Ocwen Financial Corporation (OCN) CEO Glen Messina on Q3 2018 Results - Earnings Call Transcript

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About: Ocwen Financial Corporation (OCN)
by: SA Transcripts

Ocwen Financial Corporation (NYSE:OCN) Q3 2018 Earnings Conference Call November 6, 2018 8:30 AM ET

Executives

Steve Swett - IR, ICR

Glen Messina - President and CEO

Cathy Dondzila - Chief Accounting Officer

Analysts

Bose George - KBW

Leon Cooperman - Omega Advisors

Operator

Thank you for standby, this is the conference operator. Welcome to the Ocwen Financial Third Quarter 2018 Earnings Conference Call. As a reminder, all participants are in a listen-only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions. [Operator Instructions]

I would now like to turn the conference over to Mr. Steve Swett, moderator. Please go ahead, Mr. Swett.

Steve Swett

Good morning, and thank you for joining us for Ocwen’s third quarter 2018 earnings call.

Please note that our third quarter 2018 earnings release and slide presentation have been released and are available on our website for your review. Speaking on the call, we have Ocwen’s Chief Executive Officer, Glen Messina; and Chief Accounting Officer, Cathy Dondzila. John Britti, Chief Investment Officer will also be available to answer questions.

As a reminder, the presentation and our comments today may contain forward-looking statements made pursuant to the Safe Harbor Provisions of federal securities laws. These forward-looking statements may be identified by reference to a future period or by use of forward-looking terminology.

Forward-looking statements by their nature address matters that are to different degrees, uncertain. Our business has been undergoing substantial change, which has magnified such uncertainty. You should bear these factors in mind in considering such statements and should not place undue reliance on such statements. Forward-looking statements involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially. In the past, actual results have differed from those suggested by forward-looking statements and this may happen again.

Our forward-looking statements speak only as of the date they are made, and we disclaim any obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

In addition, the presentation and our comments contain references to non-GAAP financial measures such as available liquidity, adjusted operating expense, adjusted pre-tax income, and cash flow from operations after adjustments among others.

We believe these non-GAAP financial measures provide useful supplement to discussions and analysis of our financial condition. We also believe these non-GAAP financial measures provide an alternate way to view certain aspects of our business that is instructive. Non-GAAP financial measures should be viewed in addition to and not as an alternative for the company's reported results under accounting principles generally accepted in the United States.

For an elaboration of the factors I just discussed, please refer to our presentation and today's earnings release as well as the company's filings with the SEC, including Ocwen's 2017 Form 10-K and 2018 Form 10-Q, which are available on our website.

Now, I will turn the call over to Glen Messina.

Glen Messina

Thanks, Steve. Good morning and thank you for joining us today. I'm excited to join Ocwen as it's important time for the company. I would like to thank John Britti for his services as Interim CEO, and both John and Rob Brown, President and CEO, PHH and their respective teams for executing the necessary action to close Ocwen’s acquisition with PHH. I look forward to working with the board, management and employees to help Ocwen continue as a leading mortgage servicer that delivers value to all of our stakeholders.

Today, I will provide an overview of the PHH transaction and our strategic priorities. Cathy Dondzila will then follow with the review of the third quarter financial results. I will close the call with some brief remarks before opening it up for questions.

Please turn to slide four. We believe Ocwen's acquisition of PHH provides us with the opportunity to transform to a stronger, more efficient company that are able to serve our customers and clients and positions us for a return to growth and profitability.

In the near-term, our goal to return to profitability in the shortest timeframe possible, taking into consideration the robust prudent integration process we are undertaking. To achieve this goal, we have established a set of initiatives that will be executed in two phases. Our Phase 1 initiatives address our most critical near-term challenges and establish a foundation for the future.

These include, execute the integration to create value, re-engineer our cost structure, established funding for growth, replenish portfolio runoff and restore growth focus and fulfill our regulatory commitments and resolve remaining legacy matters.

