Greetings, and welcome to Ocwen Financial Corporation's full year and fourth quarter earnings and business update conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Dico Akseraylian, SVP Corporate Communications.
Good morning, and thank you for joining us for Ocwen's full year and fourth quarter 2021 earnings call. Please note that our earnings release and slide presentation are available on our website. Speaking on the call will be Ocwen's Chief Executive Officer, Glen Messina, and Chief Financial Officer, June Campbell.
As a reminder the presentation or comments today may contain forwarding-looking statement made pursuant to the safe harbor provisions of federal securities laws. These forward-looking statements may be identified with reference to a future period or by use of forward-looking terminology and address matters that are to different degrees uncertain. You should bear this uncertainty in mind and should not place under reliance on such statement.
Forward-looking statements involve assumptions, risks, and uncertainties, including the risks and uncertainties described in our SEC filings, including, when filed, our Form 10-K for the year ended December 31, 2021, and our current and quarterly reports since such date. In the past, actual results have differed materially 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 statement, whether as a result of new information, future events, or otherwise. In addition, the presentation or comments contain references to non-GAAP financial measures such as adjusted pre-tax income and adjusted expenses, among others. We believe these non-GAAP financial measures provide a useful supplement to discussions and analysis of our financial condition and 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. A reconciliation of the non-GAAP measures used in this presentation to their most directly comparable GAAP measures may be found in the press release in the appendix to the investor presentation. Now, I will turn the call over to Glen Messina.
Thanks, Diko. Good morning, everyone, and thanks for joining us. We're excited to share our progress with you this morning. Let's start with slide 4, and we'll review a few highlights for the full year and the fourth quarter. We delivered full year GAAP net income of $18 million and adjusted pre-tax income of $59 million. 2021 was our first full year of positive GAAP net income since 2013.
Fourth quarter adjusted pre-tax income of $10 million is consistent with our third quarter performance, excluding the call rights transaction. Our fourth quarter net loss of $2 million includes $14 million in pre-tax notable items. Excluding these notables, we delivered an annualized adjusted ROE of 12% in the fourth quarter, and that's consistent with our targeted return objectives. In the fourth quarter, I'm really proud of the team.
We delivered record total servicing additions, double-digit growth in our highest margin channels, solid operational execution. We achieved our recapture rate objectives in consumer direct, and cost reduction and servicing was ahead of target. Our servicing team was recognized for their superior operating performance and operating execution by both GSEs.
We received the Freddie Mac SHARP Gold Award as their best performing servicer in their top tier servicing group. We also received the Fannie Mae STAR Award for excellence in all three categories of performance, and those include general servicing, solution delivery, and timeline management.
Congratulations, and many thanks to all of our servicing associates. In October, we closed our acquisition of the Reverse Mortgage Solutions servicing platform. Consistent with prior disclosures, we expected the RMS acquisition to initially be dilutive.
Our fourth quarter adjusted pre-tax income includes a $4 million pre-tax loss in reverse servicing, and this is largely related to staffing actions to support adding 60,000 loans by the end of the third quarter of 2022.
This will roughly double our reverse subservicing portfolio. Assuming the current loan boarding schedule and subject to investor approval, we project run rate adjusted pre-tax income for reverse servicing will improve by roughly $7 million by the third quarter of 2022 versus the fourth quarter of 2021.
Looking ahead, interest rates have risen higher and faster than what industry forecasts suggested just a few short months ago. As a result, we expect a smaller, more competitive, and generally more challenging originations market. You know, that said, rising MSR values and lower prepayments are also expected with rising interest rates.
Our balanced business model is working. We are seeing lower volume in January, but that is offset by MSR fair value gains and lower MSR amortization. In response to market conditions, we continue to focus on expanding our client base and higher margin products and services. We're intensifying our focus in reverse and consumer direct and driving continuous cost improvement.
We are taking the opportunity to selectively harvest MSR gains at robust valuation levels to mitigate asymmetric risk in our MSR portfolio. We believe our balanced business model, exemplary servicing performance, proven cost management, and track record of execution are key advantages in navigating the market environment ahead. Let's turn to slide 5 for some highlights on originations. Our originations team again delivered solid results against our operating objectives for the full year of 2021.
Total servicing additions of $152 billion is up 166% from 2020 levels. In the fourth quarter, we closed $43 billion in total servicing additions, and that's up 63% over the third quarter. Total servicing additions includes $33 billion in subservicing additions and $11 billion in MSR additions, which were down 5% from the third quarter level.
Our enterprise sales approach and TCB acquisition have allowed us to grow our seller base to over 3 times versus year-end 2020 levels, and we're continuing to grow. Our fourth quarter recapture rate of 31% slightly exceeded our target for the fourth quarter. We continue to grow in higher margin channels consistent with our strategy.
