again, there's a model form that's been provided by the CFPB for that. So when I get back to the continuity of contact, the designation of the personnel are within 5 days of the -- after sending the early intervention notice. So again, these are some changes that are specific.
We, as an organization, pride ourselves on the ability to reach out and contact consumers. I don't expect that this will be a change, although we definitely will make adjustments where appropriate. These rules are out for comment right now. The comment period expires next month, on October 9. Final rules are expected early next year in January. And the takeaway for you is if the rules are adopted as currently proposed, Green Tree and Walter do not anticipate any material hurdles to implementation.
So that's what's happened currently on the federal side. On the state and the local side, there's a continued enactment of new loan servicing laws at a heightened pace. More than 30 states have passed over 48 laws so far this year. So that leads to the question, I would think, how do you guys stay abreast of all these changes? And the next slide describes that, that we have a rapidly evolving regulatory environment. We need to identify, analyze and implement these new requirements and restrictions.
The way we do that is by utilizing resources that we've used for many years that are broad-ranging in scope to become aware of law changes. We review and analyze the new laws in-house and consult with outside regulatory counsel for certain questions to get advice and guidance. We create charts that compare each new requirement or restriction to our existing practice. So to give you an idea, and I'm just kind of a visual prompt here, but for the CFPB regulation, and this is our chart that we've prepared where we've gone through each of them, and then what are the requirements and what is our existing practice? Is it consistent or not? And if it's not, what do we need to do to come into a consistent position?
We do that with a lot of changes. We also do it with regulatory actions that may be brought throughout the industry against competitors. It's a way for us to analyze what's happening and how we can promptly and accurately come into compliance. How do we do that? We hold regularly scheduled meetings with senior management at least monthly where we review law changes and go through implementation to make sure that we remain on track. Next, we prepare policies and procedures, forms and employee alerts, and all of those are reviewed by the compliance department before they're implemented. The organization conducts employee training, when appropriate, on law changes, and then we perform post-implementation audits and quality control.
And that leads me to the conclusion because the next speaker, Mark Atencio, will talk about business controls and client management, and that's really where he steps into the process after we make adjustments to our business practices. Thank you.
Thank you, Brian. I bet a lot of you are now ready to get into the servicing business after seeing all that. There is a lot of change that is continuing across the industry. And what's really interesting about Green Tree and how we implement that change is that over the years, we have continued to interact with our peers across the industry. And as you saw in talking and hearing from Brian and hearing from Keith, we haven't had to make a lot of changes over the course of these regulatory improvements. Green Tree is a very attuned to what is -- to do the right thing within the business. We're very competitive and we are very passionate about our business. We're also very conservative in many ways about -- from a regulatory standpoint, and doing the right thing for the borrower and meeting certain things. Today, I will talk to you about how is it, through all these different changes or all the scrutiny that is happening in this industry, they are keeping our employees focused and doing what is necessary across all of these regulatory changes. And as we said, these regulatory changes have been out there and continuing over the years.
So first we're going to cover off on the business controls side. And on the business controls side, I wanted to be able to share with you that as we have -- continues to interact with our peers in the industry, we stay attuned to all of these things and how we implement of those, but we haven't had to make a lot of changes. One of the things that we haven't made a lot of changes to are our 5-point, prong-ish approach to our control process. And that includes our legal compliance group, which Brian heads over; our internal audit, which reports into our Board of Directors; our quality control, which reports into me; our call monitoring reports into to me; and our policy procedure, which also report into me.
We're going to cover that in a little bit more detail. But all of these controls are there to mitigate the regulatory, the litigation, the reputational and financial risks, not just for ourselves, but also for our clients. Our clients have as much scrutiny into Green Tree as well as all of these other different state and regulatory agents. And we'll hear a little bit about that when I talk about our client management side.
In addition, as we go through all of this scrutiny, we get reviewed by our rating agencies and our other investors and our Fannie Mae Groups. Green Tree, across the board, is committed to meeting all of these control efforts. We're consistent in what we do and what we deliver. As indicated, we have a number of different audits that we continue in place and we'll go through a number of those different audit areas. But more importantly, what happens also is that we have a number of different outside entities that also review and audit Green Tree. We've named a few of them there and all of those have a continual emphasis on how we then place our policy procedures in effect.
These 4 areas, and I'll start on the left-hand side and go counterclockwise. Starting with the left-hand side, which is our legal team. This is headed up by a best-in-class licensing group, with an AVP of over 20 years of experience. Their strong regulatory compliance in these areas and where they practice, interacting with all different legal means across the board and that includes implementing new procedures for tracking and looking at each and every law that's out there, from a state level, from a federal level, across the board, so that we are meeting exactly what is necessary out there. From a compliance standpoint, which also reports up to Brian Corey, we lead that with a Vice President with 7 full-time employees and they have independent collector call monitoring. They provide over 200 scheduled audits on a continual basis for Green Tree.
Now these audits compliment the next picture here that we have, which is on the right-hand side, our quality control. Our quality control is our dedicated personnel that are there to review all of the processes and procedures that Green Tree does to meet all of the necessary requirements out there, all the way from loss mitigation, foreclosure, collections, REO and all of these different audits are also geared down to our client level. Each one of our clients may have specific protocols, which we'll talk about in the client management side. But as these prime protocols have to be put in place, you wonder how can each one of these employees manage down to that specific level. And we'll talk a little bit about the policy procedures, but these audits that go through that process review each and everything that the employee does to make sure that we're meeting those objectives.
We've also had HAMP. We're a HAMP servicer. And with that, we also put specific audits in place, so that we are meeting each and everything that Treasury puts out there. We also manage over our Reg AB rating and testing process, so that we're meeting all of the securitization needs. And within this audit team, we have over 700 scheduled audits in place per year and listen to and evaluate over 100,000 quality monitoring calls between compliance and the quality monitoring group who interact and work with each other to make sure that they are meeting exactly what is necessary. And we look to see what it is that as you listen through these calls -- if they're consistent across the board.
On top of that is the internal audits. Internal audit is reports up into the Board of Directors and they set up their scheduled audit plan through -- in conjunction with the entire management team and the Board of Directors, which direct those audits in place. They expand to post-conversion and follow-up audits after we put a conversion in place to make sure that all the things that were necessary in that conversion occurred and they focus in the high risk conversion elements. They have in place over 40 scheduled audits that happen throughout the year.
Let's focus a little bit about our policy procedures. And this is -- how do we implement a policy and procedure? What are the controls in place that we do to make sure as something new comes up, whether it be a new regulatory change or a client protocol that now the client wants us to do something different on their specific assets? This timeline, which shows from left to right, shows the detail of the involvement of every aspect of our organization to make sure that, that is in place at the right time.
On the left-hand side, and we won't spent a lot of time on this other than to say that, from the start, you could have changes that come through from a compliance standpoint, our business units can bring up an issue that may need to change to make sure that they can be focused in certain areas, they can come from sort of regulatory environment or even from a client who may want to change something in place. Once that occurs, then the process starts. The process is to work with the request or an area that then has to fine tune, and we work with subject matter experts through the process. Through this process, the different areas inside the business review these policy and procedures to make sure they are meeting exactly what that employee who is going to review that policy procedure can then enact it. All the way through, all the way down into the final publication follow to the right side, we have a number of different policy procedures that are published. So far this year, we're estimating about 5,000 policy procedures.
Now how does that coincide with what we've indicated earlier about that there's not a lot of changes necessary at Green Tree? Well, what happens is that within those policy procedures, you may have to fine tune the scrutiny that's out there right now in the industry, that the amount of detail that you write within your policy procedures and shows the handoffs in each specific area. That's where a lot of these come in, in addition to all the different forms and letters. That's what's also included in this 5,000. So that's an 88% increase over from 2011.
How do we get that to our employees? It's through electronic purposes, through electronic means. We have a, through our Lotus Notes database, our employees are able to access each and every one of our policy procedures online. They can see it, they can pull it up, they can search for specific words, they can go through each one of their specific areas. So our loss mitigators who are managing their process can go through each of their policy procedure. If they have a question about their client, we have specific client protocols that are geared exactly towards what that client requires for that, managing that portfolio.
I want to talk a little bit now about our client management. And this is really important as Patty will talk to you a little bit later about as we bring on our clients. But our clients, as I indicated, has -- have as much scrutiny into our organization as anybody else. And that's because they are in our shop probably daily, weekly and monthly reviewing our performance, reviewing our governance and our compliance because they're being managed and audited by other entities, whether it be the OCC, the FRB or now even the CFPB. And so our client management group is setup just like what we do in other areas of our business as Brian talked about, our single point of contact. We have created a single point of contact within Green Tree that will provide our clients a single source, an area for them to be able to go to and to be able to interact with different levels of our company. And what that means is that there's a lot of things that the client has to interact with, whether it be in understanding what's happening in collections or loss mitigation, but also in investor reporting side or compliance or review specific account level information.
Client management was formed so that the client has a single area where they can interact with Green Tree and provide them access into different areas such as business development and/or through the process of loan boarding. When you are boarding loans, its important to be able to have interaction at various different levels, but we need to be able to manage also down to the detail so that they can move those conversions through timelessly.
Also into operations, one of the things of that they are keen on is reviewing accounts at the low-level detail. And we provide our clients with access to review all of those accounts through a client portal so they can review the comments on an account, the payment history and what is happening and how we are reacting to that borrower. We also then, on a monthly basis, review all of the performance. And the performance debt reviews how we perform from a collection standpoint, loss mitigation, foreclosure, managing the assets if it brings it into REO. All of that detail is reviewed and interacted with the client on an ongoing basis. We provide then monthly reports and then weekly meetings on any other different types of open issues that may be out there that we may be interacting with them, maybe a change in protocols. We have a different adhoc reporting. We're available for them to create new and different things because as they continue to go through a process with their own governance body, they may be changes. And with that, we are there to help them and to create a strong, consistent communication.
These are the few different areas that we involve ourselves with via client. Starting on the left-hand side, we talked a little bit about governance, and that is our monthly audit capability. And what that means is that our clients audit us and we audit ourselves also. So on a monthly basis, we're reviewing audits that they perform and then audits that we perform on ourselves with them to look at that consistency in terms of the result. That includes the OCC compliance, which Brian indicated earlier. And as we work through those different levels of areas, we will make sure that we are meeting specific -- a criteria that they are also being governed by. From a performance level, we have to talk about each and every strategy that they want to put in place. Or that we, as the experts in the -- as a specialty servicer, provide to them that, that strategy and then follow-up from how that performance is happening. From a call management standpoint, they also like to listen to our calls. And so they come into our shop and they listen to our calls in addition to seeing the audits that we perform and then scrutinize those level of detail down to the call level when a collector, loss mitigator, bankruptcy specialist is on the phone.
Surveillance is key right now. It has increased 20 fold. I would say that it is much more than what has been in the past 2 or 3 years and it is continuing to increase. The level of scrutiny is down to the low-level detail and some clients require delegated authority to them. We also have delegated authority ourselves, which we also will audit too to make sure that we are meeting specific client needs. There are multiple surveillance teams. The clients also interact with us with their personnel, but they also hire out personnel to bring in people to look to see how Green Tree is performing. They also perform shadow servicing, which means that they take our information, our data and then load it into their systems to see how things are working. Then it has to be used on an ongoing basis for their own accounting purposes. That level of information passes through the investor reporting and the client management group interacts with the client to make sure that those reporting needs are being met.
From a customer satisfaction standpoint, they interact with various levels depending on that clients. There maybe issues that they have in terms of selling loans. We've had got clients that will sell loans out of the portfolio. And so we help them with that -- in transitioning those loans out to that new buyer, doesn't happen very often, especially in today's environment.
But also from a training and protocol standpoint -- from a training perspective, some of our clients will enact different things that are required at Green Tree, that they see some emphasis on. And we will enact those and put those in place. It may be a special program, as Brian indicated, from a DOJ perspective. We are working with clients that are inside of that DOJ's agreement and so we have to put in these specific programs so that they are meeting those specific needs. As indicated, we have a portal for our clients to interact with and so we continually work with them to make sure that they are gaining the information that they have.
This page shows you just a snapshot of what an agenda looks like in with one of our clients. We will spend some time reviewing performance down to the level of detail of an individual portfolio. And what that means is that a client may have a number of different transactions that they place with Green Tree. Those may be different asset types, they may have been placed with Green Tree at different times, they may have been different types of delinquency and we will review each and every detail across every one of those portfolios that we started managing. And that interaction includes the performance, the quality and the outcomes and then what new strategies we may want to put in place.
