Walter Investment Management's (WAC) CEO George Awad on Q2 2016 Results - Earnings Call Transcript

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Walter Investment Management Corp (WAC) Q2 2016 Earnings Conference Call August 9, 2016 9:00 AM ET


Kim Perez - IR

George Awad - Chairman and CEO

Gary Tillett - CFO


Doug Harter - Credit Suisse

Jeremy Campbell - Barclays

Bose George - KBW

Vic Agrawal - Wells Fargo Securities

Fred Small - Compass Point


Welcome, and thank you for standing by. At this time, all participants are in listen-only mode. [Operator Instructions]

I'll now turn the meeting over to Ms. Kim Perez. Ma'am you may begin.

Kim Perez

Thank you, operator. Good morning, and thank you for joining us for Walter Investment Management Corp's Earnings Conference Call for the quarter ended June 30, 2016. This call is being webcast live on the Internet and will be archived on our website for at least 30 days. This morning, management will discuss earnings for the quarter ended June 30, 2016, as well as our current business outlook.

Let me remind you that comments on the call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are based on the company's current expectations and involve risk and uncertainties that could cause actual results to differ materially from those in the statements.

Please refer to our SEC filings for a full discussion of the risk factors that may affect any forward-looking statements. Except for any obligation to disclose material information under federal securities laws, we undertake no obligation to release publicly any revisions to forward-looking statements to reflect events or circumstances after this conference call.

We will discuss non-GAAP financial measures during this call. These non-GAAP measures are reconciled to GAAP in the tables attached to the earnings press release we issued earlier today and the presentation accompanying this call. We believe that these measures provide investors useful information about our business trends. However, our non-GAAP measures do not replace and are not superior to GAAP measures.

Participating in today's call are Walter Investment's CEO, George Awad; and CFO, Gary Tillett. Once we have completed our prepared remarks, we will open the call to questions from our dial-in participants.

At this time, I will turn the call over to George.

George Awad

Thank you, Kim and good morning, everyone. I am delighted to have assumed the role of Executive Chairman and Acting CEO for Walter.

While I've been here for a little over a month, I am happy to report that we've started taking actions to transform our business and generate strong returns for our shareholders.

I've been part of the finance industry for 25 years and see great potential for Walter despite strong headwinds from low interest rates that have resulted in significant non-cash write-downs over last six months.

These headwinds are providing a catalyst for us to review everything we do and to narrow our focus on our business model to reduce risk, support growth and improve our process to drive profitability.

Flipping to Page 3, for the second quarter of 2016, we reported a GAAP net loss of $232.4 million or a loss of $6.49 a share. These results reflect significant non-cash charges, including goodwill impairment of $133.6 million after-tax and a fair value charge of $82.7 million after-tax.

Our business generated positive adjusted earnings of $2.4 million after-tax or $0.07 a share and an adjusted EBITDA of $98.8 million. Needless to say, we are disappointed by these results and we have developed a strategy to deal with the issues at hand. I’m later focused on transforming this business to deliver on its potential.

Flipping to Slide 4, our plan is to strengthen our balance sheet and use our capital effectively. Secondly, to improve our process efficiently, increasing quality and taking out cost and third, to bring in strong leadership and engage our workforce to execute on our plans.

Flipping to Slide 5, our first job is to increase liquidity by first building an off balance sheet origination outlet to expand our origination capacity and second, using cash to retire debt.

To that end, we recently executed a series of agreements with new Residential Investment Corp and its wholly-owned subsidiary New Residential Mortgage. That includes both sales of mortgage servicing rights and a flow agreement.

Gary will speak to the specifics of this arrangements in a few minutes, but we’re excited about this transaction because it will increase our liquidity, enhance our origination capacity and allow us to grow our subservicing portfolio.

We will also pursue additional opportunities with other partners to build diversity in our relationships, so we can maximize the potential of our Ditech platforms.

We’re also planning to reduce our debt in the most efficient manner, whether through principle repayments or debt repurchases. There are potentially significant opportunities available to us as we evaluate these options.

