Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
 
(Mark one)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2017
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from: ____________________ to ____________________
Commission File No. 1-13219
OCWEN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Florida
 
65-0039856
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
1661 Worthington Road, Suite 100
West Palm Beach, Florida
 
33409
(Address of principal executive office)
 
(Zip Code)
(561) 682-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.01 par value
 
New York Stock Exchange (NYSE)
(Title of each class)
 
(Name of each exchange on which registered)
Securities registered pursuant to Section 12 (g) of the Act: Not applicable.
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
 
Large Accelerated filer
o
 
 
Accelerated filer
x
 
Non-accelerated filer
o
(Do not check if a smaller reporting company)
 
Smaller reporting company
o
 
 
 
 
 
Emerging growth company
o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes o No x
Aggregate market value of the voting and non-voting common equity of the registrant held by nonaffiliates as of June 30, 2017: $331,954,234
Number of shares of common stock outstanding as of February 23, 2018: 133,359,058 shares
DOCUMENTS INCORPORATED BY REFERENCE: Portions of our definitive Proxy Statement with respect to our Annual Meeting of Shareholders, which is currently scheduled to be held on May 23, 2018, are incorporated by reference into Part III, Items 10 - 14.





OCWEN FINANCIAL CORPORATION
2017 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
 
 
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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FORWARD-LOOKING STATEMENTS
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this report, including, without limitation, statements regarding our financial position, business strategy and other plans and objectives for our future operations, are forward-looking statements.
These statements include declarations regarding our management’s beliefs and current expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could”, “intend,” “consider,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict” or “continue” or the negative of such terms or other comparable 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 uncertainties. Readers should bear these factors in mind when considering forward-looking 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 from those suggested by such statements. In the past, actual results have differed from those suggested by forward looking statements and this may happen again. Important factors that could cause actual results to differ include, but are not limited to, the risks discussed in “Risk Factors” and the following:
uncertainty related to claims, litigation, cease and desist orders and investigations brought by government agencies and private parties regarding our servicing, foreclosure, modification, origination and other practices, including uncertainty related to past, present or future investigations, litigation, cease and desist orders and settlements with state regulators, the Consumer Financial Protection Bureau (CFPB), State Attorneys General, the Securities and Exchange Commission (SEC), the Department of Justice or the Department of Housing and Urban Development (HUD) and actions brought under the False Claims Act by private parties on behalf of the United States of America regarding incentive and other payments made by governmental entities;
adverse effects on our business because of regulatory investigations, litigation, cease and desist orders or settlements;
reactions to the announcement of such investigations, litigation, cease and desist orders or settlements by key counterparties, including lenders, the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Government National Mortgage Association (Ginnie Mae);
our ability to reach settlements with regulatory agencies on appropriate terms and to comply with the terms of our settlements with regulatory agencies;
increased regulatory scrutiny and media attention;
any adverse developments in existing legal proceedings or the initiation of new legal proceedings;
our ability to effectively manage our regulatory and contractual compliance obligations;
our ability to comply with our servicing agreements, including our ability to comply with our agreements with, and the requirements of, Fannie Mae, Freddie Mac and Ginnie Mae and maintain our seller/servicer and other statuses with them;
the adequacy of our financial resources, including our sources of liquidity and ability to sell, fund and recover advances, repay borrowings and comply with our debt agreements, including the financial and other covenants contained in them;
our ability to invest excess liquidity at adequate risk-adjusted returns;
limits on our ability to repurchase our own stock as a result of regulatory settlements and other conditions;
our servicer and credit ratings as well as other actions from various rating agencies, including the impact of prior or future downgrades of our servicer and credit ratings;
failure of our information technology and other security measures or breach of our privacy protections, including any failure to protect customers’ data;
volatility in our stock price;
the characteristics of our servicing portfolio, including prepayment speeds along with delinquency and advance rates;
our ability to contain and reduce our operating costs;
our ability to successfully modify delinquent loans, manage foreclosures and sell foreclosed properties;
uncertainty related to legislation, regulations, regulatory agency actions, regulatory examinations, government programs and policies, industry initiatives and evolving best servicing practices;
our dependence on New Residential Investment Corp. (NRZ) for a substantial portion of our advance funding for non-agency mortgage servicing rights;
our ability to complete the proposed acquisition of PHH Corporation (PHH), to successfully integrate its business, and to realize the strategic objectives and other benefits of the acquisition at the time anticipated or at all, including our ability to integrate, maintain and enhance PHH’s servicing, subservicing and other business relationships;
our ability to timely transfer mortgage servicing rights under our agreements with NRZ and our ability to maintain our long-term relationship with NRZ under these new arrangements and after the acquisition of PHH, our ability to maintain a subservicing relationship with NRZ;

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the loss of the services of our senior managers;
uncertainty related to general economic and market conditions, delinquency rates, home prices and disposition timelines on foreclosed properties;
uncertainty related to the actions of loan owners and guarantors, including mortgage-backed securities investors, Ginnie Mae, trustees and government sponsored entities (GSEs), regarding loan put-backs, penalties and legal actions;
uncertainty related to the GSEs substantially curtailing or ceasing to purchase our conforming loan originations or the Federal Housing Administration (FHA) of HUD or Department of Veterans Affairs (VA) ceasing to provide insurance;
uncertainty related to the processes for judicial and non-judicial foreclosure proceedings, including potential additional costs or delays or moratoria in the future or claims pertaining to past practices;
our ability to adequately manage and maintain real estate owned (REO) properties and vacant properties collateralizing loans that we service;
uncertainty related to our ability to continue to collect certain expedited payment or convenience fees and potential liability for charging such fees;
our reserves, valuations, provisions and anticipated realization on assets;
uncertainty related to the ability of third-party obligors and financing sources to fund servicing advances on a timely basis on loans serviced by us;
uncertainty related to the ability of our technology vendors to adequately maintain and support our systems, including our servicing systems, loan originations and financial reporting systems;
our ability to realize anticipated future gains from future draws on existing loans in our reverse mortgage portfolio;
our ability to effectively manage our exposure to interest rate changes and foreign exchange fluctuations;
uncertainty related to our ability to adapt and grow our business;
our ability to meet capital requirements established by, or agreed with, regulators or counterparties;
our ability to protect and maintain our technology systems and our ability to adapt such systems for future operating environments; and
uncertainty related to the political or economic stability of foreign countries in which we have operations.
Further information on the risks specific to our business is detailed within this report, including under “Risk Factors.” Forward-looking statements speak only as of the date they were made and we disclaim any obligation to update or revise forward-looking statements whether because of new information, future events or otherwise.

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PART I
ITEM 1.
BUSINESS
When we use the terms “Ocwen,” “OCN,” “we,” “us” and “our,” we are referring to Ocwen Financial Corporation and its consolidated subsidiaries.
OVERVIEW
We are a financial services company that services and originates loans. Our goal is to be a world-class servicing and lending company that delivers service excellence to our customers and servicing clients and strong returns to our shareholders. To achieve this goal, our focus is on executing against the following objectives:
Deliver Excellent Service - Build on a strong track record of success as a leader in the servicing industry in foreclosure prevention and loss mitigation that helps families stay in their homes and improves financial outcomes for mortgage loan investors. We continue to invest in new process and technology enhancements, including a significant, multi-year investment to replace our current servicing platform with LoanSphere MSP®, an industry-leading system provided by Black Knight Financial Services. We believe this investment will improve the way we work, help simplify internal processes, and allow our teams to provide better service to our servicing customers and clients.
Continuous Cost Improvement - Improve our cost structure as part of an organization-wide initiative to return Ocwen to profitability. In addition, we take our commitments to enhancing the customer experience, maintaining a strong risk and compliance infrastructure and delivering strong loss mitigation results very seriously and, accordingly, we continue to make appropriate investments in those important areas even as we continue to optimize our cost structure through productivity improvements and other initiatives. In addition, part of our cost improvement objective includes resolving our legacy litigation and regulatory matters.
Our Culture - Actively foster a strong and positive culture of compliance, risk management, ethical behavior and service excellence. Our success ultimately depends on the strength of our relationships with our customers, our servicing clients, our regulators and other key counterparties. We strongly believe ourselves to be partners in the homeownership process and are committed to helping our customers in every permissible way, all within an appropriate risk and compliance environment.
As previously announced, we have entered into an Agreement and Plan of Merger, dated as of February 27, 2018 (the Merger Agreement), with PHH Corporation, a Maryland corporation (PHH), and POMS Corp, a Maryland corporation and a wholly owned subsidiary of Ocwen (Merger Sub). PHH is a leading non-bank servicer with established servicing and origination recapture capabilities. Pursuant to the Merger Agreement, Merger Sub will merge with and into PHH (the Merger), with PHH surviving, and PHH will become a wholly owned subsidiary of Ocwen. The consideration to be paid in the Merger will be $360.0 million in cash. As of December 31, 2017, PHH had approximately $1.8 billion in total assets. The transaction is expected to close in the second half of 2018, subject to approval by PHH’s stockholders, regulatory approvals and other closing conditions.
For more information on the terms and conditions of the Merger, see “- Pending Acquisition of PHH” below. For more information on the risks relating to the Merger, see “Item 1A. Risk Factors - Risks Relating to Our Pending Acquisition of PHH.”
We are headquartered in West Palm Beach, Florida with offices located throughout the United States (U.S.) and in the United States Virgin Islands (USVI) and operations in India and the Philippines. Ocwen Financial Corporation is a Florida corporation organized in February 1988. With our predecessors, we have been servicing residential mortgage loans since 1988. We have been originating forward mortgage loans since 2012 and reverse mortgage loans since 2013. In 2015, we began originating short-term loans to independent used car dealers but exited that business in early 2018 to focus on our core businesses of servicing and lending.
BUSINESS LINES
Servicing and Lending are our primary lines of business. Our other business activities that are currently individually insignificant are included in the Corporate Items and Other segment.
Servicing
Our Servicing business is primarily comprised of our core residential mortgage servicing business and currently accounts for most of our total revenues. Our servicing clients include some of the largest financial institutions in the U.S., including the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (each, an Agency or, collectively, the GSEs), the Government National Mortgage Association (Ginnie Mae), New Residential Investment Corp. (NRZ) and non-Agency residential mortgage-backed securities (RMBS) trusts. As of December 31, 2017, our residential servicing portfolio consisted of 1,221,695 loans with an unpaid principal balance (UPB) of $179.4 billion.

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Servicing involves the collection of principal and interest payments from borrowers, the administration of tax and insurance escrow accounts, the collection of insurance claims, the management of loans that are delinquent or in foreclosure or bankruptcy, including making servicing advances, evaluating loans for modification and other loss mitigation activities and, if necessary, foreclosure referrals and the sale of the underlying mortgaged property following foreclosure REO on behalf of mortgage loan investors or other servicers. Master servicing involves the collection of payments from servicers and the distribution of funds to investors in mortgage and asset-backed securities and whole loan packages. We earn contractual monthly servicing fees (which are typically payable as a percentage of UPB) pursuant to servicing agreements as well as other ancillary fees relating to our servicing activities such as late fees and REO referral commissions.
We own mortgage servicing rights (MSRs) outright, where we receive all the servicing economics, and we subservice on behalf of other institutions that own the MSRs or Rights to MSRs, in which case we earn a fee for performing the subservicing activities. Special servicing is a component form of subservicing where we generally manage only delinquent loans on behalf of a loan owner. The owners of MSRs or Rights to MSRs may choose to retain Ocwen as a subservicer instead of servicing the MSRs themselves for a variety of reasons, including the lack of a servicing platform or the necessary capacity or expertise to service some or all of their MSRs. We typically earn subservicing and special servicing fees either as a percentage of UPB or on a per loan basis.
Servicing advances are an important component of our business and are amounts that we, as servicer, are required to advance to, or on behalf of, our servicing clients if we do not receive such amounts from borrowers. These amounts include principal and interest payments, property taxes and insurance premiums and amounts to maintain, repair and market real estate properties on behalf of our servicing clients. Most of our advances have the highest reimbursement priority such that we are entitled to repayment of the advances from the loan or property liquidation proceeds before most other claims on these proceeds. The costs incurred in meeting advancing obligations consist principally of the interest expense incurred in financing the advance receivables and the costs of arranging such financing.
Reducing delinquencies is important to our business because it enables us to recover advances and recognize additional ancillary income, such as late fees, which we do not recognize on delinquent loans until they are brought current. Performing loans also require less work and thus are generally less costly to service. While increasing borrower participation in loan modification programs is a critical component of our ability to reduce delinquencies, the persistence of those modifications to remain current is also an important factor.
Our Servicing business grew rapidly via portfolio and business acquisitions during the period 2010 through 2013. Our growth ceased primarily because of significant regulatory actions against us that have effectively prohibited any significant acquisitions of servicing since early 2014. In addition, during 2015 we sold MSRs with a UPB of $87.6 billion as we implemented a strategy to sell a portion of our Agency MSRs to refocus our business on non-Agency servicing, reduce our exposure to interest rate movements, monetize unrealized value and generate liquidity. These and other smaller asset sales combined with normal portfolio runoff as mortgages are repaid and paid off have resulted in a 61.4% decline in our servicing portfolio as compared to December 31, 2013.


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Our servicing segment has had pre-tax net income in four of the five years in the period ending December 31, 2017. While we have been successful in reducing the size and costs of our servicing operations in line with declines in our residential servicing portfolio, we would benefit from economies of scale if we were able to increase the size of our servicing portfolio. If we are successful in removing regulatory restrictions limiting the growth of our servicing portfolio, we would acquire MSRs if we view the purchase price and other terms to be attractive.
Lending
In 2017, our Lending business originated or purchased forward and reverse mortgage loans with a UPB of $2.5 billion and $1.0 billion, respectively. These loans were acquired through three primary channels: directly with mortgage customers (retail), through correspondent lender relationships (correspondent) and through broker relationships (wholesale). Per-loan margins vary by channel, with correspondent typically being the lowest margin and retail the highest. We exited the forward lending correspondent and wholesale/broker channels in the second and fourth quarters of 2017, respectively, and our forward lending business is now primarily focused on portfolio recapture (i.e., refinancing loans in our servicing portfolio).
Our forward mortgage loans are conventional (conforming to the underwriting standards of the GSEs, collectively Agency loans) and government-insured (insured by the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA)). After origination, we generally package and sell the loans in the secondary mortgage market, through GSE and Ginnie Mae guaranteed securitizations and whole loan transactions. We typically retain the associated MSRs on securitizations, providing the Servicing business with a source of new MSRs to replenish our servicing portfolio and partially offset the impact of amortization and prepayments. Whole loan transactions are generally completed on a servicing released basis.
We also originate and purchase Home Equity Conversion Mortgages (HECM or reverse mortgage loans), which are generally insured by the FHA, through our Liberty Home Equity Solutions, Inc. (Liberty) operations. Loans originated under this program are generally guaranteed by the FHA, which provides investors with protection against risk of borrower default. The reverse mortgage channel provides both current period and future period gain on sale revenue from new originations because of subsequent tail draws taken by the borrower. While we focus on current period reported earnings, we also utilize our market experience to invest in future asset value when returns are at attractive levels. These future cash flows are not guaranteed but viewed as probable given our historic asset quality and slow prepayment speeds.
Retail Lending. We originate forward and reverse mortgage loans directly with borrowers through our retail lending business. Our forward lending business benefits from our significant servicing portfolio by offering refinance options to qualified borrowers seeking to lower their mortgage payments. Depending on borrower eligibility, we refinance eligible customers into conforming or government-insured products. We also are increasing our ability to originate retail loans to non-Ocwen servicing customers through various marketing channels and a centralized call center. Through lead campaigns and direct marketing, the retail channel seeks to convert leads into in a cost-efficient manner. We are focused on increasing recapture rates on our existing servicing portfolio to grow this business.

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Wholesale Lending. We originate reverse mortgage loans through a network of approved brokers. Brokers are subject to a formal approval and monitoring process. We underwrite all loans originated through this channel consistent with the underwriting standards required by the ultimate investor prior to funding.
Correspondent Lending. Our reverse correspondent lending operation purchases mortgage loans that have been originated by a network of approved third-party lenders.
All the lenders participating in our correspondent lending program are approved by senior lending and compliance management. We also employ an ongoing monitoring and renewal process for participating lenders that includes an evaluation of the performance of the loans they have sold to us. We perform a variety of pre- and post-funding review procedures to ensure that the loans we purchase conform to our requirements and to the requirements of the investors to whom we sell loans.
We provide customary origination representations and warranties to investors in connection with our loan sales and securitization activities. We receive customary origination representations and warranties from our network of approved originators relating to loans we purchase through our correspondent lending channel. We recognize the fair value of the liability for our representations and warranties at the time of sale. In the event we cannot remedy a breach of a representation or warranty, we may be required to repurchase the loan or provide an indemnification payment to the investor. To the extent that we have recourse against a third-party originator, we may recover part or all of any loss we incur.
Automotive Capital Services
Automotive Capital Services, Inc. (ACS) is a business we began in 2015 that provided short-term inventory-secured loans to independent used car dealers to finance their inventory. In October 2017, we announced we were exploring strategic options for ACS, and in January 2018 we decided to exit this business. We are currently providing some transition-related support to existing customers, and we expect to have exited the business by the end of the second quarter of 2018, although we will retain, and continue to attempt to collect on, defaulted loans.
The results of operations for each of our reportable operating segments (Servicing, Lending and Corporate Items and Other) are included in the individual business operations sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations. Financial information related to reportable operating segments is provided in Note 21 — Business Segment Reporting.
REGULATION
Our business is subject to extensive oversight and regulation by federal, state and local governmental authorities, including the CFPB, HUD and various state agencies that license and conduct examinations of our loan servicing, origination and collection activities. In addition, we operate under a number of regulatory settlements that subject us to ongoing reporting and other obligations. From time to time, we also receive requests (including requests in the form of subpoenas and civil investigative demands) from federal, state and local agencies for records, documents and information relating to the policies, procedures and practices of our loan servicing, origination and collection activities. The GSEs and their conservator, the Federal Housing Finance Authority (FHFA), Ginnie Mae, the United States Treasury Department, various investors, non-Agency securitization trustees and others also subject us to periodic reviews and audits.
In the current regulatory environment, we have faced and expect to continue to face heightened regulatory and public scrutiny as an organization as well as stricter and more comprehensive regulation of the entire mortgage sector. We continue to work diligently to assess and understand the implications of the regulatory environment in which we operate and to meet the requirements of this constantly changing environment. We devote substantial resources to regulatory compliance, while, at the same time, striving to meet the needs and expectations of our customers, clients and other stakeholders. Our failure to comply with applicable federal, state and local laws, regulations and licensing requirements could lead to any of the following:
loss of our licenses and approvals to engage in our servicing and lending businesses;
governmental investigations and enforcement actions;
administrative fines and penalties and litigation;
civil and criminal liability, including class action lawsuits and actions to recover incentive and other payments made by governmental entities;
breaches of covenants and representations under our servicing, debt or other agreements;
damage to our reputation;
inability to raise capital; or
inability to execute on our business strategy.
In addition to amounts paid to resolve regulatory matters, we could incur costs to comply with the terms of such resolutions, including the costs of third-party firms to monitor our compliance with such resolutions. We have recognized $177.5 million in such third-party monitoring costs from January 1, 2014 through December 31, 2017 relating to the 2013

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Ocwen National Mortgage Settlement, our 2014 settlement with the New York Department of Financial Services (NY DFS) and our 2015 settlement with the California Department of Business Oversight (CA DBO).
We must comply with a large number of federal, state and local consumer protection laws including, among others, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act, the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Homeowners Protection Act, the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Equal Credit Opportunity Act, as well as individual state laws pertaining to licensing, general mortgage origination and servicing practices and foreclosure, and federal and local bankruptcy rules. These statutes apply to many facets of our business, including loan origination, default servicing and collections, use of credit reports, safeguarding of non-public personally identifiable information about our customers, foreclosure and claims handling, investment of and interest payments on escrow balances and escrow payment features, and mandate certain disclosures and notices to borrowers. These requirements can and do change as statutes and regulations are enacted, promulgated, amended, interpreted and enforced.
Since the financial crisis that began in 2007, the trend among federal, state and local lawmakers and regulators has been toward increasing laws, regulations and investigative proceedings with regard to residential mortgage lenders and servicers. Over the past few years, state and federal lawmakers and regulators have adopted a variety of new or expanded laws and regulations and recommended practices, including the Dodd-Frank Act, which created the CFPB as a new federal entity responsible for regulating consumer financial services. Since its formation, the CFPB has taken a very active role in the mortgage industry, and its rule-making and regulatory agenda relating to loan servicing and origination continues to evolve. Individual states have also been active, as have other regulatory organizations such as the Multistate Mortgage Committee (MMC), a multistate coalition of various mortgage banking regulators. We also believe there has been a shift among certain regulators towards a broader view of the scope of regulatory oversight responsibilities with respect to mortgage lenders and servicers. In addition to their traditional focus on licensing and examination matters, certain regulators have begun to make observations, recommendations or demands with respect to areas such as corporate governance, safety and soundness and risk and compliance management.
The CFPB and state regulators have also increasingly focused on the use and adequacy of technology in the mortgage servicing industry. In 2016, the CFPB issued a special edition supervision report that stressed the need for mortgage servicers to assess and make necessary improvements to their information technology systems to ensure compliance with the CFPB’s mortgage servicing requirements. The NY DFS also issued Cybersecurity Requirements for Financial Services Companies, which took effect in 2017, and which required banks, insurance companies, and other financial services institutions regulated by the NY DFS to establish and maintain a cybersecurity program designed to protect consumers and ensure the safety and soundness of New York State’s financial services industry.
New regulatory and legislative measures, or changes in enforcement practices, including those related to the technology we use, could, either individually or in the aggregate, require significant changes to our business practices, impose additional costs on us, limit our product offerings, limit our ability to efficiently pursue business opportunities, negatively impact asset values or reduce our revenues.
We are subject to a number of ongoing federal and state regulatory examinations, consent orders, inquiries, subpoenas, civil investigative demands, requests for information and other actions, which could result in further adverse regulatory action against us.
To the extent that an examination, audit or other regulatory engagement identifies an alleged failure by us to comply with applicable laws, regulations or licensing requirements, or if allegations are made that we have failed to comply with applicable laws, regulations or licensing requirements or the commitments we have made in connection with our regulatory settlements (whether such allegations are made through administrative actions such as cease and desist orders, through legal proceedings or otherwise) or if other regulatory actions of a similar or different nature are taken in the future against us, this could lead to (i) administrative fines and penalties and litigation, (ii) loss of our licenses and approvals to engage in our servicing and lending businesses, (iii) governmental investigations and enforcement actions, (iv) civil and criminal liability, including class action lawsuits and actions to recover incentive and other payments made by governmental entities, (v) breaches of covenants and representations under our servicing, debt or other agreements, (vi) damage to our reputation, (vii) inability to raise capital or otherwise fund our operations and (viii) inability to execute on our business strategy. Any of these occurrences could increase our operating expenses and reduce our revenues, hamper our ability to grow or otherwise materially and adversely affect our business, reputation, financial condition, liquidity and results of operations.
Finally, there are a number of foreign laws and regulations that are applicable to our operations outside of the U.S., including laws and regulations that govern licensing, employment, safety, taxes and insurance and laws and regulations that govern the creation, continuation and the winding up of companies as well as the relationships between shareholders, our corporate entities, the public and the government in these countries. Non-compliance with these laws and regulations could

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result in adverse actions against us, including (i) restrictions on our operations in these counties, (ii) fines, penalties or sanctions or (iii) reputational damage.
CFPB
On April 20, 2017, the CFPB filed a lawsuit in the federal district court for the Southern District of Florida against Ocwen, Ocwen Mortgage Servicing. Inc. (OMS) and Ocwen Loan Servicing, LLC (OLS) alleging violations of federal consumer financial laws relating to our servicing business dating back to 2014. The CFPB’s claims include allegations regarding (1) the adequacy of Ocwen’s servicing system and integrity of Ocwen’s mortgage servicing data, (2) Ocwen’s foreclosure practices and (3) various purported servicer errors with respect to borrower escrow accounts, hazard insurance policies, timely cancellation of private mortgage insurance, handling of customer complaints, and marketing of optional products. The CFPB alleges violations of unfair, deceptive acts or abusive practices, as well as violations of specific laws or regulations. The CFPB does not claim specific monetary damages, although it does seek consumer relief, disgorgement of allegedly improper gains, and civil money penalties. We believe we have factual and legal defenses to the CFPB’s allegations and are vigorously defending ourselves.
Prior to the CFPB instituting legal proceedings, we had been engaged with the CFPB in efforts to resolve the matter. We have recorded $12.5 million as of December 31, 2017 as a result of these discussions. If we are successful in defending ourselves against the CFPB, it is possible that our losses could be less than $12.5 million. It is also possible that we could incur losses that materially exceed the amount accrued, and the resolution of the matters raised by the CFPB could have a material adverse impact on our business, reputation, financial condition, liquidity and results of operations. We cannot currently estimate the amount, if any, of reasonably possible loss above amounts previously accrued.
State Licensing, State Attorneys General and Other Matters
Our licensed entities are required to renew their licenses, typically on an annual basis, and to do so they must satisfy the license renewal requirements of each jurisdiction, which generally include financial requirements such as providing audited financial statements or satisfying minimum net worth requirements and non-financial requirements such as satisfactorily completing examinations as to the licensee’s compliance with applicable laws and regulations. Failure to satisfy any of the requirements to which our licensed entities are subject could result in a variety of regulatory actions ranging from a fine, a directive requiring a certain step to be taken, a suspension or ultimately a revocation of a license, any of which could have a material adverse impact on our results of operations and financial condition. In addition, we receive information requests and other inquiries, both formal and informal in nature, from our state regulators as part of their general regulatory oversight of our servicing and lending businesses. We also regularly engage with state attorneys general and the CFPB and, on occasion, we engage with other federal agencies, including the Department of Justice and various inspectors general on various matters, including responding to information requests and other inquiries. Many of our regulatory engagements arise from a complaint that the entity is investigating, although some are formal investigations or proceedings. The GSEs and their conservator, FHFA, HUD, FHA, VA, Ginnie Mae, the United States Treasury Department, and others also subject us to periodic reviews and audits. We have in the past resolved, and may in the future resolve, matters via consent orders or payment of monetary amounts to settle issues identified in connection with examinations or regulatory or other oversight activities, and such resolutions could have material and adverse effects on our business, reputation, operations, results of operations and financial condition.
On April 20, 2017 and shortly thereafter, mortgage and banking regulatory agencies from 30 states and the District of Columbia took regulatory actions against OLS and certain other Ocwen companies that alleged deficiencies in our compliance with laws and regulations relating to our servicing and lending activities. In general, the regulatory actions took the form of “cease and desist orders,” and we use that term to refer to all the orders for ease of reference; for ease of reference, we also include the District of Columbia as a state when we reference states below. All the cease and desist orders were applicable to OLS, but additional Ocwen entities were named in some orders, including Ocwen Financial Corporation, OMS, Homeward and Liberty. Following the issuance of the orders, we reached agreements with certain regulatory agencies to obtain delays in the enforcement of certain terms or exceptions to certain terms contained in the cease and desist orders. Additionally, we revised our operations based on the terms of the orders while we sought to negotiate resolutions.
We have entered into agreements with 28 states plus the District of Columbia to resolve these regulatory actions. These agreements generally contain the following key terms (the Multi-State Common Settlement Terms):
Ocwen will not acquire any new residential mortgage servicing rights until April 30, 2018.
Ocwen will develop a plan of action and milestones regarding its transition from the servicing system we currently use, REALServicing®, to an alternate servicing system and, with certain exceptions, will not board any new loans onto the REALServicing system.
If Ocwen chooses to merge with or acquire an unaffiliated company or its assets to effectuate a transfer of loans from the REALServicing system, Ocwen must give the applicable regulatory agency prior notice to the signing of any final agreement and the opportunity to object (which prior notice requirement is independent of, and in addition to, applicable state law notice and consent requirements relating to change of control transactions). If no objection is

