Sidoti & Company. Today, we're pleased to be in conversation with CEO and Chair Glen Messina, CFO Sean O'Neil, and VP of Investor Relations Valerie Haertel of Onity Group, listed on the New York Stock Exchange under ticker ONIT. During the presentation, please feel welcome to submit your questions using the Zoom Q&A interface at the bottom of your screen. After the presentation, we'll open to your questions. With that, Glen, I'll turn it over to you.
Great, Alex, thank you very much. Good afternoon, everyone. Thanks for joining the Onity portion of the conference. Look forward to talking to you about our company. Valerie, if we can go to, you know, the executive summary, please.
The slide does not seem to want to advance. Alex, I do not know if you can help out.
Valerie, I would suggest maybe hitting the escape key. We can exit the presentation and try to restart it.
Okay. There we go. Thank you.
Great. Folks, look, Onity is a top 10 mortgage originator and servicer. We've been increasing our market position over the past couple of years. We are a low-cost provider. That's our market positioning, delivering top-tier operating performance. We do have a well-proven track record of driving organic growth by winning new clients, one client at a time in both our sub-servicing business and our originations business. We are generating profitability that is comparable to our peers, but trading at what we believe is a more attractive valuation relative to peers. On a go-forward basis, look, we believe projected industry origination volumes and expansion opportunities for us with new products do provide an opportunity for future growth and growth tailwinds. Valerie, next page, please. You know, we do have a balanced business with both originations and servicing.
You know, roughly 65% of all mortgages that are originated are done within the non-bank sector of the mortgage market, and more than 50% of outstanding mortgage balances are serviced by non-bank servicers. We currently rank number eight in terms of non-bank servicers. Our sub-servicing platform is the sixth largest in the industry, non-bank in the industry. Our correspondent platform is the seventh largest non-bank correspondent originator. Our reverse mortgage platform is the fourth largest non-bank originator. Next page, please. You know, having originations and servicing is important for our business. Those two platforms complement each other as interest rates change. You can see when interest rates were low in 2021, originations was the major earnings driver of the business. Moving forward to 2024, you know, you could see that our servicing platform with higher interest rates was the major driver of business activity.
Now, within both servicing and originations, we have diverse capabilities, and those diverse capabilities create multiple opportunities for growth. On the origination side, it's multiple channels and products that make up our originations capabilities. On the servicing side and asset management, it's multiple capabilities in terms of owned, sub-serviced, and again, going across various product lines for forward, reverse, agency and private, and small balance commercial. Next page, please. We are positioned as the low-cost provider delivering top-tier operating performance and objectively looking at the MBA, that's the Mortgage Bankers Association, which is the industry trade association servicing cost study that was released in 2024, which covers the 2023 calendar year. We fall into the category of a large servicer.
You could see as compared to our large non-bank peers and large bank peers on both performing servicing and non-performing servicing, we have double-digit percentage cost advantages versus peers who are, you know, generally sometimes 2x-3x our size and in some cases up to 5x our size. That advantage cost structure really is a function of two things. We have made multi-year investments in technology, replatforming the entire business into the cloud back in 2019. We have put in place a center of excellence that helps us with robotic process automation and the full spectrum of AI enhancements across the platform. That has allowed us to continue to improve not only our cost structure, but to improve customer satisfaction.
On the right-hand side of the page, you could see that for several years running, four years- five years in some cases, we've been awarded as a, or recognized as a top-tier servicing performer in the top-tier category of servicing by Fannie Mae, Freddie Mac, and HUD, think Ginnie Mae. As well, our automation center of excellence was recognized as best in class by SSON. For two consecutive years running, we've been named as Affiliate Company of the Year by the National Association of Mortgage Brokers. Very high-performing servicing platform. Next page, please, Valerie. Again, our growth path has really been organic growth. You know, we think that's a more sustainable model. Winning customers on a competitive basis is important.
