Financial Data and Key Metrics Changes - The company experienced a total economic return of negative 14.5% for the second quarter, and negative 1.4% excluding a loss contingency accrual of $1.92 per share [5][16] - The book value decreased to $12.14 per share, reflecting the impact of the loss contingency accrual [16] - A comprehensive loss of $221.8 million or $2.13 per share was reported, which would have been $21.9 million or 21¢ per share without the accrual [16] Business Line Data and Key Metrics Changes - First lien originations increased to $48 million UPB in Q2, up 68% from $29 million UPB in Q1, outpacing the nationwide trend of 16% [8] - Second liens brokered amounted to $44 million UPB, with the company beginning to originate second liens in its own name [9] Market Data and Key Metrics Changes - The 30-year fixed mortgage rate rose from 6.6% to a high near 6.9%, stabilizing in the 6.7% to 6.8% range by the end of the quarter [6][7] - The volume of MSR available in the bulk market has decreased by about 30% year over year [26] Company Strategy and Development Direction - The company is enhancing its direct-to-consumer originations platform to recapture loans in its portfolio that may refinance [8] - Significant investments in AI technologies are being made to improve efficiencies and customer experiences [11][12] - The core strategy focuses on low coupon MSR paired with agency RMBS to benefit from stable prepayments and wide agency spreads [31] Management's Comments on Operating Environment and Future Outlook - The management noted ongoing tariff threats and geopolitical tensions as potential market weighers, but also highlighted opportunities in the current environment [30] - The company expects RMBS and MSR portfolios to respond positively if the Federal Reserve cuts rates later in the year [7] Other Important Information - The company issued $115 million in senior notes due in 2030 for net proceeds of $110.8 million, part of which will be used for refinancing [19] - The economic debt to equity ratio increased to 7x, which is within the historical leverage range of 5 to 8 [20] Q&A Session Summary Question: Is the current leverage level a new standard? - Management confirmed that the leverage of 7x is within the historical range and reflects current market conditions [34][35] Question: Update on economic return performance in July? - The company reported an economic return of about 1.5% for July [36] Question: Differences between expected returns and EAD metric? - Management explained that EAD is based on historical purchase yields, while expected returns reflect forward-looking market conditions [43] Question: Thoughts on financing strategy and shift from repo to unsecured? - The issuance of a baby bond was primarily to prefinance the maturity of existing convertible debt [63] Question: Impact of steepening yield curve on the portfolio? - Management indicated that a steepening yield curve could have counterbalancing effects on MSR values, affecting both float income and prepayment assumptions [70] Question: Plans for second liens in the investment portfolio? - The company is open to retaining second liens if yields are attractive, but will also consider selling them [55] Question: Expense structure and AI investment impact? - Most AI-related expenses will be recognized as operational expenses rather than capitalized, affecting the expense ratio [88][92]

Financial Data and Key Metrics Changes - The company reported a net income of $88 million, with pretax operating earnings of $255 million, offset by an $82 million negative MSR mark net of hedges [18] - ROTCE increased to 16.8%, up from 15.8% in the previous quarter, reflecting benefits from the Flagstar acquisition [6] - Liquidity rose to $3.9 billion from $3.4 billion in the previous quarter, indicating strong cash flow generation [22] Business Line Data and Key Metrics Changes - The servicing segment generated pretax income of $332 million, a 22% year-over-year increase, attributed to lower amortization and operating leverage [10] - Originations produced $53 million in EBT, slightly above guidance, with strong volumes in the correspondent channel [13] - The total portfolio decreased slightly to $1.5 trillion, with a subservicing portfolio growing organically by 2% quarter-over-quarter [12] Market Data and Key Metrics Changes - Cash-out refinances made up 46% of volume, up from 39% last quarter, indicating strong demand for home equity loans [14] - The company helped over 9,000 customers access equity in their homes during the quarter [14] - Delinquencies in the mortgage servicing rights (MSR) portfolio decreased to 1.1%, reflecting strong asset quality [21] Company Strategy and Development Direction - The pending combination with Rocket aims to create a fully integrated homeownership platform, enhancing customer experience through AI and technology [4] - The company is focused on operational excellence and has received multiple awards for its servicing platform, which supports long-term growth [9] - The integration with Rocket is expected to leverage both companies' strengths, creating a comprehensive homeownership ecosystem [16] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the integration with Rocket and the potential for enhanced customer offerings [16] - The current environment presents limited opportunities for rate and term refinances, but the company is prepared to act quickly when conditions improve [16] - The company does not expect to repurchase stock prior to the closing of the Rocket transaction, which is anticipated in Q4 2025 [25] Other Important Information - The company incurred $26 million in transaction and transition charges related to the Flagstar integration [19] - The MSR was marked down due to falling interest rates, leading to a quarter-end valuation of 155 basis points of UPB [20] - The capital ratio improved to 25.5%, up from 24.4% in the previous quarter, supported by strong earnings [24] Q&A Session Summary - No questions were taken during the call due to the pending combination with Rocket, as stated by management [3]