Let me talk to you a little bit about servicing ratings, because I can come up and talk to you a little bit about what our controls are in place, as well as Brian, from a regulatory standpoint. But it really means much more from the external view. What does the external view look like? From a rating agency perspective, we are at above average and have continued to increase and improve our ratings. We are rated with 3 different rating indices: Fitch, Moody's and Standard & Poor's. And reading from a few of these, as you can see in your handouts and that's on the screen, Moody's themselves or Fitch or S&P have different comments.
As you could see, in the Fitch, they talk about our single point of contact. Our single point of contact has been in place for years. And so this was something easy for them to write about our accountability method that is there, that's the full ownership.
In May, Moody's recognized that our timeline management around foreclosure and REO was upgraded to strong from above average. The company improved liquidation timeline results despite deteriorating market conditions and a growing inventory. That was completely different than what is happening in the rest of the industry. But that was actually decreasing their timeframes and that was because of the method in the policies and procedures and the way that we have our decentralized method in bringing that foreclosure through fruition and then selling that asset.
In December, Standard & Poor's also affirmed the rankings, which reflected this experienced management team, competitive servicing and metrics and well-designed internal controls. If you were to look over the years from the rating agency reports, you'll see that on a continued basis because Green Tree has continued to have these controls in place over the years. These aren't things that we've had to put in place recently based upon different laws or regulatory changes, they are things that have been there for years.
So with that, I think that we are on a break. Whitney?
Whitney K. Finch
Take like a 15-minute break and then we'll come back. You have a chance to go make your calls or whatever you need to do. And we'll reconvene this afternoon or spend 15 minutes with servicing.
Whitney K. Finch
All right, everybody, if you would kind of wrap up and take your seats, I think we're going to reconvene now with Tom Franco, who is our Executive Vice President of Servicing. Tom?
Thank you, Whitney. So to start with, I'm going to walk you through the servicing organization and then I'm going transition into what Keith referred to as our ARM business, which is the Asset Receivable Management company that we have. So earlier, Keith mentioned the regional branch structure or the unique structure of Green Tree where we have a combination of both centralized, large operations, as well as our decentralized locations. Earlier with Mark and Brian talking about business controls, as well as all of the regulatory changes, it's been very imperative that our command and control environment for this -- or decentralized structure also improved and was intact.
Randy Shannon who's sitting at the back is SVP of Operations. Randy has essentially the back end, or all the collections workforce, as well foreclosure bankruptcy. And then we also do our manufactured housing, REO work out of our regional branch structure. So Randy has a team within his organization that we call asset management that has the responsibility for the branch processes and working with the regional managers that run those sites and ensuring that, that command and control environment is very strong. And in addition to that responsibility, are certainly coordinating with business control functions to ensure the level of quality and consistency from operation to operation is maintained at the highest levels.
One of the things that we do spend a fair amount of time with our clients base on is the structure. Many of our clients are financial institutions, banks with reputation risk issues and concerns. They're very concerned about the customer experience. So we are very pretty much in tune with their needs, their protocols, as well as some of the control requirements that they may place forward on us in our agreements.
Further, if you look at the structure, we have also field offices where we do either inspections of properties. We actually do new contact visits with our staff at our decentralized locations. So we're embedded in a lot of these communities for a variety reasons. We've got a big, large contingent of manufactured housing loans that we're servicing, roughly 300,000 plus. It's a very rural product by its nature, albeit there are a lot of park communities and very big urban environments. For example here in Phoenix, this is a large park community environment where you will go down the street and you'll pass one park after another. So we do have those resources that can go out and do the inspections ourselves. It's a very unique product. We don't find that it's a product that can be outsourced to asset management companies. They -- typically, skill sets are more in the site built -- stick-built environment. So we leverage those resources in decentralized locations, vis-à-vis that process.
In addition, it has also been very helpful for us, as Keith mentioned, when we do large blocks of transfers rather than go out and hire -- in a recent transaction that we're boarding this week, 38 new people in 1 location. We can disperse the hiring risk. And as a result of that, the training curve, the management oversight through that process of conversion, typically is -- really, less than a ripple from an organizational standpoint. We usually digest those transactions fairly quickly. And I think within the past 3 years, we've only had 1 transfer that we did where the delinquency actually went up during the month of the transfer. And that was a very unique situation where we had some data tape issues. But otherwise, one of the things that we're known for is doing these large transfers where we stabilize the performance in the month that, that comes over and then subsequently, we see steady reductions in terms of the delinquency and performance and get those pools under control.
Next page. So customer service. I'll spend a little bit of time on the customer service piece. We're servicing approximately 1 million loans today, $82 billion in assets. And as I mentioned before, we have very large blocks of different types of products, MH, a little over 300,000. We have similar numbers in terms of second liens. So I'm going to go into the second lien bulk of the business, particularly, in the ARM side. And then we have a large contingent of first liens, mostly GSEs, but we do have other third-party first lien products from non-GSE entities.
These are fairly standard metrics that we apply. During this time of the year, these usually are achieved with very little effort. It's usually where we're capping these upper levels from a standard standpoint, or SLA standpoint, are doing big conversions where we'll be doing welcome calls and we'll get a high influx of call volume. But generally speaking, these standards are achievable month-after-month, unless we're doing a large block of transfers.
In 1-29 day delinquency area. This group, predominantly, is kind of what I'll call the first line of defense. We have a lot of casual delinquent customers that miss their first payment that will flow into this 1 to 29-day category. We do a lot of modeling effort. We have our own modeling team on site that are taking the behavioral data, we're refreshing in credit bureau attributes. I think we get approximately 300 attributes in the refresh, including the FICO scores. FICO score isn't really a determining factor in our model development. It's just not as strong a predictor. But our team is constantly developing these models or validating these models. And we'll do this in a client a level, if we have enough scale, we'll do it down to a client and d it down to a product level because there may be a client A versus client B that may have originated to different standards or have a different tenured portfolio. One may have been originated through a retail channel versus a broker channel. So there could be some uniquenesses at of client-by-client level, but by and large, we're doing much of this at the product level.
And we are constantly tweaking the strategies. Generally, it's a low-risk account, which may be an account with a very good behavioral score. It also has low dollars at risk. We may not get their first call or contact until 20 days out. Conversely, there may be a loan that has a large balance, high behavioral risk that we may be calling at Day 3. So we will certainly manage this process on a dollars at risk at a client level. But we'll also take into consideration that we want to optimize staff. We're not destroying tons of resources, going after customers that will self-cure to this processor. Many of them kind of use of that late fee, days past due counter as really a trigger for them to make the payment. So they'll go up to that 15 days past due, and month-after-month, they'll continue to make that payment. So it's very low collection effort that may be put forth behind those loans. But we are constantly, as I said, tweaking this. We have Champion/Challenger meetings every month, reviewing results. At this point where we're probably 6 generation in terms of our behavioral models. These types of changes are very subtle. We're not making a lot of extensive changes month-after-month at a portfolio or at a client level. They're really subtle changes where we may move up the number of days that we start our first contact with the borrower. We may supplement it with a collection letter just to see whether we can get some type of movement and lever on a particular sell that we've put a strategy code behind.
The grading, again, it's certainly to maximize results. And again, we're trying to optimize our expense loads as well. The back end, this is really where the rubber meets the road for us. Many of our bretheren in the industry had to migrate to this. What you've heard in many publications, the SPOC concept. For us, it was really ingrained in us for many, many years as part of our culture. Our SPOC process is a little bit more unique. You'll go to a Bank A versus Bank B, and even there's just going to be some differences between what they may have in place. But the basics of it really are that when we board accounts to our system, they go into a queue, and there's an individual that owns that relationship for the life of the loan. Now, and in many respects, if that customer's paying, they never talk to that individual. But when that loan does migrate into the delinquency area, or it could be a current customer that's going to be an imminent default, we could accelerate that to that owner that we -- when we boarded the loan. So that individual is going to really shepherd that relationship all the way through the lifecycle. A customer may file bankruptcy, and we certainly would isolate those loans into our bankruptcy group. So a bankruptcy rep is working through the attorney. But that loan is still embedded in that SPOC's queue. And as part of the results, part of their numbers, we really don't want them to be on the phone with the customer, and encourage them to file bankruptcy just to get them out of their queue, and we don't allow it. Same thing with foreclosure. If we do pursue foreclosure, that individual account will stay with that SPOC. Again, we don't allow them to, kind of, push out a troubled loan into someone else's backyard. And to the extent we do have a loss mitigation opportunity that we're pursuing with that customer they, again, will retain that relationship. And if for some reason, that loss mitigation rep is having problems, via communication or getting documentation, that SPOC is incented to ensure that they get closure. Whether that means getting on the phone, establishing, re-establishing contact, making sure that, that ball is kind of moving down the path that it should be.
So they're all fully responsible and accountable for that relationship, and up into the point where we decide that it's a second lien loan, where we charged it off at 180 days past due, or if it's first lien where we pursue foreclosure, then throughout the foreclosure process. And there may be situations in the foreclosure process where we're doing dual path. Depending on the client's protocols, we may be doing dual path, which is the foreclosure processes end, kind of, the stages that it needs to be in with one of our various attorneys, but we may be also working through a short sale. And sometimes, you don't want to pull the ripcord on stopping the foreclosure because that short sale may not be something that can close. The problem with short sales in today's market is really the customers that have, not only the first lien but have second liens. Sometimes, the second lien lenders or servicers don't really cooperate through that closing process, or they're being more demanding in terms of what funds they want to have distributed to them as well. So those are all part of the negotiating process that could fall apart at any stage of that deal.
In terms of goals, as I mentioned before, dollars at risk, many of our agreements over the last 3 to 4 years have largely been incentive-based agreements with our client base. Really, to align our interests with theirs. So in many respects, we think like an asset-owner, even though we may not have the actual credit risk of the loan. And we've always approached our business like that, and largely because of our roots where we were, at one point, originators and also had the credit risk. So as we look to align our strategies and align our interests, the biggest piece is -- that you'll see is not things like SLAs on promise to pays and then your typical key performance statistics. They really are going to be, how are we performing on the portfolio relative to delinquency and losses. If you're a loan balance sheet asset owner like a bank, they are very interested certainly in default but they are also interested in delinquency because that's going to then produce provision expense depending on what the level of delinquency is. So it is certainly an added credit cost that they are mindful of. So we drive at the lowest common denominator at the individual SPOC, 30s, 60s and 90 days, so they have their own portfolios. They have a -- we don't co-mingle Client A with Client B into their portfolios. We create homogeneous queues for them, so that they're working Client A, but they may be Client A second lien product, or client A first lien products. We're not co-mingling types of products, or the different clients within those groups. That allows us, really, to create these homogeneous queues that we can then measure, pit each other against, because it's a performance-based incentive structure that we're applying. And within that, they have to also operate under a set of protocols. Each client may have different protocols in terms of what loss mit they offer, what thresholds that they will approve. It could be, what's delegated to Green Tree versus what they may want us to actually go back to them and get approval for. So we're doing those at the client level. So it's a very specific set of rules that we have to operate at a client-by-client basis. And then, potentially, at a product level.
Generally, on the second liens, we have a little bit more what I'll call, beam, to operate albeit certain clients are, or previously were, until the 2MP program came about. We're a little bit more requiring in terms of a what their thresholds were. And we saw it in this particular case and we walked them through a kind of data. We have -- the benefit of having multiple clients is you have different experiences that you can share -- not necessarily the client's name, but you can share, kind of, aggregate data with, this is the way we do it for this set of clients and these are the kind of results that we think we can make tweaks to your program or your policies and achieve those same things. And the short sales would be what I call a very classic example where we had one institution that had higher threshold levels for what they wanted to get. They had a process that really kind of added 2 to 3 weeks, to the short sale transaction. So the close rates were about half of where we were running for our larger constituents of clients. And while the recovery dollars, on a per loan basis, were less when you're closing twice as many, you're making up certainly on the volume side, not necessarily on the unit itself, but you were making, I think, we were increasing our close volume by almost 50%, 45% to 50%, so it was really that process change improved, really, the throughput and the pull through on that on the short-sells.
In terms of some of the things that Randy, for example, manages on a day-to-day basis. He's looking at rollbacks. How successful are we, taking a loan that's in the 60-day bucket and rolling it back to the 30? You're not always going to be able to get all the arrears from the customer, but we focus, really, on stepping back that arrears and it could take the form of 3 to 4 months to do that. But we are really known as a cash collections shop. Now we have all the loss mit programs, and I'll get into that in a minute, that you could think of -- but our core principle values is, really, core cash collections. And then if we have to, then, leverage loss mitigation activity, we will do that. And then, within those different clients, they obviously have different waterfalls, and I'll get in a little bit in -- at that in a minute.