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received, the provisions of the first bullet point above shall not prohibit the transaction, or limit the transfer of loans from the REALServicing system onto the merged or acquired company’s alternate servicing system. If an unaffiliated company merges with or acquires Ocwen or Ocwen’s assets, the provisions of the first bullet point above shall not prohibit the transaction, or limit the transfer of loans from the REALServicing system onto the merging or acquiring company’s alternate servicing system.
Ocwen will engage a third-party auditor to perform an analysis with respect to our compliance with certain federal and state laws relating to escrow by testing approximately 9,000 loan files relating to residential real property in various states, and Ocwen must develop corrective action plans for any errors that are identified by the third-party auditor.
Ocwen will develop and submit for review a plan to enhance our consumer complaint handling processes.
Ocwen will provide financial condition reporting on a confidential basis as part of each state’s supervisory framework through September 2020.
In addition to the terms described above, Ocwen entered into settlements with certain states on different or additional terms, which include making certain additional communications with and for borrowers, and certain review and reporting obligations. In addition, Ocwen agreed with the Connecticut regulatory agency to pay certain amounts only in the event we fail to comply with certain requirements under our agreement with Connecticut. In its agreement with the Maryland regulatory agency, Ocwen agreed to complete an independent management assessment and enterprise risk assessment, to certain other review and reporting requirements, and to a prohibition, with certain de minimis exceptions, on repurchases of our stock until December 7, 2018. Ocwen also agreed to make certain payments to Maryland, to provide remediation to certain borrowers in the form of cash payments or credits and to pay certain amounts only in the event we fail to comply with certain requirements under our agreement with Maryland. We will also incur costs complying with the terms of these settlements, including in connection with the escrow analysis and transition to a new servicing system. In addition, in the event errors were to be uncovered during the escrow analysis, we could incur costs remedying such errors or other actions could be taken against us by regulators or others.
We continue to seek timely resolutions with the remaining two state regulatory agencies, one of which took action in conjunction with its state Attorney General, as discussed below. If Ocwen is successful in reaching such resolutions, they may contain some or all of the Multi-State Common Settlement Terms and may also contain additional terms, including potentially monetary fines or penalties or additional restrictions on our business. There can be no assurance that Ocwen will be able to reach resolutions with the remaining regulatory agencies. It is possible that the outcome of the remaining regulatory actions, whether through negotiated settlements or other resolutions, could be materially adverse to our business, reputation, financial condition, liquidity and results of operations. We cannot currently estimate the amount, if any, of reasonably possible loss related to these matters.
Certain of the state regulators’ cease and desist orders reference a confidential supervisory memorandum of understanding (MOU) that we entered into with the Multistate Mortgage Committee (MMC), a multistate coalition of various mortgage banking regulators, and six states relating to a servicing examination from 2013 to 2015. The MOU contained various provisions relating to servicing practices and safety and soundness aspects of the regulatory review, as a step toward closing the 2013 - 2015 examination. There were no monetary or other penalties under the MOU. Ocwen responded to the MOU items, and continues to provide certain reports and other information pursuant to the MOU.
In April 2017, and concurrent with the issuance of the cease and desist orders and the filing of the CFPB lawsuit discussed above, two state attorneys general took actions against us relating to our servicing practices. The Florida Attorney General, together with the Florida Office of Financial Regulation, filed a lawsuit in the federal district court for the Southern District of Florida against Ocwen, OMS and OLS alleging violations of federal and state consumer financial laws relating to our servicing business. These claims are similar to the claims made by the CFPB. The Florida lawsuit seeks injunctive and equitable relief, costs, and civil money penalties in excess of $10,000 per confirmed violation of the applicable statute. As previously disclosed, the Massachusetts Attorney General had sent us a civil investigative demand requesting information relating to various aspects of our servicing practices, including lender-placed insurance and property preservation fees. Subsequently, the Massachusetts Attorney General filed a lawsuit against OLS in the Superior Court for the Commonwealth of Massachusetts alleging violations of state consumer financial laws relating to our servicing business, including with respect to our activities relating to lender-placed insurance and property preservation fees. The Massachusetts Attorney General’s lawsuit seeks injunctive and equitable relief, costs, and civil money penalties of $5,000 per confirmed violation of the applicable statute. While we endeavor to negotiate appropriate resolutions in these two matters, we are vigorously defending ourselves, as we believe we have valid defenses to the claims made in both lawsuits. The outcome of these two lawsuits, whether through negotiated settlements, court rulings or otherwise, could potentially involve monetary fines or penalties or additional restrictions on our business and could be materially adverse to our business, reputation, financial condition, liquidity and results of operations. We cannot currently estimate the amount, if any, of reasonably possible loss related to these matters.
On occasion, we engage with agencies of the federal government on various matters. For example, OLS received a letter from the Department of Justice, Civil Rights Division, notifying OLS that the Department of Justice had initiated a general

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investigation into OLS’s policies and procedures to determine whether violations of the Servicemembers Civil Relief Act by OLS might exist. The letter stated that at this point, the investigation is preliminary in nature and the Department of Justice has not made any determination as to whether OLS violated the act. In addition, Ocwen was named as a defendant in a HUD administrative complaint filed by a non-profit organization alleging discrimination in the manner in which the company maintains REO properties in minority communities. In February 2018, this matter was administratively closed; and similar claims were filed in federal court. We believe these claims are without merit and intend to vigorously defend ourselves.
In April 2017, Ocwen received a subpoena from the Office of Inspector General of HUD requesting the production of documentation related to lender-placed insurance arrangements with a mortgage insurer and the amounts paid for such insurance. We understand that other servicers in the industry have received similar subpoenas. In May 2016, Ocwen received a subpoena from the Office of Inspector General of HUD requesting the production of documentation related to HECM loans originated by Liberty. We understand that other lenders in the industry have received similar subpoenas. In May 2017, Ocwen received a subpoena from the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) requesting the production of documents related to Ocwen’s participation from 2009 to the present in the Treasury Department’s Making Home Affordable Program and its Home Affordable Modification Program (HAMP). We have been providing documents and information in response to these subpoenas.
In July 2017, we received a letter from Ginnie Mae in which Ginnie Mae informed us that the state regulators’ cease and desist orders discussed above create a material change in Ocwen’s business status under Chapter 3 of the Ginnie Mae MBS Guide, and Ginnie Mae has accordingly declared an event of default under Guaranty Agreements between Ocwen and Ginnie Mae. In the letter, Ginnie Mae notified Ocwen that it will forbear from immediately exercising any rights relating to this matter for a period of 90 days from the date of the letter. During such forbearance period, Ginnie Mae has asked Ocwen to provide certain information regarding the cease and desist orders and certain information regarding Ocwen’s business plan, financial results and operations. Ginnie Mae stated that it reserves the right to make additional requests of Ocwen and to restrict or terminate Ocwen’s participation in the Ginnie Mae mortgage-backed securities program. Based on our conversations with Ginnie Mae, we understand that Ginnie Mae views this as a violation with a prescribed remedy and that the purpose of the notice is to provide for a period of resolution. We have provided and intend to continue to provide information to Ginnie Mae as we seek to resolve its concerns, including with respect to our efforts to settle the state regulatory and operational matters outlined by Ginnie Mae. Ginnie Mae has indicated to us that resolution of the state regulators’ cease and desist orders would substantially address its concerns and that there may be other alternatives to address them as well. Based on our progress in resolving the matters raised by Ginnie Mae, Ginnie Mae has twice extended the forbearance period for an additional 90 days. The present forbearance period extends through April 29, 2018. We continue to operate as a Ginnie Mae issuer in all respects and continue to participate in Ginnie Mae issuing of mortgage-backed securities and home equity conversion loan pools in the ordinary course.
Adverse actions by Ginnie Mae could materially and adversely impact our business, reputation, financial condition, liquidity and results of operations, including if Ginnie Mae were to terminate us as an issuer or servicer of Ginnie Mae securities or otherwise take action indicating that such a termination was planned. For example, such actions could make financing our business more difficult, including by making future financing more expensive or if a lender were to allege a default under our debt agreements, which could trigger cross-defaults under all our other material debt agreements.
New York Department of Financial Services
In December 2014, we entered into a consent order (the 2014 NY Consent Order) with the NY DFS as a result of an investigation relating to Ocwen’s servicing of residential mortgages. The 2014 NY Consent Order contained monetary and non-monetary provisions including the appointment of a third-party operations monitor (NY Operations Monitor) to monitor various aspects of our operations and restrictions on our ability to acquire MSRs that effectively prohibit any such future acquisitions until we have satisfied certain specified conditions. We were also required to pay all reasonable and necessary costs of the NY Operations Monitor, and those costs were substantial.
On March 27, 2017, we entered into a consent order (the 2017 NY Consent Order) with the NY DFS that provided for (1) the termination of the engagement of the NY Operations Monitor on April 14, 2017, (2) a regulatory examination of our servicing business, following which the NY DFS would make a determination on whether the restrictions on our ability to acquire MSRs contained in the 2014 NY Consent Order should be eased and (3) certain reporting and other obligations, including in connection with matters identified in a final report by the NY Operations Monitor. In addition, the 2017 NY Consent Order provides that if the NY DFS concludes that we have materially failed to comply with our obligations under the order or otherwise finds that our servicing operations are materially deficient, the NY DFS may, among other things, and, in addition to its general authority to take regulatory action against us, require us to retain an independent consultant to review and issue recommendations on our servicing operations.
The NY Operations Monitor delivered its final report in April 2017 when its engagement terminated. The final report contained certain recommended operational enhancements to which we have responded. Under the 2017 NY Consent Order, we

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are required to update the NY DFS quarterly on our implementation of the enhancements that we and the NY DFS agreed should be made. We made what we believe to be our final required report to the NY DFS in December 2017. Our updates to date show that all agreed upon enhancements are being implemented.
California Department of Business Oversight
In January 2015, OLS entered into a consent order (the 2015 CA Consent Order) with the CA DBO relating to our alleged failure to produce certain information and documents during a routine licensing examination. The order contained monetary and non-monetary provisions, including the appointment of an independent third-party auditor (the CA Auditor) to assess OLS’ compliance with laws and regulations impacting California borrowers and a prohibition on acquiring any additional MSRs for loans secured in California. We were also required to pay all reasonable and necessary costs of the CA Auditor, and those costs were substantial.
On February 17, 2017, OLS and two other subsidiaries, Ocwen Business Solutions, Inc. (OBS) and Ocwen Financial Solutions Private Limited (OFSPL), reached an agreement, in three consent orders (collectively, the 2017 CA Consent Order), with the CA DBO that terminated the 2015 CA Consent Order and resolved open matters between the CA DBO and OLS, OBS and OFSPL, including certain matters relating to OLS’ servicing practices and the licensed activities of OBS and OFSPL. The 2017 CA Consent Order does not involve any admission of wrongdoing by OLS, OBS or OFSPL. Additionally, we have certain reporting and other obligations under the 2017 CA Consent Order. We believe that we have completed those obligations of the 2017 CA Consent Order that have already come due, and we have so notified the CA DBO. If the CA DBO were to allege that we failed to comply with these obligations or otherwise were in breach of applicable laws, regulations or licensing requirements, it could take regulatory action against us.
Ocwen 2013 National Mortgage Settlement
In December 2013, we entered into a settlement with the CFPB and various state attorneys general and other state agencies that regulate the mortgage servicing industry relating to various allegations regarding deficient mortgage servicing practices (the Ocwen National Mortgage Settlement). The settlement contained monetary and non-monetary provisions, including quarterly testing on various metrics relating to servicing standards agreed under the Ocwen National Mortgage Settlement.
In September 2017, Ocwen reached an agreement in principle with the Monitoring Committee established under the Ocwen National Mortgage Settlement relating to a previously disclosed potential violation of one of the tested metrics during the first quarter of 2017. To resolve the matter and without agreeing with the Monitoring Committee’s allegations, Ocwen agreed to pay $1.0 million and to provide notices to certain borrowers with active lender placed insurance policies. On September 26, 2017, the court overseeing the Ocwen National Mortgage Settlement issued an order approving the agreement in principle. The parties reached this agreement in principle following the filing of the final report of the Office of Mortgage Settlement Oversight under the Ocwen National Mortgage Settlement. With this final report, the Office of Mortgage Settlement Oversight has concluded all monitoring and testing activities under the Ocwen National Mortgage Settlement.
Separately, Ocwen is finalizing an agreement regarding a 2016 letter agreement it entered with certain state signatories to the Ocwen National Mortgage Settlement (the State Government Parties). Per the terms of the 2016 letter agreement, the parties agreed to certain timelines by which Ocwen would implement corrective action plans and return to metric testing. Such timelines were not established previously in the Ocwen National Mortgage Settlement. The State Government Parties alleged that Ocwen had failed to meet certain of these timeframes, and asserted that Ocwen was subject to monetary penalties pursuant to the terms of the letter agreement. Although Ocwen denies these allegations, to resolve the dispute, Ocwen is finalizing an agreement that will include a payment to the State Government Parties. Such payment is not expected to be material to Ocwen’s overall financial condition. If the agreement is not finalized, Ocwen intends to vigorously defend itself against these allegations.
PENDING ACQUISITION OF PHH
On February 27, 2018, we entered into the Merger Agreement with PHH, and the Merger Sub, a wholly owned subsidiary of Ocwen. PHH is a leading non-bank servicer with established servicing and origination recapture capabilities. Pursuant to the Merger Agreement, Merger Sub will merge with and into PHH with PHH surviving. As a result of the Merger, PHH will become a wholly owned subsidiary of Ocwen.
Under the terms and subject to the conditions of the Merger Agreement, at the effective time of the Merger, each outstanding share of PHH common stock, par value $0.01 per share, will be converted into the right to receive $11.00 in cash.
Upon the closing of Merger, Ocwen will also assume (at the subsidiary level) additional debt in the form of PHH’s outstanding senior unsecured notes. The aggregate principal amount of these notes is approximately $119 million, representing approximately $97 million of PHH’s 7.375% Senior Notes Due 2019 and approximately $22.0 million of PHH’s 6.375% Senior Notes Due 2021.

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PHH and Ocwen have made customary representations, warranties and covenants in the Merger Agreement, including, among other things, covenants relating to (1) the conduct of PHH’s business during the interim period between the execution of the Merger Agreement and the consummation of the Merger, (2) the use of reasonable best efforts to obtain governmental and regulatory approvals, (3) the facilitation of PHH’s stockholders’ consideration of, and voting upon, the adoption of the Merger Agreement and certain related matters, (4) the recommendation by the board of directors of PHH (the PHH Board) in favor of the adoption by its stockholders of the Merger Agreement and certain related matters and (5) non-solicitation obligations relating to alternative business combination transactions. In particular, prior to a change in recommendation by the PHH Board that is adverse to the Merger or otherwise qualifies as a Company Adverse Recommendation Change (as defined in the Merger Agreement), Ocwen will have the right, following notice from PHH that it intends to make such change of recommendation, to propose revisions to the Merger Agreement and the PHH Board must negotiate in good faith and consider such revised terms prior to making a determination to change its recommendation. As described below, if PHH makes such a change in recommendation, it may be required to pay a termination fee to Ocwen.
Completion of the Merger is subject to certain customary conditions, including, among others, (1) approval by the requisite vote of PHH’s stockholders, (2) receipt of all required regulatory approvals, in each case without the imposition of a Burdensome Condition (as defined in the Merger Agreement), and (3) the absence of any governmental order or law prohibiting the consummation of the Merger. The obligation of each party to consummate the Merger is also conditioned upon (1) the accuracy of the representations and warranties of the other party, subject to specified materiality standards, and (2) performance in all material respects by the other party of its obligations under the Merger Agreement. In addition, the obligation of Ocwen to consummate the Merger is subject to PHH’s satisfaction of a minimum unrestricted cash threshold and a minimum net worth threshold (in each case, to be measured as of an agreed date prior to the Merger) and PHH’s consummation (subject to limited exceptions) of certain of its previously announced asset sale transactions and PHH’s exit from its private label solutions business.
The Merger Agreement contains certain termination rights for both Ocwen and PHH, including, subject to specified exceptions, if, among other things, (1) the Merger is not consummated by September 27, 2018 (or, in certain circumstances, December 27, 2018), (2) a governmental authority has issued a final and non-appealable order, or a law is issued, prohibiting the Merger, (3) the PHH stockholders’ approval of the Merger Agreement is not obtained or (4) there has been a breach by the other party that is not cured and is such that the closing conditions cannot be satisfied. Ocwen may also terminate the Merger Agreement if, prior to the approval of the Merger Agreement by PHH’s stockholders, the PHH Board withdraws or adversely modifies its recommendation, recommends to its stockholders an acquisition proposal other than the Merger, or otherwise makes a Company Adverse Recommendation Change, as defined in the Merger Agreement.
The Merger Agreement also provides that, upon termination under specified circumstances, PHH will be required to pay to Ocwen a termination fee of $12.6 million. PHH would be required to pay such termination fee if, prior to receipt of the PHH stockholders’ approval, (1) the PHH Board withdraws or adversely modifies its recommendation of approval of the Merger, (2) PHH materially breaches its obligations under the non-solicitation provisions of the Merger Agreement in a manner adverse to Ocwen or (3) PHH enters into an alternative acquisition agreement. In addition, the termination fee would be payable if (1) an alternative acquisition proposal is made prior to PHH’s stockholders meeting, (2) the Merger Agreement is thereafter terminated under one of certain specified provisions and (3) within 12 months of such termination, PHH enters into a definitive agreement for an alternative acquisition (assuming such transaction is subsequently consummated) or consummates an alternative acquisition transaction.
COMPETITION
The financial services markets in which we operate are highly competitive. We compete with large and small financial services companies, including bank and non-bank entities, in the servicing and lending markets. Large banks such as Wells Fargo, JPMorgan Chase, Bank of America and Citibank are generally the largest participants in these markets, although we also compete against other large non-bank servicers such as Nationstar Mortgage LLC and Walter Investment Management.
In the servicing industry, we compete based on price, quality and counterparty risk. Potential counterparties also (1) assess our regulatory compliance track record and examine our systems and processes for maintaining and demonstrating regulatory compliance, and (2) consider our third-party servicer ratings. Certain of our competitors, especially large banks, may have substantially lower costs of capital and greater financial resources, which makes it challenging to compete. We believe that our competitive strengths flow from our ability to control and drive down delinquencies using proprietary processes and our lower cost to service non-performing, non-Agency loans. Notwithstanding these strengths, we have suffered reputational damage as a result of our regulatory settlements and the associated scrutiny of our business. We believe this has weakened our competitive position against both our bank and non-bank servicing competitors. In addition, multiple consent orders effectively prohibit us from competing in the market for bulk servicing acquisitions at this time.
In the lending industry, we face intense competition in most areas, including product offerings, rates, fees and customer service. Some of our competitors, including the larger banks, have substantially lower costs of capital and strong retail

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presence, which makes it challenging to compete. In addition, with the proliferation of smartphones and technological changes enabling improved payment systems and cheaper data storage, newer market participants, often called “disruptors,” are reinventing aspects of the financial industry and capturing profit pools previously enjoyed by existing market participants. As a result, the lending industry could become even more competitive if new market participants are successful in capturing market share from existing market participants such as ourselves. We believe our competitive strengths flow from our existing role as a mortgage servicer, which provides us with an existing customer relationship to capture refinance volume from our servicing portfolio and from our customer service.
The reverse lending market faces many of the same competitive pressures as the forward market with additional pressure coming from a negative consumer impression of the product as a result of unfavorable press coverage in prior periods. In addition, the reverse market is significantly smaller than the forward market with a higher market share concentration among the top five Ginnie Mae HMBS issuers. These higher concentration levels can, at times, lead to significant price competition. We believe our competitive advantage flows from our long tenure in the industry (Liberty began operations in 2004), our strategic partnerships and our use of technology to produce higher levels of productivity to drive down per-loan costs.
THIRD-PARTY SERVICER RATINGS
Like other servicers, we are the subject of mortgage servicer ratings or rankings (collectively, ratings) issued and revised from time to time by rating agencies including Moody’s Investors Service, Inc. (Moody’s), Standard & Poor’s Ratings Services (S&P) and Fitch Ratings, Inc. (Fitch). Favorable ratings from these agencies are important to the conduct of our loan servicing and lending businesses.
The following table summarizes our key ratings by these rating agencies:
 
Moody’s
 
S&P
 
Fitch
Residential Prime Servicer
SQ3-
 
Average
 
RPS3-
Residential Subprime Servicer
SQ3-
 
Average
 
RPS3-
Residential Special Servicer
SQ3-
 
Average
 
RSS3-
Residential Second/Subordinate Lien Servicer
SQ3-
 
Average
 
RPS3-
Residential Home Equity Servicer
 
 
RPS3-
Residential Alt-A Servicer
 
 
RPS3-
Master Servicing
SQ3
 
Average
 
RMS3-
Ratings Outlook
N/A
 
Stable
 
Negative
 
 
 
 
 
 
Date of last action
April 24, 2017
 
August 9, 2016
 
April 25, 2017
In addition to servicer ratings, each of the rating agencies will from time to time assign an outlook (or a ratings watch such as Moody’s review status) to the rating status of a mortgage servicer. A negative outlook is generally used to indicate that a rating “may be lowered,” while a positive outlook is generally used to indicate a rating “may be raised.” S&P’s servicer ratings outlook for Ocwen is stable in general and its outlook for master servicing is positive. Fitch changed the servicer ratings outlook to Negative from Stable on April 25, 2017. Moody’s placed the servicer ratings on Watch for Downgrade on April 24, 2017. The Morningstar ratings were withdrawn on August 8, 2017 at the request of Ocwen.
Failure to maintain minimum servicer ratings could adversely affect our ability to sell or fund servicing advances going forward, could affect the terms and availability of debt financing facilities that we may seek in the future, and could impair our ability to consummate future servicing transactions or adversely affect our dealings with lenders, other contractual counterparties, and regulators, including our ability to maintain our status as an approved servicer by Fannie Mae and Freddie Mac. The servicer rating requirements of Fannie Mae do not necessarily require or imply immediate action, as Fannie Mae has discretion with respect to whether we are in compliance with their requirements and what actions it deems appropriate under the circumstances if we fall below their desired servicer ratings.
See Item 1A. Risk Factors - Risks Relating to Our Business for further discussion of the adverse effects that a failure to maintain minimum servicer ratings could have on our business, financing activities, financial condition or results of operations.
NEW RESIDENTIAL INVESTMENT CORP. RELATIONSHIP
In 2012 and 2013, we sold Rights to MSRs with respect to certain non-Agency MSRs and the related servicing advances to Home Loan Servicing Solutions, Ltd. (HLSS), an indirect wholly-owned subsidiary of NRZ. While certain underlying economics of the MSRs were transferred, legal title was retained by Ocwen, causing the Rights to MSRs transactions to be accounted for as secured financings. We continue to recognize the MSRs and related financing liability on our consolidated

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balance sheet as well as the full amount of servicing revenue and changes in the fair value of the MSRs and related financing liability in our consolidated statements of operations.
On July 23, 2017 and January 18, 2018, we entered into a series of agreements with NRZ that collectively modify, supplement and supersede the arrangements among the parties as set forth in (i) the Master Servicing Rights Purchase Agreement dated as of October 1, 2012, as amended, and (ii) certain Sale Supplements, as amended (collectively, the Existing Rights to MSRs Agreements). The July 23, 2017 agreements, as amended, include a Master Agreement, Transfer Agreement and Subservicing Agreement (collectively, the 2017 Agreements) pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer of the MSRs underlying the Rights to MSRs to NRZ and under which Ocwen will subservice mortgage loans underlying the MSRs for an initial term of five years (the Initial Term). While we continue the process of obtaining the third-party consents necessary to transfer the MSRs to NRZ, on January 18, 2018, the parties entered into new agreements regarding the Rights to MSRs that remained subject to the Existing Rights to MSRs Agreements (including a Servicing Addendum) and amended the Transfer Agreement (collectively, New RMSR Agreements) to accelerate the implementation of certain parts of our arrangement in order to achieve the intent of the 2017 Agreements sooner. Ocwen will continue to service the related mortgage loans until the necessary third-party consents are obtained in order to transfer the applicable MSRs in accordance with the New RMSR Agreements. Upon receiving the required consents and transferring the MSRs, Ocwen will subservice the mortgage loans underlying the MSRs pursuant to the 2017 Agreements.
The 2017 Agreements and New RMSR Agreements provide for the conversion of the economics of the Existing Rights to MSRs Agreements into a more traditional subservicing arrangement and involve upfront payments to Ocwen. Prior to execution of the New RMSR Agreements, we received these payments upon obtaining the required third-party consents and the transfer of the MSRs. Upon execution of the New RMSR Agreements, we received the balance of these upfront payments. These upfront payments generally represent the net present value of the difference between the future revenue stream Ocwen would have received under the Existing Rights to MSRs Agreements and the future revenue Ocwen expects to receive under the 2017 Agreements. On September 1, 2017, pursuant to the 2017 Agreements, Ocwen successfully transferred MSRs with UPB of $15.9 billion to NRZ and received a lump-sum payment of $54.6 million. On January 18, 2018, Ocwen received a lump-sum payment of $279.6 million in accordance with the terms of the New RMSR Agreements.
In the event the required third-party consents are not obtained with respect to any dates specified in, and in accordance with the process set forth in, the New RMSR Agreements, such MSRs will either: (i) remain subject to the New RMSR Agreements at the option of NRZ, (ii) be acquired by Ocwen at a price determined in accordance with the terms of the New RMSR Agreements, or (iii) be sold to a third party in accordance with the terms of the New RMSR Agreements.
At any time during the Initial Term, NRZ may terminate the Subservicing Agreement and Servicing Addendum for convenience, subject to Ocwen’s right to receive a termination fee and proper notice. Following the Initial Term, NRZ may extend the term of the Subservicing Agreement and Servicing Addendum for additional three-month periods by providing proper notice. Following the Initial Term, the Subservicing Agreement and Servicing Addendum can be cancelled by Ocwen on an annual basis. NRZ and Ocwen have the ability to terminate the Subservicing Agreement and Servicing Addendum for cause if certain specified conditions occur.
Under the terms of the Subservicing Agreement and Servicing Addendum, in addition to a base servicing fee, Ocwen will continue to receive ancillary income, which primarily includes late fees, loan modification fees and Speedpay® fees. NRZ will receive all float earnings and deferred servicing fees related to delinquent borrower payments, as well as be entitled to receive all REO-related income including REO referral commissions.
Prior to January 18, 2018, MSRs as to which necessary transfer consents had not yet been obtained continued to be subject to the terms of the agreements entered into in 2012 and 2013. Under the 2012 and 2013 agreements, the servicing fees payable under the servicing agreements underlying the Rights to MSRs were apportioned between NRZ and us. NRZ retained a fee based on the UPB of the loans serviced, and OLS received certain fees, including a performance fee based on servicing fees paid less an amount calculated based on the amount of servicing advances and the cost of financing those advances.
In April 2015, Ocwen sold all economic beneficial rights to the “clean-up call rights” to which we are entitled pursuant to servicing agreements that underlie the Rights to MSRs to NRZ for a payment upon exercise of 0.50% of the UPB of all performing mortgage loans (mortgage loans that are current or 30 days or less delinquent) associated with such clean-up call. Clean-up call rights generally allow a servicer or master servicer to purchase the remaining mortgage loans and REO out of a securitization, after the stated principal balance of such mortgage loans in the securitization falls below a specified percentage (generally equal to or lower than 10% of the original balance), for a price generally equal to the outstanding balance of such mortgage loans plus interest and certain other amounts. We received $5.9 million, $3.1 million and $2.6 million during 2017, 2016 and 2015, respectively, from NRZ in connection with such clean-up calls. As a result of the 2017 Agreements and the New RMSR Agreements, Ocwen will no longer be entitled to the 0.50% purchase price but will continue to be reimbursed for costs incurred with respect to such efforts and will receive an administrative fee.