Fourth quarter consumer direct volume was up over 20% from the third quarter, and we've roughly doubled consumer direct volume year over year. Best efforts and non-delegated deliveries more than doubled in the fourth quarter versus the third quarter, and reverse originations were up over 16% in Q4 versus Q3, and up 60% year over year.
In Q4, according to Reverse Market Insight, we increased our market share in Reverse by three points to 9.4%. Now with the RMS acquisition, we are the only end-to-end service provider in the Reverse industry. Overall, our originations team made terrific progress against their objectives for 2021. Let's turn to slide 6 for a progress update on servicing. Servicing as well made great progress in 2021, driving lower costs, maintaining strong operation execution, and improving the customer experience.
We've made substantial investments in transformational technology to reduce costs, improve execution, and improve the borrower experience. We've automated over 140 processes in 2021 to drive automation, and improve customer connectivity and more self-service options for customers.
You know, we expect these investments will continue in 2022, as we believe our actions to improve client, borrower, and investor experience are critical elements to support our growth objectives over the long run.
Overall, servicing operating costs are down over 4 basis points year-over-year, and we've exceeded our year-end cost reduction objective. In terms of scale, we've increased our total servicing UPB by over 41% year-over-year, and our percentage of private servicing has grown to 68% of total servicing UPB.
In terms of portfolio composition, increasing the percentage of agency loans is helping to increase average loan balance and decrease delinquencies, and both these trends will help improve our ratio of operating expenses as a % of UPB. We believe we have tremendous operating leverage in our servicing platform, and we're excited about the growth opportunity for servicing, particularly in subservicing, which I'll cover in a few moments.
Let's turn to slide 7 to review our servicing operating execution. In 2021, our servicing platform received the Freddie Mac SHARP Gold Award as their best-performing servicer in their top-tier servicing group.
We're also one of two servicers to receive the Fannie Mae STAR Award for excellence in all three categories of performance management, general servicing, solution delivery, and timeline management.
These awards are a testament to the dedication and commitment of our team, the high levels of customer service they deliver, and the overall strength and quality of our servicing capabilities. You know, our servicing operations continued to perform well in several areas as compared to MBA-reported metrics for the industry.
Average speed of answer was better than the MBA average, and our abandonment rate as well was less than half the MBA average. We are continued to be laser-focused on supporting borrowers who are exiting forbearance and helping them understand their options. We do believe the best path for homeowners and investors is to find what works within investor guidelines to keep a consumer in their home.
As you can see, we outperform the industry as reported by the MBA relating to the percentage of borrowers with an agency loan who exit forbearance with the reinstatement, or loss mitigation solution in place. Additionally, the percentage of GSE borrowers on forbearance plans paying current is six points higher, in our portfolio than the MBA average.
You know, with our servicing performance and recognition by the GSEs, there should be no doubt that our platform is delivering best practice levels of performance for investors and homeowners. Many, many thanks to our servicing team who continue to deliver great performance for homeowners, communities, and investors.
Let's turn to slide eight to discuss our progress in driving an improved customer experience. Consistent with our strategy to provide a service experience that delivers on our commitments, we've put significant efforts towards improving our net promoter score or NPS.
Our servicing NPS is up 12 points, even with numerous bulk MSR purchases and subservicing boardings in 2021, as well as a very focused effort to help borrowers emerge from forbearance. Consumer direct NPS scores are up 56 points, and that was while we doubled volume in 2021 in that channel. Even in Reverse, in their wholesale channel, where we have an incredibly high score of 91, we've improved by 3 points as well.
NPS is a key part of the performance management as well as reward and recognition systems at Ocwen. NPS is measured for every function and department, regardless if they serve internal or external customers. We do provide continuous training, monitoring, coaching, and empowerment to our teams to enable them to drive our CARE, that's C-A-R-E, service philosophy and standards.
The acronym CARE stands for caring, accurate, responsive, and empowered. Technology and process simplification, increased self-service options have also been a key part of our customer experience improvement journey. We've made numerous enhancements to our web portal and mobile app, including video-based instructional resources to further enable consumer self-service.
For 2022, we have a roadmap of 27 projects which cover over 500 individual changes in our operations to further improve customer experience, cost structure, and operating execution. Now let's turn to slide nine to discuss our approach to subservicing.
We believe we've built a best-in-class servicing platform for both performing and special servicing with the capacity for growth that can offer a compelling value proposition for new and prospective clients. With the closing of the RMS Reverse Servicing platform acquisition, we are now positioned to compete in both reverse and forward subservicing.