Our Phase 2 initiatives focused on ensuring sustainability. These initiatives include, digitize our business model, diversify our business model, leveraging our core competencies and rebuild our reputation and demonstrate that we have transformed our company.

Ocwen continues to be an industry leader in helping homeowners remain in their homes. This is a long-standing core competency for Ocwen and it will continue to be a guiding principle as we move the company forward. We're excited by the opportunities that exist as we move forward after prolonged growth restrictions. And we are focusing on executing initiatives largely within our control.

Let's go into more details about the PHH transaction and our plan to transform our business. Please turn to slide five. On October 4th, we were successful in closing the acquisition of PHH. On a combined basis as of September 30th, we will service approximately 1.7 million loans with the UPB of nearly $287 billion. The combined company originated more than $2.2 billion of residential mortgage loans, including reverse mortgages on an annualized basis pro forma as of June 30, 2018.

The PHH transaction is initially cash and book value accretive. We currently expect to recognize a bargain purchase gain on the acquisition date. The anticipated bargain purchase gains results from the fair value of PHH's net assets exceeding the purchase price we paid. We expect to finalize the gain amount in the fourth quarter. The purchase price contemplated that PHH may incur losses after the acquisition date. To the extent those losses are realized they'll be included in our consolidated statement of operations in the fourth quarter and subsequent periods.

In terms of cash as of September 30, PHH had a pre-closing cash balance of $435 million, which is $77 million higher than the purchase price of $358 million. We believe the acquisition of PHH is the fastest path to transition to an industry leading scalable servicing platform. This is the catalyst for cost reduction, improved economies of scale and returning to growth in a safe and responsible way.

Now please turn to slide six. We intent to use our core competency in servicing higher credit risk customers to prudently grow our portfolio of owned and sub serviced agency and non-agency mortgages. We believe the efficiencies enabled through the combination with PHH and the cost advantages of our offshore infrastructure will allow us to effectively and profitably compete for higher credit risk mortgage servicing.

Because we are operating at a pre-tax loss and our business operations are consuming cash. Our near-term goal is to return to profitability in the shortest timeframe possible. Taking into consideration the robust and prudent integration process we're undertaking. We have established a set of initiatives to enable our return to profitability, reduce the ongoing operational cash loss and improve our competitive position.

As mentioned earlier these initiatives are being executed in two phases. Our Phase 1 initiatives are the most critical for a return to profitability and establish a scalable foundation for the future. These initiatives will also be executed in parallel.

Please turn to slide seven. Our first initiative is to execute the integration to create value. Our objective is to select the best people, processes and technologies across both companies. We are focused on executing our integration plan in a safe and sound manner. We have experienced leaders, board and management oversight and detailed project plans are being finalized to ensure we're taking a disciplined approach.

The cornerstone of the integration is the servicing system conversion, which will occur through multiple loan transfers over the next 9 to 12 months. Our integration plan call for extensive pre and post boarding testing, quality checks and customer communication and support. To the extent any unexpected challenges are encountered it may extend the conversion timeline. We believe the safe, controlled and methodical approach will serve to reduce post conversion challenges and minimize customer impact.

Please turn to slide eight. Our second initiative is re-engineering our cost structure. As we stated during our second quarter earnings call our annual cost synergy run rate target is $100 million over combined annualized operating expenses as of June 30, 2018. Our return to profitability is dependent on realizing the previously identified $100 million in acquisition synergies, which we stated would be over 12 to 18 months following closing and realizing at least an additional $100 million and yet to be determined expense re-engineering benefits.

Considering the combined expense base of Ocwen and PHH and our transition to the MSP servicing system, we believe by selecting the best people, processes and technologies from both organizations there are opportunities to exceed the previously identified cost reduction target.