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On December 28, 2016, PHH entered into an agreement to sell to NRZ substantially all of PHH’s portfolio of MSRs and related advances. The sale of the majority of MSRs and advances to be transferred under this agreement (including all of PHH’s Fannie Mae and Freddie Mac MSRs) has been completed. However, the sale of the remaining MSRs and related advances contemplated by the sale agreement (representing an aggregate of $5.9 billion in UPB, $34.0 million of MSR fair value, and $110.0 million of servicing advances as of December 31, 2017) remains subject to the approvals of multiple counterparties and other customary closing requirements. Accordingly, this sale could be delayed and may not be consummated prior to the closing of the PHH acquisition or at all.
In connection with PHH’s sale agreement with NRZ, PHH has also entered into a subservicing agreement with NRZ, pursuant to which PHH will subservice the loans sold in the sale transaction for an initial period of three years, subject to certain transfer and termination provisions. This subservicing relationship became effective upon PHH’s initial delivery of MSRs to NRZ on June 16, 2017. The loans serviced by PHH under this subservicing agreement include 364,784 units as of December 31, 2017 and represent a majority of PHH’s subservicing income during the fourth quarter of 2017. We expect to assume this subservicing agreement upon the closing of the Merger with PHH, which would further increase the dependence of our business on NRZ.
For more information on the terms and conditions of the Merger with PHH, see “- Pending Acquisition of PHH” above.
ALTISOURCE VENDOR RELATIONSHIP
Each of Ocwen Financial Corporation and OMS are parties to a Services Agreement, a Technology Products Services Agreement, an Intellectual Property Agreement and a Data Center and Disaster Recovery Services Agreement with a subsidiary of Altisource Portfolio Solutions S.A. (Altisource). Under the Services Agreements, Altisource provides various business process outsourcing services, such as valuation services and property preservation and inspection services, among other things. Altisource provides certain technology products and support services under the Technology Products Services Agreements and the Data Center and Disaster Recovery Services Agreements. These agreements expire August 31, 2025. Ocwen and Altisource have also entered into a Master Services Agreement pursuant to which Altisource currently provides title services to Liberty. Ocwen also has a General Referral Fee agreement with Altisource pursuant to which Ocwen receives referral fees which are paid out of the commission that would otherwise be paid to Altisource as the selling broker in connection with real estate sales services provided by Altisource.
Our servicing system runs on an information technology system that we license from Altisource (the REALServicing® system) pursuant to a statement of work under the Technology Products Services Agreements. If Altisource were to fail to fulfill its contractual obligations to us, including through a failure to provide services at the required level to maintain and support our systems, or if Altisource were to become unable to fulfill such obligations, our business and operations would suffer. In addition, if Altisource fails to develop and maintain its technology so as to provide us with a competitive platform, our business could suffer. We are currently in the process of transitioning to a new servicing system and have entered into agreements with certain subsidiaries of Black Knight, Inc. (Black Knight) pursuant to which we plan to transition to Black Knight’s LoanSphere MSP® servicing system. Ocwen currently anticipates a twenty-four-month implementation timeline for its transition onto the new servicing system. Based on substantive discussions with Altisource prior to entering into our agreements with Black Knight, Ocwen expects to enter into mutually acceptable agreements that provide for Ocwen’s transition to the new servicing system and the termination of the statement of work for the use of the REALServicing system.
Because PHH currently utilizes the MSP servicing system for its servicing operations, if the PHH transaction closes, Ocwen intends to transfer the loans it services to the MSP platform utilized by PHH versus a separate instance of the MSP servicing system as it believes such a transfer can happen sooner and with less implementation and transfer risk. Accordingly, our ability to successfully transition to PHH’s instance of the MSP servicing system may have a significant impact on our ability to successfully integrate the business of PHH and to realize the strategic objectives and other benefits anticipated in connection with the PHH acquisition.
Certain services provided by Altisource under these agreements are charged to the borrower and/or mortgage loan investor. Accordingly, such services, while derived from our loan servicing portfolio, are not reported as expenses by Ocwen. These services include residential property valuation, residential property preservation and inspection services, title services and real estate sales-related services. Similar to other vendors, if Altisource’s activities do not comply with the applicable servicing criteria, we could be exposed to liability as the servicer and it could negatively impact our relationships with our servicing clients, borrowers or regulators, among others. Under certain circumstances, we would have recourse under our contractual agreements with Altisource if we were to experience adverse consequences as a result of Altisource’s non-compliance with applicable servicing criteria.
USVI OPERATIONS
As part of an initiative to reorganize the ownership and management of our global servicing assets and operations under a single entity and cost-effectively expand our U.S.-based origination and servicing activities, Ocwen formed OMS in 2012

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under the laws of the USVI where OMS has its principal place of business. OMS is located in a federally recognized economic development zone and in 2012 became eligible for certain benefits, which may have a favorable impact on our effective tax rate.
EMPLOYEES
We had a total of approximately 7,600 and 9,700 employees at December 31, 2017 and 2016, respectively. We maintain operations in the U.S., USVI, India and the Philippines. At December 31, 2017, approximately 5,000 of our employees were located in India and approximately 600 were based in the Philippines. Of our foreign-based employees, more than 80% were engaged in our Servicing operations as of December 31, 2017. Because of the large number of employees in India, our operations could be impacted by significant changes to the political or economic conditions in India or in the political or regulatory climate in the U.S. with respect to U.S. businesses engaging in foreign operations. If we had to curtail or cease our operations in India and transfer some or all of these operations to another geographic area, we could incur significant transition costs as well as higher future overhead costs that could materially and adversely affect our results of operations.
SUBSIDIARIES
For a listing of our significant subsidiaries, refer to Exhibit 21.1 of this Annual Report on Form 10-K.
AVAILABLE INFORMATION
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are made available free of charge through our website (www.ocwen.com) as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The public may read or copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers, including Ocwen, that file electronically with the SEC. The address of that site is www.sec.gov. We have also posted on our website, and have available in print upon request (1) the charters for our Audit Committee, Compensation Committee, Nomination/Governance Committee, Compliance Committee, Risk Committee and Independent Review Committee, (2) our Corporate Governance Guidelines, (3) our Code of Business Conduct and Ethics and (4) our Code of Ethics for Senior Financial Officers. Within the time period required by the SEC and the New York Stock Exchange, we will post on our website any amendment to or waiver of the Code of Ethics for Senior Financial Officers, as well as any amendment to the Code of Business Conduct and Ethics or waiver thereto applicable to any executive officer or director. We may post information that is important to investors on our website. The information provided on our website is not part of this report and is, therefore, not incorporated herein by reference.
ITEM 1A.
RISK FACTORS
An investment in our common stock involves significant risk. We describe below the most significant risks that management believes affect or could affect us. Understanding these risks is important to understanding any statement in this Annual Report and to evaluating an investment in our common stock. You should carefully read and consider the risks and uncertainties described below together with all the other information included or incorporated by reference in this Annual Report before you make any decision regarding an investment in our common stock. You should also consider the information set forth above under “Forward Looking Statements.” If any of the following risks actually occur, our business, financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could significantly decline, and you could lose some or all of your investment. While the following discussion provides a description of some of the important risks that could cause our results to vary materially from those expressed in public statements or documents, other factors besides those discussed within this Annual Report or elsewhere in other of our reports filed with or furnished to the SEC could also affect our business or results.
Risks Relating to Government Regulation and Financial Regulatory Reforms
The business in which we engage is complex and heavily regulated. If we fail to operate our business in compliance with both existing and future regulations, our business, reputation, financial condition or results of operations could be materially and adversely affected.
Our business is subject to extensive regulation by federal, state and local governmental authorities, including the CFPB, HUD, the SEC and various state agencies that license and conduct examinations of our servicing and lending activities. In addition, we operate under a number of regulatory settlements that subject us to ongoing reporting and other obligations. See the next risk factor below for additional detail concerning these regulatory settlements. From time to time, we also receive requests (including requests in the form of subpoenas and civil investigative demands) from federal, state and local agencies for records, documents and information relating to our servicing and lending activities. The GSEs (and their conservator, the Federal Housing Finance Authority (FHFA)), Ginnie Mae, the United States Treasury Department, various investors, non-Agency securitization trustees and others also subject us to periodic reviews and audits.

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In the current regulatory environment, we have faced and expect to continue to face heightened regulatory and public scrutiny as an organization as well as stricter and more comprehensive regulation of the entire mortgage sector. We must devote substantial resources to regulatory compliance, and we incur, and expect to continue to incur, significant ongoing costs to comply with new and existing laws and governmental regulation of our business. If we fail to manage effectively our regulatory and contractual compliance obligations, the resources we are required to devote and our compliance expenses would likely increase. We cannot fully anticipate the future actions by federal and state regulatory agencies, state attorneys general, or certain legislators, or if significant changes to our operations and practices will be required as a result.
We must comply with a large number of federal, state and local consumer protection laws including, among others, the Dodd-Frank Act, the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act, RESPA, TILA, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Homeowners Protection Act, the Federal Trade Commission Act, the Telephone Consumer Protection Act, the Equal Credit Opportunity Act, as well as individual state licensing and foreclosure laws and federal and local bankruptcy rules. These statutes apply to many facets of our business, including loan origination, default servicing and collections, use of credit reports, safeguarding of non-public personally identifiable information about our customers, foreclosure and claims handling, investment of and interest payments on escrow balances and escrow payment features, and mandate certain disclosures and notices to borrowers. These requirements can and do change as statutes and regulations are enacted, promulgated, amended, interpreted and enforced. See “Business - Regulation” for additional information regarding our regulators and the laws that apply to us.
To be successful, we must structure and operate our business to comply with applicable laws and regulations and the terms of our regulatory settlements. This can require judgment with respect to the requirements of such laws and regulations and such settlements. While we endeavor to engage regularly with our regulators in an effort to ensure we do so correctly, if we fail to interpret correctly the requirements of such laws and regulations or the terms of our regulatory settlements, we could be found to be in breach of such laws, regulations or settlements.
Our alleged failure to comply with the terms of our regulatory settlements or applicable federal, state and local consumer protection laws, regulations and licensing requirements could lead to any of the following:
administrative fines and penalties and litigation;
loss of our licenses and approvals to engage in our servicing and lending businesses;
governmental investigations and enforcement actions;
civil and criminal liability, including class action lawsuits and actions to recover incentive and other payments made by governmental entities;
breaches of covenants and representations under our servicing, debt or other agreements;
damage to our reputation;
inability to raise capital or otherwise secure the necessary financing to operate the business;
changes to our operations that may otherwise not occur in the normal course, and that could cause us to incur significant transition costs; or
inability to execute on our business strategy.
Any of these outcomes could materially and adversely affect our business and our financial condition, liquidity and results of operations.
Since the financial crisis that began in 2007, the trend among federal, state and local lawmakers and regulators has been toward increasing laws, regulations and investigative proceedings with regard to residential mortgage lenders and servicers. Over the past few years, state and federal lawmakers and regulators have adopted a variety of new or expanded laws and regulations and recommended practices. Since its formation, the CFPB has taken a very active role in the mortgage industry, and its rule-making and regulatory agenda relating to loan servicing and originations continues to evolve. Individual states have also been active, as have other regulatory organizations such as the Multi-State Mortgage Commission (MMC). We also believe there has been a shift among certain regulators towards a broader view of the scope of regulatory oversight responsibilities with respect to mortgage originators and servicers. In addition to their traditional focus on licensing and examination matters, certain regulators have begun to make observations, recommendations or demands with respect to such areas as corporate governance, safety and soundness, and risk and compliance management. We must endeavor to work cooperatively with our regulators to understand all their concerns if we are to be successful in our business.
Following the 2016 Presidential and Congressional elections, a level of heightened uncertainty exists with respect to the future of regulation of mortgage lending and servicing, including the future of the Dodd Frank Act and CFPB. We cannot predict the specific legislative or executive actions that may result or what actions federal or state regulators might take in response to potential changes to the Dodd Frank Act or to the federal regulatory environment generally. Such actions could impact the industry generally or us specifically, could impact our relationships with other regulators, and could adversely impact our business and limit our ability to reach an appropriate resolution with the CFPB with which we are engaged to attempt to resolve certain concerns relating to our mortgage servicing practices, as described in the next risk factor.

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The CFPB and state regulators have also increasingly focused on the use, and adequacy, of technology in the mortgage servicing industry. In 2016, the CFPB issued a special edition supervision report that stressed the need for mortgage servicers to assess and make necessary improvements to their information technology systems in order to ensure compliance with the CFPB’s mortgage servicing requirements. The New York State Department of Financial Services (NY DFS) also issued Cybersecurity Requirements for Financial Services Companies, effective in 2017, which require banks, insurance companies, and other financial services institutions regulated by the NY DFS to establish and maintain a cybersecurity program designed to protect consumers and ensure the safety and soundness of New York State’s financial services industry.
New regulatory and legislative measures, or changes in enforcement practices, including those related to the technology we use, could, either individually or in the aggregate, require significant changes to our business practices, impose additional costs on us, limit our product offerings, limit our ability to efficiently pursue business opportunities, negatively impact asset values or reduce our revenues. Accordingly, they could materially and adversely affect our business and our financial condition, liquidity and results of operations.
Governmental bodies have taken regulatory and legal actions against us in the past and may in the future impose regulatory fines or penalties or impose additional requirements or restrictions on our activities that could increase our operating expenses, reduce our revenues or otherwise adversely affect our business, financial condition, results of operations, ability to grow and reputation.
We are subject to a number of ongoing federal and state regulatory examinations, consent orders, inquiries, subpoenas, civil investigative demands, requests for information and other actions that could result in further adverse regulatory action against us. These matters are summarized below.
CFPB
On April 20, 2017, the CFPB filed a lawsuit in the federal district court for the Southern District of Florida against Ocwen, OMS and OLS alleging violations of federal consumer financial laws relating to our servicing business dating back to 2014. The CFPB’s claims include allegations regarding (1) the adequacy of Ocwen’s servicing system and integrity of Ocwen’s mortgage servicing data, (2) Ocwen’s foreclosure practices and (3) various purported servicer errors with respect to borrower escrow accounts, hazard insurance policies, timely cancellation of private mortgage insurance, handling of customer complaints, and marketing of optional products. The CFPB alleges violations of unfair, deceptive acts or abusive practices, as well as violations of specific laws or regulations. The CFPB does not claim specific monetary damages, although it does seek consumer relief, disgorgement of allegedly improper gains, and civil money penalties. While we believe we have factual and legal defenses to the CFPB’s allegations and are vigorously defending ourselves, it is possible that resolution of the matters raised by the CFPB could have a material adverse impact on our business, reputation, financial condition, liquidity and results of operations.
State Licensing and State Attorneys General
Our licensed entities are required to renew their licenses, typically on an annual basis, and to do so they must satisfy the license renewal requirements of each jurisdiction, which generally include financial requirements such as providing audited financial statements or satisfying minimum net worth requirements and non-financial requirements such as satisfactorily completing examinations as to the licensee’s compliance with applicable laws and regulations. Failure to satisfy any of the requirements to which our licensed entities are subject could result in a variety of regulatory actions ranging from a fine, a directive requiring a certain step to be taken, a suspension or, ultimately, a revocation of a license, any of which could have a material adverse impact on our results of operations and financial condition.
On April 20, 2017 and shortly thereafter, mortgage and banking regulatory agencies from 30 states and the District of Columbia took regulatory actions against OLS and certain other Ocwen companies that alleged deficiencies in our compliance with laws and regulations relating to our servicing and lending activities. These regulatory actions generally took the form of orders styled as “cease and desist orders” and prohibited a range of actions relating to our lending and servicing activities.
We have entered into agreements with 28 states plus the District of Columbia to resolve these regulatory actions. These agreements generally contain key terms (the Multi-State Common Settlement Terms) pursuant to which we will not acquire any new residential mortgage servicing rights until April 30, 2018; we will transition to an alternate servicing system and discontinue (with certain exceptions) boarding new loans onto the REALServicing® system; we will provide notice to regulators in the event we seek to merge with or acquire another company; we will engage a third-party auditor to conduct an analysis of our escrow practices and remedy any identified errors; we will enhance our consumer complaint handling processes; and we will provide financial condition reporting on a confidential basis through September 2020.
In addition to the terms described above, Ocwen entered settlements with certain states on different or additional terms, which include making certain additional communications with and for borrowers, and certain review and reporting obligations. In addition, Ocwen agreed with the Connecticut regulatory agency to pay certain amounts only in the event we fail to comply with certain requirements under our agreement with Connecticut. In its agreement with the Maryland regulatory agency, Ocwen

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agreed to complete an independent management assessment and enterprise risk assessment, to certain other review and reporting requirements, and to a prohibition, with certain de minimis exceptions, on repurchases of our stock until December 7, 2018. Ocwen also agreed to make certain payments to Maryland, to provide remediation to certain borrowers in the form of cash payments or credits and to pay certain amounts only in the event we fail to comply with certain requirements under our agreement with Maryland. We will also incur costs complying with the terms of these settlements, including in connection with the escrow analysis and transition to a new servicing system. In addition, in the event errors were to be uncovered during the escrow analysis, we could incur costs remedying such errors or other actions could be taken against by regulators or others.
We continue to seek timely resolutions with the remaining two state regulatory agencies, one of which took action in conjunction with its state Attorney General, as discussed below. If Ocwen is successful in reaching such resolutions, they may contain some or all of the Multi-State Common Settlement Terms and may also contain additional terms, including potentially monetary fines or penalties or additional restrictions on our business. There can be no assurance that Ocwen will be able to reach resolutions with the remaining regulatory agencies. It is possible that the outcome of the remaining regulatory actions, whether through negotiated settlements or other resolutions, could be materially adverse to our business, reputation, financial condition, liquidity and results of operations. We cannot currently estimate the amount, if any, of reasonably possible loss related to these matters.
In April 2017, and concurrent with the issuance of the cease and desist orders and the filing of the CFPB lawsuit discussed above, two state attorneys general took actions against us relating to our servicing practices. The Florida Attorney General, together with the Florida Office of Financial Regulation, filed a lawsuit in the federal district court for the Southern District of Florida against Ocwen, OMS and OLS alleging violations of federal and state consumer financial laws relating to our servicing business. These claims are similar to the claims made by the CFPB. The Florida lawsuit seeks injunctive and equitable relief, costs, and civil money penalties in excess of $10,000 per confirmed violation of the applicable statute. As previously disclosed, the Massachusetts Attorney General had sent us a civil investigative demand requesting information relating to various aspects of our servicing practices, including lender-placed insurance and property preservation fees. Subsequently, the Massachusetts Attorney General filed a lawsuit against OLS in the Superior Court for the Commonwealth of Massachusetts alleging violations of state consumer financial laws relating to our servicing business, including with respect to our activities relating to lender-placed insurance and property preservation fees. The Massachusetts Attorney General’s lawsuit seeks injunctive and equitable relief, costs, and civil money penalties of $5,000 per confirmed violation of the applicable statute. While we endeavor to negotiate appropriate resolutions in these two matters, we are vigorously defending ourselves, as we believe we have valid defenses to the claims made in both lawsuits. The outcome of these two lawsuits, whether through negotiated settlements, court rulings or otherwise, could potentially involve monetary fines or penalties or additional restrictions on our business and could be materially adverse to our business, reputation, financial condition, liquidity and results of operations. We cannot currently estimate the amount, if any, of reasonably possible loss related to these matters.
Other Matters
On occasion, we engage with agencies of the federal government on various matters. For example, OLS received a letter from the Department of Justice, Civil Rights Division, notifying OLS that the Department of Justice had initiated a general investigation into OLS’s policies and procedures to determine whether violations of the Servicemembers Civil Relief Act by OLS might exist, and Ocwen has received subpoenas from the Office of Inspector General of HUD requesting the production of documentation related to lender-placed insurance arrangements and HECM loans originated by Liberty. We understand that other lenders in the industry have received similar subpoenas. In addition, Ocwen was named as a defendant in a HUD administrative complaint filed by a non-profit organization alleging discrimination in the manner in which the company maintains REO properties in minority communities. In February 2018, this matter was administratively closed; and similar claims were filed in federal court. We believe these claims are without merit and intend to vigorously defend ourselves.
In July 2017, we received a letter from Ginnie Mae in which Ginnie Mae informed us that the state regulators’ cease and desist orders discussed above create a material change in Ocwen’s business status under Chapter 3 of the Ginnie Mae MBS Guide, and Ginnie Mae had accordingly declared an event of default under Guaranty Agreements between Ocwen and Ginnie Mae. In the letter, Ginnie Mae notified Ocwen that it would forbear from immediately exercising any rights relating to this matter for a period of 90 days from the date of the letter. Based on our progress in resolving the matters raised by Ginnie Mae, Ginnie Mae has twice extended the forbearance period for an additional 90 days. The present forbearance period extends through April 29, 2018. We continue to operate as a Ginnie Mae issuer in all respects and continue to participate in Ginnie Mae issuing of mortgage-backed securities and home equity conversion loan pools in the ordinary course. Adverse actions by Ginnie Mae could materially and adversely impact our business, reputation, financial condition, liquidity and results of operations, including if Ginnie Mae were to terminate us as an issuer or servicer of Ginnie Mae securities or otherwise take action indicating that such a termination was planned. For example, such actions could make financing our business more difficult, including by making future financing more expensive or if a lender were to allege a default under our debt agreements, which could trigger cross-defaults under all our other material debt agreements.