Recently, we’ve seen our term loan trading at $0.83 on a dollar, our senior unsecured at $0.46 on the dollar and the converts at $0.34 on the dollar. As you know, we will have to work with restrictions imposed by the term loan agreement that limit our ability to acquire debt or securities that are subordinated to the term loan.

As of June 30, 2016, we have approximately $40 million that we can use for non-senior debt and additional $25 million that will become available on January 1, 2017.

We plan to use some of the cash currently had on our balance sheet and the proceeds generated from the new residential transaction to improve our leverage ratios from the current position.

We have also begun at a view up of strategic options related to the reverse mortgage business with the objective of reducing our balance sheet. We will provide updates as appropriate as we undergo this review.

We have reduced net advances by approximately $60 million since year end consisting of a $287 million reduction in servicer and protective advances, netted with $227 million reduction in servicing advance liabilities with plans for further reductions.

As far as the sale of our insurance business, we have received feedback from our regulators and are in further discussions with the counterparty to evaluate all options to gain regulatory approval and we plan to submit a revised plan.

Flipping on Slide 6, the second pillar of our strategy is process efficiency. We announced earlier this year a reengineering initiative aimed at identifying opportunities in expense savings and revenue gains, resulting from a companywide process review.

We have made some progress related to this reengineering initiative as actions already completed this year are expected to result in approximately $75 million of annual savings including $17 million in annual savings from actions completed during the first quarter.

As a reminder, the closure of the origination distribution retail challenge during the first quarter also eliminated losses of $11 million that we incurred in 2015.

We've recently taken more significant action, which included a reduction of our geographical footprint by exiting from the remaining five regional servicing locations, realigning our IT operational staff into centers of excellence and pursuing outsourcing opportunities where feasible. We have also redesigned our loss mitigation process and organization.

The total impact of these actions taken including the actions from Q1 will reduce our workforce by 11% or approximately 650 employees during 2016.

We have engaged with an external consulting firm to support our efforts through both idea generation and execution of the business rightsizing that we are undertaking. We have identified further cost reductions and improved revenue opportunities that we are starting to execute on.

The environment and changing portfolio mix has caused significant downward pressure on our revenue and our focus is to improve operating leverage from our actions.

Besides the cost anticipated from actions already taken, we're targeting at least $75 million of incremental annual savings through actions that will be completed by the end of 2017.

Of course our work continues and we hope to identify additional opportunities to report on later this year.

Flipping on to Slide 7, in addition to myself who recently joined Walter, we have hired Anthony Renzi who will join us as Chief Executive Officer. Tony has over 30 years of experience in the mortgage industry and has had leadership positions in Citi, Freddie and GMAC.

I am delighted that Tony is joining us and I expect that he will be on Board in the fourth quarter. I will continue to be involved in the organization and work closely around side Tony in leading the organization.

Our focus on reengineering initiative is centered on improving key work streams including our performing and non-performing loan servicing. Our aim is to be best-in-class in non-performing loans.

We're also focused on increasing originations, particularly within our consumer channel. We will continue to work at our technology platforms to drive the streamlining and consolidation efforts that we've started.

We have identified many opportunities in our procurement process and finally believe that we will find additional efficiencies in our support function costs.

Engaging our talented workforce is key to making headway on these work streams. We recently launched a revised set of values to unite our entire organization on a single culture and I’m organizing town halls and roundtable discussions at our sites to communicate our strategy throughout the organization.

Our teams are engaged in executing on these initiatives and I will be personally involved in making sure that we optimize our process to focus on cost and on our customers.

To improve revenue, we are reentering the wholesale channel. This is a natural progression for us as we have the infrastructure, the products and importantly the experience to make an impact with mortgage brokers. The task ahead of us is big, so are the rewards for our employees, customers and shareholders.

Flipping on to Slide 8, in summary, we will drive growth through flow partnerships, the addition of the wholesale channel, a focus on retention and the new sub-servicing arrangements. We're later focused on cost with a comprehensive business review and process redesign centered on the customer experience.

We have new leadership in place with a clear strategy in place to execute and lastly, we are evaluating our options with the reverse mortgage business with an objective of further reduction in our balance sheet.