NSF reports, one of the things that we do from a variable comp standpoint is we look at NSF activity the last couple of days of the month because we don't want our SPOC reps to be gaming in the system and taking a bad payment the last couple of days of the month, make their delinquency objective and then have that come back in 10 days as an NSF. So it they just game the system to get their variable comp commission, yet we really didn't improve the delinquency to the extent that we did. And we probably had 2 or 3 reps a month that will exceed the threshold, and we'll have to adjust the variable comp. And if there are repeat offenders, they're not going to be with the organization very long. So we want to make sure that we are taking valid payments, and we're getting those in. But it is something that we keep an eye on, that we're not just closing out month-end numbers that are not legitimate. We want to make sure we're achieving the objectives that we've set out for our folks.
Within the organization, particularly with SPOC reps that have that level of accountability down to the account level, you really have it in daily performance reviews. So the whole goal-setting process for us, I think, is very unique. You can emulate, I think, that the design of what we've got. But I think where we set ourselves apart is in the goal setting, and in the goal management process. Certainly, Randy can tell you story after story about where we've had reps that were achieving fairly good results month after month. They blew up their queue. The rep was a little bit bitter because we reset their goal back to where it was. We didn't allow the goal to then be raised, because they blew up a queue. Because they're accountable for it, they're responsible for it. So if you're not going to manage that way, then you're going to allow for mediocre results. You're going to allow your delinquencies to go up, and frankly, that becomes cancerous for the organization and that's just not the way we're going to manage our portfolios and the performance. Hopefully -- we wouldn't be achieving the kinds of success that we've had in terms of our incentive fee income that we're seeing today.
Loss mit. So while we have lots of analytic tools and data that we churn through every month, at the end of the day, it’s still about that conversation with the borrower. And the unique thing, again, with our SPOC relationship with the consumer, they're not having to tell their story, call after call to someone new. This person is engaged with them month after month, through that whole process. If we're missing documentation, and I haven't explained to Mary or Tim or some new person over here that they just sent it in, they sent it to this fax number, et cetera, et cetera. So it, to me, helps speed this process along in terms of resolving the loss mit. But hopefully, it's about engaging that conversation with the customer. Because it doesn't matter, all these data and risk factors that we look at, are certainly important to make the final decision. But you've got to get a motivated consumer. And that's really what our SPOC representatives do. It's clearly a very important aspect that we understand property values. We understand their ability to pay future payments. Are they back employed? Is it a reduced kind of wage? Those are all important things, but ultimately, it still goes back to engaging the consumer.
This is just a few, and I say a few, of the loss mit programs that we are utilizing at various stages. So at a 30-day level, for example, we have a lot of casual delinquents. People that have the ability to make future payments but they can't get caught up on arrears. And we'll use deferments. And typically, the deferment program is really a very streamlined process. It's -- you've paid twice in the last 90 days, your standard payment, but you're not going to be able to do that 1 1/4 quarter payment. When we look at our MH portfolio, as an example, they're usually, I'd say, 95% of the loss mit that we do for that portfolio. It's usually just a deferment. We don't have to go in and modify term. We'd have to go in and modify the rate. Very rarely do we have to do those types of more radical changes to that population. Now that population is closing out 30-plus delinquency at about 3%, all right? They've got a FICO score -- refresh FICO score of like 615. So they're in that sub-prime category, but if you look at the inflow, about 40% of those customers that came up on their billing cycle, went into the 1 and 29 day bucket, so they missed a billing day. So there's a lot maintenance that we have to do in that the 1 to 29-day, in that 30-day cycle. So all these customers are going to be low to moderate income, and they're going to be more cash-poor. So it's going to require no different than the Walter portfolio that we're converting at this point. So you have much more of a customer base that don't have the kinds of means that we see in the site-built product level. So it's clearly something, we have to take those things into consideration -- those differences in consideration. We probably have had up to upwards of 50 different loss mit programs and we have different waterfalls, depending on those clients. So Client A may not have signed up for HAMP, or don't want us to use HAMP, so they had their proprietary loss mit programs that we're using, which could entail very similar types of things that some of the government programs -- be it HAFA, where you may be doing a principal reduction on a -- or you take a short payoff, and if it's part of our investor pools where they have a cost basis on the loan of $0.55, $0.60 on the dollar, a $0.75 payoff on the dollar, is very attractive, on a yield basis.
So those are different things that we are able to customize for our client base and build those different waterfalls at a portfolio-by-portfolio level.
Foreclosure -- Brian, mentioned earlier about the robo-signing issues a couple of years ago. Green Tree's organizational structure really wasn't set up in a similar fashion to a lot of the big shops that are out there. We embed our foreclosure specialist with our collection teams so they're not centralized in some location in the Philippines or some other remote location outside of the operations. They actually work hand-in-hand with our collection teams, so they're working with the supervisors, they're very familiar with the file content. We have -- we do have central command and control over that. We have have a centralized leadership in terms of managing the relationships with each of those different sites, in each of those managers in those different sites. So we do have alignment on a national basis in terms of expectations in what we do. As well as, as Mark mentioned before, we have separate processes related to our audit controls and this is clearly one of the areas that we've stepped up and increased more audit, as a result of some of our clients requests that signed up for some of the DOJ or some of the OCC consent orders. So there has been, definitely, some additional prerequisite requirements that we've had to put in place in addition to what we've already had in place. But as the -- all the mediations came in. All of our clients came in to review our foreclosure processes, and walked away because they're concerned where -- whether they had reputational risk or a counterparty risk with us. They wanted to ensure that we didn't have defects within our foreclosure process. And we pretty much passed with flying colors during all those reviews.
Bankruptcy. The bankruptcy organization is centralized up in our Rapid City, South Dakota operation. It is tied together with the Lexis Nexis feed where we are getting bankruptcy updates on a 24 to 48-hour basis. So -- which really eliminates having to wait for the paper file and the paper transaction and potentially, as we had when I first joined the organization, we didn't have this connectivity with the state violations because the notice may have been sent to one of our regional offices and it wasn't coded into our system properly. You really have to spend a lot of time over the past decade building a very robust system. It's a part of our UCSe, it's our technology. We have a homegrown core master system, which is what I can consider a legacy type of system, but on top of that, it's a dot net technology called UCS, which is more of a point-and-click, kind of, what you do at home where you're at home with your typical Apple or your Mac or your Microsoft, with point-click, drop-down boxes, a lot of easy tools to fill in data that you don't see in some of these old green bar systems. So it's a very useful tool. It's in part, one of the reasons why we can run our APEs at almost 900 per FTE.
And this group has also managed in all of the payment plans. We are able to segregate pre- and post-petition. A lot of the systems that are out there today don't have that feature and capability. It's one of the more bigger regulatory issues that are out there. So as we -- as Brian mentioned before, we're state-regulated. We have a lot of the state examiners, and they come in and look at this as one of the first things that they'll look at to make sure that we're properly segregating the pre- and post-petition for these consumers.
And then REO. We are a company that uses asset management companies versus a broker-direct shop. So there's really 2 forms of REO management. It really allows us to scale up and keep our expense base relatively small. With a broker-direct channel, you really -- you're talking about much more broader infrastructure needs. And it's a little bit more challenging to flex up and down. So much of our REO volume that we do today is probably preservation. It's not the full REO marketing piece of it. And that's mainly because of Fannie Mae. I mean, Fannie Mae typically likes to pull the REO marketing piece out of their servicers and place it with a select group of companies that weren't part of the original servicing transaction but they're handling the disposition of assets. But Green Tree is still responsible for the property preservation piece of that -- taxes, making sure the properties are maintained, et cetera. What I would tell you, we have seen relative to the REO process and the disposition process is this -- these dates of 140 to 160 days from a disposition standpoint, are probably up a good 30 days to 40 days from where they where a couple of years ago. Now we have seen some improvement because inventory is moving depending on the market that you're in, so the -- definitely on the lower end or below the average, which is really kind of where Fannie is anyway, those properties are starting to move with a better level of pace than what we've seen in the prior 6 months. It is, as I said, it is kind of bifurcated for us into REOs that we've managed the whole complete process versus what we're doing, kind of, pre-marketing stage, and property preservation to support our client base. The one thing that I failed to mention, both here, in the REO, as well as in the foreclosure piece, the Fannie book of business is a big part of our product that we service. And one of the things that we have to ensure that we're hitting is the FLAs for that client. Because what they've done and been enforcing, really, over the last couple of years is compensatory fines. And a lot of the compensatory fines that we've incurred at Green Tree are very de minimis. I think it's, I've probably have written checks less than 5 digits in total. So we're making sure that we're on top of our controls relative to hitting the foreclosure timelines that they set at a state level. As well as, there's a process when a loan does become an REO, that we're getting REO grams out. Otherwise, if you've got a weak processes relative to those 2 individual areas, you'll potentially be paying out millions of dollars in compensatory fines. And we are not that type of shop that we're going to have those kinds of fines and fees that we're paying out to our client on the back end.
So I think that concludes the servicing piece.
And let me step into the Asset Receivables business. So I'm going to give you a little bit of a trip down memory lane here for Green Tree and its predecessor. Up until 2002, when we were part of a different organization, we had a full gamut of recovery business -- a deficiency recovery bad debt business, which included all of our products. We had credit cards. We had unsecured, as well as secured product array. And then we sold that business in late 2002 to, I believe, it was Cavalier. So as we kind of emerged from that organization, we were brought forward with one of the private equity companies. We began to see kind of that emerging need that we were charging off loans, yet we were not tapping the remaining life potential of those assets. So we had mothballed a system called RMS. It had much of the same infrastructure, and policies and procedures in place, and we dusted all that off in '06 and restarted that business. After a couple of years, we were seeing steady improvements and we were adding new assets vis-à-vis some third-party servicing that were kind of expanding our, what I'll call, our niche from the MH recovery, and a part of our own -- some of our own legacy home equity seconds and some first to new clients, new kind of blood, so to speak, that we're running through the veins. And we really kept ramping that business up, we're going from 20 FTE, to 40 FTE to 50 FTE and so forth. And in 2010, we made the decision to really pull that group out of one of our existing managers that also had other responsibilities. He had REO and loss mit and then we had, also, this ARM business that was reporting into that individual. And we brought in a standalone executive, someone I've worked with in a prior life, and that individual was really charged with, kind of, taking it to the next level, reviewing the infrastructure that we had in place and how do we support, not only the volume that was falling over organically out of our core servicing business, but then how do we take advantage of some of the other broader opportunities that are out there. And while we proceeded down the path of installing a new system called Latitudes, which is more of a bad debt industry standard tool out there. What we found, as we had installed Latitudes, is we really needed to not just establish that the technology for our core organic business, but we needed a little bit different composition of how that system would operate with third-party business, where you had a different model where we had a client that just wanted to board loans for us for 90 days, sort of, like a typical agency shop. But we didn't have that, kind of, deboard/board feature within our core system. So we actually created a separate standalone version of Latitudes to do exactly that. And I'll get into that in a little bit further.
So that group today is up to 146 FTE. We're in 2 sites, Painesville, Ohio, for those that aren't familiar with that area, it's Cleveland. So we took over a shop that was up in Cleveland. It was more of a small agency, third-party proprietary business that the owners wanted to pull out, and we picked up those resources and certainly, the skillset as well. Within that organization, we essentially got some legal expertise, some agency management expertise, as well as some analytic expertise in terms of being able to slice and dice the data appropriately. We've got roughly $12.3 billion of assets that were on our active solicitation list. Those that range from deficiency MH loans, second lien loans, first lien loans. Now the AARP is not going after all of those loans. So this isn't like core collections where you're going to call every customer everyday or every other day. You have to be able to data mine that $12.3 billion to extract the most value, and do it in that optimized way. Keith mentioned, this is a business we've been able to maintain some high margins that comes more than just throwing darts at a board. We have to be very surgical in terms of what assets that we're working. And then what processes. I mean, we've -- we create some core functions within this ARM business. And sources of our income come from each of those different areas. Short sales is a good example where we created a separate standalone group within our ARM business, that we didn't have probably 3 years ago. Because we saw that volumes steadily picked up that we needed to -- rather than have a collector that was working an account that was in their queue, and trying to do court collections and court recoveries with settlements, things of that nature, we didn't want them to bog down in terms of doing a short sale that could take 45 days, or longer. So we actually extracted, when we seize, or have a short sale opportunity that comes up in a particular queue, that gets extracted out of that queue and goes into this team. And that group of professionals are working with the borrower or the realtors, et cetera, to try and bring those things to fruition. And large part because one of our processes is, when we charge off a second lien, for example, we leave the lien intact even though we may have triggered the actual charge-off itself at the bank. So they'll write down, they'll be writing down that asset through the life of that or the stage of the delinquency, but the ultimately, it will trigger a final charge off on their legal books at 180 days past due, someplace it's 120 days past due. Well, we may have had a consumer that was listing their first lien or their house and they were paying their first lien but they stopped paying their second lien. So it's just a continuation of that opportunity to settle out that deal, rather than had we released the lien, in that particular case, then we wouldn't really have any rights to pursue any recovery other than a typical deficiency like an unsecured loan. Clearly maintain that leverage with that current process.