The investments we've made in our platform are being recognized with over $56 billion in subservicing additions in 2021, and our subservicing pipeline has never been more robust. We're focused on delivering best practice levels of performance for clients across the 6 Cs of what we call key servicing deliverables.
These include competency, putting the client first, customer centricity, technology-enabled capabilities, a well-staffed bank-grade risk and compliance model, and a strong value-based culture that underpins everything we do. We continue to evolve and refine borrower and client-facing technology to address the needs of clients and consumers to streamline our business and improve the ability for customer and client self-service.
We can offer swift onboarding, responsive service to our clients and consumers, and as we covered on pages 6 and 7, we do believe we deliver industry-leading operating performance that's been recognized by our investors.
We are entering 2022 with customer commitments in forward and reverse subservicing for over $35 billion in UPB additions, and that is subject to investor approval. We have $76 billion in potential opportunity with our top 10 prospects and a total prospect pipeline of over $240 billion in the forward business. Since the first of the year, we've also built a prospect pipeline of over $57 billion in reverse subservicing opportunities.
Again, really proud of what our team has been able to build here and accomplish, and in particular, our enterprise sales team for building such a robust pipeline. While subservicing has a long sales cycle, we are nonetheless very excited about the opportunity we have here to grow subservicing.
Now let's turn to slide 10 to discuss our thoughts on the operating environment for 2022. If the average of the January and February origination forecast from the GSEs and the MBA's project total origination volume a decline over 30% for 2022. Interest rates are up sharply to start the year with both the 10-year treasury rate and the 30-year mortgage rate up higher and faster than the industry consensus forecast last quarter, and probably more closely matching the expectations at year-end per that prior quarter forecast.
Yeah, we do believe the rapid run-up in rates and long-term outlook for even higher rates will drive a highly competitive environment in originations. We believe margin pressures in forward will persist until excess capacity can be eliminated. However, higher interest rates are good for servicing values.
So far this year, MSR values are up significantly, prepayments have slowed, and we believe, if interest rates hold and go even higher, prepayments can slow even further. We are seeing a wide view of MSR values in the market, and various trade journals have commented on increasing, bulk MSR sales and the potential for increased M&A activity.
Lastly, we are seeing the agency's buy box shift, with higher loan limits, you know, support for first-time and low to moderate income home buyers, restrictions on vacation or rental properties and, disciplined pricing for third-party originations. However, you know, we believe our strategy of balance, diversification, strong operating execution, and a focus on low cost is the right strategy for this market environment.
Our management team has a track record of successfully navigating multiple mortgage cycles with a focus on prudent growth, cost management, operational excellence, and customer experience.
We intend to be disciplined in originations, and we'll continue to focus on expanding our client base and addressable markets where we can grow higher margin products and services. Obviously, we'll continue to drive cost optimization, which is part of our DNA, to enhance our competitiveness.
With respect to servicing, the rapid rise in values creates a bit of asymmetric risk in low coupon MSRs with more downside than upside. With the wide range of perspectives on MSR values, we expect to selectively harvest MSR gains, where market view value exceeds ours and MAV's, while continuing to invest in new MSRs.
As we saw on the previous page, we've got a very robust subservicing pipeline, so we intend to aggressively pursue our subservicing opportunities, including reverse subservicing. Lastly, we expect to prudently approach bulk purchases with MAV, and as well evaluate M&A opportunities to enhance scale and capabilities. As it relates to MAV, we had a very successful 2021, and we are working with Oaktree to potentially upsize the capital commitment to MAV.
Now let's turn to slide 11 to discuss our operating objectives for 2022. In 2022, we're targeting roughly $100 billion in total servicing additions. This is down roughly one-third from 2021 levels. We are taking several actions to offset, in part, the decline in industry volume and margins.
Overall, we're targeting to grow our mix of consumer direct, reverse, best efforts, and non-delegated. This is what we call our higher margin products, services, and channels from roughly 11% of total volume in 2021 to 23% of total volume in 2022.
In correspondent lending, where our client base is still roughly half of other competitors with more mature platforms, we are targeting to add another 150-200 new sellers with a continued focus on growing best efforts, non-delegated deliveries, as well as Ginnie Mae and non-agency products where we have grown in 2021 but still have a very small presence today.
In consumer direct, we're targeting to maintain recapture rates at over 30% with the long-term objective of industry best practice levels by investor type. In consumer direct, we have been transitioning to cash out mortgage products, which in the fourth quarter accounted for over 65% of our consumer direct funded volume, and we expect that percentage will continue to increase in 2022.
We're focused on improving overall conversion in consumer direct, conversion of leads to funded volume through technology, data analytics, improved processes, and training. In reverse, we're targeting over 30% growth overall, including 30% growth in retail volume, which was up 38% in 2021 from 2020 levels. Continuous cost improvement is part of our DNA.