Having completed the merger, we now have unrestricted access to PHH employees, operation and processes. As a result we are updating our integration plan and related expense reduction and re-engineering opportunities. We are focused on maximizing cost savings as quickly as possible, while ensuring we are on compliance with our legal and regulatory obligations and continuing to act responsibly for our customers and other stakeholders.

There are three sequential events that will enable cost reduction opportunities. First, closing the acquisition which will enable savings from reducing duplicative overhead and public company infrastructure. Second, completing the loan transfers to MSP. This allows us to eliminate the dual operating system environment that we are running in the short-term.

Third, merging Ocwen’s two primary licensed entities, Ocwen Loan Servicing and Homeward Residential into the primary PHH offering company, PHH Mortgage Corporation. The final loan transfers to MSP and legal entity mergers are likely to be very closely linked in terms of timing. This consolidation of three licensed entities into one should reduce operating complexity and simplify our tax status.

While we may lose some tax advantages associated with our current tax status, we expect the combined effects of the operating efficiencies from reduced complexity, forecasted near-term operating results and lower U.S. corporate tax rates will likely make the near-term impact of the changes a net positive for the quarter. In order to complete the integration and realize the $100 million in acquisition synergies already identified, we expect to spend $25 million to $30 million in severance and other one-time costs largely in 2019. We expect to update our cost synergy targets as appropriate during subsequent earnings calls.

Now please turn to slide nine. Our third initiative is to establish funding for growth. We are exploring a number of capital structure options to ensure we have necessary capacity to invest in growth, adjust upcoming debt maturities and accommodate our business needs. We believe we need to diversify our funding sources to support our MSR and whole loan investment goals. Our objective is to maximize the total investment capacity for each dollar of cash invested. We are evaluating our debt structure and available financing alternatives to optimize cost, advance rates and terms.

We also want to ensure our stock is positioned to be an attractive investment to a broader base of investors to support a sustainable growth focus. Our actions in this regard include bolstering our shareholders relations capability, more visible presence in investor conferences, as well as evaluating a reverse stock split and rebranding the company.

Our fourth initiative is to replenish portfolio runoff and restore our growth focus. We are excited about the opportunity to resume growth activities as permitted by our regulatory restrictions, which have been eased this year. While certain restrictions still remain, we are working to satisfy the remaining conditions. And we believe we can operate within the current restrictions to replenish our portfolio.

Our return to profitability is dependent on the ability to originate or acquire approximately $35 billion in servicing and subservicing UPB through replenish our expected annual portfolio runoff. We intend to pursue growth in a responsible and disciplined manner, with return targets that are prudent and aligned with our core competencies.

Furthermore, we will be mindful of boarding new loans on the Black Night platform such that it does not interfere with the integration. In the current mortgage industry environment, it is important to have multiple origination sources to fully access market opportunities. In the near-term, we expect to concentrate our efforts on bulk and mini-bulk MSR purchases, agency co-issue programs, portfolio retention and executing call rights where it makes financial sense.

Consistent with this focus in the second quarter, we executed call rights for loans worth $73 million and in the third quarter we purchased subordinated bonds relating to trust containing $28 million of mortgage loans in anticipation of a potential future call. We have over $17 billion of call rights and will continue to evaluate our portfolio to execute call rights where it is financially beneficial.

We believe that market opportunities exists, which would allow us to purchase and/or originate MSRs at a rate at least sufficient to replenish and ultimately regrow our portfolio. We expect our core competency of serving underserved of riskier [ph] borrowers will provide a competitive advantage for certain MSRs. We believe targeted return on assets of 9% to 13% on MSRs and gross margins of 20% to 30% on subservicing are reasonable in today's market.

We are also working to prudently expand products and programs to serve underserved customers, including self-employed borrowers and borrowers who just missed qualifying for agency programs. We are piloting one such program currently in our portfolio retention group. We will also evaluate opportunities to expand our lending activities including reentering correspondent lending and other channels.