With a clear strategy in place, we are steadfast on growing our servicing and our origination platforms by minimizing our capital at risk.

With that, I’ll ask Gary to cover our financial and operational highlights for the business. Gary?

Gary Tillett

Thanks, George. Financial results for the second quarter reflect the impact of non-cash charges, including after-tax charges of $133.6 million for goodwill impairments in the servicing segment, driven by elevated discount rates applied to lower re-forecasted cash flows and $82.7 million of fair value charges due to changes in valuation inputs and others assumptions driving a net loss of $232.4 million for the second quarter of 2016 as compared to a net loss of $38.2 million in the second quarter of 2015.

The current quarter also reflects $19.2 million lower net gains on sales of loans as compared to the prior year quarter driven by lower volume of lock loans resulting from increased market competition and an increase in our return hurdles and a reduction in MSR values included that are part of this game.

Our servicing business also experienced $15.7 million lower incentive and performance fees, which have trended downward as a result of changes in incentive programs, run off of the related loan portfolio and improving economic conditions.

Adjusted EBITDA for the quarter was $98.8 million and adjusted earnings after-tax was $2.4 million or $0.07 per share.

Consistent with our strategy to reduce our net investment and mortgage servicing rights, we completed MSR sales of $8.5 billion of UPB during the quarter. The completed sales included $4.1 billion UPB sold to WCO on which we retained sub-servicing as well as shared recapture economics. The remaining $4.4 million of UPB was sold to third parties servicing release.

Additionally, we sold an additional $1.7 billion UPB to a third party servicing released in July. The servicing segment ended the quarter with approximately $2.1 million accounts with UPB of $248.6 billion.

The servicing business delivered $64.7 million of adjusted EBITDA and an adjusted EBITDA margin for the quarter of 10 basis points.

The decrease in adjusted EBITDA margin as compared to the prior year quarter is primarily due to declines in incentive and performance fees and elevated expenses largely driven by cost supporting our efficiency and technology related initiatives such as the MSP conversion as well as higher accruals for loss continuances and other legal expenses.

Servicing ended the quarter with an adjusted loss of $0.8 million. As George discussed earlier, we have significant reengineering initiatives underway designed to improve this margin.

Some actions already taken include the exit of the remaining sites, retail sites -- sorry, regional sites, a significant portion of the IT realignment and the redesign of loss mitigation processes. These efforts will continue across the organization.

Given the continued low interest rate environment, we're reducing our margin targets for 2016, adjusted EBITDA margins are expected at the low end of the previously provided range of 11 to 15 basis points and the adjusted earnings margin is expected to be below the previously provided range of three to five basis points.

Let’s now turn to the origination segment, which reported a solid quarter driven by strong direct margins and expense reductions, primarily aided by the closure of the retail channel earlier this year.

Originations lack $5.3 billion of UPB in the current quarter, a decrease of 16% as compared to the prior year quarter, consisting of a 7% increase in the consumer channel offset by 21% decrease in the correspondent channel.

The declines in correspondent volumes are primarily due to increased market competition and an increase in our return hurdles requiring MSR.

The segment had a combined direct margin of 87 basis points in the current quarter, a decline as compared to the prior year’s quarter’s direct margin of 100 basis points, primarily due to slight shift in product mix from the lower expense correspondent channel to higher expense consumer channel.

The combined direct margin of 87 basis points for the quarter was comprised of 42 basis points of direct margin in the correspondent channel, which stayed relatively flat as compared to the prior year quarter and 195 basis points of direct margin of the consumer channel a decline of 60 basis points as compared to the prior year quarter.

The recapture rate in the current quarter of 18% was lower than our expectations and lagged the prior quarter's results. While our recapture percentages are expected to be lower than past years due to the changing mix of our book, we are taking actions to increase our recapture rates including accelerating our capacity to handle additional customers who would benefit from refinancing through resource reallocation and the implementation of a new point of sale technology.