As I said before, we're targeting another 1 basis point decrease in servicing and overhead OpEx from fourth quarter 2021 levels. We're also targeting to drive roughly 20% operating productivity in our originations channels to help offset margin pressure. Industry-leading operating execution and delivering on our commitments to clients and borrowers is a critical component of our value proposition that will continue to be an emphasis for our business in 2022 and beyond.
In servicing, our balanced business model is working. Our MSR valuation was up $18 million net of hedges in January. We also saw CPR declines, and we do believe CPR will decline from 21% in 2021 to 13% in 2022, which can also help improve servicing profitability.
Considering our opportunity pipeline in subservicing and our relationship with MAV, we are targeting to roughly double our subservicing portfolio, excluding the NRZ subservicing. Lastly, with the rapid increase in interest rate levels, we are expecting 2022 EBO and call rights income will be down roughly 75% from 2021 levels.
Considering the transitioning mortgage market, we expect first half 2022 earnings will be driven by MSR fair value adjustments offsetting origination headwinds and the build-out of our reverse servicing platform.
We are targeting low double digit to mid-teen after-tax ROEs before notable items in the second half with the expected benefits of successfully executing our business initiatives. Now I'll turn it over to June to discuss our financial performance in more detail.
Thank you, Glenn. Please turn to slide 12. In the fourth quarter, we reported $10 million in adjusted pre-tax income. This is our ninth consecutive quarter of positive adjusted pre-tax. You can see on the top right of the slide a quarter-over-quarter walk. Our fourth quarter results were largely consistent with the third quarter, excluding call rate gains and costs associated with building out our RMS subservicing platform, which did impact our reverse servicing business, and I'll talk more about RMS in a few slides.
Net income in the quarter was a $2 million loss, including $14 million of mostly RMS integration and employee incentive plan notables. We achieved a 12% annualized after-tax ROE, excluding notable items. On the bottom right bar chart, you can see that we're delivering on our growth objectives and cost leadership.
Revenue increased 26% year-over-year, largely due to higher servicing fees on an additional $79 billion in UPB. We continue to demonstrate exceptional cost discipline. Our earnings per share was $1.56, which exceeded analyst consensus, and book value per share increased $1 to $52 per share. Please turn to slide 13.
This slide demonstrates that our balanced business model is operating as expected and will serve us well in a volatile market. On the left side of the slide, you can see that adjusted pre-tax income year-over-year was impacted by lower revaluation gains on MSR cash window and slow purchases and lower originations margins. As Glenn mentioned, we're expecting a mix shift to higher margin products and segments, which we believe will help offset margin pressure as industry volume levels contract.
Our enterprise sales approach, focusing on subservicing and the strategic acquisitions we made last year, has positioned us well to maximize performance. On the right side of the slide, you can see the results of our servicing segment. Servicing adjusted pre-tax income of $10 million was largely driven by higher servicing fees from the $79 billion in higher UPB year-over-year and operating costs being down, as you saw in the prior slide.
Keep in mind that the servicing segment results included a $4 million loss in our reverse servicing business related to the RMS platform acquisition, which I'll talk about in the next slide.
Going forward, we're expecting slower prepayments, lower MSR amortization, and higher MSR fair value gains. Please turn to slide 14. We're excited about our reverse subservicing platform. It uniquely positions our reverse servicing business for accelerated growth this year.
You can see on the left side of the slide we expect $11 million in higher reverse mortgage revenue from boarded and committed volume this year. $25 billion of the $27 billion in UPB are under a 5-year sub-servicing agreement.
With scale and optimized cost structure, we expect the acquisition to be accretive to our reverse servicing business in the second half of the year, achieving $5 million in adjusted pre-tax income by the fourth quarter. Some key metrics in the bottom of the slide show you the estimated growth trajectory of the platform.
Please turn to slide 15. This is our operating framework for 2022, assuming a stable interest rate environment for the balance of the year and no adverse changes in market conditions or the legal or regulatory environment.
The page is broken down by our operating objectives in the Origination, Servicing, and Corporate segments. We expect the first half earnings to be driven by MSR fair value adjustments, offsetting origination market headwinds and the reverse servicing platform build-out. We're targeting low double-digit to mid-teen after-tax ROE before notable items in the second half of the year.
In originations, we expect a mix shift to higher margin products and segments from 11% to 20+% , as Glenn mentioned. Servicing, we plan to continue to grow performing sub-servicing through Mav, the reverse servicing business, and adding new clients. We expect EBO and other revenue diversification in the range of $8 million-$10 million. As usual, we expect all segments to continue to achieve productivity targets. Now I'll turn it back over to Glenn.