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In recent years, we have entered into significant settlements with the New York Department of Financial Services and the California Department of Business Oversight, and the Ocwen National Mortgage Settlement. These settlements involved payments of monetary amounts, ongoing monitoring by third-party firms for which we were financially responsible and other restrictions on our business. For example, we recognized $177.5 million in third-party monitoring costs alone from January 1, 2014 through December 31, 2017 relating to these settlements. While we are not currently subject to active monitorships under these settlements, we remain obligated to comply with the commitments made to our regulators and if we violate those commitments one or more of these entities could take regulatory action against us. In addition, to the extent we are unable to avoid future settlements or other regulatory actions against us, our business, operating results and financial condition will continue to be adversely affected.
To the extent that an examination or other regulatory engagement results in an alleged failure by us to comply with applicable laws, regulations or licensing requirements, or if allegations are made that we have failed to comply with applicable laws, regulations or licensing requirements or the commitments we have made in connection with our regulatory settlements (whether such allegations are made through administrative actions such as cease and desist orders, through legal proceedings or otherwise) or if other regulatory actions of a similar or different nature are taken in the future against us, this could lead to (i) administrative fines and penalties and litigation, (ii) loss of our licenses and approvals to engage in our servicing and lending businesses, (iii) governmental investigations and enforcement actions, (iv) civil and criminal liability, including class action lawsuits and actions to recover incentive and other payments made by governmental entities, (v) breaches of covenants and representations under our servicing, debt or other agreements, (vi) damage to our reputation, (vii) inability to raise capital or otherwise fund our operations and (viii) inability to execute on our business strategy. Any of these occurrences could increase our operating expenses and reduce our revenues, hamper our ability to grow or otherwise materially and adversely affect our business, reputation, financial condition, liquidity and results of operations.
Our regulatory settlements and public allegations regarding our business practices by regulators and other third parties may affect other regulators’ and rating agencies’ perceptions, as well as our overall public reputation, all of which can have a direct impact on our financial results and ongoing operations.
Our regulatory settlements and public allegations regarding our business practices by regulators and other third parties may affect other regulators’ and rating agencies’ perceptions of us. As a result, our ordinary course interactions with regulators may be adversely affected. We may incur additional compliance costs and management time may be diverted from other aspects of our business to address regulatory issues. It is possible that we may incur additional fines or penalties or even that we could lose the licenses and approvals necessary to engage in our servicing and lending businesses.
Further, our ability to serve and retain customers and conduct business transactions with our counterparties could be adversely affected to the extent our public reputation is damaged. Our failure to address, or to appear to fail to address, the various regulatory and operational challenges facing Ocwen could give rise to further reputational risk and cause additional harm to us and our business prospects. Reputational issues include, but are not limited to:
negative news about Ocwen or the mortgage industry generally;
compliance with legal and regulatory requirements;
ethical issues, including alleged deceptive or unfair servicing or lending practices;
our practices relating to collections, foreclosures, property preservation, modifications, loans impacted by natural disasters, escrow and insurance;
consumer privacy issues;
consumer financial fraud issues;
data security issues related to our customers or employees;
cybersecurity issues and cyber incidents, whether actual, threatened, or perceived;
recordkeeping;
customer service or consumer complaints;
the proper identification of the legal, reputational, credit, liquidity and market risks inherent in our businesses;
a downgrade of or negative watch warning on any of our servicer or credit ratings;
appropriately addressing potential conflicts of interest; and
general company performance.
The proliferation of social media websites as well as the personal use of social media by our employees and others, including personal blogs and social network profiles, also may increase the risk that negative, inappropriate or unauthorized information may be posted or released publicly that could harm our reputation or have other negative consequences, including as a result of our employees interacting with our customers in an unauthorized manner in various social media outlets. The failure to address, or the perception that we have failed to address any of these issues appropriately could give rise to increased regulatory action, which could adversely affect our results of operations.

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Cybersecurity breaches or system failures may interrupt or delay our ability to provide services to our customers, expose our business and our customers to harm and otherwise adversely affect our operations.
Disruptions and failures of our systems or those of our vendors may interrupt or delay our ability to provide services to our customers and otherwise adversely affect our operations. The secure transmission of confidential information over the Internet and other electronic distribution and communication systems is essential to our maintaining consumer confidence in certain of our services. We have programs in place to detect and respond to security incidents. However, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently and may be difficult to detect for long periods of time, we may be unable to anticipate these techniques or implement adequate preventive measures. None of the cybersecurity incidents we have experienced to date has been material to our business, financial condition or operations.
In addition, consumers generally are concerned with security breaches and privacy on the Internet, and Congress or individual states could enact new laws regulating the use of technology in our business that could adversely affect us or result in significant compliance costs. As such, the NY DFS Cybersecurity Regulation requires New York insurance companies, banks, and other regulated financial services institutions - including Ocwen as a non-bank financial services company licensed in the state of New York - to assess their cybersecurity risk profile. The NYDFS Cybersecurity regulation is designed to protect consumers and to “ensure the safety and soundness of the institution,” as well as New York State’s financial services industry. The regulation went into effect on March 1, 2017, with implementation to occur within 180 days (August 28, 2017). To comply, Ocwen has made enhancements to its existing cybersecurity program in accordance with the specific requirements of the NY DFS Cybersecurity Regulation.
Security breaches, computer viruses, cyberattacks, hacking and other acts of vandalism could result in a compromise or breach of the technology that we use to protect our borrowers’ personal information and transaction data and other information that we must keep secure. Our financial, accounting, data processing or other operating systems and facilities may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, such as a cyberattack, a spike in transaction volume or unforeseen catastrophic events, potentially resulting in data loss and adversely affecting our ability to process these transactions. If one or more of such events occurs, this could potentially jeopardize data integrity or confidentiality of information processed and stored in, or transmitted through, our computer systems and networks, which could result in our facing significant losses, reputational damage and legal liabilities.
Our regulatory settlements have significantly reduced the size of our servicing portfolio and harmed our reputation with potential future customers.
Our servicing portfolio naturally decreases over time as homeowners make regularly scheduled mortgage payments, prepay loans prior to maturity, refinance with a mortgage loan not serviced by us or involuntarily liquidate through foreclosure or other liquidation process. Our ability to maintain the size of our servicing portfolio depends on our ability to acquire the right to service or subservice additional pools of mortgage loans or to originate additional loans for which we retain the MSRs.
Our regulatory settlements have significantly impacted our ability to grow our servicing portfolio because we agreed to certain restrictions that effectively prohibited future bulk acquisitions of residential servicing. It is possible that additional restrictions may result from our resolutions with the remaining regulatory agencies and state attorneys general with which we are engaged. If we are unable to satisfy the conditions of our existing regulatory settlements, or if a future regulatory settlement restricts our ability to acquire MSRs, we will be unable to grow or even maintain the size of our servicing portfolio through acquisitions and our business could be materially and adversely affected. Moreover, even when regulatory restrictions are lifted, the reputational damage done by these actions may inhibit our ability to acquire new business.
If we are unable to respond effectively to routine regulatory examinations, our business and financial conditions may be adversely affected.
Regulatory examinations by state and federal regulators are part of our ordinary course business activities. If we are unable to respond effectively to routine regulatory examinations, our business and financial conditions may be adversely affected. For example, our January 2015 consent order with the CA DBO, which has now been terminated, arose out of an alleged failure to respond adequately to requests from the CA DBO as part of a routine regulatory examination. If, in the future, we fail to respond effectively to routine regulatory examinations, we may incur fines or penalties or we could lose the licenses and approvals necessary to engage in our servicing and lending businesses. We could also suffer from reputational harm and become subject to private litigation.
The enactment of the Dodd-Frank Act has significantly impacted our business and may continue to do so, and new rules and regulations or more stringent interpretations of existing rules and regulations by the CFPB could result in increased compliance costs and, potentially, regulatory action against us.
The Dodd-Frank Act constituted a sweeping reform of the regulation and supervision of financial institutions, and more specifically impacts our business in the areas of mortgage servicing, loan origination, sales and securitization. Among other things, the Dodd-Frank Act created the CFPB as a new federal entity responsible for regulating consumer financial services.

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The CFPB directly affects the regulation of residential mortgage lending and servicing in a number of ways. First, the CFPB has rule-making authority with respect to many of the federal consumer protection laws applicable to mortgage lenders and servicers. Second, the CFPB has supervision, examination and enforcement authority over consumer financial products and services offered by certain non-depository institutions and large insured depository institutions. The CFPB’s jurisdiction includes those persons originating, brokering or servicing residential mortgage loans and those persons performing loan modification or foreclosure relief services in connection with such loans. Since its formation, the CFPB has taken a very active role in the mortgage industry and its rule-making and regulatory agenda relating to loan servicing and origination continues to evolve.
We have devoted substantial resources and incurred significant compliance costs responding to the Dodd-Frank Act and the rules and regulations issued thereunder, including CFPB rules. We expect to continue to do so. In particular, we are currently assessing and implementing the operational enhancements that will be necessary to comply with the amendments to Regulations X and Z, which were issued by the CFPB in August 2016. The vast majority of the 2016 amendments went into effect in October 2017, with certain remaining sections of the law becoming effective in April 2018. Ocwen has completed the necessary operational and policy enhancements to comply with the amendments effective October 2017, and continues to prepare for those amendments effective April 2018. If we fail to comply with the Dodd-Frank Act and the rules and regulations issued thereunder, including CFPB rules and subsequent amendments, we could be subject to financial penalties, restrictions on our business activities, private litigation, breaches of our contractual obligations to counterparties (including our debt agreements) and adverse actions by the GSEs or other entities, any of which could have a material adverse effect on our business, financial position, results of operations or cash flows.
Private legal proceedings and related costs alleging failures to comply with applicable laws or regulatory requirements could adversely affect our financial condition and results of operations.
We are subject to various pending private legal proceedings, including purported class actions, challenging whether certain of our loan servicing practices and other aspects of our business comply with applicable laws and regulatory requirements. For example, we are currently a defendant in various matters alleging that (1) certain fees imposed on borrowers relating to payment processing, payment facilitation, or payment convenience violate the Fair Debt Collection Practices Act (FDCPA), (2) we violated the Telephone Consumer Protection Act by using an automated telephone dialing system to call class members’ cell phones without their consent, (3) we committed securities fraud in connection with certain of our public disclosures, (4) certain fees we assess on borrowers are marked up improperly in violation of applicable state and federal law and (5) the solicitation and marketing to borrowers of certain ancillary products was unfair and deceptive. In the future, we are likely to become subject to other private legal proceedings alleging failures to comply with applicable laws and regulations, including putative class actions, in the ordinary course of our business. While we do not currently believe that the resolution of the vast majority of the legal proceedings we face will have a material adverse effect on our financial condition or results of operations, we cannot express a view with respect to all of these proceedings. The outcome of any pending legal matter is never certain, and it is possible that adverse results in private legal proceedings could materially and adversely affect our financial results and operations. We have paid significant amounts to settle private legal proceedings in recent periods and paid significant amounts in legal and other costs in connection with such proceedings. To the extent we are unable to avoid such costs in future periods, our business, financial position, results of operations and cash flows could be materially and adversely affected.
Non-compliance with laws and regulations could lead to termination of servicing agreements or defaults under our debt agreements.
Most of our servicing agreements and debt agreements contain provisions requiring compliance with applicable laws and regulations. While the specific language in these agreements takes many forms and materiality qualifiers are often present, if we fail to comply with applicable laws and regulations, we could be terminated as a servicer and defaults could be triggered under our debt agreements, which could materially and adversely affect our revenues, cash flows, liquidity, business and financial condition. We could also suffer reputational damage and trustees, lenders and other counterparties could cease wanting to do business with us.
If new laws and regulations lengthen foreclosure times or introduce new regulatory requirements regarding foreclosure procedures, our operating costs could increase and we could be subject to regulatory action.
When a mortgage loan is in foreclosure, we are generally required to continue to advance delinquent principal and interest to the securitization trust and to make advances for delinquent taxes and insurance and foreclosure costs and the upkeep of vacant property in foreclosure to the extent that we determine that such amounts are recoverable. These servicing advances are generally recovered when the delinquency is resolved. Regulatory actions that lengthen the foreclosure process will increase the amount of servicing advances that we are required to make, lengthen the time it takes for us to be reimbursed for such advances and increase the costs incurred during the foreclosure process. 
Increased regulatory scrutiny and new laws and procedures could cause us to adopt additional compliance measures and incur additional compliance costs in connection with our foreclosure processes. We may incur legal and other costs responding

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to regulatory inquiries or any allegation that we improperly foreclosed on a borrower. We could also suffer reputational damage and could be fined or otherwise penalized if we are found to have breached regulatory requirements.
GSE initiatives and other actions may affect our financial condition and results of operations.
Due to the significant role that the GSEs play in the secondary mortgage market, new initiatives and other actions that they may implement could become prevalent in the mortgage servicing industry generally. To the extent that FHFA and/or the GSEs implement reforms that materially affect the market not only for conventional and/or government-insured loans but also the subprime and Alt-A markets, such reforms could have a material adverse effect on the creation of new mortgage servicing rights, the economics or performance of any mortgage servicing rights that we acquire, servicing fees that we can charge and costs that we incur to comply with new servicing requirements.
In addition, our ability to generate revenues through mortgage loan sales to institutional investors depends to a significant degree on programs administered by the GSEs, Ginnie Mae, and others that facilitate the issuance of MBS in the secondary market. These entities play a critical role in the residential mortgage industry and we have significant business relationships with many of them. If it is not possible for us to complete the sale or securitization of certain of our mortgage loans due to changes in GSE and Ginnie Mae programs, we may lack liquidity to continue to fund mortgage loans and our revenues and margins on new loan originations would be materially and negatively impacted.
There are various proposals that deal with the future of the GSEs, including with respect to their ownership and role in the mortgage market, as well as proposals to implement GSE reforms relating to borrowers, lenders and investors in the mortgage market. Thus, the long-term future of the GSEs remains uncertain. Any change in the ownership of the GSEs, or in their programs or role within the mortgage market, could materially and adversely affect our business, liquidity, financial position and results of operations.
Federal and state legislative and GSE initiatives in residential mortgage-backed securities, or RMBS, and securitizations may adversely affect our financial condition and results of operations.
There are federal and state legislative and GSE initiatives that could adversely affect our loan origination business and secured asset financing arrangements. For instance, the risk retention requirements under the Dodd-Frank Act require securitization sponsors to retain a portion of the credit risk of the securitized assets, subject to certain exemptions. The risk retention requirement could result in higher costs of certain lending operations and impose on us additional compliance requirements to meet servicing and originations criteria for securitized mortgage loans. Additionally, the amendments to Regulation AB and other regulations applicable asset-backed securities (ABS) adopted by the SEC pursuant to the Dodd-Frank Act and other relevant regulations have increased and may further increase compliance costs for ABS issuers, such as ourselves, which will in turn increase our cost of funding and operations.
If we fail to comply with the TILA-RESPA Integrated Disclosure (TRID) rules, our business and operations could be materially and adversely affected and our plans to expand our lending business could be adversely impacted.
The CFPB implemented new loan disclosure requirements in 2015 to consolidate and revamp TILA and RESPA disclosures. The TRID rules significantly changed consumer facing disclosure rules and added certain waiting periods to allow each consumer to reconsider the loan after receiving the required disclosures. If we fail to comply with the TRID rules, we may be unable to sell loans that we originate or purchase, or we may be required to sell such loans at a discount compared to other loans. We also could be subject to repurchase or indemnification claims from purchasers of such loans, including the GSEs. Additionally, loans might stay on our warehouse lines for longer periods before sale, which would increase our holding costs and interest expense. We could also be subject to regulatory actions or private lawsuits. 
In response to the TRID rules, we have implemented significant modifications and enhancements to our loan production processes and systems, and we continue to devote significant resources to TRID compliance. As regulatory guidance and enforcement and the views of the GSEs and other market participants such as warehouse loan lenders evolve, we may need to modify further our loan production processes and systems in order to adjust to evolution in the regulatory landscape and successfully operate our lending business. In such circumstances, if we are unable to make the necessary adjustments, our business and operations could be adversely affected and we may not be able to execute on our plans to grow our lending business. 
Failure to comply with the Home Mortgage Disclosure Act (HMDA) and related CFPB regulations could adversely impact our business.
In 2015, the CFPB revised regulations governing HMDA in order to implement specific provisions of the Dodd-Frank Act. HMDA requires financial institutions to report certain mortgage data in an effort to provide the regulators and the public with information that will help show whether financial institutions are serving the housing credit needs of the neighborhoods and communities in which they are located. Effective for loans closing on or after January 1, 2018, reportable loans include open-end loans (such as adjustable rate reverse mortgages) as well as closed-end loans, and include numerous new and modified data

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points. The data points include information related to the loan applicant/borrower (e.g., age, ethnicity, race and credit score), the underwriting process, loan terms and fees, lender credits and interest rate, among others. The scope of the information available to the public could increase fair lending regulatory scrutiny and third-party plaintiff litigation, as the changes will expand the ability of regulators and third parties to compare a particular lender to its peers in an effort to determine differences among lenders in certain demographic borrower populations. We have devoted, and will need to devote, significant resources to establishing systems and processes for complying with HMDA on an ongoing basis. If we are not successful in capturing and reporting the new HMDA data, and analyzing and correcting any adverse patterns, we could be exposed to regulatory actions and private litigation against us, we could suffer reputational damage and we could incur losses, any of which could materially and adversely impact our business, financial condition and results of operations.
As a participant in the now ended HAMP program, we are subject to review by SIGTARP, which could adversely affect our business, reputation, and financial condition.
A significant portion of Ocwen’s loan modifications in recent years have been in connection with HAMP, which was part of the U.S Treasury Department’s Making Home Affordable Program prior to HAMP’s expiration in 2016. SIGTARP has recently indicated that it will shift resources to assess potential unlawful conduct by servicers in the HAMP program. In May 2017, we received a subpoena from SIGTARP requesting various documents and information relating to Ocwen’s participation in the HAMP program, and we have been providing documents and information in response to that subpoena. If SIGTARP were to allege breaches of the HAMP program, such allegations could be referred to the enforcement authorities within the Department of the Treasury or the Department of Justice and if such enforcement authorities elected to take action against Ocwen, it could adversely affect our business, reputation and financial condition, regardless of the outcome of any such enforcement action.
If we fail to satisfy minimum net worth and liquidity requirements established by regulators, GSEs, Ginnie Mae, lenders, or other counterparties, our business, financing activities, financial condition or results of operations could be materially and adversely affected.
As a result of our servicing and loan origination activities, we are subject to minimum net worth and liquidity requirements established by state regulators, GSEs, Ginnie Mae, lenders, and other counterparties. We have been incurring losses for the last four years, which has eroded our net worth. In addition, we must structure our business so each subsidiary satisfies the net worth and liquidity requirements applicable to it, which can be challenging.
The minimum net worth and liquidity requirements to which our licensed entities are subject vary by state and type of license. We must also satisfy the minimum net worth and liquidity requirements of the GSEs and Ginnie Mae in order to maintain our approved status with such agencies and the minimum net worth and liquidity requirements set forth in our agreements with our lenders.
If we fail to satisfy minimum net worth requirements, absent a waiver or other accommodation, we could lose our licenses or have other regulatory action taken against us, we could lose our ability to sell and service loans to or on behalf of the GSEs or Ginnie Mae or we could be in default under our debt agreements. Any of these occurrences could have a material adverse effect on our business, financing activities, financial condition or results of operations.
In addition, minimum net worth requirements and liquidity are generally calculated using specific formulas that often exclude various items, such as intangible assets or certain intercompany receivables. Changes to these formulas have the potential to significantly affect net worth and liquidity calculations, and increases to the minimum required thresholds have the potential to cause non-compliance, both of which could imperil our ability to satisfy future minimum net worth and liquidity requirements.
There may be material changes to the laws, regulations, rules or practices applicable to reverse mortgage programs sponsored by HUD and FHA, and securitized by Ginnie Mae, which could materially and adversely affect the reverse mortgage industry as a whole.
The reverse mortgage industry is largely dependent upon rules and regulations implemented by HUD, FHA and Ginnie Mae. There can be no guarantee that HUD/FHA will retain Congressional authorization to continue the Home Equity Conversion Mortgage (HECM) program, which provides FHA government insurance for qualifying HECM loans, or that they will not make material changes to the laws, regulations, rules or practices applicable to reverse mortgage programs. For example, HUD previously implemented certain lending limits for the HECM program, and added credit-based underwriting criteria designed to assess a borrower’s ability and willingness to satisfy future tax and insurance obligations, and in August 2017, HUD announced additional rules which affect initial mortgage insurance premiums and further tighten lending limits on reverse mortgages. For HECM case numbers assigned on or after October 2, 2017, the new rules implemented by HUD included changes to the upfront and ongoing mortgage insurance premiums and revisions to the principal limit factors affecting the amount of funds available to borrowers from a HECM loan. In addition, Ginnie Mae’s participation in the reverse mortgage

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industry may be subject to economic and political changes that cannot be predicted. Any of the aforementioned circumstances could materially and adversely affect the performance of our reverse mortgage business and the value of our common stock.
Regulators continue to be active in the reverse mortgage space, including due to the perceived susceptibility of older borrowers to be influenced by deceptive or misleading marketing activities. Regulators have also focused on appraisal practices because reverse mortgages are largely dependent on collateral valuation. If we fail to comply with applicable laws and regulations relating to the origination of reverse mortgages, we could be subject to adverse regulatory actions, including potential fines, penalties or sanctions, and our business, reputation, financial condition and results of operations could be materially and adversely affected.
Violations of predatory lending and/or servicing laws could negatively affect our business.
Various federal, state and local laws have been enacted that are designed to discourage predatory lending and servicing practices. The federal Home Ownership and Equity Protection Act of 1994 (HOEPA) prohibits inclusion of certain provisions in residential loans that have mortgage rates or origination costs in excess of prescribed levels and requires that borrowers be given certain additional disclosures prior to origination. Some states have enacted, or may enact, similar laws or regulations, which in some cases impose restrictions and requirements greater than are those in HOEPA. In addition, under the anti-predatory lending laws of some states, the origination of certain residential loans, including loans that are not classified as “high cost” loans under HOEPA or other applicable law, must satisfy a net tangible benefits test with respect to the related borrower. A failure by us to comply with these laws, to the extent we originate, service or acquire residential loans that are non-compliant with HOEPA or other predatory lending or servicing laws, could subject us, as an originator or a servicer, or as an assignee, in the case of acquired loans, to monetary penalties and could result in the borrowers rescinding the affected loans. Lawsuits have been brought in various states making claims against originators, servicers and assignees of high cost loans for violations of state law. Named defendants in these cases have included numerous participants within the secondary mortgage market. If we are found to have violated predatory or abusive lending laws, defaults could be declared under our debt or servicing agreements, we could suffer reputational damage, and we could incur losses, any of which could materially and adversely impact our business, financial condition and results of operations.
Failure to comply with FHA underwriting guidelines could adversely impact our business.
We must comply with FHA underwriting guidelines in order to successfully originate FHA loans. If we fail to do so, we may not be able collect on FHA insurance. In addition, we could be subject to allegations of violations of the False Claims Act asserting that we submitted claims for FHA insurance on loans that had not been underwritten in accordance with FHA underwriting guidelines. If we are found to have violated FHA underwriting guidelines, we could face regulatory penalties and damages in litigation, suffer reputational damage, and we could incur losses due to an inability to collect on such insurance, any of which could materially and adversely impact our business, financial condition and results of operations.
Failure to comply with United States and foreign laws and regulations applicable to our global operations could have an adverse effect on our business, financial position, results of operations or cash flows.
As a business with a global workforce, we need to ensure that our activities, including those of our foreign subsidiaries, comply with applicable United States and foreign laws and regulations. From time to time, various state regulators have scrutinized the operations of our foreign subsidiaries. For example, as previously disclosed, in 2016, two of our foreign subsidiaries entered into a Consent Order with the Washington State Department of Financial Institutions relating to the activities of those entities in Washington State under the Washington Consumer Loan Act. Our failure to comply with applicable laws and regulations could, among other things, result in restrictions on our operations, loss of licenses, fines, penalties or reputational damage and have an adverse effect on our business.
Failure to comply with the S.A.F.E. Act could adversely impact our business.
The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (the S.A.F.E. Act) requires the individual licensing and registration of those engaged in the business of loan origination. The S.A.F.E. Act is designed to improve accountability on the part of loan originators, combat fraud and enhance consumer protections by encouraging states to establish a national licensing system and minimum qualification requirements for applicants. Thus, Ocwen must ensure proper licensing for all employees who participate in certain specified loan origination activities. Failure to comply with the S.A.F.E. Act licensing requirements could adversely impact Ocwen’s origination business.
Risks Relating to Our Business
There can be no assurance that our strategies to return to profitability will be successful.
Asset sales, portfolio runoff and regulatory restrictions on acquisitions of MSRs have resulted in a 61.4% decline in our servicing portfolio as compared to December 31, 2013. As a result, our revenues have decreased significantly and, while some of our expenses have reduced significantly, we have not been able to reduce our overall expenses by a comparative amount, in part because of the relatively fixed nature of our corporate overhead. In addition, continuing regulatory and legal matters have

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negatively impacted our results. We have incurred a net loss in each of the last four fiscal years, which has significantly eroded stockholders’ equity and weakened our financial condition. In order to drive stronger financial performance, we have been exploring strategic approaches to streamline our business and leverage our competitive advantages by focusing our operations on mortgage servicing, on our retail forward lending channel, primarily through retail lending recapture, and on our reverse mortgage business. As part of this strategic assessment, we exited the forward lending correspondent and wholesale channels during 2017 and we plan to have exited the independent used car dealer floor plan lending business conducted through ACS by the end of the second quarter of 2018.
We are continuing to seek operational efficiencies to manage our cost structure as our servicing portfolio continues to shrink. However, there are limits to our ability to reduce costs through operational adjustments. Ultimately, we believe that it is unlikely that we will be able to return to profitability simply by reducing our costs through operational adjustments. Given the relative size of our corporate overhead, including the risk and compliance infrastructure necessary to operate as a non-bank mortgage servicer and lender, we believe that we will need to grow our future revenues in order to return to profitability. Given the relative size of our servicing revenues to our lending revenues, growing our servicing revenues through acquisitions of servicing would provide the most effective way to grow our overall revenues. However, in order to do so, we would need to work through the current regulatory restrictions on such acquisitions or wait until such restrictions are otherwise lifted. We are also seeking to grow our revenues through the investment of cash not currently utilized in our servicing and lending business, including portions of the cash proceeds received in January 2018 from NRZ discussed below. We are currently assessing various options for the use of such cash in order to determine the uses that we believe will most effectively drive our future financial performance.
There can be no assurance that we will be successful in returning to profitability. Our success will depend on market conditions and other factors outside of our control, as well as successful operational execution and achieving better alignment between the scale of our business and our fixed costs. If we continue to experience losses, our share price, business, reputation, financial condition and results of operations could be materially and adversely affected.
If we are unable to invest excess cash, including portions of the cash proceeds from our recent transactions with NRZ, to produce adequate risk-adjusted returns, our future results of operations and financial condition may be materially and adversely impacted.
We are seeking to grow our revenues through the investment of cash not currently utilized in our servicing and lending business, including portions of the cash proceeds received from NRZ. As discussed elsewhere in this Annual Report, in July 2017 and January 2018 we entered agreements with NRZ that resulted in Ocwen receiving significant lump sum cash payments in lieu of certain future revenues Ocwen would have received under our prior agreements with NRZ. We believe that our ability to invest this cash in order to produce attractive risk-adjusted returns will have a significant impact on our future results of operations and financial condition. We could choose poor investment options or external factors outside our control could reduce the returns that we foresee when we make investments. In addition, our investment options may be limited by the terms of our debt or other agreements or by regulatory actions or settlements. If we are unable to identify and execute on attractive investments, if the time and effort of identifying such investments diverts excessive attention from management, or if our investments do not perform as expected, our future results of operations and financial condition could be materially and adversely impacted.
If we are unable to obtain sufficient capital to meet the financing requirements of our business, or if we fail to comply with our debt agreements, our business, financing activities, financial condition and results of operations will be adversely affected.
Our business requires substantial amounts of capital and our financing strategy includes the use of leverage. Accordingly, our ability to finance our operations and repay maturing obligations rests in large part on our ability to continue to borrow money at reasonable rates. If we are unable to maintain adequate financing, or other sources of capital are not available, we could be forced to suspend, curtail or reduce our operations, which could harm our revenues, results of operations, liquidity, financial condition and business prospects. Our ability to borrow money is affected by a variety of factors including:
limitations imposed on us by existing lending and similar agreements that contain restrictive covenants that may limit our ability to raise additional debt;
liquidity in the credit markets;
the strength of the lenders from whom we borrow;
lenders’ perceptions of us or our sector;
corporate credit and servicer ratings from rating agencies; and
limitations on borrowing under our advance facilities and mortgage loan warehouse facilities due to structural features in these facilities and the amount of eligible collateral that is pledged.
In addition, our advance facilities are revolving facilities, and in a typical monthly cycle, we repay up to one-third of the borrowings under these facilities from collections. During the remittance cycle, which starts in the middle of each month, we