You know, we just, from an originations perspective, we started our originations platform from scratch in late 2019, really got, you know, some wind in our sails in 2020. You could see, you know, looking at, you know, from the second quarter of 2021 to where we are at the end of 2024, we have doubled our client base in correspondent and co-issue. You know, our correspondent salespeople, our enterprise salespeople, sell all products to all clients, and roughly a third of our originations clients are using two or more services. On the sub-servicing side, again, a meaningful transformation of our client base there in terms of total clients between 2021 and 2024. You know, only about a 15 client count increase from sub-servicing clients.
Beneath the surface, there was a fair amount of transformation ongoing where we added 56 new sub-servicing clients, again, winning them from our competitors. We did have to exit out of the business 41 legacy clients, which had about less than 1,000 loans each, which is, you know, an unprofitable number of loans to service. It's too small. What that rotation did was actually improve our average servicing balance or unpaid principal balance, UPB, serviced by 83% for that client base. That growth through winning new clients has grown our total servicing additions and our average servicing portfolio. You could see in 2020, when we had a total industry originations market of about $4 trillion or more, you know, we originated about $41 billion of total servicing additions between MSRs and sub-servicing.
In 2024, even though the market was 60% smaller, only about a $1.7 trillion market, we originated $75 billion of total servicing additions, again, between MSRs or mortgage servicing rights, as well as sub-servicing additions. What that's allowed us to do is grow our total servicing portfolio by over 50% over, you know, 2020- 2024, despite, you know, our practice of rotating our assets with an asset dynamic asset management strategy, where we net sold $26 billion of mortgage servicing rights to capitalize on very favorable economics, which exceeded our expected intrinsic value of those assets. New clients, win new clients, grow the business. Next page, Valerie. As well, our consumer direct platform, which is focused on retaining or recapturing customers who are thinking about refinancing their home or repurchasing new mortgages, that platform has performed very well.
Again, this platform was relaunched from scratch in late 2019 and really got, you know, you know, started to begin to grow during the pandemic refinancing wave. You know, in 2023, about $357 million of volume grew to almost $1 billion worth of volume in 2024. A 2.5x growth in one year. That is well in excess of the amount of refinancing volume that grew within the industry. On the bottom left, you could see that we compare ourselves against a number of industry benchmarks. This is based on refinance recapture rate, which is a common quoted statistic amongst several players in our industry. We are certainly 1.6x the performance level of industry average. When you look at our large public peers who are also third-party originators, we kind of rank second for the full year, which is the columns.
The line reflects our performance for the fourth quarter. We've again increased our performance in the fourth quarter versus the full year and are closing the gap to, you know, one of the best performers in the industry. We're delivering improved performance in our recapture platform by doing three things. One is investing in technology. You know, it enables efficiency, helps us better serve our customers. We're leveraging the power of predictive analytics to better target and support improved lead conversion and expanding products to help us expand our addressable market. Next page. You know, from a relative value perspective, we are delivering profitability that is comparable to our peers. A 20% adjusted pre-tax ROE for the full year 2024, which was, you know, right in the zip code as some of our large independent mortgage banking peers.
Our guidance for 2025, again, is similarly in the zip code of our large mortgage banking peers. As Sean will tell you in a minute or two, we, you know, for the first quarter, we believe we'll exceed our adjusted return guidance, you know, for the full year in the first quarter. When you look at the performance of the company, performance is highly comparable to our peers. You know, at, I think, a more attractive valuation relative to peers, we trade at a deeper discount relative to our peers. A lot of it has to do with the fact that we've, you know, for the last four or five years, been focused internally on driving the performance of the business and driving the transformation of Onity so it could perform at these levels.
We've only recently, Valerie's new to our organization, just joined a few months ago. We were really just starting the investor engagement initiative to increase market awareness about the company. You know, again, beginning to tell our story in a simple, straightforward way and focused on, you know, letting people understand that, you know, Onity is probably, you know, while a new story and a new company, has a strong legacy and has been a strong player in the industry. Valerie, next page. Yeah. In terms of go forward and looking at the prospects for growth for 2025, the mortgage originations market is forecasted to grow about 14%. That's the average of the Fannie Mae and Mortgage Bankers Association most recent estimate for industry volume. That was in February of this year.