Additionally, we have more refined targeting of our HARP eligible customers to enhance output as the program closes out later this year and are introducing new data analytics around our in the money customers to provide more customized service. We're focused on improving our recapture rate through our process reengineering exercise underway.

The segment continues to benefit from lower expenses as compared to the prior year, partially aided by the closure of the retail channel. For the second quarter of 2016, the indirect expenses in originations were only $4.2 million.

However this included a reduction of $10.1 million related to a change in estimate of the liability associated with our originations, representations and warranty reserve. This reduction was driven by adjustments to certain assumptions based on recently observed trends given more experience with our originated book.

Excluding the benefit of this reserve reduction, indirect expenses still remain on pace through the first half of the year to achieve the previously provided target of $50 million to $60 million, a significant reduction as compared to 2015 indirect cost of approximately $80 million.

As for our targets, we anticipate the consumer lending margins for the year could come in below the 200 basis points to 250 basis point margin range previously provided. However, we still expect our volumes to remain between the $6 billion to $9 billion range for the year.

Additionally, while our correspondent margins remain strong, we believe the volumes for the year will likely be below the previously provided target of $14 billion to $18 billion due to the factors mentioned earlier.

The reverse mortgage segment delivered disappointing results for the quarter. The ongoing cost of managing the pre-IDO product have continued at elevated levels due to the height of fall rates on the book. The net gain on sale delivered by newly originated loans and from tails on the more seasoned portfolio have not been at volumes high enough to offset the net cost of service the pre 2014 product.

We are continuing to invest in growing our consumer direct channel to improve volumes in the future. As of June 30, the business has tails for the ideal product of $613 million eligible to be drawn immediately and another $190 million eligible to be drawn in the next 12 months.

Adjusted EBITDA for the current quarter was $8 million negative and adjusted loss was $9.1 million, a decrease of approximately $11.7 million in each metric as compared to the prior year quarter. Operating losses are expected to continue at similar levels during the second half of 2016.

We have worked through the initial surge of processing to significant amount of new due in payable population that was triggered by the mortgage e-letters issued by HUD in April of 2015.

While the initial process is complete, costs are expected to continue at current levels for the near term as these loans move through the foreclosure process and we ensure all steps are taken to avoid significant future curtailment losses for this population.

Concurrent with this effort, we are beginning a reengineering project focused on improving our default servicing capabilities and efficiency that includes enhancement of technology and process workflow improvements. We believe the results of this process will significantly improve our efficiency by mid 2017.

We've decided to evaluate strategic options for the business and engage -- and have engaged Barclays as the advisor to assist with that process. Consistent with our strategy for Walter, options will include pursuing third party capital to purchase our existing securitized loan book and entering into floor arrangements for future production and sub servicing. If we are successful in this endeavor, we'll be able to significantly reduce our future capital commitments to the business.

Our ultimate goal would be to deconsolidate the business that will result in a simplification and significant reduction in our balance sheet. Our objectives in the evaluation process include reducing capital requirements, transitioning the business to a more of a fee-for-service model, consistent with our goal for the forward mortgage business and facilitating the deconsolidation.

Currently the assets and liabilities of the reverse mortgage business comprise approximately 64% of our total balance sheet.

Lastly, I wanted to provide you with some additional color on the capital and liquidity position of the company and reiterate our commitment to improving our capital position. As we have communicated for some time securing relationships with external capital partners is key to reducing volatility in our earnings and improving our results.

As George mentioned earlier, we are enthusiastic about entering into a strategic relationship with new residential. We have executed agreements that include the sale of mortgaging serving rights for approximately $231 million, which Ditech will sub-service and a forward floor arrangement for newly originated MSR.

In addition, new residential is pursuing an agreement with WCO to purchase substantially all the assets of WCO ended subsidiaries. These transactions are expected to close by the end of 2016 and are subject to customer at GSE and other regulatory approvals.

This arrangement is an important component of our strategic focus on capital efficiency as it supports the transitioning of the servicing segment to more of a fee-for-service model while also providing an outlet for originations for tuck-in production volumes and delivering both enhanced capacity and liquidity to the platform.