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depend on our lenders to provide the cash necessary to make the advances that we are required to make as servicer. If one or more of these lenders were to restrict our ability to access these revolving facilities or were to fail, we may not have sufficient funds to meet our obligations. We typically require significantly more liquidity to meet our advance funding obligations than our available cash on hand.
Our advance financing facilities are comprised of (i) revolving notes issued to global financial institutions that generally have a 364-day revolving period, and (ii) term notes issued to institutional investors with one-, two- and three-year periods. At December 31, 2017, we had $1.0 billion outstanding under these facilities. The revolving periods for variable funding notes with a total borrowing capacity of $375.0 million end in 2018.
In the event we are unable to renew, replace or extend the revolving period of one or more of these advance financing facilities, repayment of the outstanding balances on the revolving and term notes must begin at the end of the applicable revolving period and end of the term, respectively. In addition, we use mortgage loan warehouse facilities to fund newly originated loans on a short-term basis until they are sold to secondary market investors, including GSEs or other third-party investors. Currently, our master repurchase and participation agreements for financing new loan originations generally have 364-day terms, and similar to the revolving notes in the advance financing facilities, they are typically renewed, replaced or extended annually. At December 31, 2017, we had $255.8 million outstanding under these warehouse financing arrangements, all under agreements maturing in 2018.
We currently plan to renew, replace or extend all these debt agreements consistent with our historical experience. There can be no assurance that we will be able to renew, replace or extend all our debt agreements on appropriate terms or at all and, if we fail to do so, we may not have adequate sources of funding for our business.
Our debt agreements contain various qualitative and quantitative covenants, including financial covenants, covenants to operate in material compliance with applicable laws, monitoring and reporting obligations and restrictions on our ability to engage in various activities, including but not limited to incurring additional debt, paying dividends, repurchasing or redeeming capital stock, transferring assets or making loans, investments or acquisitions. As a result of the covenants to which we are subject, we may be limited in the manner in which we conduct our business and may be limited in our ability to engage in favorable business activities or raise additional capital to finance future operations or satisfy future liquidity needs. In addition, breaches or events that may result in a default under our debt agreements include, among other things, noncompliance with our covenants, nonpayment of principal or interest, material misrepresentations, the occurrence of a material adverse effect or change, insolvency, bankruptcy, certain material judgments and changes of control. Covenants and defaults of this type are commonly found in debt agreements such as ours. Certain of these covenants and defaults are open to subjective interpretation and, if our interpretation were contested by a lender, a court may ultimately be required to determine compliance or lack thereof. In addition, our debt agreements generally include cross default provisions such that a default under one agreement could trigger defaults under other agreements. If we fail to comply with our debt agreements and are unable to avoid, remedy or secure a waiver of any resulting default, we may be subject to adverse action by our lenders, including termination of further funding, acceleration of outstanding obligations, enforcement of liens against the assets securing or otherwise supporting our obligations and other legal remedies.
An actual or alleged default under any of our debt agreements, negative ratings action by a rating agency, the perception of financial weakness, an adverse action by a regulatory authority or GSE, a lengthening of foreclosure timelines or a general deterioration in the economy that constricts the availability of credit may increase our cost of funds and make it difficult for us to renew existing credit facilities or obtain new lines of credit. Any or all the above could have an adverse effect on our business, financing activities, financial condition and results of operations.
We may be unable to obtain sufficient servicer advance financing necessary to meet the financing requirements of our business, which could adversely affect our liquidity position and result in a loss of servicing rights.
We currently fund a substantial portion of our servicing advance obligations through our servicing advance facilities. Under normal market conditions, mortgage servicers typically have been able to renew or refinance these facilities. However, during the financial crisis that began in 2007, there were periods of time when some mortgage servicers were unable to renew these facilities. Borrowing conditions have improved since that time; however, market conditions or the markets or lenders’ perceptions of us at the time of any renewal or refinancing may mean that we are unable to renew or refinance our advance financing facilities or obtain additional facilities on favorable terms or at all.
We are dependent on NRZ for a substantial portion of our advance financing for non-Agency MSRs. In addition, under new agreements signed in July 2017 and January 2018, NRZ has broad rights to terminate Ocwen servicing relating to loans with an outstanding UPB of $86.8 billion as of December 31, 2017 for failure to meet covenants or operational requirements
We have sold Rights to MSRs, including the associated servicing advance obligation, to NRZ. Consequently, we are dependent upon NRZ for financing of the servicing advance obligations for MSRs where we are the servicer. NRZ currently

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uses advance financing facilities to fund a substantial portion of the servicing advances that they are contractually obligated to make pursuant to our agreements with them. As of December 31, 2017, we serviced loans with an outstanding UPB of approximately $101.8 billion for which the Rights to MSRs have been sold to NRZ. The associated outstanding servicing advances as of such date were approximately $3.2 billion. Should NRZ’s advance financing facilities fail to perform as envisaged or should NRZ otherwise be unable to meet its advance financing obligations, our liquidity, financial condition and business could be materially and adversely affected. As the servicer, we are contractually required under our servicing agreements to make the relevant servicing advances even if NRZ does not perform its contractual obligations to fund those advances.
Although we are not an obligor or guarantor under NRZ’s advance financing facilities, we are a party to certain of the facility documents as the servicer of the underlying loans on which advances are being financed. As the servicer, we make certain representations, warranties and covenants, including representations and warranties in connection with our sale of advances to NRZ. If we were to make representations or warranties that were untrue or if we were otherwise to fail to comply with our contractual obligations, we could become subject to claims for damages or events of default under such facilities could be asserted.
Under current agreements, any failure under a financial covenant could result in Ocwen’s termination as subservicer or operational servicer for loans with up to $86.8 billion in outstanding UPB as of December 31, 2017. Similarly, failure by Ocwen to meet operational requirements, including service levels, critical reporting and other obligations, could also result in termination for cause. A termination for cause could materially and adversely affect Ocwen’s financial condition and share value.
Further, under our 2017 subservicing agreement and subsequent addendum with NRZ, at any time during the initial five-year term, NRZ may terminate these agreements for convenience, subject to Ocwen’s right to receive a termination fee and proper notice. After such termination Ocwen would no longer be entitled to receive compensation under these agreements. In addition, under the agreements Ocwen and NRZ entered into in January 2018, NRZ has the right to transfer servicing to a third-party if consents are not obtained and Ocwen does not purchase NRZ’s rights. NRZ has the obligation to use reasonable efforts to encourage a third-party buyer to enter into a subservicing agreement with Ocwen, but Ocwen may lose the future compensation for subservicing if no subservicing agreement is entered into.
On December 28, 2016, PHH entered into an agreement to sell to NRZ substantially all of PHH’s portfolio of MSRs and related advances. Although the sale of the majority of MSRs and advances to be transferred under this agreement (including all of PHH’s Fannie Mae and Freddie Mac MSRs) has been completed, the sale of the remaining MSRs and related advances contemplated by the sale agreement (representing an aggregate of $5.9 billion in unpaid principal balance, $34.0 million of MSR fair value, and $110.0 million of servicing advances as of December 31, 2017) remains subject to the approvals of multiple counterparties and other customary closing requirements. Accordingly, this sale could be delayed and may not be consummated prior to the closing of the PHH acquisition or at all.
In connection with PHH’s sale agreement with NRZ, PHH has also entered into a subservicing agreement with NRZ, pursuant to which PHH will subservice the loans sold in the sale transaction for an initial period of three years, subject to certain transfer and termination provisions. This subservicing relationship became effective upon PHH’s initial delivery of MSRs to NRZ on June 16, 2017. The loans serviced by PHH under this subservicing agreement include 364,784 units as of December 31, 2017 and represent a majority of PHH’s subservicing income during the fourth quarter of 2017. We expect to assume this subservicing agreement upon the closing of the Merger with PHH, which would further increase the dependence of our business on NRZ. NRZ has the ability to terminate portions of the subservicing agreement over the three-year term, beginning with the ability to terminate with respect to 25% of the loans covered thereby in June 2018 and an additional 25% beginning in June 2019. If NRZ terminates this relationship, in full or in part, it would have a material impact on PHH’s revenue.
A failure to maintain minimum servicer ratings could have an adverse effect on our business, financing activities, financial condition or results of operations.
S&P, Moody’s and Fitch rate us as a mortgage servicer. Failure to maintain minimum servicer ratings could adversely affect our ability to sell or fund servicing advances going forward, could affect the terms and availability of debt financing facilities that we may seek in the future, and could impair our ability to consummate future servicing transactions or adversely affect our dealings with lenders, other contractual counterparties and regulators, including our ability to maintain our status as an approved servicer by Fannie Mae and Freddie Mac. The servicer rating requirements of Fannie Mae do not necessarily require or imply immediate action, as Fannie Mae has discretion with respect to whether we are in compliance with their requirements and what actions it deems appropriate under the circumstances in the event that we fall below their desired servicer ratings.
Certain of our servicing agreements require that we maintain specified servicer ratings. Out of 3,300 non-Agency servicing agreements, 708 with $29.8 billion of UPB as of December 31, 2017 have minimum servicer ratings criteria. As a result of our

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current servicer ratings, termination rights have been triggered in 172 of these non-Agency servicing agreements. This represents approximately $9.4 billion in UPB as of December 31, 2017, or approximately 7% of our total non-Agency servicing portfolio. In early 2015, we received notices terminating us as the servicer under four of our non-Agency servicing agreements due to rating downgrades. Pursuant to our servicing agreements, generally we are entitled to payment of accrued and unpaid servicing fees through termination as well as all advances and certain other previously unreimbursed amounts, although we lose the future servicing fee revenue. While the financial impact of the termination of servicing under these four servicing agreements was immaterial to our overall financial condition, as it represented only 0.17% of our overall servicing portfolio as of the time of transfer of servicing, we could be subject to further terminations either as a result of servicer ratings downgrades or future adverse actions by ratings agencies, which could have an adverse effect on our business, financing activities, financial condition and results of operations.
Downgrades in our servicer ratings could also affect the terms and availability of advance financing facilities that we may seek in the future.
Our failure to maintain minimum or specified ratings could adversely affect our dealings with contractual counterparties, including GSEs, and regulators, any of which could have a material adverse effect on our business, financing activities, financial condition and results of operations.
An economic slowdown or a deterioration of the housing market could increase both interest expense on servicing advances and operating expenses and could cause a reduction in income from, and the value of, our servicing portfolio.
During any period in which a borrower is not making payments, we are required under most of our servicing agreements to advance our own funds to meet contractual principal and interest remittance requirements for investors, pay property taxes and insurance premiums and process foreclosures. We also advance funds to maintain, repair and market real estate properties on behalf of investors. Most of our advances have the highest standing and are “top of the waterfall” so that we are entitled to repayment from respective loan or REO liquidations proceeds before most other claims on these proceeds, and in the majority of cases, advances in excess of respective loan or REO liquidation proceeds may be recovered from pool level proceeds. Consequently, the primary impact of an increase in advances is through increased interest expense as we finance a large portion of servicing advance obligations.
Higher delinquencies also increase our cost to service loans, as loans in default require more intensive effort to bring them current or manage the foreclosure process. An increase in delinquencies may delay the timing of revenue recognition because we recognize servicing fees as earned, which is generally upon collection of payments from borrowers or proceeds from REO liquidations. An increase in delinquencies also generally leads to lower balances in custodial and escrow accounts (float balances) and lower net earnings on custodial and escrow accounts (float earnings). Additionally, an increase in delinquencies in our GSE servicing portfolio will result in lower revenue because we collect servicing fees from GSEs only on performing loans.
Foreclosures are involuntary prepayments resulting in a reduction in UPB. This may result in higher amortization expense as well as charges to recognize impairment and declines in the value of our MSRs.
Adverse economic conditions could also negatively impact our lending businesses. For example, during the economic crisis that began in 2007, total U.S. residential mortgage originations volume decreased substantially. Moreover, declining home prices and increasing loan-to-value ratios may preclude many potential borrowers from refinancing their existing loans. Further, an increase in prevailing interest rates could decrease originations volume.
Any of the foregoing could adversely affect our business, financial condition and results of operations.
A significant increase in prepayment speeds could adversely affect our financial results.
Prepayment speed is a significant driver of our business. Prepayment speed is the measurement of how quickly borrowers pay down the UPB of their loans or how quickly loans are otherwise brought current, modified, liquidated or charged off. Prepayment speeds have a significant impact on our servicing fee revenues, our expenses and on the valuation of our MSRs as follows:
Revenue. If prepayment speeds increase, our servicing fees will decline more rapidly than anticipated because of the greater decrease in the UPB on which those fees are based. The reduction in servicing fees would be somewhat offset by increased float earnings because the faster repayment of loans will result in higher float balances that generate the float earnings. Conversely, decreases in prepayment speeds result in increased servicing fees but lead to lower float balances and float earnings.
Expenses. Amortization of MSRs is one of our largest operating expenses. Since we amortize servicing rights in proportion to total expected income over the life of a portfolio, an increase in prepayment speeds leads to increased amortization expense as we revise downward our estimate of total expected income. Faster prepayment speeds also result in higher compensating interest expense, which represents the difference between the full month of interest we

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are required to remit in the month a loan pays off and the amount of interest we collect from the borrower for that month. Decreases in prepayment speeds lead to decreased amortization expense as the period over which we amortize MSRs is extended. Slower prepayment speeds also lead to lower compensating interest expense.
Valuation of MSRs. We base the price we pay for MSRs and the rate of amortization of those rights on, among other things, our projection of the cash flows from the related pool of mortgage loans. Our expectation of prepayment speeds is a significant assumption underlying those cash flow projections. If prepayment speeds were significantly greater than expected, the fair value of our MSRs, which we carry at fair value, could decrease. When the fair value of these MSRs decreases, we record a loss on fair value, which also has a negative impact on our financial results. Effective January 1, 2018, we elected fair value accounting for our MSRs previously accounted for using the amortization method.
If we do not comply with our obligations under our servicing agreements or if others allege non-compliance, our business and results of operations may be harmed.
We have contractual obligations under the servicing agreements pursuant to which we service mortgage loans. Many of our servicing agreements require adherence to general servicing standards, and certain contractual provisions delegate judgment over various servicing matters to us. Our servicing practices, and the judgments that we make in our servicing of loans, could be questioned by parties to these agreements, such as trustees or master servicers, or by investors in the trusts which own the mortgage loans or other third parties. 
In addition, OLS, Homeward and Liberty are parties to seller/servicer agreements and/or subject to guidelines and regulations (collectively, seller/servicer obligations) with one or more of the GSEs, HUD, FHA, VA and Ginnie Mae. These seller/servicer obligations include financial covenants that include capital requirements related to tangible net worth, as defined by the applicable agency, an obligation to provide audited consolidated financial statements within 90 days of the applicable entity’s fiscal year end as well as extensive requirements regarding servicing, selling and other matters. To the extent that these requirements are not met or waived, the applicable agency may, at its option, utilize a variety of remedies including requirements to provide certain information or take actions at the direction of the applicable agency, requirements to deposit funds as security for our obligations, sanctions, suspension or even termination of approved seller/servicer status, which would prohibit future originations or securitizations of forward or reverse mortgage loans or servicing for the applicable agency. To date, none of these agencies has communicated any material sanction, suspension or prohibition in connection with our seller/servicer obligations. We believe we were in compliance with the related net worth requirements at December 31, 2017. Our non-agency servicing agreements also contain requirements regarding servicing practices and other matters, and a failure to comply with these requirements could have an adverse impact on our business. See Note 24 — Contingencies for additional information relating to our recent interactions with Ginnie Mae as a result of the state regulatory actions discussed in that note.
We could become subject to litigation claims seeking damages or other remedies arising from alleged breaches of our servicing agreements. Third parties have indicated that they might seek to pursue such claims in the future. If we do not comply with our servicing agreements, we may be terminated as servicer, or we may be required to make indemnification or other payments or provide other remedies. Such actions may have a significant negative impact on our profitability and lead to lower earnings in the future. Even if such allegations against us lack merit, we may have to spend additional resources and devote additional management time to contesting such allegations, which would reduce the resources available to address, and the time management is able to devote to, other issues.
GSEs or Ginnie Mae may curtail or terminate our ability to sell or securitize newly originated loans to them.
As noted in the prior risk factor, if we do not comply with our seller/servicer obligations, the GSEs or Ginnie Mae may utilize a variety of remedies against us. Such remedies include curtailment of our ability to sell newly originated loans or even termination of our ability to sell or securitize such loans altogether.
Technology or process failures could damage our business operations or reputation, harm our relationships with key stakeholders and lead to regulatory sanctions or penalties.
Operational risk is inherent in virtually all of our activities. While we have established and maintain an overall risk framework that is designed to balance strong corporate oversight with well-defined independent risk management, we continue to be subject to some degree of operational risk. Our business is substantially dependent on our ability to process and monitor a large number of transactions, many of which are complex, across various parts of our business. These transactions often must adhere to the terms of a complex set of legal and regulatory standards, as well as the terms of our servicing and other agreements. In addition, given the volume of transactions that we process and monitor, certain errors may be repeated or compounded before they are discovered and rectified. For example, in the area of borrower correspondence, in 2014, problems were identified with our letter dating processes such that erroneously dated letters were sent to borrowers, which damaged our reputation and relationships with borrowers, regulators, important counterparties and other stakeholders. Because in an average month we mail nearly 2 million letters, a process problem such as erroneous letter dating has the potential to negatively affect many parts of our business and have widespread negative implications.

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We are responsible for developing and maintaining sophisticated operational systems and infrastructure, which is challenging. The CFPB and other regulators have recently emphasized their focus on the importance of servicers’ and lenders’ systems and infrastructure operating effectively. If our systems and infrastructure fail to operate effectively, such failures could damage our business and reputation, harm our relationships with key stakeholders and lead to regulatory sanctions or penalties.
We are similarly dependent on our employees. We could be materially adversely affected if an employee or employees, acting alone or in concert with non-affiliated third parties, causes a significant operational break-down or failure, either because of human error or where an individual purposefully sabotages or fraudulently manipulates our operations or systems, including, without limitation, by means of cyberattack or denial-of-service attack. Third parties with which we do business could also be sources of operational risk to us, including risks relating to break-downs or failures of such parties’ own systems or employees. Any of these occurrences could diminish our ability to operate one or more of our businesses, potential liability to clients, reputational damage and regulatory intervention, all of which could materially adversely affect us.
Certain of our operational systems and infrastructure are provided by third-party vendors. If any of these vendors fail to provide us with effective operational systems and infrastructure or appropriate levels of service, we could also be required to take legal action against or replace such vendors, which could be costly, involve a diversion of management time and energy and lead to operational disruptions.
We are dependent on Altisource and other vendors for much of our technology and other services.
Our vendor relationships subject us to a variety of risks. We have significant exposure to third-party risks, as we are dependent on vendors for a number of key services, including our servicing platform that runs on an information technology system that we license under long-term agreements with Altisource. Our servicing business operates on this platform and we have used it for many years. In October 2017, we entered into an agreement with Black Knight pursuant to which we plan to transition to Black Knight’s LoanSphere MSP® servicing system. However, until we complete the transition, which is expected to take approximately 24 months, we will remain substantially dependent on Altisource. If Altisource were to fail to fulfill properly its contractual obligations to us, including through a failure to provide services at the required level to maintain and support our systems, or if Altisource were to become unable to fulfill such obligations, our business and operations would suffer. In addition, if Altisource fails to develop and maintain its technology so as to provide us with an effective and competitive platform, our business could suffer. Similarly, we are reliant on other vendors for the proper maintenance and support of our technological systems and our business and operations would suffer if these vendors do not perform as required. If Altisource or our other vendors do not adequately maintain and support our systems, including our servicing systems, loan originations and financial reporting systems, our business and operations could be materially and adversely affected.
Altisource and other vendors supply us with other services in connection with our business activities such as property preservation and inspection services and valuation services. In the event that a vendor’s activities do not comply with the applicable servicing criteria, we could be exposed to liability as the servicer and it could negatively impact our relationships with our servicing clients, borrowers or regulators, among others. In addition, if our current vendors were to stop providing services to us on acceptable terms, we may be unable to procure alternatives from other vendors in a timely and efficient manner and on acceptable terms, or at all. Further, we may incur significant costs to resolve any such disruptions in service and this could adversely affect our business, financial condition and results of operations.
If our transition to a new servicing system does not go as planned, we could experience disruptions in our operations, and our relationships with regulators and our regulatory compliance could be negatively impacted.
As described above, we have entered into an agreement with Black Knight pursuant to which we plan to transition to Black Knight’s LoanSphere MSP® servicing system over a period of two years. We are highly dependent on the successful functioning of our servicing system in order to operate our loan servicing business effectively and in compliance with our regulatory and contractual obligations. Implementing a large-scale transition to a new technology product such as a new servicing system is inherently complex and involves significant operational risk, including with respect to technical deficiencies that may impact customer data. We expect to devote significant capital and human resources to implementing this transition, and we may experience decreases in productivity and increased costs as our employees implement and become familiar with the new system. Further, both the costs and length of time required to implement the transition may exceed our expectations. Because PHH currently utilizes the MSP servicing system for its servicing operations, if the PHH transaction closes, Ocwen intends to transfer the loans it services to the MSP platform utilized by PHH versus a separate instance of the MSP servicing system as it believes such a transfer can happen sooner and with less implementation and transfer risk. While we believe that such a transition poses less risk, it will still be subject to the operational and other risks summarized above. Accordingly, if our transition to MSP does not go as planned, our business, financial condition and results of operations could be materially and adversely affected. In addition, delays or other issues with our transition to MSP could negatively impact our relationships with regulators and our regulatory compliance.

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We have undergone and continue to undergo significant change to our technology infrastructure and business processes. Failure to adequately update our systems and processes could harm our ability to run our business and adversely affect our results of operations.
We are currently making, and will continue to make, technology investments and process improvements to improve or replace our information processes and systems that are key to managing our business, to improve our compliance with regulations, and to reduce cost. Failure to assess, plan, monitor and choose the right investments and implement them at the right pace would be harmful. The risk of business disruption is increased when significant system and process changes are undertaken, although we believe that our change management process can mitigate this risk.
Disagreements with vendors, service providers or other contractual counterparties could materially and adversely affect our business, financing activities, financial condition or results of operations.
We are dependent on Altisource and other vendors and service providers for much of our technology and other services and on banks, NRZ and other financing sources to finance our business. Certain provisions of the agreements underlying our relationships with our vendors, service providers, financing sources and other contractual counterparties could be open to subjective interpretation. Disagreements with these counterparties, including disagreements over contract interpretation, could lead to business disruptions or could result in litigation or arbitration or mediation proceedings, any of which could be expensive and divert senior management’s attention from other matters. While we have been able to resolve disagreements with these counterparties in the past, if we were unable to resolve a disagreement, a court, arbitrator or mediator might be required to resolve the matter and there can be no assurance that the outcome of a material disagreement with a contractual counterparty would not materially and adversely affect our business, financing activities, financial condition or results of operations.
As a result of his ownership of stock in Altisource, our President and Chief Executive Officer could have, could appear to have or could be alleged to have conflicts of interest.
Our President and Chief Executive Officer owns stock in Altisource that he acquired by virtue of being a stockholder and optionholder of Ocwen at the time that Altisource was “spun-off” from Ocwen in 2009. Such ownership interest could create, appear to create or be alleged to create conflicts of interest with respect to matters potentially or actually involving or affecting us and Altisource. We have adopted policies to avoid potential conflicts or allegations of conflicts of interest with respect to our dealings with Altisource, including a written recusal policy pursuant to which any Ocwen employee, officer or director with more than a $200,000 equity ownership in Altisource must recuse themselves from voting to approve any transaction involving Altisource. Our board of directors also has a Risk and Compliance Committee, comprised solely of independent directors that do not own any equity in Altisource, to review new agreements between us that involve $120,000 or more. None of our directors, other than our President and Chief Executive Officer, own any equity in Altisource. There can be no assurance that such measures will be effective in eliminating all conflicts of interest or that third parties will refrain from making such allegations.
Loan putbacks and related liabilities for breaches of representations and warranties regarding sold loans could adversely affect our business.
We have exposure to representation, warranty and indemnification obligations because of our lending, sales and securitization activities, and in certain instances, we have assumed these obligations on loans we service. Our contracts with purchasers of originated loans contain provisions that require indemnification or repurchase of the related loans under certain circumstances. While the language in the purchase contracts varies, such contracts generally contain provisions that require us to indemnify purchasers of its loans or repurchase such loans if:
representations and warranties concerning loan quality, contents of the loan file or loan underwriting circumstances are inaccurate;
adequate mortgage insurance is not secured within a certain period after closing;
a mortgage insurance provider denies coverage; or
there is a failure to comply, at the individual loan level or otherwise, with regulatory requirements.
Additionally, in one of the servicing contracts that Homeward acquired in 2008 from Freddie Mac involving non-prime mortgage loans, it assumed the origination representations and warranties even though it did not originate the loans.
At December 31, 2017, we had outstanding representation and warranty repurchase demands of $30.8 million UPB (180 loans).
We believe that, because of the current market environment, many purchasers of residential mortgage loans are particularly aware of the conditions under which originators must indemnify or repurchase loans and under which such purchasers would benefit from enforcing any indemnification rights and repurchase remedies they may have.