What I would tell you is, there's not really a lot of collection agencies out there that have real estate knowledge. So this has been, kind of, a key core competency for Green Tree because we've been out there pitching this concept of taking new charge-offs, be it second liens or first liens assuming they preserve their rights to collect deficiencies. But certainly, on the second lien side, this is clearly an area that we've been pitching. I think Keith mentioned before, not only are we getting business through the organic channel out of our core servicing side, but we've got third parties that we're getting recovery business from. We've had some of the Monoline's that have wrapped some of these deals that once the loans get charge-off and get some rights to move those assets and they've pushed them over to us, or they've gotten agreements with the third-party that we would be the recovery group, rather than retain that themselves. And we feed that data back to that third-party who's going to maintain the investor reporting aspect of that. So there's a number of different permutations in terms of how we might handle that. But it is -- been a tremendous source of volume, and we definitely are seeing, kind of, the fruits of our labor relative to putting in new technology, adding analytic tools and capabilities to our organization. And then we've recently relaunched, as you'll see at the last point here, the Agency, Landmark brand, which is a separate legal entity that we've established to go after the more traditional agency type product.
Just to give you a little bit of a mixed transition from '08 to more current 2012. And as you can see, between the -- what's MHCH on this chart is MH Chattel, and then the red which says MHLH, that's MH Land Home -- Manufactured Land Home. So between those 2 back in '08, it represented about 87% of our volume. Today, that number is 38%. So you can see the biggest change is the HE seconds, those are going to be your second liens. So it was a dot on the map back in '08. It now represents 53% of the assets that we're servicing out of this $12.3 billion in loans. Again, it's very -- very much has been one of the successes, I think, surrounding the whole ARM business, largely because of our real estate knowledge.
On the first lien side that's really, kind of, an emerging piece. We've built an apparatus in place to do a lot of screening relative to which loans that we can go after and in some regards, a lot of the institutions that service first liens that may take it all the way through REO don't necessarily preserve their right, and there's things that they have to do during that foreclosure process to do that. So we've had some clients where we've had to provide feedback and, kind of, intellectual property knowledge to them in terms of changes that they have to install in terms of their process. That will be a much longer gestating opportunity, I think, for us because we've got to change some of those practices and some of those processes. So it's not as though we can go in and take historical charge-off and just pursue it. And typically, when we've looked at those and run them through kind of our filters, you may get anywhere from 8% to 12% that pass the filters of what we can actually go after and pursue. So if we take a pool of $1 billion of charge off, you may only get $100 million of charge-off that you can actually pursue. It could be because of state restrictions. It could be because we didn't -- the attorneys didn't properly preserve the rights to pursue the deficiency. There's a variety of reasons. And we've built all that apparatus in place so we can run that data through our traps, and run it through our filters. And in large part, that's really what, if you could, I'm going to jump ahead a slide or 2. When we look at the boarding process, that's where a lot of this data screening is occurring. So we're doing across, really, all of the products. There are states, for example, you may have charged off a second lien but it's a purchase money transaction in California, you cannot pursue that. So I would tell you, again, that some of these collection agencies out here, they're getting this type of product. They don't know that stuff. There's probably regulatory issues, and the things of that nature that they're not aware of because they're not really real estate experts. And this is clearly an area that we are. Let me back up a couple of pages.
So value proposition. So this company has been around -- we've been doing this for 30-plus years. Credit sensitive assets have really been a large part of our niche. We're not what I would consider a conforming lender, or conforming servicer. That's not where we are today. Doesn't mean that we couldn't pivot that direction and pick up more conforming product, but generally speaking, we are working pools that have higher delinquency that produce a lot more charge-off. And really have been, kind of, a feeder for this business. And then we've had independent sources whether they be directly from some of the top banks. We are also going to be pursuing, actually Scott who runs this business, who's up at the Debt Buyers meeting in Las Vegas this week, it's the largest debt buyers meeting that's held annually. And many of those institutions or companies or investors are out buying bad debt, but one of the things that they don't have is a service. So they look for companies such as ourselves that can provide those types of services. So we're clearly expanding beyond our borders, and beyond our client base, and certainly beyond the real estate product. Because what we've built within the Landmark operation does indeed provide us with the capabilities to go into the unsecured space, into the auto deficiency space, credit cards space. But those are things we will be doing in a walking pace before we start doing a running pace.
Compliance. The one thing that could unravel this business, and whether it's this business or in the core servicing business Brian mentioned before, is compliance risk and reputation risk. So relative to the oversight is identical in this business as it is in the servicing business. We monitor every collector every month. We have invested extensively in a lot of technology. Witness is basically our surveillance tool that we use to both capture voice and data. So we can see exactly what the collector is doing on the screen, as well as hearing how their handling and management and talk off. But this is clearly an area where we've seen long-standing relationships that some of our clients have had with other agencies, that they'd pulled business over some reputation risk issue or headline issues in terms of how consumers have been treated. And we are clearly very mindful of the fact that we must walk the talk, and we can't be putting customer-centric on the page and not living it everyday.
So again, really, 2 businesses that we've got. We've got our traditional ARM business that's largely a byproduct of once we get the loans, we're really keeping those loans through the life of the relationship. By comparison, in our Landmark business, typically, you're boarding charge-off, and in some regards, in a very similar manner. You're going through the same screening process, determining what you can and can't work. But it's usually a fixed time commitment. And that ranges 90 to 120 days. And if we've got something cash flowing, you'll, typically, are allowed to keep those assets. But they like to -- a lot of companies like to place paper with a institution for 90 to 120 days, and then they'll do a second placement somewhere else. And that's, kind of, how the cycle --unfortunately, trying to change that paradigm, we've recognized that there are a lot of institutions out there that, that's the way they operate, that's the way they're comfortable operating. It's not just real estate assets, it's unsecured assets, credit card assets, deficiency auto assets, and we'll be playing in that space. And that group is a budding operation with 11 people at this point.
In terms of that Landmark operation. It is, again, a standalone separate legal entity. We actually have it at another site here in Tempe, rolled off. It's separate address, separate licenses for that brand name, again, to insulate some of our risks from an organizational standpoint. But we wanted a brand it as separate. So as we're out there marketing in, kind of, the third-party environment, we felt a different brand name, would be a more attractive and more appealing, particularly with some of our competitors out there.
The same performance, maximization goals are still in place. It's a high margin business. We want to be running at over 50% margins in that business. And again, using a lot of the same tools, a lot of the same analytics, a lot of the same infrastructure, we're leveraging corporate overheads. We're not doing a lot of redundancies. If we did, we wouldn't be maintaining thoss kind of margins, or achieving these kinds of margins.
And again, and just kind of closing, both the ARM business, as well as our core servicing business are customer-centric. Our clients tell us day in, day out, that they're very sensitive to the voice of the customer. We've done a lot of improvements in terms of our communications relative to our websites and what they can do through those websites, and how they can make payments. But at the end of the day, a lot of the interaction is going to be with our people. So we have a lot of monitoring processes. We think we have a very strong command-and-control environment to ensure the integrity of what we've established as our policies and procedures and controls. And we've been, at this point, very blessed that we haven't been in the headlines as some of our competitors have been. So with that, I'll close.
Patricia L. Cook
Hi, everybody. Obviously, I have a lot of nervous energy when I speak, so I don't like to sit behind -- stand behind the podium, plus I'm 5 "2" you might not see me. I see some familiar faces in the audience. I met some of you at dinner last night, and I look forward to maybe making the acquaintance of the rest of the group over lunch. So my challenge this morning as Head of Business Development is the following: tremendous enthusiasm for the opportunity that we continue to face in the mortgage market. I love my job, I'm excited about the opportunity and I would love to open up the book and tell you everything. On the other hand, I realize the uncertainty around the pipeline, the timeline it takes to close. So the other part of me doesn't want to tell you anything. So I'm hoping that I'll strike the right balance this morning between what I can share with you, and what you'll have to see us execute over time.
So the first thing. I'm going to talk about what the market is for Green Tree. Who our customers are. Why servicing is moving. How it's moving. And what the pipeline looks like. So first of all, what is the opportunity set for specialty servicers? I mean, we all know this, but the mortgage market is huge. There's $10 trillion of mortgages outstanding. 10% of that market right now is 30 days delinquent, and within that population, a combination of at-risk and delinquent mortgages, you could easily see 10% to 20% of this market transfer over the next couple of years.
What does the market look like? You know this. It's mostly first liens and secondly liens, currently outstanding. New origination, pretty much all first liens and all agency product. Ginnie, Freddie, Fannie.
Why is that important? It's important because as we, at Walter and Green Tree, think about our product mix, we want to make sure we're prepared to face-off not only with the opportunity that's fair today, but the opportunity that's going to continue in the future. And that would point us, as they mentioned earlier, to take a hard look at Ginnie, FHA and VA servicing. Related asset class, yes, you've heard Tom, Keith, others mention, maybe over time some of the success we've had in Mortgage Servicing could be applied to other asset classes: student loans, autos, maybe credit cards. So the market that we are operating in is huge and it's growing.
Next slide. Okay. So who are Green Tree's potential clients? And when we were first developing the business plan at Green Tree, we had to take a step back and say, "Okay. Who is going to be motivated to move servicing?" And the first thing, you say, and this is the cyclical opportunity that's presented in servicing, is, "Who are the credit risk owners? Who are the ones that would be motivated to say that the maybe by moving servicing, I would see improved performance in my portfolio?" And that is the pie chart. So you've got Freddie, Fannie and Ginnie. Now they don't service any loans. But they have huge credit risk exposure. And therefore, should be, and in one of them, very motivated to move servicing based on performance. The other would be nonagency MBS, a declining population and one that's not being originated, and also one that's very hard to penetrate. So the credit risk owners are diffuse. They are the bondholders. And as a group, moving servicing in that asset class is difficult if the credit risk owner are the bondholders. And the last one is on balance sheet asset, and that is dominated by the large banks. You've got a small slice of that that's controlled by hedge funds. So if you're going to decide to market the first group you want to cover, is the group that owns the credit risk.
Now on the second slide, which is interesting, is what I'm going to refer to as the secular opportunity in servicing. Now these aren't necessarily the institutions that have the credit risk. But they are the institutions that buy, servicing the loans, and what's happening there, they are seeing an increased burden from a regulatory perspective to perform that servicing. All right, if you don't own the credit risk and you're serving a bunch of private label ABS, and you're getting buried in late stage delinquent loans and the ability to offer appropriate modifications, you might say to yourself, "This is no longer a business that is interesting or profitable to me, nor are those clients, core clients for me in the future." So in addition to covering the credit risk owners, we're going to cover the large servicers who may, for secular reasons that are changing in the servicing market, want to outsource or sell that MSR. The other characteristic is, look at this, the top 20 institutions control 70% of the servicing. So when you think about who our clients are, they are credit risk owners, they are the large servicers and we have what? Maybe 25 institutions to cover. It's a very concentrated market, which is going to have implications when we talk about the pipeline. Okay, so that is who Green Tree's potential clients are.
Next slide, is why are they moving servicing. Now I've already talked about it, but I'll put it into 4 categories. The first is credit performance. And one of the things that makes our job in business development really easy, is we have an awesome product to sell. And what we did early on is, it's in the culture of Green Tree, was to suggest a--we'll call them as a Champion/Challenger or creating benchmark so that the credit risk owner sees demonstrable, measurable results that show that we've outperformed. The 2 graphs here are a great example. So the blue line was the client's projection of how they thought that portfolio was going to perform over time. So in the graph, their forecast of what would remain current is in the blue line. The red line is what our model projected was going to be current. And then yellow were the actual results. So when you look over in both current, and look at 30 days past due, so you've got blue, you've got the benchmark -- I'm sorry it's not a -- well, a projection or benchmark? The red line -- projection. Okay, and the yellow is the actual. The bottom line is, both in current and in the amount of 30 days past due, we have outperformed. And we actually get paid based on this difference. So us and the client reconcile monthly to agreed numbers that demonstrate our outperformance. So we can lead with this, obviously, great marketing from our perspective. But if you're the credit risk owner, we can show you that we're going to add value to your portfolio. Second reason is operational relief. Okay, so this is more the secular change, which says, "Well, servicing isn't that opportunity it used to be where it was all about just collecting and remitting payments and driving your cost of servicing down and making the margin, now there's all these other stuff I got to do, and guess what, it's burdensome." So you're seeing there the motivation to move servicing and get out of that backlog, get rid of your 90-day delinquent loans. This is leading to some flow programs that are really important for the specialty servicers because most of that burden is in delinquent loans, not in current. So some institutions are saying, "You know what? I don't want to build the infrastructure necessary on an ongoing basis to service delinquent loans. So guess what? I'm going to outsource it permanently." So on a flow basis, when my loans go 60 days delinquent, I'm going to give it to a specialty servicer and I don't even need to build the infrastructure. And we're going to come back when we talk about the pipeline as to why this is such an important secular shift in the industry for specialty servicers.