Please turn to slide 10. Our fifth initiative is to fulfill regulatory commitments and resolve remaining legacy matters. We have made a number of commitments to our regulators regarding behaviors and actions going forward, replacing legacy technologies, ongoing reporting and controls and looking back at how well we performed certain activities. Fulfilling our commitments and resolving our remaining legacy and regulatory matters are critical steps to growing our business going forward.

Reducing our legal and regulatory related expenses is a critical component of our objective to return to profitability. Over the past five years we have spent hundreds of millions of dollars on legal and regulatory settlements, defense cost, monitors and other measures to comply with the terms of our legal and regulatory settlements. We are intensely focused on fulfilling our regulatory commitments and we intent to reap the benefits of our substantial multi-year investments in our operations, and risk and compliance infrastructure to deliver on these regulatory commitments, and at the same time reduce these expenses going forward.

We are working to resolve our remaining legal and regulatory matters on satisfactory terms. The five Phase 1 initiatives I just discussed would be our highest priority as they address our most critical needs. We expect to provide updates on our Phase 1 initiative as appropriate during our next earnings call.

Now please turn to slide 11. Our Phase 2 initiatives are focused on ensuring sustainability these covered three broad areas. First, digitize our business model. We believe leveraging technology to deliver superior accuracy, cost, speed and customer satisfaction is critical to our long-term success.

After we have fully transitioned to the Black Knight system we’ll focus our technology efforts in two areas, improving operating performance through automating control systems, ingestion and indexing of unstructured data and implementing cognitive technologies to automate repetitive low complexity task. And improving the customer experience through implementing digital customer interfaces for payments, enquiries, refinancing and loan modifications. These technologies which is today and are being used across multiple applications in the consumer finance industry.

Second, diversifying our business model, while leveraging our core competencies. The mortgage industry can be volatile and dynamic, we believe that we’ll need multiple revenue sources to decrease volatility and create multiple sources of growth. We believe there are several areas of opportunity, leveraging our core competency and loan modifications and loss mitigation to consumer mortgage credit risk. This can be executed through investing in credit risk retention instruments from mortgage loan pools we’ve serviced.

Maximizing our share to servicing ecosystem profit pool, the most profitable servicers optimize opportunities and adjacent activities to increase the returns, such as offering home rental or rent their own products. To the extent permissible, we’ll look at performing some of these services in-house.

We’re also cautious of the level of M&A activity in the industry and we’ll evaluate opportunities to the extent we believe they can deliver the appropriate returns to our shareholders. We believe it’s important to all our constituent to demonstrate our ability to successfully integrate PHH before acquiring another large scale servicing platform or portfolio.

Lastly, we can monitor expertise at servicing mortgages to servicing other consumer financial product such as alternatives to these [ph] arrangements. We are in the early stages in the process and we’ll talk more about this on future calls.

Finally, Ocwen’s management and Board of Directors fully appreciates that building trust and confidence across all our constituencies is a long-term process and thus utilize multiple strategies to create a new image and reputation. We believe Ocwen has made progress on this front and over the past four years we’ve undertaken a number of important initiatives to strengthen our company. Going forward we’re extremely focused on consistent high quality execution and demonstrating to all of our constituencies that Ocwen is a transformed company.

Now, I’ll turn it over Cathy, who will discuss the results for the quarter.

Cathy Dondzila

Thank you, Glen. My comments today will focus on our third quarter results as compared to the prior quarter. As previously noted our third quarter investor presentation includes more details on our results and is available on our website.

Please turn to slide 13, we recorded a net loss of $41 million in the third quarter of 2018. Our pre-tax loss was $40 million in the quarter as compared to a pre-tax loss of $28 million in the second quarter.

Revenue of $238 million declined $15 million from the prior quarter, primarily due to portfolio runoff. Due to MSR acquisition restrictions we have not been able to replenish our portfolio through MSR acquisitions and have instead been limited to portfolio recaption. As discussed on our last call we’ve reported a $4 million gain from executing R&D as call rights, on seasoned second lien residential mortgage loans in the second quarter, with no similar activity in the third quarter.