We continue to engage in discussions with other potential investors regarding additional flow, sub-servicing opportunities, further strengthening our transition toward becoming more capital efficient.

We've also made significant progress in reducing our net advanced position driven by plant bulk filings with our primary investor and the sale of $1.2 billion in UPB of non-performing loans, which have significant advanced balances during the quarter.

This yearend, we have reduced our servicer and protective advances by $286.8 million and corresponding servicing advance liabilities by $226.8 million resulting in a net increase to our liquidity of approximately $60 million related to these actions.

With respect to covenant compliance, Ditech is subject to a minimum adjusted network to total asset ratio of 10% higher than the standard 6% currently required in a GSE servicing gap. Even at this increased level, Ditech currently maintains approximately 2.7 times of required coverage.

Ditech is also subject to liquidity requirements and maintains liquidity levels significantly in excess of the minimum required standards. Additionally during the quarter, we successfully renewed two Ditech warehouse facilities and amended a reverse mortgage warehouse agreement for the remainder of 2016 to allow for the anticipated losses in the reverse business.

Lastly, we received an amendment to our 2013 revolver, which reduced our borrowing capacity from $125 million to $100 million and increased the leverage ratio required for the second and third quarters of 2016. We remain in compliance with all our amended financial covenants.

Deleveraging the company is a primary objective for 2016. Timing differences in some of our planned objectives including the sale of the insurance business have caused delays in our strategy to make significant debt reductions during the first half of the year. However, we do expect to reduce our corporate debt in the second half of the year.

The transactions we completed during the quarter including MSR sales and advance reduction actions have improved our cash position at June 30 and will enable us to reduce our corporate debt as we evaluate the most efficient way to do so.

As we execute on our strategic initiatives, we will continue to evaluate and possibly refine our previously provided targeted leverage ratio.

I'll now turn the call back to George for a quick wrap up. George?

George Awad

Thank you, Gary. In summary, we're committed to strengthening our balance sheet. The transaction with new residential will give us liquidity to retire our debt efficiently and improve our origination capacity.

The wholesale channel gives us added distribution. We're intensifying our cost reduction efforts and expect to have taken out $75 million in cost and while executing on additional $75 million with a commitment to find more.

The focus on process improvement and redesign will translate into better origination and increased retention efforts. We're strengthening our bench and have new leadership in place. Our workforce is engaged and focused on the right initiatives.

With the actions we've taken, we have the capital, the people and the process focus on producing sustainable growth. We're committed to executing on our plans and realizing the potential of our business.

With that, Gary and I are happy to take your questions.

Question-and-Answer Session


Thank you. We'll now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of Douglas Harter from Credit Suisse. Your line is now open.

Doug Harter

Thanks. I was just hoping you could give us little more detail on the sub-servicing agreement. What is the revenue contribution -- what is the revenue outlook on that new agreement and/or what is kind of expected profitability look like on that?

Gary Tillett

Doug, this is Gary. So yes as we said historically we have put out margins or specific data points on revenue, but the sub-servicing agreement we've entered into are consistent with our past arrangements and consistent with what you would expect in the market for I would say normal clean GSE servicing.

Doug Harter

All right. And then the MSRs that you are selling to new residential, can you say whether the purchase price or how that purchase price compares to where the loans were marked on June 30.

Gary Tillett

Yes, I think generally consistent as a whole. So as we think about as you know every week there is a different mark on the book based on where the market factors are, but the trades we've been doing are at or around book.

They do vary depending on whether you sell on service release, servicing retained etcetera and there is significant value in the ongoing relationships, but the sales that we've entered into during the quarter and agreements are generally at around our marks on the dates we agree the pricing.

Doug Harter

Got it. And then as you have new, this cash coming in from -- can you talk about whether you think you'll be able to or how much of the different debt structures you'll be able to source out at current market prices or as to whether you'll be able to capture some of that discount when you're looking to de-lever versus having to pay down the bank loan at par.

Gary Tillett

Yes, so I think we've talked about in the past I think George mentioned today, I think we have around $40 million the ability to go out and execute below the term loan.