Okay, the third are strategic decisions, consolidation in the industry. I mean, really, it's unbelievable and I think the rate at which we're seeing institutions raise their hand and say, "You know what? We don't want to be in the business anymore." And they're outsourcing. Aurora was a good example of that, and over the next 12 months, you're going to see several more. And then the last one is economic or capital management, and part of that is Basel III, is kind of out there. Institutions are looking at the capital they've got a hold against the MSR, and it's less attractive than it used to be. And as a result, you're seeing an increase in MSR sales, $250 billion in MSR is traded in the last 10 months. So if you look at why: credit, operational burdens, strategic decisions, and capital.
Okay, next slide. Okay, how is servicing transferred? Basically those same things, right? Subservicing, MSR, or platform sale. As you've heard, I think, from my colleagues for a long time, Green Tree and Walter have run a relatively asset light strategy, which points you towards subservicing. And there is actually a bright side of that, and maybe what you might call the darker side of subservicing. And let me tell you what that is. The bright light is, okay When someone chooses to outsource and subservice to a specialty servicer, you enter into a partnership and a relationship with them that is likely to extend for a long period of time. Once you are, I use -- I say, under the tent, or once you've got the long pole positioned under the tent and you're the first specialty servicer they've hired, the gateway to you for future business is substantial. Because you've already, sort of, worked out the pipes of that transfer. The darker side of it, if you will, is that it takes forever, okay? And I'm going to show you a timeline in a second. I mean it's -- I use the word it's mind-numbing what it can take to setup a subservicing relationship with a large financial institution, a bank, for balance sheet assets, it's amazing. And then the second thing is, it takes a long time and it's very hard to predict. So that's subservicing. But once you're there, the strategic relationship you have with them is ongoing, and I think our relationship with BofA is a great example. Started in MH, started in some small portfolios, ultimately leading ultimately to hundreds of thousands of loans transferred to Green Tree.
MSR. MSR from where I sit, I know we were talking earlier with Henry that, from maybe your perspective it looks like an MSR sale can be announced and it takes a long time to get it done. But from where I sit, it looks much more predictable. An institution announce it, they give you the timeline for bid, they put out a date, they make a decision and it transfers. So you know more about that path to closure in an MSR trade than you do in subservicing. And then once you buy it, the institution's kind of gone. They don't really care how you're performing. And maybe the ultimate credit risk owner is, if it's Freddie or Fannie MSR, but by and large, it's a very different relationship. I think if you look at our platform today and you've heard it again from my colleagues, we have to, I'll say, begin to embrace MSR sales as part of our platform and diversifying because we've seen the opportunity grow there and it's going to continue to grow.
And then the third are platform sales, which is a great opportunity for us. I think we've all mentioned a couple of times wanting to potentially look at Ginnie Mae servicing. I mean, build versus buy. A good platform comes on the market. They've got a good Ginnie Mae servicer, maybe that's a good way for us to round out our product capabilities. So I think go forward, and my colleagues have said before, I'll reiterate it. We want a mix of business that will include subservicing, MSR and platform acquisitions. Okay, next slide.
Okay, timeline. Okay, this is a real example and okay, it's one -- it's a large money center bank that has yet to hire a specialty servicer. Okay? They came to us last September and said that they were considering outsourcing of their balance sheet assets. [indiscernible] like this, made for Green Tree the loans to that, the profile of the loans, right up our alley. So we're excited. We enter into this stage where they're going to select a servicer, but we thought it would be relatively quickly. And my colleagues, as they do when we get a opportunity, says, "Patty, that's great. When do you think it'll close?" "Oh, I'll say a year from now." They go, "No, Patty, it can't be that long." I'm like, "Okay. Maybe first or second quarter 2013." Okay, we start down the process. They're doing due diligence on us and 4 or 5 other services. They're asking for reams of document and history of performance and compliance. It took them until May to decide to pick Green Tree. Again, high fiving each other. "Okay, Patty, what do you think? When do you think it's going to close?" I'm like, "Oh, we got this no later than third quarter." Okay, we start getting into the details, and because they have never outsourced servicing before, we realized that the connectivity between us and them, so that they are able to take our information and put it into their general ledger was a plate of spaghetti. And trying to figure out how we were going to unravel that and make that happen has now pushed this conversion into -- we were saying fourth quarter, I think it's going to slip until next year. Now I am no less confident today that we are ultimately going to transfer with them, than I was before, but I was a very wrong in my timeline. And that's what makes our communication, I'm going to say first with my management difficult, but then ultimately with you in trying to quantify and give you some insight into the pipeline. So this is an example. That's a new client. Once we do this first trade with them, think about it. How hard is it for them to go to another servicer? So if we do well and this bank has a whole section of what they've walled off as bad bank assets. They don't want them. They want to -- they'd love to get rid of the assets, but they certainly want to get rid of the servicing. Okay, timeline is long and unpredictable.
Next slide. Okay, let's talk about our prospects, our clients and what our pipeline looks like. Okay, so I can't give you names. But in the well populated first column are the banks that we have -- and financial institutions, where we have an ongoing dialogue, and there is the possibility that a deal would close with them in the next 6 to 12 months. Now we don't just pick up the phone and call them once. The dialogue with these institutions is ongoing. So we're talking to them regularly. Some of the large banks, we could be talking to, if not everyday, certainly a few times a week. If you look at that pipeline, if you look at the first couple of bullet points. So we have a portfolio, the third one, are working on a portfolio that could close in the 12 months with 20 institutions whose servicing assets total $7 trillion. So when you say, what does your pipeline look like? You can look both top down and bottom up, right? So the way I think about it -- and we're sandwiched in the middle, the top down says, cyclical portion of the market is not over, secular opportunity and industry consolidation, all that supports a healthy pipeline for specialty servicers.
We also see it from the bottom-up. By talking to the individual institutions and knowing what they want to do, we have the opportunity to execute against, I'll say, both the cyclical and secular opportunity. So I hate to put a number on it in terms of how big that pipeline actually is. Is it $100 billion, is it $200 billion,is it $300 billion, is it $400 billion? In terms of the potential of the assets that could move from the institutions we talked to, it's clearly several hundred billion over the course of the next few years.
Okay, last Slide. So what's the conclusion? I think the conclusion is that Green Tree is well-positioned to take advantage of both the cyclical and the secular opportunity that is presented today in specialty servicing. We're going to do it by continuing to pursue sub-servicing assignments, by looking strategically for MSR sales and for platform acquisitions and I think you'll see growth in the future come from multiple clients in multiple forms.
So that's my summary of business development. Thanks for your attention. And now, I think Marc Helm is -- okay, President and CEO of RMS.
Well I have to tell you first of all, I'm really excited about being here. It's one thing to talk about our new opportunity but it's another to get to learn more about Walter and Green Tree and hearing the other business unit managers talk has been fascinating for me because I've already seen a bunch of synergies that maybe we didn't think about earlier, and some opportunities where I can see a larger organization has really refined some processes that I can benefit right out of the gate with. So I'm really excited about what I've heard today and I'm really excited about being here for a couple of reasons. But sometimes on when I'm asked to define myself, I define myself as a 34-year mortgage banker, whose had probably used 3,700 people in mortgage banking work for him at one time or another, have been a mortgage banker in numerous states and in the last 28 years, in Texas and at a time in my life, managed acquisitions for Washington Mutual, moved 7 million loans around and handled outsourcing for them and other systems and other things and I think that defines me there as an approach in the industry. But I think the most important thing when you're a reverse mortgage person, and I'm very passionate about not only reverse mortgages but about RMS, is when you define yourself as a reverse mortgage servicer and how you define yourself as an individual. So when I define myself as an individual in this market today, I think of some things, and not necessarily in this order, but these are the things I think about. First thing I think about, I'm a husband, I'm a father but most of all, I'm a son and I have a customer. It is one of your parents or somebody else's parents who's in a reverse mortgage and how would one -- would that customer be treated on a go-forward basis especially during their senior years of life from 62 years old til they'd leave the program to a payoff or whatnot or through death. So when we look at that, I try to manage the process that we do in reverse mortgage with those things in mind. And as I look at those things, I find, what are we to those customers? Well, we're many things. We're the son and daughter that never comes around Sunday afternoon anymore, we're the brother and sister that does not call. We're the person that nurses them through early stage dementia and Alzheimer's. We're the people that talk to the caregivers and the assigned point of contact when they get incapable of managing on their own, their business relationships. We're the people that are the circuit bankers and financial planners, as they call us and request money off their credit lines for things they have to do in life. And the worst thing, of course, we'll have to deal with, is at the end, we're the ones who have to send the condolence letter when wet picked up through a LexisNexis survey that the bar is deceased and we have to announce it to the default process with them and then we have to deal with the estate as we give the estate an opportunity to liquidate the property. So we're many things more than a traditional servicer. So I take my 29 years before I got in reverse space and I put it in one bucket and then I take my 5 years in reverse space and I take another bucket. Surely, I can reach into the prior bucket and find some things that are useful but I find more things in the bucket I'm in today that make me a better person and make me a better servicer than I've ever been in my career before because I have a new sense of compassion for a product that's need-based and a product that is needed in this industry regardless of what administration comes into office and needs to be there for the people that need it. It is need-based process, it is need-based products. It is needed because people are living on fixed incomes or trying to retire on fixed incomes and don't have enough money to continue the mortgage payments. We can do a reverse mortgage and take those folks out of the first lien mortgage they have on their property or its people who have that fixed income such as Social Security and they need the additional funds to make sure they can lead a proper life. And to do that, they have to refinance their house in the reverse mortgage and have a credit line available. There are numerous different product types inside the credit line that we have. You can take all the money out, that's typically a fixed-rate product or an ARM product where you can have a credit line, a scheduled payment each month that's a 10-year payment, a payment that you can actually decide what it is when you call in an unscheduled payment. So the bar has multiple options in dealing with the HECM in reverse mortgage.