Lending revenue also declined, driven by unfavorable valuation changes on our reverse mortgage portfolio and lower margins in the business due to unfavorable market conditions. Non-MSR related expenses at $176 million were only marginally higher than the prior quarter, with higher professional fees only partly offset by lower compensation and benefits expenses, resulting from our cost improvement initiatives. While we have made progress in our cost improvement initiatives as, Glen, noted earlier, we believe there are significant opportunities to make further improvements.

Addressing the higher unfavorable MSR valuation adjustments in the third quarter. Rising interest rates are resulting in higher funding cost assumption, which reduced the value of our MSRs. We have provided additional information in regards to MSR valuation impact for you on page 27 in our slide deck. Please note the majority of our unfavorable MSR valuation was offset by favorable NRZ interest expense in the quarter, driven by the offsetting MSR financing liability valuation impact.

As outlined on slide 14, our Servicing segment recorded its first quarter pre-tax loss in the two years. The $14 million pre-tax loss was driven by the impact of continued portfolio runoff and higher professional fees. We also had certain gain from execution of call rights in the second quarter, which were not repeated in the third quarter. While we continue to focus on reducing direct business costs, as evidenced by the 5% lower headcount during the quarter, we intentionally carry additional headcount to support our integration efforts in anticipation of the acquisition.

Returning the Servicing business to sustained profitability will require successful execution of the strategic Phase 1 initiative that, Glen, pointed out earlier. The Servicing business remains focused on providing loan modification solutions to qualifying borrowers in need. We completed over 9,100 modifications in the quarter, 15% of which resulted in some type of debt forgiveness totaling $44 million. Driven by our loan resolution efforts, the non-performing portion of our portfolio declined from 8.3% in the second quarter to 7.8% in the third quarter, driving a reduction of servicing advances.

Market conditions continue to negatively impact our Lending segment, where we recorded a pre-tax loss of $2 million in the third quarter, reversing the modest pre-tax income we recorded in the second quarter. I refer you to slide 15 in the deck for more details. Our forward lending pre-tax loss of $1 million was favorable to the prior quarter, despite lower volumes in the quarter driven by rising interest rates. This was largely offset by changes in our pricing strategy, which drove higher margins.

Despite the unfavorable market conditions, we were close to breakeven and are now focused on the steps necessarily to grow the business for sustained profitability. The PHH acquisition will provide us with opportunities for additional scale and more efficient processes, both of which can drive higher margin realization by driving down our cost per loan. We are also focused on developing products that better align with the market and our consumer credit profile to help improve our portfolio recapture.

Our reverse lending business recorded a pre-tax loss of $1 million as rising interest rates continue to drive unfavorable valuations due to the shortening the life of the portfolio and lower margins. Funding volumes continue to be challenged in line with the industry trends. HUD endorsements a measure of market volume continue to decline and were 6% lower than the second quarter. The business continues to work on efficiencies through process automation and cost controls in sales and marketing in response to these market-based headwinds. We are exploring new products and other alternatives to capture more of the market.

Our Corporate segment recorded a pre-tax loss of $24 million this quarter. Our corporate results are largely comprised of unallocated overhead, debt related expense and regulatory legal costs. As previously outlined by, Glen, core focus area of the PHH integration efforts will be to reduce operating costs and improved margin by eliminating redundancy and improving efficiencies.

We consider our balance sheet and liquidity position to these strengths. As you can see on slide 16, we ended the third quarter with available liquidity of $408 million, $24 million higher than the second quarter. This included $255 million of cash on the balance sheet. We view available liquidity as cash on hand plus foregone and available borrowing capacity on advance facilities and warehouse lines, we're choosing to fund with corporate cash that could be quickly converted into cash based on eligible collaterals that can be pledged to these facilities.