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If home values decrease, our realized loan losses from loan repurchases and indemnifications may increase as well. As a result, our liability for repurchases may increase beyond our current expectations. Depending on the magnitude of any such increase, our business, financial condition and results of operations could be adversely affected.
Liabilities relating to our past sales of Agency MSRs could adversely affect our business.
We have made representations, warranties and covenants relating to our past sales of Agency MSRs. To the extent that we have made inaccurate representations or warranties or fail to perform our covenants, we could incur liability to the purchasers of these MSRs pursuant to the contractual provisions of our sale agreements. In addition, transfers of servicing are subject to regulation under federal consumer finance laws, including CFPB rules implementing RESPA that require servicers to, among other things, maintain policies and procedures that are reasonably designed to facilitate the transfer of accurate information and documents during mortgage servicing transfers and properly evaluate loss mitigation applications that are in process at the time of transfer. The CFPB has advised mortgage servicers that its examiners will be carefully reviewing servicers’ compliance with these and other regulations applicable to servicing transfers, and state mortgage regulators have supervisory power over any licensed institutions involved in a transaction. Accordingly, we devote significant time and resources to our compliance efforts and to engaging with such regulators in connection with our transfers of mortgage servicing, and we expect to continue to do so. If we fail to comply with regulations relating to servicing transfers in connection with dispositions of MSRs, we could be subject to adverse regulatory actions, which could materially and adversely affect our business.
As discussed above, PHH has also conducted past sales of Agency MSRs, including the sales of its Fannie Mae and Freddie Mac MSRs to NRZ. Accordingly, following the closing of our pending acquisition of PHH, we will also assume similar liabilities pursuant to the contractual provisions of PHH’s sale agreements with the purchasers of those MSRs. See “- Risks Relating to the Pending Acquisition of PHH” below for more information on the Merger with PHH.
A number of lawsuits have been filed against mortgage loan sellers related to repurchase claims arising out of alleged breaches of representations and warranties, and actions have also been filed against RMBS trustees alleging that the trustees breached their contractual and statutory duties by, among other things, failing to require the loan servicers to abide by the servicers’ obligations and failing to declare that certain alleged servicing events of default under the applicable contracts occurred. In addition, RMBS trustees have received notices of default alleging material failures by servicers to comply with applicable servicing agreements.
In several recent court actions, mortgage loan sellers against whom repurchase claims have been asserted based on alleged breaches of representations and warranties are defending on various grounds including the expiration of statutes of limitation, lack of notice and opportunity to cure, and vitiation of the obligation to repurchase as a result of foreclosure or charge-off of the loan. We have entered into tolling agreements with respect to our role as servicer for a small number of securitizations relating to our performance under the servicing agreements for those securitizations and may enter into additional tolling agreements in the future. Other court actions have been filed against certain RMBS trustees alleging that the trustees breached their contractual and statutory duties by, among other things, failing to require the loan servicers to abide by the servicers’ obligations and failing to declare that certain alleged servicing events of default under the applicable contracts occurred.
Ocwen is a party in certain of these actions, is the servicer for certain securitizations involved in other such actions and is the servicer for other securitizations as to which actions have been threatened by certificate holders. We intend to vigorously defend ourselves in the lawsuits to which we have been named a party. Should Ocwen be made a party to other similar actions or should Ocwen be asked to indemnify any parties to such actions, we may need to defend ourselves against allegations that we failed to service loans in accordance with applicable agreements and that such failures prejudiced the rights of repurchase claimants against loan sellers or otherwise diminished the value of the trust collateral. At this time, we are unable to predict the ultimate outcome of these lawsuits, the possible loss or range of loss, if any, associated with the resolution of these lawsuits or any potential impact they may have on us or our operations. If, however, we were required to compensate claimants for losses related to the alleged loan servicing breaches, then our business, liquidity, financial condition and results of operations could be adversely affected.
In addition, a number of RMBS trustees have received notices of default alleging material failures by servicers to comply with applicable servicing agreements. Although Ocwen has not yet been sued by an RMBS trustee in response to a notice of default, there is a risk that Ocwen could be replaced as servicer as a result of said notices, that the trustees could take legal action on behalf of the trust certificateholders, or, under certain circumstances, that the RMBS investors who issue notices of default could seek to press their allegations against Ocwen, independent of the trustees. At present, one such group of affiliated RMBS investors sought to direct one trustee to bring suit against Ocwen. The trustee declined to bring suit, and the RMBS investors instead brought suit against Ocwen directly. The court dismissed the RMBS investors’ suit without prejudice on October 4, 2017, and the RMBS investors subsequently filed an amended complaint. On January 23, 2018, the court dismissed the RMBS investors’ amended suit with prejudice. To the extent these RMBS investors attempt to refile their suit, Ocwen intends to defend itself vigorously. We are unable at this time to predict what, if any, actions any trustee will take in response to a notice of default, nor can we predict at this time the potential loss or range of loss, if any, associated with the resolution of any

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notices of default or the potential impact on our operations. If Ocwen were to be terminated as servicer, or other related legal actions were pursued against Ocwen, it could have an adverse effect on Ocwen’s business, financing activities, financial condition and results of operations.
We rely on an experienced senior management team, including our President and Chief Executive Officer, and the loss of the services of one or more of our senior officers could have a material adverse effect on us.
We do not have employment agreements with, or maintain key man life insurance relating to, our President and Chief Executive Officer, Ronald M. Faris, or any of our other executive officers. The loss of the services of Mr. Faris or any of our other senior officers could have a material adverse effect on us. We could also be harmed by legal actions brought by former senior officers after they have ceased employment with Ocwen.
An inability to attract and retain qualified personnel could harm our business, financial condition and results of operations.
Our future success also depends, in part, on our ability to identify, attract and retain highly skilled servicing, lending, finance, risk, compliance and technical personnel. We face intense competition for qualified individuals from numerous financial services and other companies, some of which have far greater resources and better reputations than we do. We may be unable to identify, attract and retain suitably qualified individuals, or we may be required to pay increased compensation in order to do so. If we were to be unable to attract and retain the qualified personnel we need to succeed, our business, financial condition and results of operations could suffer.
Our operations are vulnerable to disruptions resulting from severe weather events.
Our operations are vulnerable to disruptions resulting from severe weather events, including our operations in India, the United States Virgin Islands and Florida. As noted below, approximately 5,000, or 66%, of our employees as of December 31, 2017 are located in India. On more than one occasion during 2017, severe flooding caused disruptions to operations in our offices in India. During 2017, we also experienced weather-related disruptions to our operations in the Philippines. We remain vulnerable to future events of flooding and severe weather in both India and the Philippines. In addition, Ocwen Loan Servicing, LLC and Ocwen Mortgage Servicing, Inc. maintain their headquarters in St. Croix, in the United States Virgin Islands, where we also operate a call center. During 2017, two major hurricanes disrupted our operations in St. Croix for an extended period of time and we faced additional expense resulting from the evacuation of personnel and from property damage. In addition, weather-related damage in St. Croix has made living there more burdensome, which could negatively impact our ability to retain and attract qualified personnel. The occurrence of severe weather events in the future could have a significant adverse effect on Ocwen’s business and results of operations.
We are subject to, among other things, requirements regarding the effectiveness of our internal controls over financial reporting. If our internal controls over financial reporting are found to be inadequate, our financial condition and results of operations and the trading price of our common stock may be materially and adversely affected.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires us to evaluate and report on our internal control over financial reporting. As previously disclosed, in connection with the restatement of our consolidated financial statements for the year ended December 31, 2016, we identified a material weakness in internal control over financial reporting as a result of which we determined our disclosure controls and procedures were not effective. In response to changes implemented by management, and subsequent testing and evaluation, we consider this material weakness to be remediated and have concluded that these controls are operating effectively. However, we cannot be certain that any measures that we implement will ensure adequate controls over our financial processes and reporting in the future. Even if we conclude that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (GAAP), because of their inherent limitations, internal controls over financial reporting may not prevent or detect fraud or misstatements. Fraud or misstatement could adversely affect our financial condition and results of operations. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause us to fail to meet our reporting obligations. In addition, investors could lose confidence in our financial reports and the trading price of our common stock may be adversely affected if our internal controls over financial reporting are found by management or by our independent registered public accounting firm not to be adequate.
We have operations in India and the Philippines that could be adversely affected by changes in the political or economic stability of these countries or by government policies in India, the Philippines or the U.S.
Approximately 5,000, or 66%, of our employees as of December 31, 2017 are located in India. A significant change in India’s economic liberalization and deregulation policies could adversely affect business and economic conditions in India generally and our business in particular. The political or regulatory climate in the U.S. or elsewhere also could change so that it would not be lawful or practical for us to use international operations in the manner in which we currently use them. For example, changes in regulatory requirements could require us to curtail our use of lower-cost operations in India to service our

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businesses. If we had to curtail or cease our operations in India and transfer some or all of these operations to another geographic area, we could incur significant transition costs as well as higher future overhead costs that could materially and adversely affect our results of operations. 
We may need to increase the levels of our employee compensation more rapidly than in the past to retain talent in India. Unless we can continue to enhance the efficiency and productivity of our employees, wage increases in the long term may negatively impact our financial performance.
Political activity or other changes in the political or economic stability in India could affect our ability to operate our business effectively. For example, political protests in a city where we have Indian operations disrupted our Indian operations for a number of days during 2016. While this particular instance was resolved without any material consequences, any such future activity could adversely affect our business or operations.
Our operations in the Philippines are less substantial than our operations in India. However, they are still at risk of being affected by the same types of risks that affect our Indian operations. If they were to be so affected, our business could be materially and adversely affected.
There are a number of foreign laws and regulations that are applicable to our operations in India and the Philippines, including laws and regulations that govern licensing, employment, safety, taxes and insurance and laws and regulations that govern the creation, continuation and winding up of companies as well as the relationships between shareholders, our corporate entities, the public and the government in these countries. Non-compliance with the laws and regulations of India or the Philippines could result in (i) restrictions on our operations in these countries, (ii) fines, penalties or sanctions or (iii) reputational damage.
The industry in which we operate is highly competitive, and, to the extent we fail to meet these competitive challenges, it would have a material adverse effect on our business, financial position, results of operations or cash flows.
We operate in a highly competitive industry that could become even more competitive as a result of economic, legislative, regulatory or technological changes. Competition to service mortgage loans and for mortgage loan originations comes primarily from commercial banks and savings institutions and non-bank lenders and mortgage servicers. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources, and typically have access to greater financial resources and lower funding costs. All of these factors place us at a competitive disadvantage. Further, our competitors that are national banks may also benefit from a federal exemption from certain state regulatory requirements that is applicable to depository institutions. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of revenue generating options (e.g., originating types of loans that we choose not to originate) and establish more favorable relationships than we can. With the proliferation of smartphones and technological changes enabling improved payment systems and cheaper data storage, newer market participants, often called “disruptors,” are reinventing aspects of the financial industry and capturing profit pools previously enjoyed by existing market participants. As a result, the lending industry could become even more competitive if new market participants are successful in capturing market share from existing market participants such as ourselves. Competition to service residential loans may result in lower margins. Because of the relatively limited number of servicing clients, our failure to meet the expectations of any significant client could materially impact our business. Ocwen has suffered reputational damage as a result of our regulatory settlements and the associated scrutiny of our business. We believe this may have weakened our competitive position against both our bank and non-bank mortgage servicing competitors. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition or results of operations.
We originate and securitize reverse mortgages, which subjects us to risks that could have a material adverse effect on our business, reputation, liquidity, financial condition and results of operations.
We originate, securitize and service reverse mortgages although we have retained third parties to subservice the reverse mortgages. The reverse mortgage business is subject to substantial risks, including market, credit, interest rate, liquidity, operational, reputational and legal risks. Generally, a reverse mortgage is a loan available to seniors aged 62 or older that allows homeowners to borrow money against the value of their home. No repayment of the mortgage is required until a default event under the terms of the mortgage occurs, the borrower dies, the borrower moves out of the home or the home is sold. A decline in the demand for reverse mortgages may reduce the number of reverse mortgages we originate and adversely affect our ability to sell reverse mortgages in the secondary market. Although foreclosures involving reverse mortgages generally occur less frequently than forward mortgages, loan defaults on reverse mortgages leading to foreclosures may occur if borrowers fail to occupy the home as their primary residence, maintain their property or fail to pay taxes or home insurance premiums. A general increase in foreclosure rates may adversely impact how reverse mortgages are perceived by potential customers and thus reduce demand for reverse mortgages. Additionally, we could become subject to negative headline risk in the event that loan defaults on reverse mortgages lead to foreclosures or evictions of the elderly. The HUD HECM reverse mortgage program has received scrutiny for failing to afford the surviving spouse of the deceased borrower an opportunity to remain in the home

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following death of the borrower, if the surviving spouse is not a party to the note or mortgage. HUD has implemented rules which permit the surviving spouse to remain in the home under certain circumstances, and which allow the lender to assign the due-and-payable loan to HUD; however, scrutiny around these issues continues. Finally, with the recent program changes implemented by HUD, the industry could experience a reduction in new reverse mortgage loans. All of the above factors could have a material adverse effect on our business, reputation, liquidity, financial condition and results of operations.
If we are unable to fund our tail commitments or securitize our HECM loans (including tails), this could have a material adverse effect on our business, financial condition, liquidity and results of operations.
We have originated and continue to service HECM loans under which the borrower has additional undrawn borrowing capacity in the form of undrawn lines of credit. We are obligated to fund future borrowings drawn on that capacity. As of December 31, 2017, our commitment to fund additional borrowing capacity was $1.4 billion. In addition, we are required to pay mortgage insurance premiums on behalf of HECM borrowers. We normally fund these obligations on a short-term basis using our cash resources, and from time to time securitize these amounts (along with our servicing fees) through the issuance of tails. If our cash resources are insufficient to fund these amounts and we are unable to fund them through the securitization of such tails, this could have a material adverse effect on our business, financial condition, liquidity and results of operations.
Reinsuring risk through our captive reinsurance entity could adversely impact our results of operation and financial condition.
In 2015, we formed a wholly-owned captive reinsurance entity, CR Limited (CRL), and signed a quota share re-insurance agreement with a third-party insurer related to coverage on foreclosed real estate properties serviced by us. To comply with certain state insurance regulatory requirements, cash and cash equivalents must be held by CRL as capital investments and dividends are restricted, as certain amounts must be retained to satisfy actual and potential claims. Notwithstanding CRL’s catastrophic reinsurance coverage, and that CRL maintained profitability through an intense 2017 hurricane season, the occurrence of losses from a severe catastrophe or series of catastrophes, particularly in areas where a significant portion of the properties securing the mortgage loans that we service are located, could result in claims that substantially exceed CRL’s expectations, which could adversely impact our results of operation and financial condition.
A significant portion of our business is in the states of California, Florida, Texas, New York and Illinois, and our business may be significantly harmed by a slowdown in the economy or the occurrence of a natural disaster in those states.
A significant portion of the mortgage loans that we service and originate are secured by properties in California, Florida, Texas, New York and Illinois. Any adverse economic conditions in these markets, including a downturn in real estate values, will likely increase our obligations to advance delinquent principal and interest and to make advances for delinquent taxes and insurance and foreclosure costs and the upkeep of vacant property in foreclosure to the extent that we determine that such amounts are recoverable. We could also be adversely affected by business disruptions triggered by natural disasters or acts or war or terrorism in these geographic areas.
We may incur litigation costs and related losses if the validity of a foreclosure action is challenged by a borrower or if a court overturns a foreclosure.
We may incur costs if we are required to, or if we elect to, execute or re-file documents or take other action in our capacity as a servicer in connection with pending or completed foreclosures. We may incur litigation costs if the validity of a foreclosure action is challenged by a borrower. If a court were to overturn a foreclosure because of errors or deficiencies in the foreclosure process, we may have liability to a title insurer of the property sold in foreclosure. These costs and liabilities may not be legally or otherwise reimbursable to us, particularly to the extent they relate to securitized mortgage loans. In addition, if certain documents required for a foreclosure action are missing or defective, we could be obligated to cure the defect or repurchase the loan. A significant increase in litigation costs could adversely affect our liquidity, and our inability to be reimbursed for servicing advances could adversely affect our business, financial condition or results of operations.
Our earnings may be subject to volatility.
Our operating results have been and may in the future be significantly affected by inter-period variations in our results of operations, including variations due to expense fluctuations, sales or acquisitions of MSRs or changes in the value of MSRs due to, among other factors, increases or decreases in prepayment speeds, delinquencies or defaults.
Certain non-recurring gains and losses have significantly affected our operating results in the past, and non-recurring gains and losses may affect our operating results in future periods, resulting in substantial inter-period variations in financial performance. For example, we recognized significant gains from our sales of Agency MSRs during 2015 while similar gains in 2016 were much less significant.

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We use estimates in determining the fair value of certain assets and liabilities. If our estimates prove to be incorrect, we may be required to write down the value of these assets or write up the value of these liabilities, which could adversely affect our earnings.
Our ability to measure and report our financial position and operating results is influenced by the need to estimate the impact or outcome of future events based on information available at the time of the financial statements. An accounting estimate is considered critical if it requires that management make assumptions about matters that were highly uncertain at the time the accounting estimate was made. If actual results differ from our judgments and assumptions, then it may have an adverse impact on the results of operations and cash flows.
Fair value is estimated based on a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs to valuation techniques into three broad levels whereby the highest priority is given to Level 1 inputs and the lowest to Level 3 inputs.
Because of acquisitions, dispositions and our ongoing and potential future business activities, the number and complexity of estimates we use in determining fair value has increased. At December 31, 2017, 69% and 65% of our consolidated total assets and liabilities are measured at fair value, respectively, on a recurring and nonrecurring basis, 96% and 100% of which are considered Level 3 valuations. Our largest Level 3 asset and liability carried at fair value on a recurring basis is Loans held for investment - reverse mortgages and the related secured financing. We pool home equity conversion mortgages (reverse mortgages) into Ginnie Mae Home Equity Conversion Mortgage-Backed Securities (HMBS). Because the transfers of reverse mortgages do not qualify for sale accounting, we account for these transfers as secured financings and classify the transferred reverse mortgages as Loans held for investment - reverse mortgages and recognize the related Financing liabilities. Holders of HMBS have no recourse against our assets, except for standard representations and warranties and our contractual obligations to service the reverse mortgages and HMBS.
We estimate the fair value of our assets and liabilities utilizing assumptions that we believe are appropriate and are used by market participants. The methodology used to estimate these values is complex and uses asset- and liability-specific data and market inputs for assumptions including interest and discount rates, collateral status and expected future performance and liquidity dates. If these assumptions prove to be inaccurate, if market conditions change or if errors are found in our models, the value of certain of our assets may decrease, which could adversely affect our business, financial condition and results of operations, including through negative impacts on our ability to satisfy minimum net worth and liquidity covenants.
Valuations are highly dependent upon the reasonableness of our assumptions and the predictability of the relationships that drive the results of our valuation methodologies. If prepayment speeds increase more than estimated, delinquency and default levels are higher than anticipated or financial market illiquidity is greater than anticipated, we may be required to adjust the value of certain assets, which could adversely affect our business, financial condition and results of operations.
Our hedging strategies may not be successful in mitigating our exposure to interest rate risk.
As of December 31, 2017, we had no interest rate swaps in place to hedge our exposure to variable interest rates under our match funded advance financing facilities, but we have interest rate caps in place that limits our exposure to increases in interest rates on our three facilities. If we acquire additional servicing or subservicing rights in the future, there is no assurance that we will be able to obtain the fixed rate financing that would be necessary to protect us from the effect of rising interest rates. Therefore, we may consider utilizing various derivative financial instruments to protect against the effects of rising rates. In addition, we may use interest rate swaps, U.S. Treasury futures, forward contracts and other derivative instruments to hedge our interest rate exposure on loans and MSRs measured at fair value. We currently have no economic hedge positions open to hedge our fair value MSRs. We have entered into forward mortgage backed securities trades to hedge our mortgage loans held for sale at fair value and to hedge interest rate lock commitments (IRLCs) on loans that we have agreed to originate at a specified fixed or variable rate.
Nevertheless, no hedging strategy can completely protect us. The derivative financial instruments that we select may not have the effect of reducing our interest rate risks. Poorly designed strategies, improperly executed and documented transactions or inaccurate assumptions could increase our risks and losses. In addition, hedging strategies involve transaction and other costs. We cannot be assured that our hedging strategies and the derivatives that we use will adequately offset the risks of interest rate volatility or that our hedging transactions will not result in or magnify losses.

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We are exposed to market risk, credit risk, liquidity risk, reputational risk, operational risk and foreign currency exchange risk.
We are exposed to liquidity risk primarily because of the highly variable daily cash requirements to support our servicing business including the requirement to make advances pursuant to servicing contracts and the process of remitting borrower payments to the custodial accounts. We are also exposed to liquidity risk by our decision to originate and finance mortgage loans and sell mortgage loans into the secondary market. In general, we finance our operations through operating cash flows and various other sources of funding, including match funded borrowing agreements, secured lines of credit and repurchase agreements. We believe that we will have adequate financing for the next twelve months.
We are exposed to interest rate risk to the degree that our interest-bearing liabilities mature or reprice at different speeds, or on different bases, than our interest earning assets or when financed assets are not interest-bearing. Our servicing business is characterized by non-interest earning assets financed by interest-bearing liabilities. Among the more significant non-interest earning assets are servicing advances and MSRs. At December 31, 2017, we had total advances and match funded advances of $1.4 billion. We are also exposed to interest rate risk because a portion of our advance financing and other outstanding debt at December 31, 2017 is variable rate. Rising interest rates may increase our interest expense. Earnings on float balances partially offset this variability. At December 31, 2017, we had no interest rate swaps in place to hedge our exposure to rising interest rates, but we have interest rate caps in place as required by certain of our advance financing arrangements.
The MSRs that we carry at fair value are subject to substantial interest rate risk as the mortgage notes underlying the servicing rights permit the borrowers to prepay the loans. We may enter into economic hedges (derivatives that do not qualify as hedges for accounting purposes) including interest rate swaps, U.S. Treasury futures and forward contracts to minimize the effects of loss in value of these MSRs associated with increased prepayment activity that generally results from declining interest rates. We currently have no economic hedges in place to minimize the effects on our MSRs carried at fair value of increased prepayment activity in the event of declining interest rates.
In our lending business, we are subject to interest rate and price risk on mortgage loans held for sale from the loan funding date until the date the loan is sold into the secondary market. Generally, the fair value of a loan will decline in value when interest rates increase and will rise in value when interest rates decrease. To mitigate this risk, we enter into forward mortgage-backed securities trades to provide an economic hedge against those changes in fair value on mortgage loans held for sale. IRLCs represent an agreement to purchase loans from a third-party originator or an agreement to extend credit to a mortgage applicant, whereby the interest rate is set prior to funding. As such, outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of the commitment through the loan funding date or expiration date. Our interest rate exposure on these derivative loan commitments is hedged with freestanding derivatives such as forward contracts. We also enter into forward contracts with respect to fixed or variable rate loan commitments.
We are exposed to foreign currency exchange rate risk in connection with our investment in non-U.S. dollar functional currency operations to the extent that our foreign exchange positions remain unhedged. Our operations in the Philippines and India expose us to foreign currency exchange rate risk, but we consider this risk to be insignificant.
We have established policies and procedures intended to identify, monitor and manage the risks described above and other risks to which we are subject. See Item 7 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - Risk Management, below. However, we cannot guarantee that our risk management policies and procedures will be effective, and to the extent they are not, our business, financial condition, and results of operations could be adversely affected.
Pursuit of business or asset acquisitions exposes us to financial, execution and operational risks that could adversely affect us.
This risk factor discusses certain general risks raised by acquisitions. See “- Risks Relating to the Pending Acquisition of PHH” below for a discussion of certain specific risks relating to our pending acquisition of PHH.
We may in the future look for opportunities to grow our business through acquisitions of businesses and assets. The performance of the businesses and assets we acquire through acquisitions may not match the historical performance of our other assets. Nor can we assure you that the businesses and assets we may acquire will perform at levels meeting our expectations. We may find that we overpaid for the acquired business or assets or that the economic conditions underlying our acquisition decision have changed. For example, in 2014, we recognized an impairment loss of the full carrying value of goodwill totaling $420.2 million, which was primarily associated with certain large acquisitions in prior years. It may also take several quarters or longer for us to fully integrate newly acquired business and assets into our business, during which period our results of operations and financial condition may be negatively affected. Further, certain one-time expenses associated with such acquisitions may have a negative impact on our results of operations and financial condition. We cannot assure you that acquisitions will not adversely affect our results of operations and financial condition.