Thanks, June. If you could now please turn to slide 16. 2021 was our first full year of GAAP profitability since 2013 and our ninth consecutive quarter of positive adjusted pre-tax income. The investments we've made in corporate culture, employee engagement, diversity and inclusiveness have enabled the team to thrive in a largely remote work model, and as a result, we met or exceeded all our operating targets for 2021.
We believe our balanced business model, exemplary servicing performance, proven cost management, and track record of execution are key advantages in navigating the market environment ahead. We remain focused on delivering prudent growth by continuing to expand our client base and increasing our presence in higher margin channels, products and services, and driving continuous cost improvement.
Our servicing platform delivers industry-leading performance of multiple loan types, a highly competitive cost structure, and is relentless in its pursuit of delivering on commitments. We're investing to support customer commitments in forward and reverse for an additional $35 billion in sub-servicing additions and have a sub-servicing opportunity pipeline of over $300 billion.
We're investing in enabling technology with proprietary COEs, driving automation and lean process reengineering. Our balanced business model is working, our MSR valuation is up, and CPRs are declining, which should help improve profitability and servicing. Lastly, I am proud of how our team is executing.
Our management team has a track record of successfully navigating multiple mortgage cycles with a focus on prudent growth, cost management, operational excellence, and customer experience. We will be unwavering in this focus. We're operating in a volatile and uncertain environment.
We're actively monitoring the financial markets, economic environment, and industry conditions closely. We are dynamically managing our operations, plans, and targets, and we'll adjust as necessary to address emerging market risks.
I'd like to thank and recognize our board of directors and the global business team here at Ocwen for their hard work and commitment to our success. I'm thankful for their hard work and proud of what our team has accomplished in 2021. With that, Peter, let's open up the call for questions.
Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Our first question is from the line of Bose George with KBW. Please go ahead.
Everyone, good morning.
Morning.
I wanted to ask just about gain on sale trends, you know, for that you're seeing now versus what you saw in the last quarter, both on the forward but also on just the reverse. Is the reverse a little more sort of agnostic to some of the issues that are going on in terms of the rate?
Yeah, Bose, thanks for the question. You know, we are seeing gain on sale margins in all channels. Yeah, we do expect them to contract in 2022. I think it's gonna be a tough environment in originations with rates up and a shrinking mortgage market.
That said, you know, we don't expect to see the same pressure in reverse. Actually, we expect reverse margins to be flat and maybe even up a little bit during the course of 2022. You know, for us to combat the margin compression we expect to see across the forward business, it is all about mix shift. We have a very small presence in consumer direct, in best efforts and non-delegated.
A small shift in mix, again, going from 11% of our total business to 23% of our total business, which Bose, as you know, is relatively small compared to some of our peers, you know, does provide a pretty big lift in average margins for the originations channel.
You know, certainly, the reverse business again is a good portion of our gain on sale margins. You know, we think that that opportunity in reverse to continue to grow that business, it's a growing market. 12,000 new people turn 65 every day, and, you know, that group has about $10 trillion in home equity.
You know, in addition, they have continued home price appreciation as well as the increase in the maximum claim amount to over $970,000, you know, I think will help fuel growth in the reverse mortgage market despite higher interest rates. We're very optimistic about the reverse business, and we see that as being a key part of our margin expansion initiatives in 2022.
Okay. Great. Thanks. Just in terms of returns on MSRs, can you just talk about, you know, where unlevered returns are currently? Also, how does the return differ from, you know, the forward MSR versus, you know, the reverse MSR?
Bose, you know, look, we're seeing, you know, returns in MSRs again for the pre-leveraged returns in MSRs for the forward business. I would say this is really GSE in the, you know, call it 8%-ish range, 8%-8.5% range. You know, Ginnie Maes are in the, you know, certainly north of 8.5%, call it 8.5%-9.5%.
It has gotten more competitive. You know, as I mentioned before, there's, you know, we are seeing a bit of price discovery going on. There's a fairly wide range of values on MSRs. Certainly, you know, as rates spiked up quite a bit during January and February timeframe. We are seeing the price curve on MSR slow down. And as well, you know, mortgage rates are not really tracking with treasuries.
We're seeing some disconnect there. You know, mortgage to treasury spreads have widened, and mortgage rates have just not, you know, responded lower with treasuries as they've sold off a bit. On the reverse side, you know, our all-in returns on reverse MSRs are higher than even Ginnie Maes, right?
We're talking in the, you know, 10%-11% range. You know, again, the reverse business has just very attractive attributes from both an originations perspective and a servicing perspective. You know, now with us being positioned as, you know, the only end-to-end provider in a reverse mortgage business, we've got a great opportunity to grow the sub-servicing side of that business, which again, is more profitable than forward sub-servicing.