We had total corporate debt outstanding of $586 million, representing about one times corporate debt to book equity ratio, which compares favorably to our peers.

And now, I'll turn it back over to Glen.

Glen Messina

Thanks, Cathy. Please turn to slide 17. We believe that Ocwen's acquisition of PHH provides us with the opportunity to transform to a stronger, more efficient company. They're able to serve our customers and clients and positions us for return to growth and profitability. In the near-term, our goal is to return to profitability in the shortest timeframe possible, taking into consideration the robust prudent integration process we are undertaking. To achieve this goal, we have established a set of initiatives that will be executed in two phases.

Our Phase 1 initiatives addressing most critical near-term challenges and establish a foundation for the future. These include execute the integration to create value, re-engineer our cost structure, establish funding for growth, replenish portfolio runoff and restore growth focus and fulfill our regulatory commitments and resolve remaining legacy matters.

Our Phase 2 initiatives focused on ensuring sustainability. These initiatives include digitize our business model, diversify our business model, leveraging our core competencies and rebuild our reputation and demonstrate that we have transformed our company.

Ocwen continues to be an industry leader in helping homeowners remain in their home. This is a long standing core competency for Ocwen and it will continue to be a guiding principle as we move the company forward. We're excited about the opportunities that exist as we move forward after prolonged growth restrictions and we're focusing on executing initiatives largely within our control.

And with that, we're ready to take questions. Operator?

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question is from Bose George of KBW. Please go ahead.

Bose George

Hi, everyone. Good morning. Good morning, Glen. Welcome, looking forward to working together with you again.

Glen Messina

Good morning, Bose.. Thank you.

Bose George

The first question I had was just on the cost saves that you guys talked about the $100 million. When we look at that relative to what was reported in 2Q by Ocwen and PHH.

Should we use the GAAP numbers as kind of the baseline or should we adjust for unusual items, which way should we kind of look at it when the baseline put $100 million of cost saves?

Glen Messina

Yes, Bose, the $100 million of cost saves was based off of the second quarter GAAP results for both -- second quarter 2018 GAAP results for both Ocwen and PHH.

Bose George

Okay, great. Thank you. And then, actually on the MSR valuation, just wanted to make sure I had the comment you made earlier. Was there a net MSR valuation adjustment this quarter after the NRZ liability? Or was there -- was that kind of flat after adjusted for that?

Glen Messina

Yes. Cathy can you answer that?

Cathy Dondzila

Yes, there was a small net adjustment, but it was not significant after adjusting for the NRZ.

Bose George

Okay. So because the MSR mark -- so the valuation was the negative $7 million and then that was kind of largely offset by NRZ, is that what happened?

Cathy Dondzila

Correct.

Bose George

Okay, great. And then just wanted to go back to the point, Glen, you had made earlier just about the tax rate after the merger. Can you just repeat what you said about what happened to the tax after the merger?

Glen Messina

Yes, Bose, as part of the integration process. Once we've completed a majority of the loan transfers onto the MSP, Black Knight MSP operating system. We do intend to collapse the two primary legal entities for Ocwen into the primary legal entity for PHH, which is PHH Mortgage Corporation. With that collapse of legal entities we’ll no longer enjoy the lower tax rate that we have for the U.S. Virgin Islands tax structure.

Bose George

Okay. And what's the expected GAAP tax rate going forward?

Glen Messina

Yes, Bose, I think it's -- as we think through it, we don't expect there to be a material adverse adjustment to the business given the overall how much income was actually in the U.S. Virgin Islands tax structure as well as go forward operating performance in the business and the fact that U.S. tax rates overall have come down. But we don't have an estimate or probably wouldn't forecast an estimate for projected future effective tax rate. That's just too hard to do.

Bose George

Okay. And then actually just one last one for me. With the agreement with New York DFS, I guess, effectively allowing you to keep modestly grow your portfolio. Are you going to be active in buying MSRs again or are you going to wait till the integration is done and kind of do that sort of further down the road?

