Ladies and gentlemen, thank you for standing by, and welcome to the Altisource Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker today, Michelle Esterman, Chief Financial Officer. Thank you. Please go ahead.

Thank you, operator. We first want to remind you that the earnings release, Form 10-Q and quarterly slides are available on our website at www.altisource.com. These provide additional information investors may find useful.

Thanks, Michelle. Good morning, and thank you for joining today's call. This morning, I will discuss the progress we are making in our core origination and default businesses and provide an update on our investment in Pointillist. While the last 1.5 years presented a challenging operating environment for Altisource, I am very excited about the future for our origination and default businesses. Beginning with our origination business on Slide 3. I'm pleased with the second quarter performance and, more importantly, with our long-term prospects. This business generated $14.5 million in revenue in the second quarter, representing 16% growth compared to the same period in 2020, outpacing the estimated 13% growth in the overall origination market. More importantly, we believe our attractive origination business model should support rapid growth. Slides 4 through 6 highlight our business model and growth opportunities. Beginning with Slide 4, Altisource is the manager of the 241-member Lenders One Mortgage Cooperative. As the manager, we offer a suite of solutions designed to help the members improve their profitability and compete against larger and better-capitalized mortgage companies. We also provide the members with data and market intelligence to drive better business decisions and improve profitability. We estimate that the Lenders One members collectively originated approximately 15% of residential mortgages in 2020. This is roughly the same volume of the top 3 lenders combined.

Your first question comes from the line of Mike Grondahl with Northland Securities.

Bill, when you were saying some high-level comments about Lenders One, were you then saying that you're looking at all options for Lenders One? I couldn't quite tell. My head was a little bit stuck on Pointillist at that point. But were those comments in reference to Lenders One or Pointillist?

So we made comments both about Lenders One and Pointillist. So with respect to Lenders One, we are talking about our whole origination business, where we believe we can create significant shareholder value, given the progress we're making and the opportunities we have in front of us. And when we look at the market and compare ourselves to some of the other firms that have recently executed capital market transactions, we believe it makes sense for us to explore ways to improve shareholder value for us. And so we listed a variety of options in my prepared remarks that we're considering or evaluating.

Got it. And that pertains to the origination business? Is that the right way to think about it?

That's correct.

Okay, great. And then...

And then, Mike, on Pointillist, Pointillist is also making really good progress. Its revenue has grown 3x from the end of the year. We're not disclosing the actual revenue amount for competitive reasons but it's making very significant progress. And it, too, at some point, plans to look to raise growth capital to continue and to help accelerate Pointillist's growth.

Got it. Do you think that's 2021 or is it more likely 2022? How do you handicap that?

So I would say, Mike, regarding the origination business, we are collaborating with the Board to find ways to enhance shareholder value. It’s challenging to predict when this analysis will be complete, but we hope to have more clarity by the end of this year, for sure. And on Pointillist...

Got it. And then, yes, Pointillist?

It's still to be determined. We're making really good progress. And it'd be hard for me to tell whether something will happen this year or sometime next year but I think it's within the next 6 to 12 months.

Got it, okay. And then just on the default business, once the CFPB's kind of moratorium is lifted at year-end, how long does it take to kind of see that ramp up? I was just going to ask, does anyone have a rough estimate of what percentage of delinquencies will qualify for the August start? Is it around 10% or 20% of foreclosures? How significant is that pool?

Yes. Mike, don't hold me to this but when I look at the industry statistics, I think there's a couple hundred, maybe 200,000 to 400,000, 500,000 industry-wide foreclosures that may fall into that category. But I'm going from memory here, but I think that's a ballpark number.

Your next question comes from the line of Raj Sharma with B. Riley.

My question, Bill, is a follow-up to the last speaker. Regarding Lenders One, are you considering the possibility of an external investment? Could it be a spin-off or a joint venture? You're not considering selling the business entirely, are you? Are you looking at a joint venture or an investment from a third party?

What we mentioned is that it could involve a potential divestiture, a joint venture, third-party investment, or other strategic transactions, along with the option of retaining and investing in the business. Our aim is to enhance shareholder value, Raj. When we analyze other companies, we have included their names on one of our slides. Michelle, do you recall which slide number that was?

Yes. It's Slide 7, Bill.

There is a company called Farmers Business Network that operates similarly to us but serves the farming community. They help farmers sell their crops for better prices and lower production costs. We provide a similar service for the mortgage industry by helping lenders sell their loans more profitably and reduce manufacturing costs. This company was valued at about $1.7 billion to $1.8 billion a year or two ago, although it’s unclear how much revenue they were generating—reports suggest it was under $200 million at the time they secured funding. When we look at comparable companies like this, which leverage technology and have strong distribution networks along with a suite of solutions, we see they hold high valuations. We are considering various strategies to enhance shareholder value, including the options I mentioned earlier.

Right, okay. So stay tuned on that. And then your comment that your default business could grow to $230 million to $352 million, I think it's one of the slides. Is that just the field services business you're talking about? You're not including the marketplace or the professional services in that number?

It includes all of the default, which would include Hubzu marketplace, field services, title valuation.

But not the professional services. That's just field services plus marketplace?

It would include field services, the marketplace, foreclosure, trustee, our default valuation, and default title. To clarify, that number is based on our current customer base, including Ocwen and NRZ in the marketplace, as well as our other customers. This figure does not factor in new sales. My understanding, and please correct me if I'm mistaken, is that we established this based on our existing customer base. If we return to pre-pandemic delinquency levels or to where delinquency levels stood earlier this year, we set the benchmark between those pre-pandemic levels and the delinquency levels from the second quarter.

That's right.

And so there's an opportunity to grow from there with new customers.

Right. On the foreclosures and what CFPB allows you to do starting today, so pre-pandemic, you're saying that the number of pre-pandemic greater than 120 days are around 200,000 to 400,000 mortgages?

Roughly. That's my recollection.

How does that compare to the current volume you are processing?

Well, that's industry-wide, not just our customers. That's industry-wide. So it's very hard to predict, Raj, just because we don't know how servicers are going to restart either pending foreclosures or start new foreclosures for those pre-pandemic delinquent loans. So it's to be seen. We certainly expect that there will be an uptick or anticipate there'll be an uptick starting this quarter, but it's hard to tell. And then, of course, it takes time to work through the system if it's a new foreclosure. If it's a pending foreclosure, depending on where it was in the process when the foreclosure was put on moratorium, that will determine when those loans go to foreclosure sale and ultimately REO.

Got it. I have one more question regarding Ocwen. How should we estimate the approximate revenue from the 1,900 loans that you'll be servicing?

Sure. A certain percentage of those loans, which are first chance foreclosure auctions on an FHA portfolio, will reinstate before reaching foreclosure sale. Generally, more than 50% sell at the first chance auction, and typically, 50% or more of what remains sell at the second chance auction. Recently, we've received referrals, and about 5 to 10 have already gone to foreclosure auction, generating nearly $50,000 in revenue. The typical auction fee is around 3% in marketing-only states, while in states where we conduct the auction, it can be up to 5% of the proceeds.

3% to 5%. Okay.

I have no further questions at this time. I would now like to turn the conference back to Bill.

Great. Thanks, operator. Thanks for joining the call. We appreciate your continued interest in Altisource. Thank you.

Thank you for participating. You may disconnect at this time.