Okay. That's helpful. Thanks. Actually just one follow-up. The advance rates on, you know, levering reverse MSR, are they pretty similar to forward MSR?
Actually, no. You know, reverse MSRs, you know, that market has not matured to, you know, the sophisticated type of advancing rates we see for the forward market. So advance rates for financing reverse MSRs is not as well developed or as high. So there's a natural reason as to why the, you know, the returns are higher.
Yeah. Yeah. Okay, great. Thanks a lot.
Thank you.
Thank you. Our next question is from Matthew Howlett with B. Riley. Please go ahead.
Oh, hi, Glenn and June. Thanks for taking my question. Just first on MAV, on a UPB basis, where does this stand now? Glenn, you talked about upsizing it potentially. What would that look like? Would Ocwen contribute another 15% if it was upsized?
Yeah. You know, look, MAV right now, we've deployed roughly 60-ish%, 58, 60% of our total committed capital in MAV. That's you know, UPB balancing around the $30 billion range. Again, we're seeing continued opportunities to purchase in the market going forward. You know, we're having preliminary discussions with Oaktree about the you know, merits of increasing that.
Y ou know, look, I don't think we're at a point where we can discuss you know, terms and conditions just yet, but certainly, you know, given it's a material transaction, if something happens there, we'll be sure to update the market.
Sounds like you're ahead of schedule on growing MAV. Would the upside be a second half 2022 conversation?
We are ahead of schedule. We deployed we had structured MAV with an initial term of about 3 years to ramp up our investment there. Again, we've put in about 60% of our investment in the first year of operation of MAV. It is tracking ahead of schedule. Yeah, I mean, if there is an upsize in place, it probably would be something that would be a second half initiative.
Great. Thanks. When you talk about the dynamic on selling, you know, some MSRs and then but still being really active in the bulk market, I mean, what are you seeing? Just there's some pockets of your portfolio that are just overpriced or bid and but you're still seeing generally opportunities to acquire bulk?
Yeah, we're seeing. Look, I think, just generally stepping back, I think in the mortgage business, just generally, you need to be willing to be a buyer and a seller as price and market conditions dictate. We've got, you know, we've built a, you know, a diversified originations capabilities, so we have the ability to replenish assets into our servicing portfolio. You know, look, rates ran up very high, very fast.
That created what we saw as a fairly wide view of values of MSRs, and particularly for lower coupon servicing what we believe was asymmetric risk. A value of an MSR can only appreciate so much because prepayment speeds can only slow so much.
Once you reach the top of that prepayment S curve, the value for MSR is pretty much at the max where it's gonna be, and there's probably more downside than there is upside in value. You know, look, we took the opportunity, you know, to test the market.
You know, look, we think there's opportunistically when prices are high, and higher than our view of value and MAV's view of value, especially if you wanna minimize the asymmetric risk in your portfolio, you're probably gonna, you know, look to take some risk off the table, take some money off the table, and redeploy it into MSRs that are closer to market pricing, where you have symmetrical risk exposure up and down.
It's easier to hedge and obviously creates refinancing incentive as if rates go down, but obviously value appreciation if rates go up. Look, I think in this transitioning mortgage market, you have to be dynamic, and that's just prudent business management in my view.
You mentioned $18 million net of hedges in January for the portfolio total?
Yes, sir.
Okay. Well, great. Okay. Last question on just general capital needs. You look at, you're retaining capital. Clearly, you're seeing opportunities. You might free up some capital, some sales.
But generally, Glenn, when you look at, you're very busy with integration. But when you look at capital needs for Ocwen, opportunities out there in the bulk market, growing MAV, maybe other platforms, clearly taking the lead in reverse, what can you tell us in terms of capital needs and what the capital outlay plan now is this year?
Yeah. You know, I think in June's presentation, she had the roadmap for the business in terms of where we're expecting financial results. Yeah, look, we are expecting to originate $100 billion of business, total servicing additions next year.
You know, we are planning to be active in all our channels and grow our higher margin business. You know, we believe we have access to the capital resources to support our business going forward. You know, MAV, we've had preliminary discussions with MAV around upsizing MAV. They've been busy. You know, we generally saw close to $90 billion of UPB trade in the bulk markets in the month of January and February so far.
You know, MAV based on its strike zone, so to speak, its appetite, you know, they bid in about 20 billion in UPB and won 9 billion in January. We are out there with MAV actively bidding in the bulk market and, you know, for deals that fit our investment criteria and MAV's investment criteria.
We're gonna continue to, you know, drive, you know, expansion of our correspondent seller base and grow reverse. Yeah, I think we're positioned with the capital we need to operate our plan and achieve our commitments.