Glen Messina

We do intent to be more active in purchasing MSRs. Here we talked about on the call both participating in bulk and mini-bulk MSR purchases, as well as the agency co-issue programs and our portfolio retention activities. We are going to be prudent and we are going to leg into it. It's been a while since the company has exercised its growth engine so to speak. So we want to make sure that the plumbing in the pipes are all working well. And clearly while we have the acquisition going on we are going to make sure that we don't disturb the long boarding or integration schedule or do anything that would potentially disrupt or impact of our experience. So the integration is the first among sequel so to speak.

Bose George

Okay, great. Thanks a lot.

Operator

The next question is from Lee Cooperman with Omega Advisors. Please go ahead.

Leon Cooperman

I was wondering if you could be a bit more helpful. You talked about returning to profitability in the shortest timeframe possible. What does that mean? Maybe I could wrap it up into few questions. I think from what you said that the book value a year from now will be higher than it is presently because of the accounting adjustments that not yet been made. So do you have an estimate of pro forma book value looking at a year? And what kind of -- the way you want to run the business, what kind of return on book value should we earn as a business. And what is your timetable to get there? Just aspirational not a forecast.

Glen Messina

Yes, Leon, let me break that into three pieces. So first, in terms of the time frame to return to profitability. I think there's a couple milestones that we've got to get through. So I think as we said on the call first and foremost getting through the integration, which is roughly 9 to 12 months to get through that integration process.

In terms of executing the cost re-engineering actions, that will take another 12 to 18 months. And we also have to develop an annualized run rate of new originations to replenish portfolio runoff of about $35 billion. So that's the framework we're operating within right now in terms of return to profitability.

Leon Cooperman

Are these additive meaning it's two and half, three years before you return to profitability?

Glen Messina

They will be executed in parallel.

Leon Cooperman

Parallel. Okay, thank you. Go ahead.

Glen Messina

Second, in terms of overall returns for the business. We identified that you know we think there's potentially 30% margins available on the subservicing side and 9% to 13% return on assets for MSR acquisitions. Assuming we can re-engineer our cost structure and generate portfolio runoff, we would hope that the overall investments would continue to earn that rate of return.

Our return on equity would be a function of how we choose to leverage those assets. And we were right now looking at a variety of different financing and funding structures for those assets. We're still working through cost advance rates and those type of things to be able to back into an ROE for the business.

So, I think we've got some work to do on what we think the ROEs can be for these individual asset acquisitions and the business. We do have to understand the financing structure.

Leon Cooperman

I mean, would you think 12% to 15% would be a reasonable objective.

Glen Messina

Lee, just broadly if I look at players within this industry and if I look at industry overall returns through the cycle, people look to average somewhere in the -- I would say high single-digit low double-digit to mid-teen returns from mortgage banking through the cycles. As you know there is lots of -- given that’s an interest rate sensitive business back and vary depending on what market cycle you’re in, but through the cycles I think that’s the range that an industry participant would target for this business.

Leon Cooperman

Did I understand it correctly that the accounting adjustments have not yet been effectuated would lead to an increase in our book value, was that I misunderstand something?

Glen Messina

No, that is correct Lee. So we are expecting because we did -- our purchase price was less than the actual fair value of the assets for the business we do expect there will be a bargain purchase gain, those calculations are underway now and Cathy December…

Cathy Dondzila

December 21st…

Glen Messina

21st.

Cathy Dondzila

It is when we’d expect to release the pro forma.

Leon Cooperman

Got you. Okay, thank you for your responses. I appreciate it.

Glen Messina

Yes, sir.

Operator

This concludes the question and answer session. I will now turn the call back over to management for closing remarks.

Glen Messina

I want to thank everyone for joining the call today. And we appreciate your support as a company. We look forward to updating you on our progress and these initiatives next quarter.

Operator

This concludes today’s conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.