In addition to volume growing, which creates more opportunity for us and others in the industry, we have an added opportunity to, again, expand our addressable market by introducing and participating in new products that we heretofore, if not maximize the potential of. First is in the second lien space. Closed-end second mortgages are attractive for borrowers who have low, who refinanced during the pandemic or bought a home during the pandemic and have a low intrinsic interest rate and have built equity in their homes. You know, we have almost 500,000 borrowers, 480,000 borrowers with a loan-to-value ratio less than 60% and a note rate less than 5%. Again, that's kind of the sweet spot we believe for second lien opportunity. Sean will tell you, we just relaunched our second lien product and made it more attractive to potential borrowers.
The initial indications in our soft launch are it's being very well received. The second area of opportunity for growth is proprietary reverse mortgages. Think jumbo reverse mortgages. We have about an 18% share of the traditional agency or Ginnie Mae reverse mortgage market, but 0% share in the jumbo mortgage market. Launching a competitive jumbo reverse mortgage product does give us the opportunity to grow. With an 18% market share, we've got nice market covers to push that product through. Later on this year, one of the areas we're exploring is non-QM or non-qualified mortgage market. It's a market that's expected to be up 16% from 2024 versus 2025. In that scenario, we have a relatively small share, less than 1%. From an execution perspective, Valerie, next page.
You know, look, our strategy is going to stay the same. The strategy which got us here, which is around balance and diversification, prudent growth, industry-leading cost structure, top-tier performance, and dynamic asset management, all that stays the same. We are going to focus from an operating perspective on three key areas, one of which is accelerating organic growth. That's about retaining more MSRs, expanding products as we talked about, and again, increasing our capture or win rate in consumer direct by leveraging the technology tools we talked about. Second is differentiating operating performance, and that's aligning our operational outcomes with the things that drive the biggest value for customers. Again, there is a technology thread that helps support that. Lastly, elevating the customer experience. This is all around whether it's a business client or a consumer, enhancing the engagement and personalization.
Again, enabled by the full spectrum of technology tools that we've brought to bear. With that, Sean, I'll turn it over to you.
Thanks, Glen. On this page, you know, I really want to highlight a couple of numbers. $33 million and $90 million jump out. Those were our full year 2024 GAAP net income and adjusted pre-tax income. Page 36 has a lot of detail by quarter of what the difference between those two lines are. For 2024, one of the biggest drivers is what you see in the takeaway box down at the bottom. We did debt restructuring and refinanced two different debt stacks into one. One of them had quite a lot of original issue discount, OID. That was a $41 million net cost in Q4, which drove some of that difference.
Very strong adjusted ROE for the year, as well as a good GAAP net income ROE and book value per share of $56 a share. If you flip to the next page, you'll see this is, we are, as Glen mentioned, a servicer, and we do originations to replenish those MSRs or mortgage servicing rights. This gives you a quick snapshot of the volume on the top. The dark blue, if you walk to the right, that's where the legends are. The dark blue is correspondent and co-issue business. We call that B2B. It's with other institutions. The little slivers are consumer direct and reverse. However little they are, those are the gray and the light blue. If you drop down to the margin, you can see those two thinner volume businesses drive substantially greater revenue margin. Think, you know, close cousin to gain on sale.
I'm going to skip over the next page. That just gives more view on originations volume. You can pursue that, peruse that at your leisure. This is a good view of our servicing book, the other main business in our balance business model. Servicing, if you stay on the left for a second, servicing begins with a book that is at end of year, $302 billion of unpaid principal balance. That's UPB. It's a common term in the mortgage industry. That's roughly a 50/50 split between sub-servicing at 53% and then owned MSR or pure servicer activity at 47%. That owned MSR is further broken into GSEs. Think Fannie, Freddie, government in the green. That's Ginnie Mae that encompasses FHA loans, VA loans, USDA loans. And then you have private label securitization. Private label is basically not one of the other two, or it's the non-agency market.