So that's $40 million that is available to not apply the term loan today. There is another $25 million that goes into effect January 1. Short of that the term loan has -- we have the ability to do auctions with the term loan etcetera and then there are requirements in the debt agreements to pay certain proceeds down in par.

But today I think the term loan can be bought in at a discount, but we only have $40 million plus $25 million in the next six month or so to execute on.

Doug Harter

Thank you.


Thank you. And our next question comes from the line of Jeremy Campbell from Barclays. Your line is now open.

Jeremy Campbell

Hey thanks. Just wanted to go back, Gary I think you mentioned something about again the insurance business is kind of caught up in no man’s land right now. Just wanted to see if you guys have any sense of timing on that one and if the net proceeds are still targeted to be around $150 million?

Gary Tillett

Yeah. I think today we progress in terms of discussions with regulators etcetera, but as George indicated we would probably be making some adjustments to some things. No change to the proceeds at this point, but again we’ll have to see how the total package would come out. But it's tough -- as always, its stuff to comment on timing, but at this point there is no adjustment to the price.

Jeremy Campbell

Great. And then just wanted to refocus back on the sub-servicing agreement, with this deal now looking more like a traditional I guess regular way sub-servicing deal like a complete third counterparty, just wanted to confirm that your economics are going to be more like that relevant to the economics like you’d split with a extra servicing relationship where the capital partner prices to return hurdle and then you are profitability is a bit more variable depending on whether they hit a hurdle in that, is that correct?

Gary Tillett

Yeah. This would just be a traditional sub-servicing arrangement on that book where we have agreed upon rates and depending on how the book performs and how we do, drive our margins, correct. But it won’t be incentive structure or things of that nature.

Jeremy Campbell

Okay. And then finally, I just wanted to touch on, you guys mentioned, the wholesale channel as a potential source of new growth. We've seen obviously a lot of people back away from that channel over the past several years here.

And I just wanted to hope to get some clarity from you guys about what you see as your advantage here that you guys can make it work for others, haven't really been able to and what opportunity you see there as well?

George Awad

Well, this is George. Look I think we have the product sets. We have underwriting skills. We have the platform. The margins are certainly higher in wholesale than they are in correspondence.

So we like it for these purposes and now that we have outlet for our business, so we can effectively put it on somebody else's balance sheet there is cash to be had right away. So I see it as a good opportunity and a place we can grow and feel our servicing business.

Jeremy Campbell

And then just a follow-up on that one, obviously one of the big concerns about wholesale is to put back risk, I assume as underwriters you guys would still be taking that on just like using somebody else's balance sheet?

George Awad

Yeah we will do the underwriting, that is correct. And we are prepared to do that.

Jeremy Campbell

Okay. Thanks a lot.


Thank you. And our next question comes from the line of Bose George from KBW. Your line is now open.

Bose George

Good morning. I had a question just on the longer-term business model, if you could sell all your MSRs and you set to pay down debt, now would you do that and under that scenario, do you think you would be profitable?

Gary Tillett

Yeah, Bose. I think we've talked about it before. Our goal has been to evolve over time and sale MSRs at the right times at the right proceeds. So our plan does not include complete reduction of MSRs over night. It’s a blend over time and the real focus is on the future, as George said to make sure we have capital partners to buy new production as we transition the business and continue.

Because the mix of our MSRs, a very different mix of product across the spectrum, so we don’t have -- we've not focused on a complete liquidation of the MSR book.

Bose George

Okay. Thanks. And then actually switching to the deferred tax asset continues to grow, it looks like it's around $7.5 a share now. Is there anything that could trigger the need to take evaluation allowance and if so, is there anything that could impact your debt covenants or anything else that affects your operations?

Gary Tillett

Yeah I think first of all the deferred tax asset as you know, we basically have to evaluate each period against your future taxable income and what would trigger that as if you believe that it became not more likely to not that you believe you'll realize it.

So that’s what we trigger a valuation allowance if we felt like in the foreseeable future wouldn’t generate the taxable income to offset that.