The product has been around and I've got a little slide on this. The product has been around for 20 years and effectively, the product started out as just being a HECM product and shortly thereafter, there were proprietary products in the industry that were developed for the larger balance customers because at that time, the lending limit on the previous HECMs was about $215,000. So that left a lot of people out in the cold was for large balance loans that couldn't get a reverse mortgage product. So the HECM product was there and it was stable and it was spun around and then the proprietary product came in place, driven mainly by investors such as Lehman, Goldman, Greenwich and others that funded those new products as they came into being. If you see the numbers on the chart, there is over 740,000 of these reverse mortgages on the HECM side that had been originated. There's approximately another 100,000 proprietary products that have been originated primarily held in portfolios of Bank of America and Financial Freedom and who you'd think like MetLife who is in the business for a while but not there as primary as with Bank of America or Financial Freedom, a little bit with Wells Fargo as proprietary product. That was a total of $166 billion worth of loans. Now today, we have about 582,000 loans which represents $136 billion and what you'll see in the chart, it's kind of interesting, we've seen the volume go up dramatically for year 2009 where we did 115,000 of volume started coming down. It's not coming down for lack of need, it's lack of market penetration, and we're working very hard on that with strategic alliances with lenders with home mortgage portfolios where their mortgage holders can benefit from the reverse product but please do not interpretate the slide and volume in the industry have anything to do with the viability of the product on a go forward basis because it's certainly a viable product. The economists and others predicted reverse mortgage would have extremely steep rise once the baby boomers came into being. But what's happened with that was the baby boomers turned 62 and guess what, they woke up day 2, and realized I can't live just on my Social Security. So we believe those baby boomers will be working for a few more years and most of us in the industry are projecting that the peak that we thought would happen when baby boomers reach 62 would probably reach down when they're 66 or 67. Once they get by a point when they can maximize the amount of the Social Security they'll draw, they might be able to do that. The loan is a very interesting loan because it's a FHA-insured loans and a couple of things very unique to that are that with an FHA-assured loan, the lender's pretty well protected as long as you do the thing inside FHA's timelines and guidelines that they have. So your principal is really not a risk whether it's being held by Fannie Mae or with Ginnie Mae or if you're holding in, in your own portfolio. So you're in good shape there. What makes it most interesting though, when a person takes the reverse mortgage, that once they have that reverse mortgage, they can stay in that loan as long as they live because there is not a statement at the end that says once it reaches a value, that you got to pay us off. Now, we have a program in the FHA program when it gets to be 98% of max the claim amount, we can sign that loan a HUD and they service that now in Dallas, Texas. They will portfolio about 12,000 loans and they continue the loans out when somebody would exceed what the life tables are established for the loan. We currently have in our portfolio about 7 borrowers at over 100 years old. I think the oldest one we have is 104 years old. So that makes me feel good standing here. I'd like to know I got to be 104 to have these loans but we have some like that. So the -- for the borrower, its a really good deal in that respect because all they have to do is pay their taxes and insurance and maintain the condition of the property. And those are the things we hold them accountable for in the loan, they don't make any payments to us, everything accrues to the loan balance and it grows over time. So what makes this product really exciting for us and the businesses is this. When you're in forward whirl and you're servicing and you have MSR, you pretty much have a servicing fee that is so many basis points on a declining balance loan. Originally in our business, we had a fixed rate servicing fee predominantly $35 or $30 either for ARM or a fixed rate loan on a reverse mortgage that was fixed for the life of the loan. When we got it at the Ginnie Mae market, Ginnie Mae mandated the servicing fee be basis points floater with a minimum of 30 basis points servicing fee on a growing balance loan. So those of you who had been around the mortgage industry for a while, you know the back end of any loan process is the most expensive. So traditionally, forward servicers were always having to deal with the default side and the back end whatever it might be later on in the life of the loan into the default curve and we in our business, basically have the luxury of the fact that our servicing fee is going to grow each year as the balance goes up. And so therefore, we're receiving more money at the back end of the process on loan to take care of handling this whole other the loan through the -- dealing with the estates and the probates action to take control of the property so we can liquidate it for ourselves, Ginnie Mae or for Fannie Mae if we come to that. Most interesting thing about our market today though, it is surviving what a very major investor in it is Ginnie Mae. Ginnie Mae is 100% committed to this program because if you look at Ginnie Mae, Ginnie Mae and FHA, the ensurer of the product, and the issuer of the product and securities basically to roll up in a HUD so they could join there. So together, they are very robust in their appreciation and support of the program and I expect that both would continue to be very viable. I do expect in the short-term though, that there will be other GSE type entities will reenter the market and we certainly hope the proprietary market comes in as soon as Wall Street realizes again, it's a good investment. And that we unfortunately got called in the Wall Street debacle and people lost interest for product at the same time, they lost interest for other products.
Alright, I'm going to talk a little bit about our company. To say I'm excited about our company is kind of an understatement. I'm going to say I'm excited that we were considered by Walter to be a good acquisition target is even more so. We knew we had built a tremendous organization from our perspective but to see the recognition in the eyes and actions of others has kind of the most rewarding thing that's ever happened to me in my 34 years in the business. We started in 2007. There were 4 founding partners, 1 retired after 3 years, 3 of us remain. We grew from taking our first loans, 14 loans in July 2007 and now we have over 76,000 loans. We then now have 330 employees and they were based out of Spring, Texas but we have our post-closing operation office in Hiram, Georgia, our IT office in Palm Beach Gardens. Now, we actually have 2 offices in Houston, one in Spring, which is operations and one that actually has a Houston address, which is where REO functions are handled. We are one of the 12 active HUD-approved HECM servicers in the country and one of only 3 major sub-servicers in the country and only one of those sub-servicers have actually taken new volume. So we're really one of the 2 sub-servicers actually doing loans. And of that, we are one of about 7 or 8 Ginnie Mae issuers of which, there is only 3, some people might say 4. I'd say 3 or 4 active issuers in the Ginnie Mae market today. We saw ratings on Green Tree earlier about their ratings and we're quite proud of ours. We only have one but it's a good one. We were evaluated after about 8 months, which is just uncalled for, I think, in the mortgage industry by S&P and they came in because we're doing the security and rated us. We got an above average out of the gate and we had another above average after that and both of those had individual strong element ratings internal to them and then what happened the last rate came in July 2011, we got strong ratings from S&P and it's the highest rating of anybody in this sector. No one else was as strong. There's a few above averages but no one else as strong. And we're obviously approved Ginnie Mae issuer servicer and master servicer in the whole reverse industry. I'll point out couple of numbers in the bottom chart that I think are important. We now have over 76,000 loans, $11.8 billion in servicing, which makes us the fourth largest reverse mortgage servicer in the U.S. We are the largest privately held reverse mortgage servicer in the country and we use that quite a bit in presentations, it sounds good. So yes and we really have broken our business lines into 4 major segments. Our origination business which we'll talk about a little bit more in detail but effectively there, before this year is over, we'll be the largest issuer of HMBS securities in the country. MetLife was a little tad above us for the first half but they exited the business and so we'll be the largest issuer of Ginnie Mae securities. And our REO asset management which we're proud of that unit, we have a contract with a major GSE to manage all their reverse mortgage REO. We are currently handling more than 6,800 REOs, about 600, 700 of those now are for other folks but the rest are for that GSE. Last month, we had our largest, by far, largest sale of REOs we've had. We sold 1,088 reverse mortgage REOs last month and what makes that remarkable? I'll tell you this now rather than later, is we have to sell them for the then current appraised value. We cannot reduce price to sell REOs. So what we've done is build a fabulous network of realtors that understand that and know how to get value out of a property. But we will talk about that in a minute, REO. And then technology, which we believe follows suit with what I've seen with Green Tree. We have the strongest technology for our segment of the history available. All of it's built internally, all of it very well documented, all of it works well, all of it trademarked, all of it copyrighted. So we have technology that can take us to next level in which every one of our businesses we want to pursue and we have technology that supports all the businesses you're shown here.
Okay, I'll talk a little bit about our team. I'm not going to go in all this in detail but I just want to point out 2 very important numbers. And the one is, is that the overall total management base average years of experience in our company is 27 years and the total number of years experiences is 511. And those years of experience mean a lot to us because what you want to have is somebody on the phone in customer service that can be compassionate to your customers. Our average age of our employees in our customer service department is 47 years old. We feel like that the older employee there can be much more compassionate to the person they talk to on the phone and handle the request of that person a lot better. So we have kind of geared towards trying to staff that area with people who are mature and understand the customers at an extremely high level. We basically -- which poses us for the committed advantage. We have a very strong origination and aggregation process on our origination and securitization areas. We have specialized default management, probably about, right now, about 11,000 of the reverse mortgages we have are specialized reverse mortgages where we're basically handling them because other servicers didn't do a real good job. It might sound familiar from the story we heard earlier. And so, we're taking care of those. Most recently and we'll have this on another slide, we were asked by one of the GSEs and the bank that was servicing the takeover of about 5,100 mortgages, 4,000 of which were in default and hadn't been properly led through the process. And that was a very profitable venture for us and we're well into that undertaking right now. And then I think the thing that I can't mention enough is I have a partner named Kevin Gherardi, who was fortunate enough in his career to build the systems that HUD is operating on for reverse mortages today and now, he's fortunate enough to build a replacement system for that system. So when you have that kind of inside track in the business, it really allows you as a servicer, or an REO manager or originator to be Johnny on the spot at everything you're doing to support the reverse industry because you have the technology right at hand and already have just because of the methodology he uses to build systems and the way he lays those systems out, you have interfaces to those new governmental systems that are going to be operational day 1 and not 6, 8, 10 months later, which is going to be a big thing for us. And when I talk about the superior technology, I'll talk about some of our systems. We are a directional company. What that means is, we like direction. So RM NAVIGATOR's, our servicing system, our GPS system is not GPS, it looks like that, a Ginnie Mae processing system is what it is. RM COMPASS is our origination system. Our REO management system, which will be released fourth quarter, is REOCENTRAL and the STORM system is a system -- it's our internal name for the system that we developed for HUD. And what HUD calls that system is a blasphemy. They call it hermit. Now why our federal government would decide to name a system that caters to senior borrower as hermit is beyond me. So we will not call it inside our organization hermit. We call it the STORM and we're going to keep doing that. And last but not least, a number of years ago when my precursor to get involved in this business was heading up a consulting assignment for LPS and they are a large service group provider for mortgage systems, to see if they wanted to redefine their company, their system, particularly their credit line loans, line of credit lines, to see if they could service reverse mortgage.And I owe that assignment for me being here today but what happened when they decided not to do that, and I've been on their advisory board for about 20 years, they basically reached out to us, we got our company started and said, "we got customers all the time that need help with servicing or originating reverse mortgages, can we have a strategic alliance where you work with our customers to provide that service with them"? And we've been in that relationship to a large part, I think that a large part of that -- some of the relationship with Bank of America came about because of that and that we have today so we think that was a plus for us and we see other opportunities as they come down the road.
Now, our multiple business lines and income streams, we have obviously sub-servicing, servicing origination. Our aggregation Ginnie Mae securities and our REO management and our systems application, currently today, we actually derived revenue off of STORM and off of COMPASS, we could off NAVIGATOR but we are not in the mood right now to put our competitors in business, thank you. So we think we'll keep that system internally. And the REOCENTRAL will derive income also because it will be a system whereas the users of that system, where its realtors, title companies companies, closing agents, PMP companies et cetera, when they use our system like the other major management systems and asset management, they'll be paying a fee to use our system. What we found with our diversification in this, we as the owners of the company, 3 of us have decided a long time ago, we've all been on companies that have way ups and come way down. So what we wanted to do with our diversification is have a level playing field. If one of our business lines suffers for a while because the economy or whatever is happening, then the others can pick up the load and carry it. So what we've had is had very little income disruption in our company. We've stayed in a constant, steady growth because of building on those lines. And if one line did go down, we'd have recover in another line. We could always focus more on our system development if we were to, say, originations went down for a while and we've developed some pretty steady income streams in the system side of that business.
Now our loan origination overview, I've talked a little bit about this already. We're in 3 what I call, major channels and one of the channels is broken in 2 parts. First channel we're in is Retail, that's probably our next to smallest channel. The next channel is our Aggregation business, which is basically a correspondent business on an aggregation basis where you take it in bulk and then we have a Correspondent Flow business and our newer line is our Broker business and that's our Wholesale business and that business is currently right now, our smallest business passing our origination in the last month or 2, moving into the third spot in our business. When you see how our business model works, we basically have an opportunity to do a couple of things. We can originate a reverse mortgage ourselves. And we originate that loan, we can take full advantage of the premium in the market minus our cost to produce that loan or we can take loans that correspond to our wholesale arena and when we do that, we make the spreads of 90 to 225 basis points on the host on the channels. We believe those basis points will be going up a little bit for us. We've already seen growth on the bottom end. We're currently not taking any loans with less than 115 basis point margin right now. So we think that the kind of push and pressure towards the top and do better on that, so we are excited about that. Additionally, we have an opportunity on Ginnie Mae securities in that every month that a Ginnie Mae loan is on our books, a couple of things happen. The interest that accrues on that loan or accretes to that loan, stays with the original security but the guarantee fee, the 6 basis points going to Ginnie, the FHA insurance premium and the servicing fee and any interest on that tail disbursement from that time until it's securitized, goes into what we know as a tail security. Last month, we did a little over a $5 million tail security and the premiums we were getting on that tail security range between 108 and 112 which is a pretty dramatic piece for our business. So we continue to do those securities in addition to our others that roll up to our numbers and last month, did about $264 million in securities. And finally, we do these businesses -- it's kind of remarkable I told someone about it just last night but we do it with $165 million of warehouse line. We haven't used the $50 million warehouse line yet. So basically last month, we did something I don't think anybody does in the business, we turned our warehouse lines 3x. We had $115 million warehouse line, we did $264 million worth of securities and then we filled up our warehouse line again in the same month after turning the 2 major amounts that warehouse line in the securities. So we're quite proud of our ability to manage that and I was talking to our head of capital markets this week and we got a very tight month this month because there was only 19 workdays and he's telling me, he says -- when I told him I was going to be in Minneapolis and that's where our custodian is, Wells Fargo. And he says, well, don't be surprised if towards the end of the month, I get on a plane and go up there because I'm going to sit with them because if they need something signed, I want to be able to do it right there because we're going to get these securities done and I said that might the best airfare we've ever spent in our lives if we do that. So that's how we manage it. We manage it to get maximum effectiveness out of our warehouse line and to make sure that we can make the commitments to the market that we committed to relative to timeframes and amount of securities that we do. Our servicing overview, I said little bit about this earlier, we got a $5 billion subservicing portfolio and we're on a proprietary platform that has every bell and whistle you could ever think of the reverse space. In addition to that, we have the only borrower website in the reverse mortgage space. So a borrower can log into our website, they can pick up their monthly statements there and you're going to say well, how many of those seniors do that? Well, we don't have many yet but it grows every month but USA Today had an article and it said of seniors over 62 years old, 78% of them had email access.