I'll just sneak one in, and if you don't mind, just on technology. One of your peers had a partnership with a cloud tech provider. Ocwen's always been a leader in technology. You always highlight it every quarter, Glenn. Just anything to talk about there, well-positioned in this new environment?
Yeah. We, you know, we took the time, you know, through the integration to re-platform the technology in our business front to back. New origination system, new telephony system, new websites and portals, new servicing system, new capital market system, new general ledger, new HR system.
The amount of change in the technology arena during the integration process was profound. I believe we've got a great set of foundational technology in the business. It's modern, it's cloud-based, it's up to date.
Also during that integration process, we even though we were cutting costs and we reduced our cost structure from the pre-acquisition, you know, 2Q 2018 pre-acquisition baseline by about 40%, we did set aside money. We invested and built our own robotics and automation center of excellence and lean process center of excellence.
We've been investing in robotic process automation, again, customer self-service technology, video tutorials for our consumers. You know, we've been investing in mobile app. As a matter of fact, our servicing mobile app is probably one of the highest rated ones in the Apple App Store. We're now venturing into optical character recognition, cognitive AI, and conversational AI.
So I feel great about the strides we've made in technology. That said, it's an ever-changing environment. You can never rest on your laurels as it relates to technology, so we're continuing to invest.
As I said, we've got 27 projects to drive automation across the servicing platform, which is gonna touch, you know, over 500 discrete elements across our business. So, it's a place we're excited about. We love how technology enables low cost, enables customer experience, and enables operational effectiveness.
Thanks a lot, Glenn. Thanks, June.
Thank you, Matt.
Thank you.
Thank you. Our next question is from Marco Rodriguez with Stonegate Capital. Please go ahead.
Good morning. Thank you for taking my questions. I was wondering if maybe you could talk a little bit about how you see your business position to succeed in what could be a pretty volatile mortgage market ahead?
Yeah. Marco, yeah, look, it all starts, I think, with people. Look, I'm really proud of what our team has been able to execute here. I think we've got one of the best management teams in the business, and having a highly engaged workforce, strong culture, and a management team with a track record of navigating multiple mortgage cycles, it is essential to the environment we're gonna go through.
Second to that, we've spent a lot of time building a balanced and diversified business model here at Ocwen. It's been something we've been driving for the past 2.5-3 years. To me, having that balanced and diversified business model is an absolute essential element to be able to navigate the transitional mortgage market we're going into.
Look, we've demonstrated the ability to manage our cost structure, we've demonstrated the ability to grow in higher margin products and services and channels where we still have a very small share today. Again, our plan is, you know, I think, you know, obviously, aggressive and responsive to the market.
We believe we can, you know, given our low position in higher margin channels, we can shift our mix, uh, from 11% of total servicing additions or total originations to 23% of total originations. You know, our servicing platform has been recognized by, you know, the GSEs as being, you know, quite frankly, the best servicing platform from an investor perspective in the industry, period, full stop. We're growing in reverse.
We've got a strong position there, a 9% market share in a market that's growing. Look, I think we've got a lot of attributes about our business that have, you know, demonstrated resiliency. We've demonstrated the ability to navigate the pandemic. The mortgage industry is volatile. It goes up and down, and we've built our business model assuming that that's in place.
That's gonna happen, and that's what we're seeing today. You know, I think our team, our technology, our platform, and our strategy of, you know, driving growth in higher margin channels, reducing cost, focusing on operational excellence, and continuing to provide a service experience that delivers on our commitments to consumers is the right one for this environment.
Got it. Kind of a follow-up in regard to that, maybe if you could talk a little bit about how you sort of expect the overall business to perform, if we entered into a recession?
You know, Ocwen historically, recessions have been good for Ocwen. We are still one of the leading default servicers in the industry. In general, our superior default servicing capabilities, I think, set us up well to perform in a recession relative to peers with less experience in servicing defaulted loans.
You know, as we've demonstrated during with helping borrowers emerge from forbearance, you know, we've had a greater percentage of our borrowers emerge from forbearance, agency borrowers that is, emerge from forbearance with a loss mitigation solution or reinstatement plan in place.
Those borrowers who are on forbearance, a greater percentage of ours are paying current. Look, this is our strength. This is the core DNA of Ocwen. We did not lose that during the course of the integration.
Look, while, you know, advances tend to increase during a recession, you know, we have found funding and availability and pricing to remain solid on advances even in times of stress. You know, the balance of having, in our servicing portfolio, of having own servicing and subservicing, and right now, a greater portion of our portfolio,
Servicing portfolio is in subservicing, that revenues in that business will tend to increase as delinquencies increase, so we get paid for the additional cost. You know, we think we have the resiliency and operating capability to navigate fairly well through a recession.