As far as the debt covenants again, we at the corporate level, we really don’t have debt covenants other than on the revolver, which as we’ve mentioned this time, we received an amendment, we lowered the amount of the revolver received in amendment, because there is a leverage ratio there to access the revolver. But valuation allowance debt covenants etcetera wouldn’t really impact the corporate debt.

Bose George

Okay. Thanks, actually one small one, the $10 million reduction in the rep and warrantee liability that you guys had in the mortgage banking segment. I assume that’s just a one-time charge or a one-time expense reduction.

George Awad

The way it works obviously, we've put up a reserve every quarter and we’ve been building that reserve over time as we sold loans since ‘13 and we have experience. So we've looked at it and made that adjustment. But yes, that’s not something you would see quarter-on-quarter of that size. It’s an adjustment for something that’s build since '13.

Bose George

Okay. Great. Thank you.


Thank you. And our next question comes from the line of Vic Agrawal from Wells Fargo Securities. Your line is now open.

Vic Agrawal

Thank you, good morning, thanks. On the $35 billion that you sold to NRZ, assuming that the $231 million purchase price, I assume that’s mostly distress MSRs, is that correct?

Gary Tillett

I wouldn’t say, it’s distressed, it’s little more seasoned than higher coupon, but it’s I wouldn’t call it distressed.

Vic Agrawal

So assuming $231 million NFD, WCO transaction closes, are you expecting proceeds of roughly $25 million to $28 million on that as well.

Gary Tillett

Well the WCO transaction has a couple of things, if that proceeds and closes, I think that number is around $283 million or so and about $100 million of that is additional Walter assets that would be associated with that. So it would be $100 million there and then the remainder our piece of WCO.

Vic Agrawal

Okay. And then, I wanted to try and get a better understanding of the revenue impact that you saw in the MSRs. Can you give us a little bit more color on that?

Gary Tillett

Yeah, not specific, we don’t have specific numbers. But clearly, if you’re reducing your basis point, your strip, your complete strip for the servicing fee and the amortization of that MSR, then you get reduced down to kind of a prolonged charge, and then there is other income, different charges, fees, etcetera that go with subservicing.

And so you basically reduce from the strip you receive in total, down to a prolonged charge and the amortization goes away. But we won’t disclose the difference in those numbers.

Vic Agrawal

And then on the $75 million that you expect to try to achieve in cost save through ’17, how much more do you need to spend to achieve those especially on the technology side?

Gary Tillett

I don’t think we put out an update for projected spend. I think what we put it out in the past, I think we've disclosed what we spend so far for the first $75 million, which relates to the actions taken this year already.

We have not finalized a projection for the $75 million plus that we’re going after additional. We’ll probably provide more on that as we move forward. Process going on now, to go for that second $75 million and beyond and so we’ll probably have more in the future but we have an intense process going on right now to assess that.

Vic Agrawal

Okay. And then on your leverage target, how should I think about that time, given the cash you’re going to be getting from the sale, is that 3.4 to 3.6, still where you’re trying to achieve by the end of this year?

George Awad

Yes, as I indicated in my comments, there is a lot of factors affecting that whether it’s EBITDA, how much debt we can buy and at what prices. So we haven't updated that at this point. We’ll provide more on that, I think in the next quarter.

Vic Agrawal

Okay. Thanks for the answers.


Thank you. And our next question comes from the line of Fred Small from Compass Point. Your line is now open.

Fred Small

Hey, thanks. Congratulations on the sale. Most of my questions have been answered but just on the insurance business, you said, that’s net proceeds that you’re expecting of a $150 million, what’s the book value associated with that business right now?

George Awad

It’s in the -- I think it’s in the high 80s, 90s in that range, most recent book value of insurance. And again, the 150, that’s our agreed upon price some months back. As we talked about we’ve been reviewing that with some regulators. We may have some impact of that as we go forward, but again, that’s where it sits today.

Fred Small



And right at this time, we do not have any questions on queue. [Operator Instructions]

George Awad

Okay. Thanks a lot operator. Thanks, everyone, for joining the call.


Thank you. And that concludes today’s conference call. Thank you all for joining. And you may now all disconnect.

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