So I said, I think, we've got a real potential there. So on our monthly statement every month, we solicit for people to sign-up on website and we also have incentive campaigns internally with our employees because, obviously, if I can get somebody off a monthly statement, on an electronic format, which I think is more secure, anyway, it's going to give them a benefit of instantaneous access, complete holding of all the history of all their statements and plus we should save $6 to $7 alone in postage and statement cost. Again, I mentioned earlier, we are one of the 12 active HUD-approved servicers and 3 major HECM sub-servicers. There's another 4 or 5 HECM servicers that might have like 3 loans, 4 loans so we don't count those guys and then -- so it's really the 12 that's out there. And of the 12, there's really only 6 that have any substantial volume, and a substantial to me would be more than 10,000 loans in that and a couple of them to bottom at the end of that line. Okay. We grew our Servicing business 2 ways much like Green Tree does. We grow it through opportunistic MSR acquisitions and we also grow it through our sub-servicing. Its been a slower growth in sub-servicing recently, although we did have a couple of things working on that. But the MSR piece is always out there and there's a lot of portfolios that, that might be available in the future. We currently have 10.9% of the market share based on our number. That's a deceiving number because that's a -- we've only been in business 5 of those 20 years, right? And that's sort of the current correct market today. What's more important is that we're bringing in about 30% to 35% of the market is coming on line every month, it's coming to us. So over time, we're going to grow dramatically through that and take more of the market share not withstanding if we had an acquisition, it would grow a lot faster but just in our origination, we're going to see that number grow pretty rapidly over the next few years.
REO management. It's not many times that you're doing a job and you don't even solicit it and a GSE comes knocking on your door and said, "We heard that you do a great job on REO management or reverse mortgage." We said, "Yes, what this got to do about anything. And we don't get to sell your REO, you sell your own." And they said, "well, we did and we do and we do a lousy job, and we're losing all kind of money. So would you consider?" So much like we heard about timelines earlier and getting a contract, 1 year and 3 months after we first started talking to them we started taking REOs, we got a few thousand of that first month, we built up, the most we had on the books that's been 7,200 and last quarter was we're able to bring their losses down so last quarter, they had no losses on their REOs, which was amazing. At one time, there were losing $27,000 on average per REO. Now that was a long process because we took some REO already in play. But last month with REO in play and the new REO, we're getting -- we handle 100% of the profits for, we got losses down to 0 and got a call directly from the Director with the GSE in Washington, D.C. that said, I just want to tell you how fabulous this and the job you're doing and we continue that to be. What that means for us until the Ginnie Mae REO's start kicking in, which they will, we truly believe we have a very substantial REO business for years and years to come just on the volume that's out there that will be coming through the GSEs or any securities that they end up developing out of their loans. As you look at the number two, the item -- the second item up here is the portfolio that I told you about from the national depository and the GSE that they asked us to takeover. And most of those REO it's probably going to be about 4,200 to 4,300 of those loans will result in REO in the next 12 to 18 months. Some will hit before the end but most of them will hit in 12 to 18 months. The process in doing the reversal REO I mentioned a little bit earlier is quite unique in the processes that it is no process. You have to sell it for the then current appraised value. You have a couple of small exceptions. You can sell the -- the estate can sell it to someone that will liquidate it for 95% of the appraised value and the actual estate can buy itself for 95%, if there's relative who wants the product. But other than that, there's not a true short-sell environment like you see in the forward whirl and we did not now have an opportunity to sell it 10% off every month of sales. Now that being said, I'll tell you a little secret when HUD takes over the loans and 98% on an assignment and they manage out of Dallas, Texas, and they foreclose on the new come REO, they turn it over to their REO unit. What do they do? They reduce the price 10% every month that they sell it. But we don't get that luxury because we're held accountable to them because they pay the claim on the product, and we have to do a good job on that as it goes down through the process. Essentially, our goal is to sell all the REO within 6 months of marketable title. This loan has a lot of issues relative to it, getting marketable title because many of the loans we began the foreclosure process, we find out we have caregivers still in the property and they have to vacate the property. We have to have a recorded foreclosure deed and a vacant property before our marketable title date starts and then we can, once it starts, get 6 months to sell the property, and we're being very successful with that. Our number is a 70%, 75% are being sold that way. We're hoping when the real estate market turns a little and the fact that we're -- a lot of that is driven by properties we inherited way into the stream that were already 6 months when we got them, we're hoping that number is going to come down. I'd like to see us be able to sell 60% -- excuse me, 70% to 80% of the properties and only have about a 30% [indiscernible] appraiser based claim and that's our goal internally and we are right on that cusp right now with our numbers. But then again, I still got some old properties in the cycle that I did not handle whole process that are holding us back a little bit. So we're hoping that would be good for us as we go down the road.
And I will say this is -- because it's important point for us. Our REO management system and our unit was designed to handle reverse REOs but we found that we have to pay so much detail attention to these REOs. We think if we wanted to enter that market, we could be the best forward REO manager in the country. Because we've seen with the other forward REO management shops, the big ones outsourcers do and we know we can beat them hands down just because of the level of detail and the detail that we have in our system to be able to service those REO assets.
Our technology overview. If Kevin Gherardi, my partner, was here, he would beaming right now. He's built the most outstanding technology. I have had the privilege of working with him in my 34 years in the industry. I usually tell him about that once a month, but if I told him more than that, it wouldn't be a walk through the back door because he is tired of hearing it if from other people that technology is not good when he hears at me and I tell everybody it's excellent. And most important thing to happen to us, in 2010, we along with another partner, won the bid with HUD to redo 4 systems inside HUD and it's the first time anybody's ever consolidated systems since HUD had, and that system -- and it really gets -- there's a modification of Act system where they track receipt of MIP and pay out claims. And also as the redo of the servicing system that's used by them in Dallas. Kevin originally built 9 years ago, I think it was. And that project is known as our STORM project, that conversion should happen during the fourth quarter of this year. We had the conversion ready to happen 1.5 years ago. Again, and they will keep those dollars because they get there when they get there. But the FHA folks decided there was a bunch of things they wanted to continue to change on the system. So we got a little joke, there's a picture of Kevin with this boat and it's a little dingy and then there's a picture over here with Kevin with a bigger boat and on it -- name of it is Change Order because we've got a lot of change orders in this system. But we do believe it will go out fourth quarter and the industry is really excited about it and what it does for us is it's going to allow us to automatically interface and process claims online and the documents and all and receive the claims proceeds very quickly. Right now, an assignment claim, we get them about 6 days. This system will get them instantaneously. On the other claims, it might take 3, 3.5 months, we heard, but we think we will less than that to about a week in getting those claims back because there will be a review of some documentation on that, but that's really exciting for us. So the 5-year contract would -- continue to develop and maintenance, and we now have some other entities of the government who have watched the progress of that system, talking about us about numerous other systems so we might have opportunity to do. And we've mentioned that in that detail there. As I mentioned earlier on REO Central, if we had not had the work we were doing on our other system, it would be released already. If the STORM, as dated, happened when FHA said, they wanted it to originally happen, we would be free to finish up REO Central, but REO Central is going to go out I think the date on it now is November 1, and we're excited about that because we basically had been using another system and we knew what all its shortcomings were so we made sure we took care of all the shortcomings in our systems, so it's really going to increase our controls and our work efficiency and our reporting, dramatically, as we handle the REO piece of what we're doing.
And closing, again, I want to thank you for being here. This has been a very exciting for me and certainly exciting to tell the reverse mortgage story and the RMS story. Thank you.
Mark J. O'Brien
[indiscernible] I want to thank everybody for being here and the people that are on the Internet. People on the Internet, I want to thank them as well. I think that before I open the floor to questions and we will take those for a good bit if there are many of them. I think there are a couple of notions that we want to leave you with.
One is the -- some clarity around the cyclical and the secular shifts that are going on in the business. I think we've got that right. The second piece is even more thrilling, I think, from our perspective. We identified Green Tree and RMS as businesses that could help us achieve the strategy. And as many of you know, I was reluctant to convene this meeting today. But ultimately did it in the belief that once you all heard the people who presented today, you would have an appreciation as we did that we absolutely bought and invested in the right assets. Because at the end of the day, my experience is once you have the great idea, you better bet on the right folk or you're courting disaster. I think that if we didn't send that message today then we failed. I get reinvigorated every time I listen to the people that do the listing everyday in the business. And I'd be shocked if you don't. I think we have invested our shareholders funds wisely. But certainly with the strategy, but even more importantly, the people that are going to carry the ball and carry the day. Clearly, we have 2 objectives as we develop that strategy. One is we want to take every advantage we can of the consolidation going on in the industry and the secular phase, the secular shift. The second is to create the platforms that will provide sustainability because at the end of the day, that's a very, very important goal. We are on the track. I think when you listen to Marc speak right at the end, you can't hear a discernible difference in the way he looks at the business than the way the Green Tree people do. He talks about taking advantage of the opportunity that's here today and creating sustainability. And when we look at assets to continue to expand our presence in this space, that's the music we want to hear. And as we look at the various opportunities that present themselves, obviously, we'll have sub-servicing. And however long that takes, it takes. But where we have the opportunity to buy MSRs, I think that's more of a commercial transaction. But there are clearly opportunities to acquire more platforms. We will look at those very carefully and we want to hear the same kind of thought process from those management groups that we heard from Green Tree. And you now hear from Marc. So with that, I will be quiet and if anybody has a question, I am here, I think, more to moderate it than to answer. But I'd be brave enough to take one Henry, I knew you would
Whitney K. Finch
[indiscernible] Please make sure you have a microphone before you ask your question.
I think everyone has about 3 hours of questions. So I will be the first 3 hours. Thank you very much for doing this, obviously, a big commitment of time. The Ginnie Mae business, little more complex to understand than conventional servicing is RMS, the platform to build the whole Ginnie book or is that going to acquire either another acquisition or a build-out? But that's a big opportunity for you, obviously.
Mark J. O'Brien
This is not my show. Keith [indiscernible].
Henry, we have spent the last 1.5 years looking at the Ginnie Mae industry. It is very different than how we get paid in some of the different risks and opportunities that we have in our current business at Green Tree. We're looking at both. We are going to be talking to Mark about his platforms, his technology and where that would potentially lead us on the forward side of Ginnie Mae. And we are looking at other market opportunities that have leading Ginnie Mae platforms today. So the answer, Henry, is both, more to come and we'll see what the answer is shortly.
And just a related question about RMS. This just shows my ignorance here but the REO losses, how much of those actually fall on the back of the servicer and how much of that go elsewhere?
If it's Fannie Mae me, it pretty much goes back to the GSE on that. If it's Ginnie Mae, we step into the role of counterparty that Fannie Mae has so the losses that exist would come back to us that's why we take a very aggressive reserve upfront on every loan we originated at the premium to have for those losses and yet we model that every month and update that reserve every month.
Mark J. O'Brien
Can you help us size the origination opportunity? I mean, do you guys said there's about 200, just on HARP, you said about 200,000 HARP eligible loans. Is there a way to think about the voluntary prepaid rates on that or just some way to think about the opportunity that's embedded in that number?
There's 200,000 loans you're right, Bose [ph], that today meet the initial screening that Fannie has provided us. We are seeing faster prepayment speeds than we did prior to HARP 2.0 but much slower than what the industry is seeing on eligible loans, partially because we, the servicer controlling all that data hasn't been soliciting that's borrower. That will change immediately. It's a 2-part strategy that I outlined. The first part is with the partner that we have signed up with Fannie Mae to solicit those borrowers and to lead many of those customers for them to close the loan and then we get reimbursed our cost and we'll get the servicing back, say, within 30 days after that borrower has refinanced their loan with that lending institution. The second part that we're equally focused on is building out that our own retail banking process that we think will be starting in October. We think we'll be at scale by the end of the year, scale being 500 to 1,000 loans a month. And from there, we want to continue to grow it into next year.
Let me throw in one more. Just on your pipeline, the $300 billion that you guys mentioned, is there any way to think about the overlap with the pipeline of others. Is that -- how much of that do you think is your pipeline alone?
That's a good question. I would say that I'd have to work on the numbers and really think it through. There's definitely some overlap. I think there's also a very big chunk, which is probably more proprietary or is moving down a path where we feel like it's kind of ours to win. But I don't have the numbers in front me and probably wouldn't venture a guess today.