Got it. Last one from me. Maybe if you can talk a little bit about the growth you're seeing in subservicing. How is that kind of progressing to your targets, your expectations? Thanks.
Yeah. The growth in subservicing, we're really excited about it. I think there's really two key elements that's driving our growth in subservicing. You know, first is our enterprise sales approach, and second is our, just our servicing performance. You know, the enterprise sales model that we have leverages our capabilities across all of our originations.
The ability to do SMP, you know, Fannie Mae SMP originations, originate through Ginnie Mae PIT, originate through the Freddie Mac Co-Issue Cash Exchange, correspondent mandatory, best efforts, non-delegated, and the ability to offer forward reverse and subservicing is just a very comprehensive sales tool.
We found that that's been one of the greatest differentiators we have vis-a-vis selling against traditional subservicing providers. In addition, we can offer portfolio recapture services that some of those folks cannot offer.
Look, our enterprise sales approach is, I think, a key differentiator on the front end. You know, more importantly, you know, on the servicing execution side, you know, I believe we've got a terrific value proposition with our servicing platform. You know, again, our subservicing clients are recognizing our performance that's been recognized by Fannie Mae and Freddie Mac.
We're doing quite well. I feel good about the growth in the subservicing business. Our pipeline has never been higher. Again, subservicing is a capital-light growth vehicle for the company. You know, again, we were rewarded with, you know, over $50 billion as total subservicing additions in 2021.
We've got $35 billion in committed backlog subject to investor approval for 2022, with a very robust pipeline behind us. Really excited about the subservicing business, and I think our team there is executing quite well.
Got it. Thank you. I appreciate your time.
Yes, sir.
Thank you. Our next question is from Drew Mackintosh, an investor. Please go ahead, sir.
Hi. Thanks, and good morning. My question's on the reverse servicing business, specifically on the competitive landscape. You guys mentioned you don't think you'll see margin compression in that area, but just wanted to get a little more color on that with the possibility of more new entrants into that market.
Sure. Drew, look, number one, if it's not coming through on the call, we love the reverse business. It is a great business for us. Look, the industry is coming off a record year, which was assisted by refinancing activities.
You know, endorsements grew 18% year-over-year. HECM MBS issuance grew to $13 billion, which was a 23% increase over 2020, and actually a 21% increase off the previous record year of 2010. Look, while you know, rates may be going up and competition may be coming into the market, you know, we do believe that the market will continue to grow in 2022.
You know, HPA, home price appreciation, and the increase in the maximum claim amount, as I said before, to $970,800, we expect will continue to fuel new production and is helping to offset the impact of higher rates.
Again, from a demographic perspective, 12,000 people are turning age 65 every day in this country. The equity in home equity held by this group of people over age 65 now tops $10 trillion. You know, look, I think there is the potential for new entrants to come into the marketplace. But again, I think we are positioned well from a competitive perspective.
We are, you know, the only player or participant in the reverse industry who can originate and issue and be a direct servicer. I think this provides us with a unique position vis-a-vis our competition. The reverse mortgage industry is really dominated by five primary, you know, HECM issuers, including Ocwen, accounting for about 93% of all issuance.
You know, again, our market share has been growing. We're up to slightly over 9% as of the fourth quarter of 2021. You know, and the top 10 originators make up about 80%. You know, look, as the top five companies remain largely unchanged, you know, I think, look, this is a very specialized area of mortgage lending. It is not a, you know, quick, fast transaction.
It's not going in and doing a quick refi. There's a borrower counseling period you have to go through, a borrower qualification period you have to go through, and the product has a number of unique attributes and elements.
Look, I think the market growth is there to support, you know, the competition that we expect to see in the environment, with, you know, margins holding relatively stable. You know, that said, you know, we are, I would say, have some level of concern, that, you know, irrational competition coming in, while they may not necessarily damage margins all that much, you know,
Could they cause additional reputational risk because they're not trained well or not trained enough or not trained at all, and potentially give the space a bad name. You know, that said, I think it's a great product. I think, it's a space where we intend to continue to grow share and grow our presence.
Great. Thanks a lot.
Thank you. Ladies and gentlemen, we have reached the end of the question and answer session, and I would like to turn the call back to Mr. Glen Messina for closing remarks.
Thanks, Peter. To close, I just wanna thank all of our investors, and our employees and our board of directors for your continued commitment to Ocwen. I believe the investments we've made in culture, employee engagement, diversity and inclusiveness have enabled the team to really thrive in 2021.
I believe our balanced business model, exemplary servicing performance, proven cost management, and track record of execution are key advantages for us in navigating the transitional and difficult mortgage market environment ahead. Thank you all, and I look forward to speaking to you next quarter.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.