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The risks associated with acquisitions include, among others:
unanticipated issues in integrating servicing, information, communications and other systems;
unanticipated incompatibility in servicing, lending, purchasing, logistics, marketing and administration methods;
not retaining key employees; and
the diversion of management’s attention from ongoing business concerns.
The integration process can be complicated and time consuming and could potentially be disruptive to borrowers of loans serviced by the acquired business. If the integration process is not conducted successfully and with minimal effect on the acquired business and its borrowers, we may not realize the anticipated economic benefits of particular acquisitions within our expected timeframe, or we could lose subservicing business or employees of the acquired business. Through acquisitions, we may enter into business lines in which we have not previously operated. Such acquisitions could require additional integration costs and efforts, including significant time from senior management. We may not be able to achieve the synergies we anticipate from acquired businesses, and we may not be able to grow acquired businesses in the manner we anticipate. In fact, the businesses we acquire could decrease in size, even if the integration process is successful.
Further, prices at which acquisitions can be made fluctuate with market conditions. We have experienced times during which acquisitions could not be made in specific markets at prices that we considered to be acceptable, and we expect that we will experience this condition in the future. In addition, to finance an acquisition, we may borrow funds, thereby increasing our leverage and diminishing our liquidity, or we could raise additional equity capital, which could dilute the interests of our existing shareholders.
The timing of closing of our acquisitions is often uncertain. We have in the past and may in the future experience delays in closing our acquisitions, or certain tranches of them. For example, we and the applicable seller are often required to obtain certain contractual and regulatory consents as a prerequisite to closing, such as the consents of Fannie Mae or Freddie Mac, the FHFA and trustees to RMBS securitization trusts. Accordingly, even if we and the applicable seller are efficient and proactive, the actions of third parties can impact the timing under which such consents are obtained. We and the applicable seller may not be able to obtain all the required consents, which may mean that we are unable to acquire all the assets that we wish to acquire. Regulators may have questions relating to aspects of our acquisitions and we may be required to devote time and resources responding to those questions. It is also possible that we will expend considerable resources in the pursuit of an acquisition that, ultimately, either does not close or is terminated. Our regulatory settlements have significantly impacted our ability to grow our servicing portfolio through acquisitions because we agreed to certain restrictions that effectively prohibited future acquisitions of servicing. It is possible that additional restrictions may result from our resolutions with the remaining regulatory agencies and state attorneys general. If we are unable to satisfy the conditions of our existing regulatory settlements or if a future regulatory settlement restricts our ability to acquire MSRs, our business could be materially and adversely affected.
Risks Relating to the Pending Acquisition of PHH
We may fail to consummate the Merger, and uncertainties related to the consummation of the Merger may have a material adverse effect on our business, financial condition and results of operations and negatively impact the price of our common stock.
On February 27, 2018, we entered into the Merger Agreement, pursuant to which PHH will become a wholly owned subsidiary of Ocwen. The Merger is subject to the satisfaction of a number of conditions beyond our control, including regulatory approvals and other customary closing conditions. There is no assurance that the Merger will occur on the terms and timeline currently contemplated or at all. The conditions to the Merger could prevent or delay the completion of the Merger. In addition, the efforts to satisfy the closing conditions of the Merger, including the regulatory approval process, may place a significant burden on management and internal resources, and the Merger and related transactions, whether or not consummated, may result in a diversion of management’s attention from day-to-day operations and a disruption of our operations. Any significant diversion of management attention away from ongoing business and any difficulties encountered in the Merger process could have a material adverse effect on our business, financial condition and results of operations.
The Merger Agreement also contains certain customary termination rights, including the right for each of Ocwen and PHH to terminate the Merger Agreement if, among other things, the Merger is not consummated by September 27, 2018 (or, in certain circumstances, December 27, 2018) or in the event of an uncured material breach of any representation, warranty, covenant or agreement such that the conditions to closing would not be satisfied. If the proposed Merger is not completed or the Merger Agreement is terminated, the price of our common stock may decline, including to the extent that the current market price of our common stock reflects an assumption that the Merger will be consummated without unexpected delays, which could have a material adverse effect on our business, financial condition and results of operations.
Required regulatory approvals may not be received, may take longer to receive than expected or may impose conditions or restrictions that have an adverse impact on our business or cannot be met.

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Before the Merger can be completed, various regulatory entities with authority over Ocwen and/or PHH must grant their approval of the Merger. In determining whether to grant these approvals, the regulators consider a variety of factors, including the regulatory standing of the parties to the Merger Agreement. Poor regulatory standing or an adverse development in such standing or other factors could result in an inability to obtain these approvals or delay their receipt. In connection with granting approval for the Merger, regulators may also impose conditions or restrictions that cannot be met or may have the effect of imposing additional costs on or limiting the revenues of Ocwen following completion of the Merger, or otherwise reducing the anticipated benefits to Ocwen of the Merger. Although the Merger Agreement does not require Ocwen to agree to any such condition or restriction if it would constitute a Burdensome Condition (as defined in the Merger Agreement), any such condition or restriction could have an adverse impact on our business even if such condition does not rise to the level of a Burdensome Condition. In addition, such conditions or restrictions may result in the delay or abandonment of the Merger.
We may not successfully integrate the businesses of Ocwen and PHH.
Achieving the anticipated benefits of the Merger will depend in part upon whether we are able to integrate the businesses of PHH in an effective and efficient manner. We may not be able to accomplish this integration process successfully or realize the expected synergies as planned. The integration of businesses is complex and time-consuming. The difficulties that could be encountered include the following:
maintaining subservicing and other business relationships;
integrating personnel, operations and systems, including integration of information technology systems and our planned transition to the LoanSphere MSP servicing system;
coordinating geographically dispersed organizations;
distraction of management and employees from operations and strategic initiatives;
changes or conflicts in corporate culture;
management’s inability to manage a substantial increase in the number of employees;
management’s inability to train and integrate personnel;
retaining existing customers and attracting new customers;
retaining existing employees and attracting new employees; and
inefficiencies associated with the integration and management of the operations of the two companies.
In addition, there have been and will continue to be integration costs and non-recurring transaction costs (such as fees paid to legal, financial, accounting and other advisors and other fees paid in connection with the Merger) associated with the Merger, including costs associated with combining operations and achieving the expected synergies as planned, and such costs may be significant.
An inability to realize the full extent of the anticipated benefits of the Merger, including estimated cost synergies, as well as any delays encountered in the integration process and realizing such benefits, could have an adverse effect upon our revenues, level of expenses and operating results, which may materially adversely affect the value of our shares of common stock.
Uncertainties associated with the Merger may cause a loss of employees or customers and may otherwise affect the future business and operations of Ocwen and the combined company
Uncertainty about the effect of the Merger on employees and customers may have an adverse effect on Ocwen following the Merger. These uncertainties may impair our ability to retain and motivate key personnel and could also cause our servicing clients, suppliers, licensees, partners and other business partners to defer entering into contracts with, making other decisions concerning, or seeking to change existing business relationships with Ocwen. Because Ocwen depends on the experience and industry knowledge of its executives and other key personnel to execute their business plans, we may be unable to meet our strategic objectives.
Certain PHH agreements may contain change of control provisions triggered by the Merger that, if acted upon or not waived, could cause Ocwen to lose the benefit of such agreement and incur liabilities or replacement costs, which could have a material adverse effect on Ocwen.
PHH and its subsidiaries are party to various agreements with third parties, including certain leases, vendor contracts, servicing agreements, subservicing agreements, contracts for the performance of services material to the operations of PHH and/or subsidiaries, IT contracts, and employment agreements that may contain change of control provisions triggered upon the announcement and/or closing of the Merger. Agreements with change of control provisions typically provide for or permit the termination of the agreement upon the occurrence of a change of control of one of the parties which can be waived by the relevant counterparties. In the event that there is such a contract or arrangement requiring a consent or waiver in relation to the Merger for which such consent or waiver was not obtained, Ocwen could lose the benefit of the underlying agreement and incur liabilities or replacement costs, which could have an adverse effect on Ocwen.

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Ocwen will incur significant additional indebtedness in connection with the Merger, which may decrease our business flexibility and increase our interest expense.
Upon the completion of the Merger, Ocwen will assume (at the subsidiary level) PHH’s outstanding senior unsecured notes in the aggregate principal amount of approximately $119.0 million, representing approximately $97.0 million of PHH’s 7.375% Senior Notes Due 2019 and approximately $22.0 million of PHH’s 6.375% Senior Notes Due 2021. The increase in our aggregate indebtedness as a result of the assumption of these notes could have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions.
Ocwen will assume all of PHH’s liabilities upon completion of the Merger, which could have a material adverse effect on Ocwen’s business, financial condition, or results of operation, or could otherwise reduce the anticipated benefits to Ocwen of the Merger.
Upon completion of the Merger, Ocwen will assume all of PHH’s liabilities by operation of law. These liabilities will likely involve multiple legal and regulatory proceedings, government investigations and inquiries. PHH also has indemnification obligations to third parties for losses, including obligations that PHH has agreed to pursuant to recent sales of various of its businesses and assets. It is inherently difficult to predict the outcome of pending litigation and regulatory matters, particularly when matters are in their early stages or where the claimants seek indeterminate damages. Neither Ocwen nor PHH can state with certainty what the eventual outcome of pending matters will be, what the timing of the ultimate resolution of these matters will be, or what the eventual loss, fines, or penalties related to each pending matter will be, if any. The actual results of resolving litigation matters may be substantially higher than the amounts reserved, and judgments may be rendered, or fines or penalties assessed, in matters for which PHH has no reserves. Adverse judgments, fines or penalties in one or more of PHH’s litigation matters could have a material adverse effect on Ocwen’s business, financial condition, or results of operations following completion of the Merger, or could otherwise reduce the anticipated benefits to Ocwen of the Merger.
Risks Relating to Tax Matters
Failure to retain the tax benefits provided by the United States Virgin Islands would adversely affect our financial condition and results of operations.
OMS is incorporated and headquartered in the USVI. The USVI has an Economic Development Commission (EDC) that provides benefits (EDC Benefits) to certain qualified businesses that enable us to avail ourselves of significant tax benefits for a 30-year period. OMS received its certificate to operate as a company qualified for EDC Benefits as of October 1, 2012. It is possible that we may not be able to retain our qualifications for the EDC Benefits, or that changes in U.S. federal, state, local, territorial or USVI taxation statutes or applicable regulations may cause a reduction in or an elimination of the EDC Benefits, all of which could result in a significant increase to our tax expense, and, therefore, adversely affect our financial condition and results of operations. Additionally, if the USVI were to undergo a financial restructuring, it is possible that the EDC Benefits could be adversely impacted as a part of any such restructuring.
We may be subject to increased United States federal income taxation.
OMS is incorporated under the laws of the USVI and intends to operate in a manner that will cause a substantial amount of its net income to be treated as not related to a trade or business within the United States, which will cause such income to be exempt from current United States federal income taxation. However, because there are no definitive standards provided by the Internal Revenue Code (the Code), regulations or court decisions as to the specific activities that constitute being engaged in the conduct of a trade or business within the United States, and as any such determination is essentially factual in nature, we cannot assure you that the IRS will not successfully assert that OMS is engaged in a trade or business within the United States with respect to that income.
If the IRS were to successfully assert that OMS has been engaged in a trade or business within the United States with respect to that income in any taxable year, it may become subject to current United States federal income taxation on such income. In addition, changes in the Code, state statutes, regulations or court decisions relevant to the various aspects of our business such as various international tax reform proposals being considered by Congress could increase our tax expense.
The recently enacted comprehensive tax reform legislation could adversely affect our business and financial condition.
On December 22, 2017, President Trump signed into law new legislation that significantly revises the Internal Revenue Code of 1986, as amended. The newly enacted federal income tax law, among other things, contains significant changes to corporate taxation, including reduction of the corporate tax rate from a top marginal rate of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense and net operating loss carryforwards, one time taxation of offshore earnings at reduced rates regardless of whether they are repatriated, elimination of U.S. tax on foreign earnings (subject to certain important exceptions), immediate deductions for certain new investments instead of deductions for depreciation expense over time, and modifying or repealing many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain and our business and financial condition could be adversely affected.

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In addition, it is uncertain if and to what extent various states will conform to the newly enacted federal tax law. The impact of this tax reform on holders of our common stock is also uncertain and could be adverse.
Changes in taxation and the ability to quantify such changes could adversely affect Ocwen’s financial results.
Ocwen is subject to taxation by the various taxing authorities at the Federal, state and local levels where it does business, both in the U.S. and outside the U.S. Legislation or regulation, which could affect Ocwen’s tax burden, could be enacted by any of these governmental authorities. Ocwen cannot predict the timing or extent of such tax-related developments, which could have a negative impact on the financial results.
Any “ownership change” as defined in Section 382 of the Internal Revenue Code could substantially limit our ability to utilize our net operating losses carryforwards. 
As of December 31, 2017, the Ocwen had net operating loss (NOL) carryforwards of approximately $399.1 million, which we estimate to be worth approximately $59.0 million to Ocwen under our present assumptions related to Ocwen’s various relevant jurisdictional tax rates as a result of recently passed tax legislation (which assumptions reflect a significant degree of uncertainty). NOL carryforwards and certain built-in losses or deductions may be subject to annual limitations under Internal Revenue Code Section 382 (Section 382) (or comparable provisions of foreign or state law) in the event that certain changes in ownership were to occur as measured under Section 382. We periodically evaluate whether certain changes in ownership have occurred as measured under Section 382 that would limit our ability to utilize our NOL carryforwards. If it is determined that an ownership change(s) has occurred, there may be annual limitations on the use of these NOL carryforwards and certain built-in losses or deductions under Section 382 (or comparable provisions of foreign or state law). We are currently in the process of evaluating whether we experienced an ownership change as measured under Section 382, and during 2017 identified risk that an ownership change may have occurred in the U.S. jurisdiction, which would also result in an ownership change under Section 382 in the USVI jurisdiction. As part of this evaluation, Ocwen is seeking additional information pertaining to certain identified 5% shareholders, and their economic ownership for Section 382 purposes. We are also monitoring changes in the stock ownership of other identified 5% shareholders that could cause a subsequent ownership change to occur. To the extent an ownership change(s) is ultimately determined to have occurred, the annual utilization of our NOLs will be subject to certain limitations under Section 382 and other limitations under state tax laws. As a result, a significant portion of our pre-ownership change NOL carryforwards and any future recognized built-in losses or deductions could expire before we would be able to use them. Our inability to utilize our pre-ownership change NOL carryforwards and any future recognized built-in losses or deductions could have an adverse effect on our financial condition, results of operations and cash flows.
Risks Relating to Ownership of Our Common Stock
Our common stock price experiences substantial volatility and has dropped significantly on a number of occasions in recent periods, which may affect your ability to sell our common stock at an advantageous price. 
The market price of our shares of common stock has been and may continue to be volatile. For example, the closing market price of our common stock on the New York Stock Exchange fluctuated during 2017 between $2.23 per share and $5.94 per share and the closing stock price on February 23, 2018 was $3.42 per share. Therefore, the volatility and recent decline in our stock price may affect your ability to sell our common stock at an advantageous price. Market price fluctuations in our common stock may be due to factors both within and outside our control, including regulatory action, acquisitions, dispositions or other material public announcements or speculative trading in our stock (e.g., traders “shorting” our common stock), as well as a variety of other factors including those set forth under “Risk Factors” and “Forward-Looking Statements.”
In addition, the stock markets in general, including the New York Stock Exchange, have, at times, experienced extreme price and trading fluctuations. These fluctuations have resulted in volatility in the market prices of securities that often has been unrelated or disproportionate to changes in operating performance. These broad market fluctuations may adversely affect the market prices of our common stock. 
Further, when the market price of a company's ordinary shares drops significantly, shareholders often institute securities class action lawsuits against the company. A lawsuit against us, even if unsuccessful, could cause us to incur substantial costs and could divert the time and attention of our management and other resources.
We have several large shareholders, and such shareholders may vote their shares to influence matters requiring shareholder approval.
Based on SEC filings, certain shareholders, such as investors Leon G. Cooperman and D. John Devaney and our former Executive Chairman, William C. Erbey, own or control significant amounts of our common stock. Following his 2015 retirement from Ocwen, Mr. Erbey has no directorial, management, oversight, consulting, or any other role at Ocwen, and he has recently significantly reduced his holdings to less than 10% of our outstanding shares. These and our other large shareholders will each have the ability to vote a meaningful percentage of our outstanding common stock on all matters put to a

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vote of our shareholders. As a result, these shareholders could influence matters requiring shareholder approval, including the amendment of our articles of incorporation, the approval of mergers or similar transactions and the election of directors.
Our board of directors may authorize the issuance of additional securities that may cause dilution and may depress the price of our securities.
Our charter permits our board of directors, without our stockholders’ approval, to:
authorize the issuance of additional common stock or preferred stock in connection with future equity offerings or acquisitions of securities or other assets of companies; and
classify or reclassify any unissued common stock or preferred stock and to set the preferences, rights and other terms of the classified or reclassified shares, including the issuance of shares of preferred stock that have preference rights over the common stock and existing preferred stock with respect to dividends, liquidation, voting and other matters or shares of common stock that have preference rights over common stock with respect to voting.
The issuance of additional shares of our securities could be substantially dilutive to our existing stockholders and may depress the price of our securities.
Future offerings of debt securities, which would be senior to our common stock in liquidation, or equity securities, which would dilute our existing stockholders’ interests and may be senior to our common stock in liquidation or for the purposes of distributions, may harm the market price of our securities.
We will continue to seek to access the capital markets from time to time and may make additional offerings of debt or equity securities, including commercial paper, medium-term notes, senior or subordinated notes, preferred stock or common stock. We are not precluded by the terms of our charter from issuing additional indebtedness. Accordingly, we could become more highly leveraged, resulting in an increase in debt service obligations that could harm our ability to make expected distributions to stockholders and in an increased risk of default on our obligations. If we were to liquidate, holders of our debt and lenders with respect to other borrowings would receive a distribution of our available assets before the holders of our common stock. Additional equity offerings by us may dilute our existing stockholders’ interest in us or reduce the market price of our existing securities. Because our decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Further, conditions could require that we accept less favorable terms for the issuance of our securities in the future. Thus, our existing stockholders will bear the risk of our future offerings reducing the market price of our securities and diluting their ownership interest in us.
We will also assume (at the subsidiary level) certain additional debt securities upon the closing of pending acquisition of PHH, in the form of PHH’s outstanding senior unsecured notes. The aggregate principal amount of these notes is approximately $119.0 million, representing approximately $97.0 million of PHH’s 7.375% Senior Notes Due 2019 and approximately $22.0 million of PHH’s 6.375% Senior Notes Due 2021. See “- Risks Relating to the Pending Acquisition of PHH” above for more information.
Because of certain provisions in our organizational documents and regulatory restrictions, takeovers may be more difficult, possibly preventing you from obtaining an optimal share price. 
Our amended and restated articles of incorporation provide that the total number of shares of all classes of capital stock that we have authority to issue is 220 million, of which 200 million are common shares and 20 million are preferred shares. Our Board of Directors has the authority, without a vote of the shareholders, to establish the preferences and rights of any preferred or other class or series of shares to be issued and to issue such shares. The issuance of preferred shares could delay or prevent a change in control. Since our Board of Directors has the power to establish the preferences and rights of the preferred shares without a shareholder vote, our Board of Directors may give the holders of preferred shares preferences, powers and rights, including voting rights, senior to the rights of holders of our common shares. In addition, certain regulators require information reporting from significant shareholders of mortgage servicers and could, as a practical matter, delay or prevent a change in control based on their view of the impact of any such transaction.
ITEM 1B. 
UNRESOLVED STAFF COMMENTS
None.

44



ITEM 2.
PROPERTIES
The following table sets forth information relating to our principal facilities at December 31, 2017:
Location
 
Owned/Leased
 
Square Footage
Principal executive offices
 
 
 
 
West Palm Beach, Florida
 
Leased
 
51,546

St. Croix, U.S. Virgin Islands
 
Leased
 
7,231

 
 
 
 
 
Document storage and imaging facility
 
 
 
 
West Palm Beach, Florida
 
Leased
 
51,931

 
 
 
 
 
Business operations and support offices
 
 
 
 
U.S. facilities:
 
 
 
 
Waterloo, Iowa (1) (2)
 
Owned
 
154,980

Addison, Texas (3)
 
Leased
 
137,992

Fort Washington, Pennsylvania (1)
 
Leased
 
77,026

McDonough, Georgia (4)
 
Leased
 
62,000

Rancho Cordova, California (5)
 
Leased
 
53,107

Houston, Texas (1) (6)
 
Leased
 
18,822

St. Croix, U.S. Virgin Islands (7)
 
Leased
 
6,096

 
 
 
 
 
Offshore facilities (1)
 
 
 
 
Bangalore, India
 
Leased
 
167,826

Mumbai, India
 
Leased
 
155,368

Pune, India
 
Leased
 
88,683

Manila, Philippines
 
Leased
 
39,329

(1)
Primarily supports Servicing operations.
(2)
We ceased using approximately one-half of our facility in Waterloo, Iowa following a reduction in workforce during 2015. We acquired this facility in connection with our acquisition of Residential Capital, LLC (ResCap) in 2013.
(3)
We assumed this lease in connection with our acquisition of Homeward in 2012. We ceased using the facility in 2013 and subleased a portion of the space until 2015. In 2016, the lease of our facility in Coppell, Texas expired and we relocated employees to this facility.
(4)
We ceased using this facility in 2012 and subleased a portion of the space through the lease expiration date in 2018.
(5)
Primarily supports Lending operations.
(6)
We partially terminated the lease for this facility during 2017 and entered into a sublease agreement for a portion of the space. The lease of the existing facility will expire in 2019.
(7)
This facility primarily operates as a call center.
In addition to the facilities listed in the table above, we also lease other small facilities in Glendale, California; Orlando, Florida; Scottsdale, Arizona; Irvine, California; Atlanta, Georgia and Winston Salem, North Carolina.
ITEM 3.
LEGAL PROCEEDINGS
See Note 24 — Contingencies to the Consolidated Financial Statements. That information is incorporated into this item by reference.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.

45



PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Price Range of Our Common Stock
The common stock of Ocwen Financial Corporation is traded under the symbol “OCN” on the New York Stock Exchange (NYSE). The following table sets forth the high and low sales prices for our common stock:
 
High
 
Low
2017
 

 
 

First quarter
$
5.98

 
$
4.06

Second quarter
5.69

 
2.12

Third quarter
3.59

 
2.65

Fourth quarter
4.13

 
2.95

 
 
 
 
2016
 

 
 

First quarter
$
7.47

 
$
2.05

Second quarter
2.92

 
1.44

Third quarter
3.75

 
1.29

Fourth quarter
6.15

 
3.48

The closing sales price of our common stock on February 23, 2018 was $3.42.
We have never declared or paid cash dividends on our common stock. We currently do not intend to pay cash dividends in the foreseeable future but intend to reinvest earnings in our business. The timing and amount of any future dividends will be determined by our Board of Directors and will depend, among other factors, upon our earnings, financial condition, cash requirements, the capital requirements of subsidiaries and investment opportunities at the time any such payment is considered. In addition, the covenants relating to certain of our borrowings contain limitations on our payment of dividends. Our Board of Directors has no obligation to declare dividends on our common stock under Florida law or our amended and restated articles of incorporation.

46



The following graph compares the cumulative total return on the common stock of Ocwen Financial Corporation since December 31, 2012, with the cumulative total return on the stocks included in Standard & Poor’s 500 Market Index and Standard & Poor’s Diversified Financials Market Index.
Total Return Performance
http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12093870&doc=15

 
 
Period Ending
Index
 
12/31/2012
 
12/31/2013
 
12/31/2014
 
12/31/2015
 
12/31/2016
 
12/31/2017
Ocwen Financial Corporation
 
100.00

 
160.31

 
43.65

 
20.15

 
15.58

 
16.54

S&P 500
 
100.00

 
129.60

 
144.36

 
143.31

 
156.98

 
187.47

S&P 500 Diversified Financials
 
100.00

 
139.41

 
160.55

 
144.07

 
171.20

 
211.13

(1)
Copyright © 2017 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. S&P 500® and S&P® are registered trademarks of Standard & Poor's Financial Services LLC, a division of S&P Global ("S&P"); DOW JONES is a registered trademark of Dow Jones Trademark Holdings LLC ("Dow Jones"); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC. S&P Dow Jones Indices LLC, Dow Jones, S&P and their respective affiliates ("S&P Dow Jones Indices") makes no representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and S&P Dow Jones Indices and its third-party licensors shall have no liability for any errors, omissions, or interruptions of any index or the data included therein. All data and information is provided by S&P DJI "as is". Past performance is not an indication or guarantee of future results.
Number of Holders of Common Stock
On February 23, 2018, 133,359,058 shares of our common stock were outstanding and held by approximately 89 holders of record. Such number of stockholders does not reflect the number of individuals or institutional investors holding our stock in nominee name through banks, brokerage firms and others.
Unregistered Sales of Equity Securities and Use of Proceeds
All unregistered sales of equity securities have been previously reported.
Purchases of Equity Securities by the Issuer and Affiliates
There were no repurchases of our common stock during the fourth quarter of the year ended December 31, 2017.

47



ITEM 6.
SELECTED FINANCIAL DATA (Dollars in thousands, except per share data and unless otherwise indicated)
The selected historical consolidated financial information set forth below should be read in conjunction with Business, Management’s Discussion and Analysis of Financial Condition and Results of Operations, our Consolidated Financial Statements and the Notes to the Consolidated Financial Statements. The historical financial information presented may not be indicative of our future performance.
 