We have a decent amount of private label securitization. Sprinkled throughout all of these, both in servicing and sub-servicing, are some more delinquent loans because we're also a specialty servicer, meaning we service very delinquent mortgages. You might think that sounds like a bad thing, but if you do that effectively, it's a fairly small provider market and it can come with a higher margin if you're good at it. We think we're good at it. On the right, you can see the servicing revenue. Some of the growth that happened there coming into 2023 was driven by the increase in one-month SOFR that helps our float. It also happens from accruing larger volumes in the servicing book. Next page, please, Valerie. This is just a quick snapshot on a reverse business.
We're probably the only public company that does both reverse and forward mortgages, originate, service, and sub-service this product. The quick snapshot is on the left side. You can see it's profitable for us. It also gives a few other bullet points on the right why we like it. I'll point out that it's a very effective hedge to our forward MSRs. We hedge our MSRs somewhere between 90%-110%. Reverse is an important component of that. You can read some of those other opportunities later. Next page, please, Valerie. This just indicates our efforts in the last couple of years leading into the debt restructure, our ability to lower our leverage rate. We are trying to bring it down even below the current roughly three to one, but that dropped 24% versus where it was a year prior at the end of 2024.
Part of that was driven by strong reductions in corporate debt, which we did while maintaining liquidity. Throughout that, even with the restructuring charge, we increased book value per share $4 a year in 2024. Next page, please, Valerie. This is a real focus for people that care about equity to assets. We have close to $12 billion of a gross-up, think both assets and liabilities on our balance sheet driven by those three lines that we break out here. Ginnie Mae EBOs or early buyouts are super common to our market. You know, that's something that GAAP will impose on everyone's balance sheet. The other ones are a little more unique to just one or two public companies. We like to point that out. It means our GAAP equity to asset ratio does not really tell the story.
We strip this out, which is what the rating agencies do as well to arrive at the number on the lower right. Next page, please, Valerie. As Glen mentioned, you know, our focus when we consider ideas for capital allocation, I think that is, you know, we have extra capital. What do we want to do with it? We, you know, prioritize organic growth. We want to optimize liquidity and drive long-term returns. That kind of drives our analysis around our options for capital management. The next page is relatively new. This is an update within the first quarter of how we're doing. As you can see by the blue subtitle there, we actually expect to exceed in the first quarter our full year, our adjusted ROE guidance, which was 16%-18%. For the full year, we're reaffirming that guidance.
If you drop into those four sub-bullet points, these are highlights for both our originations and servicing business. Originations volume is up significantly in the first quarter versus first quarter of 2024, driven both by correspondent volume and very good recapture, which means our ability to refinance some of our own MSRs. As Glen mentioned earlier, that's a unique strength of ours. We launched an additional closed-end second product, which he talked about. Servicing continues to grow and is outpacing MSR runoff, which is key if you want to grow your book. We did quite a few bulk MSR purchases both in the fourth quarter, and we continue that into the first quarter, and our hedging continues to be effective. Also of interest is that last bullet point. We expect that it's reasonably possible we will release some or all of our valuation allowance.
Think of that as another gross-up. You have a net deferred tax asset of $180 million on your asset side. Valuation allowance offsets it on the liability side. We think we'll be releasing some or all of that at the year end. That will obviously have income statement and balance sheet impacts. That is the guidance there that we provided at the end of the fourth quarter. Glen and Alex, I'll turn it back to you for any questions.
Great. Thank you very much for sharing that presentation with us. Maybe we could start just in terms of timeliness with yesterday's Federal Reserve meeting. Interest rates are staying put, but maybe there's a sense that they could come lower this year, and President Trump said they should come lower.
I know, you know, at this point in the business, you've seen the impact of some rate cycles. Could you talk a little bit about how the changing environment might affect you?
Great, Alex. Thank you. You know, part of our strategy is having a balanced business model. Having an originations platform, having a servicing platform. Those two complement each other as interest rates change. You know, mortgages typically, mortgage interest rates are indexed off of the 10-year Treasury Rate. The Fed's talking about what they want to do with short-term rates. What we really focus on is, okay, what's happening to the shape of the yield curve? A positively sloped yield curve is generally good for our business. An inverted yield curve makes it difficult to hedge mortgage servicing rights and hedge the pipeline.