A question on RMS. Could someone's just answer the question how you guys at Walter got it for such an attractive price?
Mark J. O'Brien
[indiscernible] I think that both the buyer and the seller are in the room, and I'm not sure that there's an appropriate answer at this point. I think anytime we buy something, we think we get value and any time somebody saw something, they believe they got value. I think time will tell. There were some unique circumstances to the way the negotiation developed. The company, RMS, is doing very, very well, maybe even exceeding their own expectations. They didn't exceed ours. So I think probably the best way to leave it is that both of us think we have a value. That was a big help wasn't it?
I tried. In terms of forward flow deals, how should investors think about those? I mean, I think, about 10,000 a month in forward flow volume has been thrown out. Maybe what's the CPR on those 10,000? How many institutions could kind of be coming to you for a flow arrangements like that? Just some color on that business would be great.
Okay, so I think, again, on the flow, 2 pieces. There is the flow like the litigated BofA settlement, so that has a normal quarterly, I think, that's a public deal flow that goes to it. And then we've got flow arrangements that are to come that we feel very good about that is not a litigated settlement. It's between a depository GSE, et cetera and that's the type of flow where we're trying to alleviate the high-servicing cost and the aggregation of delinquent loans at their servicer. So I think what we've said is, on average, roughly equal to our current disappearance, which is roughly the 10,000 unit number you had, Mike, and I think as we look at those loans, we don't have history. So right now, it's a model, and a guess. But I think our hope is that as they come on, again, on average, they're a little larger UPB than what's running off so we get the UPB pickup. And then if you think about those being 60 days or more delinquent, you're going to have a shorter life for those that run right through the system to REO foreclosure, et cetera. But we think with Green Tree's core competency, we are actually going to be able to roll back some of those loans and actually some we will get back to performing and that will extend the life. So I think we need more experience before we have good numbers for you. But we are very -- we are cautiously optimistic that, that average life is going to be more or longer than you would think because of our ability to roll those back to performing.
And could the 10,000 number be 15,000, 20,000 and how many institutions do you think want to play that flow out with you?
We absolutely believe that there's more opportunity for more flow arrangements. So I would be gravely disappointed if we weren't able to better that number. That number is where we think we will be by the end of this year. Its not where we think we will be by the end of next year.
Is the $20 billion pipeline that you've talked about for having good visibility for the balance of this year, is that related to flow agreements? Or is it more sub-servicing?
Mark J. O'Brien
That $20 billion does not have flow in it, that $20 billion was those that were in kind of exclusive negotiations and it doesn't include flow.
And what is it that maybe Patty could address this, that brings about an exclusive negotiation? What is it that keeps other parties from the table? Is it because that you have already entered into an arrangement with these folks and have a pipeline open, it is that where that's coming from?
Mark J. O'Brien
Yes. I'll take it. A couple of different ways, either there was either a process that we've now -- sorry, there is a process that we've now sorted through as the winner, and we are now working to get something signed and closed. So it didn't start exclusive but it became exclusive. And there's those proprietary, which Patty's team works very hard on transactions where we identify an opportunity with a good client and we've been working with them kind of one on one to prosecute that over time.
Okay. And just to be clear, the $300 billion that Patty talked about, that does not include ResCap?
Mark J. O'Brien
The $300 billion, I think, what we've said publicly, there is a lot of assets in and around as a part and parcel to ResCap but there is not ResCap assets in that $300 billion.
And then just separately, on RMS, I'm sorry I don't fully understand the product that well. When a borrower passes away, gets deceased, the properties has seized, is that right? And then is it -- does it become REO, is that where the ROE comes from in the process?
When the borrower is deceased, the estate has 6 months to sell the property and up to 2 90-day extensions of their having a problem with closing, et cetera. And sometimes, to some stage, they have to inter probate before we could take possession, anyway, sometimes borrowers or family members come to us, so there's no equity on the property. The reason why we foreclose is to get the marketable title to the property and eliminate any other liens that might against it. So in our view, foreclosure is not ugly word in the predominant of the reverse space. We do have some that could be seeing that way, but when the borrower dies, it usually calls the estate has -- exercised everything they could to sell the property, and fair to say, and go ahead and take the property and remember this is not a recourse loan. There is no credit bureau reporting then on this borrowers. It is collateral based. So there's not a foreclosure out there in anybody's record when we foreclose on these loans. So it's just a collateralized property.
So the REO that you talked to in your presentation, that is cases where the borrower doesn't pay taxes and insurance and doesn't keep up the property or also cases where it's just gone through the cycle and the borrower passes away.
All of the above, yes sir.
Kevin Barker - Compass Point Research & Trading, LLC, Research Division
It's Kevin Barker at Compass Point. I have a question about the originations that you're going about with your own portfolio over the next few quarters. Are you prevented from originating any of the loans in your servicing portfolio right now because the banks own those loans right now?
We do have restrictions for solicitation on many of our securitized accounts whereby we can only react to a payoff request. But the 200,000 that I'm referring to are with the GSE that we have full support from them to go ahead and actively outbound campaign with them.
Kevin Barker - Compass Point Research & Trading, LLC, Research Division
Is there a percentage of your portfolio that you can currently mine for originations, what percent would you put it at?
I would say it's probably 1/3, 300,000-plus, depending on the product and it depends on the PSA that we're obligated to service under.
Kevin Barker - Compass Point Research & Trading, LLC, Research Division
[indiscernible] If you could take out the second lien.
Yes, That's 250,000 second liens that I excluded in my 1/3.
Any other questions? There's one.
Could you provide any insight how you're handicapping the ResCap transaction. There's clearly some thoughts. It's a big portfolio maybe somebody else wins it and that opens up a whole lot more for you. I mean, capital is precious, how are you guys thinking about the pipeline and ResCap, in particular?
Mark J. O'Brien
We always think number one that capital is precious, so that always starts the conversation when we think about the deploying capital. We can't comment on the pure M&A side of ResCap. I think what's been discussed in the market and we have said is that, I think, the ResCap outcome is going to be a catalyst for the sector one way or another. So if it goes the way of the stalking horse bid, just as one possible outcome, it will probably occupy that winner for a while. And of the $1.5 trillion that's going to trade, potentially it's a little easier for some of the others with a little less competition to access those assets on a go-forward basis. I think if you work through the different options, if someone were to take the platform or platform just stayed where it was or someone took that platform and wanted to extend it, that's probably the outcome that's least helpful to the industry. And then obviously, if the third option is if it gets broken up or it's bid by partners, that could be very positive because there's, as I said, a lot of different assets around that portfolio, many of which would be very attractive to us in the process.
And then does Walter, Green Tree, RMS, is there any limits on capacity, anything that is a governor on your growth?
Mark J. O'Brien
I think, obviously, everybody has a government capacity issues. You've got human capacities issues, you've got platform capacity issues and you get capital capacity issues. We think in the context of the opportunities that are in front of us, when we've done a lot of work on this, we can solve for those issues. Some are easier solutions than others. But pretty clearly, we are not going to engage in any of these pursuits unless we think we can win. And in order for us to win, the shareholder has to win and that means we have to solve for all 3 of those capacity issues.
It really depends, Mike, too on the portfolio that you're looking at or the opportunity. Highly delinquent portfolios do require a lot more upfront time and upfront FTE that we have to have in place. It's like a tenfold impact on our systems to take on a delinquent loan versus a current loan and all those things, Mark's exactly right, we have to manage internally when we're looking at opportunities. It's different if you're taking on a separate platform. You can always run those accounts on that platform for some time period if you're taking on their infrastructure and their systems. So it's hard to define what capacity could be because it really depends on that opportunity and how you're going to execute through that.
And then just last question, I think everybody's understands the cyclical opportunity in front of the industry today in Walter. What are some things that you guys are looking for or that can help us identify that the structural opportunity is also happening?
Mark J. O'Brien
Patty, why don't you take it?
I'll do it. I think I've got but I think Patty was terribly articulate, [indiscernible].
Patricia L. Cook
I think some fears would happen in the market, and it's hard to say like how much is going to change. But people have realized that to be a good performing servicer requires a very different set of skills in infrastructure than it does to be specialty servicer. So I think the recognition in the market around secular change is that there is the opportunity for 2 groups of servicers. Your typical traditional performing servicer that's just collecting and remitting payments and the specialty servicer that's dealing with problem or delinquent loans. And I think that maintains itself. What's hard about your question is, as you look forward, even if you just the stuck with that argument, what percent of delinquent loans do you think there going to be in the marketplace and what percent of the people do you think might outsourced those? So that's one way to think about how secular plays out. The other thing to think about is, will we always be in a high-quality prime originating market or is there's some point in time where people will begin to expand their credit box, and therefore, along with that, would be summarized in the rate of delinquency. So it's a hard question, right? To say, well, going forward, will, everybody outsourced delinquent loans. Will, half of the population outsourced delinquent loans and the other area of opportunity that I think is huge but is yet untapped is the consolidation of the small servicers. We look at charts that said, 70% of the market is serviced by 20 institutions. But the thing that I didn't say is there's 2,500 servicers servicing Freddie and Fannie loans and that's becoming incredibly inefficient for them. So is there a solution in the marketplace where maybe some of the larger servicers white label a product. So that we're servicing on behalf of those smaller servicers and there's consolidation. So I mean, those would be 2 examples I'd give when we look to the future and you see a macro trend that could support growth. But it's hard to put numbers around it. I don't know if any of my colleagues...
Yes, you guys -- you know this better than most. Subprime lending is not been loaded of the island. I mean, the world can't live on 3.3% coupons. I mean, that's just not going to work over time because that's going to exclude from the credit opportunity just too big of slice of the population. But sooner or later, subprime lending and the big coupons that go with it will come back in vogue, that's something we collectively know very well how to originate and how to service. And I think we've demonstrated time and time again and in Walter's case over 50 years and you heard Keith talking about over the 30 years that we could originate those loans and hold the delinquencies down to a very manageable level and more importantly, and as importantly, keep the severities in-line. And sooner or later, that's going to come back in vogue, and we will know how to do that very, very well. It takes a different mind set and a lot of discipline. And the banks all tried it and they wish they hadn't because they don't have the stomach for it, literally. I think, over time, that will come back and capital will flow into those markets, and we will do just fine.
Mark J. O'Brien
I think the only thing I would add, Mike, is if you want to go to structural change, I think, maybe as a result of the downturn and what happened to credit quality. Structurally, the market were bondholders were almost agnostic to their servicer. So those owners of credit, if you will, that's going to change, we think, once and finally on a go-forward basis. They are paying attention, we are talking to all the big investors in asset managers, et cetera that buy those bonds and will buy the new private label securities as they eventually come back and are originated and they are not going to go back to the old structure where they're agnostic to who is servicing their product because their losses were monumental, and they were fooled once but they won't be fooled again. I think that's structural change that we will in order the benefits of the specialty servicers.
I think to further demonstrate that, I don't know whether any of you know that the old Walter bonds called mid-state bonds. Try and buy one of the subprime bonds in the secondary markets. The people that own them know they have something pretty valuable. Henry?
Just to get really switch to the real minute in terms of trying to understand RMS' opportunity, really 2 questions. One is MetLife had a big subservicer, named Celink, are they still out there and active. We heard mixed reviews about that? And then just the second part of the question in terms of trying to model the business, is it -- you gave us a range, but is it really more like a 1.5 kind of points business on origination or 2 points business or give us some insight into that? I know you can't probably give us all that but...
Okay, I can talk about the origination piece though. We believe that as the market is contracted a little bit, there is more opportunity for margin in our market. And we, like I've mentioned in the presentation, we at onetime our margin was 90 basis points is now up to 115. So I think if you look at it, it's really about our mix of businesses. It's our wholesale business, which as the higher-margin grows, I think you'll see that number come up. I would think that we target internally to get into 165, 175 range blended between our business lines and so you're not far off with the 1.5.
Mark J. O'Brien
I don't see any more questions at this point. I would like to -- I'm sure you all are paying attention, you will have noticed that we announced that 2 new directors have agreed to serve on our board yesterday, Dr. Jim Pappas and Al de Molina. I am thrilled with the opportunity to work with them. I think they each bring some very unique skills and will contribute to the diversity we have on our board. Al's experience with BofA and managing a large balance sheet and getting the hedges done properly will be very valuable to us. Dr. Pappas brings a great deal of experience in regulatory matters, which, as you heard, Brian talk earlier, we have lots of those. So we think that they'll be very valuable additions and will serve us well.
I think that is it. We will have lunch now, and I guess we will lose the people on the webcast. There will be a tour after lunch. And I want to thank Whitney and Joanie and others who put their shoulder to the wheel to make this happen. I think you came off very, very well, and I thank you all for your continued support.
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