Look, our expectation is that, you know, there may be some level of reduction in the, you know, 10-year Treasury Rate, which would help mortgage rates come down a little bit towards the back half of the year. Look, we are, our job is to run the business so we could be profitable and growing in any rate environment. That's why we have that balance. As you saw on one of my charts, when rates are lower, originations is the earnings driver. Servicing earnings go down. When rates are higher, servicing is the earnings driver. Originations profits go down. We want to position our business to be an all-weather business, meaning we can navigate through any interest rate environment.
That's great context. Yeah, thank you.
In terms of, you know, continuing to drive those profits and earnings, something I thought was interesting in the earnings call that you had recently, you talked about growing use of AI in the origination and servicing process. I think I saw a press release about your LoanSpan AI assistant. Could you talk a little bit more about some of those efforts?
Yeah. You know, our technology journey started back in 2019. You know, me and the current leadership team here joined at the very tail end of 2018 and beginning in 2019. One of the things we quickly recognized is we needed a solid technology foundation. Technology and technology-driven innovation was the key to lower cost, better performance. You know, we replatformed the business.
I call it nose to tail, stem to stern in the cloud with technology that would be, which would be open and enabled by advanced technologies. We've invested across the full spectrum of AI, artificial intelligence. We put that generally into four buckets: robotic process automation, vision or optical character recognition, natural language processing, call that, you know, voice bots, chat bots, and then machine learning, which is about predictive analytics and generative AI. You know, look, over the course of the past four or five years, we've got, you know, digital bots, digital workers that are covering 150 processes, automating 50,000 hours of what used to be manual work per month in the business. That's just a massive change in how work gets done in our company.
We are using optical character recognition and what is called neural network-enabled data extraction to ingest documents, categorize documents, index them, extract data, populate our databases and our loan systems. Again, that all used to be done by people. It is obviously much more accurate coming from a machine. In the area of natural language processing in the fourth quarter of last year, look, that has had a massive impact. 88% of our customer inquiries were resolved through these digital interface channels. Only 12% of our customers had to talk to a live customer service agent. You know, that was, and we are expanding the use of voice bots in the business to further drive that percentage up. Lastly, in the area of predictive analytics and generative AI, we do use predictive analytics data decision models that are constantly learning.
We're constantly bringing new data in to help us target customers for recapture, to help us target customers for collection assistance, and help us increase the effectiveness of what we do. You know, with, you know, LoanSpan, we announced our generative AI client service tool where customers can ask free-form questions, clients, really sub-servicing clients about the client, the portfolio we're servicing with them. It will answer questions for them, go retrieve the data and bring it back for them. Look, automation is here to stay. It's table stakes. If you're not investing, you're going to get left in the dust. You know, we're committed to have a constant evolution of technology in the business.
To support that, our technology team does what they call roadshows with our operating managers, constantly introducing new technology to them so that the operating managers are equally informed about the potential of technology as our IT people are.
Very helpful context. Thank you. As we're, you know, heading into the end of our session, maybe it would be good to zoom out and talk a little bit about a summary of the value proposition for folks newer to the name. Maybe they're looking across mortgage or even broadly at financial services, you know, a little bit about, you know, why Onity is a place of interest.
Yeah. Look, we are incredibly excited about the potential for the business. We are delivering returns and financial performance commensurate with our peers because of the relative newness of our story and the newness of the transformation of the business.
You know, we are trading at a more significant discount than some of our peers. We believe we've demonstrated a tremendous ability to grow the business without relying upon merger and acquisition activity, which several of our larger peers have engaged in quite a bit. You know, we've done it the old-fashioned way, which is by winning one customer at a time by delivering a superior value proposition to them. Size, scale doesn't always mean good outcomes for a consumer or good outcomes for a commercial client. Demonstrated ability to grow, demonstrated ability to deliver performance, and, you know, on a relative basis, probably a more attractive entry point for potential investors.
Great summary. With that, we are at time. I'd like to thank you, Glen, Sean, and Valerie for sharing the Onity story with us. I also thank everybody listening for spending time with us today.
Thank you, Alex. Thanks, everyone. Appreciate your interest.