 
December 31,
 
 
2017
 
2016
 
2015
 
2014
 
2013 (1) (2)
Selected Balance Sheet Data
 
 

 
 

 
 

 
 

 
 

Total Assets
 
$
8,403,164

 
$
7,655,663

 
$
7,380,308

 
$
8,243,662

 
$
7,905,333

Loans held for sale
 
$
238,358

 
$
314,006

 
$
414,046

 
$
488,612

 
$
566,660

Loans held for investment
 
4,715,831

 
3,565,716

 
2,488,253

 
1,550,141

 
618,018

Advances and match funded advances
 
1,356,393

 
1,709,846

 
2,151,066

 
3,303,356

 
3,443,215

Mortgage servicing rights
 
1,008,844

 
1,042,978

 
1,138,569

 
1,913,992

 
2,069,381

Goodwill (3)
 

 

 

 

 
420,201

 
 
 
 
 
 
 
 
 
 
 
Total Liabilities
 
$
7,856,290

 
$
7,000,380

 
$
6,525,670

 
$
7,202,497

 
$
6,032,381

HMBS-related borrowings
 
$
4,601,556

 
$
3,433,781

 
$
2,391,362

 
$
1,444,252

 
$
615,576

Other financing liabilities
 
593,518

 
579,031

 
697,893

 
814,389

 
651,397

Match funded liabilities
 
998,618

 
1,280,997

 
1,584,049

 
2,090,247

 
2,364,814

Long-term other borrowings
 
631,501

 
734,763

 
1,611,531

 
1,288,740

 
18,466

 
 
 
 
 
 
 
 
 
 
 
Mezzanine equity (4)
 
$

 
$

 
$

 
$

 
$
60,361

 
 
 
 
 
 
 
 
 
 
 
Total equity (5)
 
$
546,874

 
$
655,283

 
$
854,638

 
$
1,041,165

 
$
1,812,591

 
 
 
 
 
 
 
 
 
 
 
Residential Loans and Real Estate
Serviced or Subserviced for Others
 
 

 
 

 
 

 
 

 
 

Count
 
1,221,695

 
1,393,766

 
1,624,762

 
2,486,038

 
2,861,918

UPB
 
$
179,352,553

 
$
209,092,130

 
$
250,966,112

 
$
398,727,727

 
$
464,651,332


48



 
 
For the Years Ended December 31,
 
 
2017
 
2016
 
2015
 
2014
 
2013
Selected Operations Data
 
 

 
 

 
 

 
 

 
 

Revenue
 
 

 
 

 
 

 
 

 
 

Servicing and subservicing fees
 
$
989,376

 
$
1,186,620

 
$
1,531,797

 
$
1,894,175

 
$
1,823,559

Gain on loans held for sale, net
 
103,402

 
90,391

 
134,969

 
134,297

 
121,694

Other
 
101,798

 
110,152

 
74,332

 
82,853

 
93,020

Total revenue
 
1,194,576

 
1,387,163

 
1,741,098

 
2,111,325

 
2,038,273

 
 
 
 
 
 
 
 
 
 
 
Expenses (3)
 
998,645

 
1,223,254

 
1,478,184

 
2,035,208

 
1,301,294

 
 
 
 
 
 
 
 
 
 
 
Other income (expense)
 
 

 
 

 
 

 
 

 
 

Interest expense
 
(363,238
)
 
(412,583
)
 
(482,373
)
 
(541,757
)
 
(395,586
)
Gain on sale of mortgage servicing rights, net (6)
 
10,537

 
8,492

 
83,921

 

 

Other, net
 
12,797

 
33,821

 
5,677

 
22,481

 
11,086

Other expense, net
 
(339,904
)
 
(370,270
)
 
(392,775
)
 
(519,276
)
 
(384,500
)
 
 
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
(143,973
)
 
(206,361
)
 
(129,861
)
 
(443,159
)
 
352,479

Income tax expense (benefit) (7)
 
(15,516
)
 
(6,986
)
 
116,851

 
26,396

 
42,061

Net income (loss)
 
(128,457
)
 
(199,375
)
 
(246,712
)
 
(469,555
)
 
310,418

Net loss (income) attributable to non-controlling interests
 
491

 
(387
)
 
(305
)
 
(245
)
 

Net income (loss) attributable to Ocwen stockholders
 
(127,966
)
 
(199,762
)
 
(247,017
)
 
(469,800
)
 
310,418

Preferred stock dividends (4)
 

 

 

 
(1,163
)
 
(5,031
)
Deemed dividend related to beneficial conversion feature of preferred stock (4)
 

 

 

 
(1,639
)
 
(6,989
)
Net income (loss) attributable to Ocwen common stockholders
 
$
(127,966
)
 
$
(199,762
)
 
$
(247,017
)
 
$
(472,602
)
 
$
298,398

 
 
 
 
 
 
 
 
 
 
 
Basic earnings (loss) per share attributable to Ocwen common stockholders
 
 

 
 

 
 

 
 

 
 

Basic
 
$
(1.01
)
 
$
(1.61
)
 
$
(1.97
)
 
$
(3.60
)
 
$
2.20

Diluted (8)
 
$
(1.01
)
 
$
(1.61
)
 
$
(1.97
)
 
$
(3.60
)
 
$
2.13

 
 
 
 
 
 
 
 
 
 
 
Weighted average common shares outstanding
 
 

 
 

 
 

 
 

 
 

Basic
 
127,082,058

 
123,990,700

 
125,315,899

 
131,362,284

 
135,678,088

Diluted (8)
 
127,082,058

 
123,990,700

 
125,315,899

 
131,362,284

 
139,800,506

(1)
Includes the effects of the acquisition of ResCap in February 2013. This transaction primarily involved the acquisition of residential MSRs and related servicing advances. In addition, we acquired Liberty’s reverse mortgage origination platform in April 2013. The operating results of the acquired businesses have been included in our results since their respective acquisition dates.
(2)
During 2013 and 2012, Ocwen completed sales of Rights to MSRs together with the related servicing advances. We accounted for the sales of Rights to MSRs as secured financings. As a result, the MSRs were not derecognized, and a liability was established equal to the sales price. The sales of advances in connection with sales of Rights to MSRs met the requirements for sale accounting and the advances were derecognized at the time of the sale. Match funded liabilities were reduced in connection with these sales. See Note 8 — Rights to MSRs to the Consolidated Financial Statements for additional information.
(3)
We recognized a goodwill impairment loss of $420.2 million in 2014, representing the entire carrying value of goodwill in our Servicing and Lending segments.
(4)
We issued 162,000 shares of Series A Perpetual Convertible Preferred Stock in December 2012 as partial consideration for the acquisition of Homeward. On September 23, 2013, 100,000 of the preferred shares were converted to 3,145,640 shares of Ocwen common stock, which we subsequently repurchased for $157.9 million. On July 14, 2014, the remaining 62,000 preferred shares were

49



converted into 1,950,296 shares of common stock, which we subsequently repurchased for $72.3 million. Holders of the preferred shares were entitled to receive mandatory and cumulative dividends payable quarterly at the rate per share equal to the greater of (i) 3.75% per annum multiplied by $1,000 per share and (ii) in the event Ocwen paid a regular quarterly dividend on its common stock in such quarter, the rate per share payable in respect of such quarterly dividend on an as-converted basis.
(5)
Prior to its expiration on July 31, 2016, we completed the repurchase of 991,985 shares, 625,705 shares, 10,420,396 shares and 1,125,707 shares under a common stock repurchase program announced in 2013 for a total purchase price of $5.9 million, $4.1 million, $310.2 million and $60.0 million during 2016, 2015, 2014 and 2013, respectively.
(6)
During 2017, 2016 and 2015, we sold certain of our MSRs relating to loans with a UPB of $219.4 million, $3.7 billion and $87.6 billion, respectively.
(7)
Income tax expense for 2015 includes a $97.1 million provision to establish valuation allowances relating to deferred tax assets in our U.S. and USVI tax jurisdictions. See Note 18 — Income Taxes to the Consolidated Financial Statements for additional information.
(8)
We computed the effect of preferred stock on diluted earnings per share using the if-converted method. However, we assumed no conversion of the Series A Perpetual Convertible Preferred Stock into common stock for 2013 because the effect was anti-dilutive. For 2014 - 2017, we have excluded the effect of all dilutive or potentially dilutive shares from the computation of diluted earnings per share because of the anti-dilutive effect of our reported net loss.
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, unless otherwise indicated)
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as other portions of this Form 10-K, may contain certain statements that constitute forward-looking statements within the meaning of the federal securities laws. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could”, “intend,” “consider,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict” or “continue” or the negative of such terms or other comparable 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 risks and uncertainties. You should bear these factors in mind when considering forward-looking 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 from those suggested by such statements. In the past, actual results have differed from those suggested by forward-looking statements and this may happen again. You should consider all uncertainties and risks discussed or referenced in this report, including those under “Forward-Looking Statements” and Item 1A, Risk Factors, as well as those discussed in any subsequent SEC filings.
OVERVIEW
We are a financial services company that services and originates loans. Most of our revenues are generated from our servicing business, which is primarily comprised of our residential mortgage servicing business. As of December 31, 2017, our residential mortgage servicing portfolio consisted of 1,221,695 loans with a UPB of $179.4 billion. In our lending business, we primarily originate, purchase, sell and securitize conventional and government-insured forward mortgage loans and reverse mortgages. During 2017, our lending business originated or purchased forward and reverse mortgage loans with a UPB of $2.5 billion and $1.0 billion, respectively.
Asset sales, portfolio runoff and regulatory restrictions on acquisitions of MSRs have resulted in a 61.4% decline in our servicing portfolio as compared to December 31, 2013. As a result, our revenues have decreased significantly and, while some of our expenses have reduced significantly, we have not been able to reduce our overall expenses by a comparative amount, in part because of the relatively fixed nature of our corporate overhead. In addition, continuing regulatory and legal matters have negatively impacted our results. We have incurred a net loss in each of the last four fiscal years, which has significantly eroded stockholders’ equity and weakened our financial condition. In order to drive stronger financial performance, we have been exploring strategic approaches to streamline our business and leverage our competitive advantages by focusing our operations on mortgage servicing, on our retail forward lending channel, primarily through retail lending recapture, and on our reverse mortgage business. As part of this strategic assessment, we exited the forward lending correspondent and wholesale channels during 2017 and we plan to exit the independent used car dealer floor plan lending business conducted through ACS by the end of the second quarter of 2018.
We are continuing to seek operational efficiencies to manage our cost structure as our servicing portfolio continues to shrink. However, there are limits to our ability to reduce costs through operational adjustments. Ultimately, we believe that it is unlikely that we will be able to return to profitability simply by reducing our costs through operational adjustments. Given the relative size of our corporate overhead, including the risk and compliance infrastructure necessary to operate as a non-bank mortgage servicer and lender, we believe that we will need to grow our future revenues in order to return to profitability. Given the relative size of our servicing revenues to our lending revenues, growing our servicing revenues through acquisitions of servicing would provide the most effective way to grow our overall revenues. However, in order to do so, we would need to work through the current regulatory restrictions on such acquisitions or wait until such restrictions are otherwise lifted. We are also seeking to grow our revenues through the investment of cash not currently utilized in our servicing and lending businesses,

50



including portions of the cash proceeds received in January 2018 from NRZ discussed below. We are currently assessing various options for the use of such cash in order to determine the uses that we believe will most effectively drive our future financial performance.
As discussed above, on February 27, 2018, we entered into the Merger Agreement, pursuant to which PHH will become a wholly owned subsidiary of Ocwen. PHH is a leading non-bank servicer with established servicing and origination recapture capabilities. The consideration to be paid in the Merger will be $360 million in cash. As of December 31, 2017, PHH had $1.8 billion in total assets. The transaction is expected to close in the second half of 2018, subject to approval by PHH’s stockholders, regulatory approvals and other closing conditions. For more information on the terms and conditions of the Merger, see “Item 1- Business - Pending Acquisition of PHH,” which is incorporated herein by reference.
Our 2017 Agreements and the New RMSR Agreements with NRZ provide for the conversion of the economics of our Existing Rights to MSRs Agreements into a more traditional subservicing arrangement and involve upfront payments to Ocwen. On September 1, 2017, pursuant to the 2017 Agreements, Ocwen transferred MSRs with UPB of $15.9 billion to NRZ and received a lump-sum payment of $54.6 million. On January 18, 2018, Ocwen received a lump-sum payment of $279.6 million in accordance with the terms of the New RMSR Agreements. These upfront payments generally represent the net present value of the difference between the future revenue stream Ocwen would have received under the Existing Rights to MSRs Agreements and the future revenue Ocwen expects to receive under the 2017 Agreements. Accordingly, the new agreements provide for a larger portion of future servicing compensation to be retained by NRZ.
As a general matter, we intend to continue to evaluate returns on our existing MSR portfolio, and we may decide to sell select portions of our portfolio or to enter into transactions with similarities to the agreements we have entered into with NRZ if we believe that such actions will benefit Ocwen versus holding the assets over a longer term.
On December 28, 2016, PHH entered into an agreement to sell to NRZ substantially all of PHH’s portfolio of MSRs and related advances. The sale of the majority of MSRs and advances to be transferred under this agreement (including all of PHH’s Fannie Mae and Freddie Mac MSRs) has been completed. However, the sale of the remaining MSRs and related advances contemplated by the sale agreement (representing an aggregate of $5.9 billion in unpaid principal balance, $34.0 million of MSR fair value, and $110.0 million of servicing advances as of December 31, 2017) remains subject to the approvals of multiple counterparties and other customary closing requirements. Accordingly, this sale could be delayed and may not be consummated prior to the closing of the PHH acquisition or at all.
In connection with PHH’s sale agreement with NRZ, PHH has also entered into a subservicing agreement with NRZ, pursuant to which PHH will subservice the loans sold in the sale transaction for an initial period of three years, subject to certain transfer and termination provisions. This subservicing relationship became effective upon PHH’s initial delivery of MSRs to NRZ on June 16, 2017. The loans serviced by PHH under this subservicing agreement include 364,784 units as of December 31, 2017 and represent a majority of PHH’s subservicing income. We expect to assume this subservicing agreement upon the closing of the Merger with PHH, which would further increase the dependence of our business on NRZ.
For more information on the terms and conditions of the Merger with PHH, see “Item 1- Business - Pending Acquisition of PHH”.
To the extent we generate cash proceeds from any sales of assets or businesses, we will, subject to the terms of our debt and other agreements, evaluate the best use of such cash which could include working capital, investments in new assets and reductions in debt to the extent permissible.
We have faced, and expect to continue to face, heightened regulatory and public scrutiny as well as stricter and more comprehensive regulation of our business. Since April 20, 2017, the CFPB, mortgage and banking regulatory agencies from 30 states and the District of Columbia and two state attorneys general have taken regulatory actions against us that alleged deficiencies in our compliance with laws and regulations relating to our servicing and lending activities. We have resolved these regulatory matters with 28 states plus the District of Columbia while continuing to seek resolutions with the remaining two state regulatory agencies and the two state attorney generals. On an ongoing basis, we work diligently to assess the implications of the regulatory environment in which we operate and to meet the requirements of the current environment. We devote substantial resources to regulatory compliance and to addressing regulatory actions and engagements, while, at the same time, striving to meet the needs and expectations of our customers, clients and other stakeholders. Our business, operating results and financial condition have been significantly impacted in recent periods by legal and other fees and settlement payments related to litigation and regulatory matters, including the costs of third-party monitoring firms under our regulatory settlements. To the extent we are unable to avoid, mitigate or offset similar expenses in future periods, our business, operating results and financial condition will continue to be adversely affected, even if we are successful in our ongoing efforts to optimize our cost structure and improve our financial performance.
As discussed above, we are in the process of transitioning to a new servicing system. We have entered into agreements with certain subsidiaries of Black Knight pursuant to which we plan to transition to Black Knight’s LoanSphere MSP®

51



servicing system. The new servicing system includes loan boarding, payment processing, escrow administration, and default management, among other functions. We also plan to use certain ancillary services offered by Black Knight. We believe this investment will improve the way we work, help simplify internal processes, and allow our teams to provide better service to our servicing customers and clients. However, implementing a large-scale transition to a new technology product such as a new servicing system is inherently complex and involves significant operational risk. We expect to devote significant capital and human resources to implementing this transition. If our transition to MSP does not go as planned, our business, financial condition and results of operations could be materially and adversely affected.
Because PHH currently utilizes the MSP servicing system for its servicing operations, if the PHH transaction closes, Ocwen intends to transfer the loans it services to the MSP platform utilized by PHH versus a separate instance of the MSP servicing system as it believes such a transfer can happen sooner and with less implementation and transfer risk. Accordingly, our ability to successfully transition to PHH’s instance of the MSP servicing system may have a significant impact on our ability to successfully integrate the business of PHH and to realize the strategic objectives and other benefits anticipated in connection with the PHH acquisition.



52



Operations Summary
 
Years Ended December 31,
 
% Change
 
2017
 
2016
 
2015
 
2017 vs. 2016
 
2016 vs. 2015
Revenue
 
 
 
 
 
 
 
 
 
Servicing and subservicing fees
$
989,376

 
$
1,186,620

 
$
1,531,797

 
(17
)%

(23
)%
Gain on loans held for sale, net
103,402

 
90,391

 
134,969

 
14


(33
)
Other
101,798

 
110,152

 
74,332

 
(8
)

48

Total revenue
1,194,576

 
1,387,163

 
1,741,098

 
(14
)

(20
)
 
 
 
 
 
 
 
 
 
 
Expenses
 
 
 
 
 
 





Compensation and benefits
358,994

 
381,340

 
415,055

 
(6
)
 
(8
)
Professional services
229,451

 
305,586

 
276,393

 
(25
)
 
11

Servicing and origination
142,670

 
279,801

 
344,560

 
(49
)
 
(19
)
Technology and communications
100,490

 
110,333

 
154,758

 
(9
)
 
(29
)
Occupancy and equipment
66,019

 
80,191

 
112,864

 
(18
)
 
(29
)
Amortization of mortgage servicing rights
51,788

 
32,978

 
99,194

 
57

 
(67
)
Other
49,233

 
33,025

 
75,360

 
49

 
(56
)
Total expenses
998,645

 
1,223,254

 
1,478,184

 
(18
)
 
(17
)
 
 
 
 
 
 
 
 
 
 
Other income (expense)
 

 
 

 
 

 


 


Interest income
15,965

 
19,083

 
18,320

 
(16
)
 
4

Interest expense
(363,238
)
 
(412,583
)
 
(482,373
)
 
(12
)

(14
)
Gain on sale of mortgage servicing rights, net
10,537

 
8,492

 
83,921

 
24

 
(90
)
Other, net
(3,168
)
 
14,738

 
(12,643
)
 
(121
)

(217
)
Other expense, net
(339,904
)
 
(370,270
)
 
(392,775
)
 
(8
)

(6
)
 
 
 
 
 
 
 
 
 
 
Loss before income taxes
(143,973
)
 
(206,361
)
 
(129,861
)
 
(30
)

59

Income tax expense (benefit)
(15,516
)
 
(6,986
)
 
116,851

 
122


(106
)
Net loss
(128,457
)
 
(199,375
)
 
(246,712
)
 
(36
)

(19
)
Net loss (income) attributable to non-controlling interests
491

 
(387
)
 
(305
)
 
(227
)
 
27

Net loss attributable to Ocwen stockholders
$
(127,966
)
 
$
(199,762
)
 
$
(247,017
)
 
(36
)
 
(19
)
 
 
 
 
 
 
 
 
 
 
Segment income (loss) before taxes:
 
 
 
 
 
 
 
 
 
Servicing
$
46,680

 
$
3,364

 
$
26,615

 
n/m

 
(87
)%
Lending
(4,431
)
 
131

 
23,226

 
n/m

 
(99
)
Corporate Items and Other
(186,222
)
 
(209,856
)
 
(179,702
)
 
(11
)
 
17

 
$
(143,973
)
 
$
(206,361
)
 
$
(129,861
)
 
(30
)
 
59

n/m: not meaningful
 
 
 
 
 
 
 
 
 
 
Year Ended December 31, 2017 versus 2016
Servicing and subservicing fees for 2017 were $197.2 million, or 17%, lower than 2016, primarily due to portfolio runoff. Also, the number of completed modifications declined in large part because of the expiration of the HAMP program on December 31, 2016. The average UPB and average number of assets in our residential portfolio declined 14% and 13%, respectively, as compared to 2016.
Gains on loans held for sale for 2017 increased $13.0 million, or 14%, as compared to 2016. Gains on loans held for sale from our lending operations increased $19.1 million, primarily because of higher origination volume and margins in our reverse lending business.

53



Expenses were $224.6 million, or 18%, lower in 2017 as compared to 2016.
Monitor expenses for 2017 were $6.4 million, a $75.3 million decline from the prior year primarily due to reduced costs related to the CA Auditor, whose appointment was terminated in February 2017, and the NY Operations Monitor, whose appointment was terminated in April 2017.
MSR amortization and valuation adjustments (including both fair value adjustments and impairment charges) of $53.0 million for 2017, decreased $71.1 million as compared to the prior year due to a $75.7 million decrease in fair value losses and a $14.2 million decrease in impairment charges related to our government insured MSRs and the effects of portfolio runoff, offset by an $18.8 million increase in amortization. Fair value adjustments are largely offset by corresponding fair value adjustments related to the NRZ financing liability, which are recorded in interest expense, as discussed below. The decrease in fair value loss is due to the $86.7 million impact of a benchmarking assumption update related to our non-Agency MSRs carried at fair value which was based on a recommendation from our third-party valuation expert and reflects an upward trend in market pricing on non-Agency MSRs similar in profile to Ocwen’s portfolio. The decline in impairment for 2017 reflects the recoverability of certain advances on various privately-held government-insured loans. The increase in amortization expense primarily resulted from a $27.5 million benefit recognized during 2016 related to the sale of non-performing loans conveyed to HUD as part of the Aged Delinquent Portfolio Loan Sale (ADPLS) program while there was no corresponding benefit in 2017. The ADPLS Program is discussed further below under Segment Results of Operations-Servicing-HUD Note Sales.
Excluding MSR amortization and valuation adjustments and monitor expenses, expenses for 2017 were $78.2 million, or 8%, lower than the prior year. Servicing and origination expense, excluding MSR valuation adjustments, decreased $47.3 million, or 21%, primarily due to a decrease in government-insured claim loss provisions and the recovery of $28.5 million of losses related to a settlement of outstanding claims that arose from indemnification obligations in connection with our acquisition of MSRs and related servicing advances in 2013. Government-insured claim losses in 2016 included the accelerated recognition of $34.8 million of expenses related to our participation in HUD’s ADPLS and HUD Note Sale programs, which were largely offset by a benefit in amortization expense as discussed above. Government-insured claim loss provision in 2017 included $17.0 million in connection with re-performing government insured loans for which certain advances are no longer recoverable.
Compensation and benefits expense declined $22.3 million, or 6%, as average headcount declined by 14%, including a 12% reduction in U.S.-based headcount. The decline in headcount occurred principally in our Servicing business where headcount declined by 20%, including an 18% reduction in the U.S.
Occupancy and equipment expense declined by $14.2 million, or 18%, largely because of the effect of the decline in the size of the servicing portfolio on various expenses, particularly postage and other delivery services, and the effect of consolidating facilities. Technology and communications expense declined by $9.8 million, or 9%, because of efforts to bring technology services in-house and the effects of a declining servicing portfolio on technology fees. Professional services expense, excluding monitor expenses, was $0.8 million lower in 2017 due to an $11.3 million decline in consulting fees and other professional services offset by a $9.2 million increase in legal expenses. Professional services expense for 2017 includes fees incurred in connection with converting NRZ’s Rights to MSRs to fully-owned MSRs and amounts paid or accrued in connection with the resolution of regulatory matters.
Other expenses increased by $16.2 million, or 49%, due in part to a $6.8 million charge recognized in 2017 to write-off the carrying value of internally-developed software used in our wholesale forward lending business in connection with our decision to exit that channel and sell the furniture, fixtures and equipment located at our Westborough, Massachusetts facility. Also, advertising costs were $3.5 million higher in 2017, primarily related to our Lending segment.
Interest expense for 2017 declined $49.3 million, or 12%, as compared to the prior year primarily due to a $20.1 million reduction in interest related to our Senior Secured Term Loan (SSTL) facility and a $19.3 million reduction in interest on match funded liabilities. In 2016, in connection with entering into an amended and restated SSTL facility, we recognized previously unamortized debt issuance costs related to the prior SSTL facility as well as discount related to the new SSTL facility. Lower interest expense on our match funded advance financing facilities is consistent with the decline in servicing advances and the effect of the higher amortization of facility costs in 2016.
The decline in interest expense is also due to a $6.3 million decline in interest related to financing liabilities primarily because 2016 included $10.5 million of additional payments to NRZ, which are recognized as interest expense, to compensate it for certain increased costs associated with a 2015 downgrade of our S&P servicer rating. Despite a decline in the average UPB of the NRZ servicing portfolio in 2017, interest expense on the NRZ financing liabilities increased to $236.3 million. The increase is primarily due to changes in the fair value of NRZ financing liabilities due to valuation and assumption updates which increased the value of the NRZ financing liabilities by $83.3 million and which was recognized as interest expense. This more than offset the reduction in interest expense on the NRZ financing liabilities driven by declines in the value of the NRZ financing liability because of the decline in the average UPB of the NRZ servicing portfolio due to runoff, and the $42.0 million reduction in fair value of the NRZ financing liability recognized in connection with the transferred MSRs (including

54



$37.6 million recognized at the time of the initial transfer) that was primarily driven by the characteristics of Rights to MSRs with a UPB of $15.9 billion that were converted to fully-owned MSRs during the year, relative to the $54.6 million lump sum payment received from NRZ. For the Rights to MSRs that were converted on September 1, 2017, the characteristics of the underlying MSRs did not correspond to the weighted average loan characteristics used to determine the lump sum payment, resulting in a decline in the fair value of the financing liability primarily due to the transferred MSRs having a contractual servicing fee rate of 33.4 bps as compared to the weighted average of 47.1 bps used to develop the lump sum payment schedule.
Other, net for 2017 declined $17.9 million primarily because 2016 includes $14.8 million received in connection with the execution of clean-up call rights related to five small-balance commercial mortgage securitization trusts, as discussed below.
Although the pre-tax loss for 2017 declined by $62.4 million, or 30%, to $144.0 million, the income tax benefit increased $8.5 million, or 122%, to $15.5 million. This is primarily due to the income tax benefit recognized on the reversal of the liability for a portion of our uncertain tax positions upon the expiration of the statute of limitations in September 2017. The change is also due to the mix of earnings among different tax jurisdictions with different statutory tax rates, which impacts the amount of the tax benefit or expense recorded. The overall effective tax rate for 2017 was 10.8%, compared to 3.4% for 2016. This rate change primarily resulted from the tax benefit recognized on the reversal of uncertain tax positions during 2017, as compared to additional income tax expense recognized during 2016 related to uncertain tax positions, offset in part by a decrease in tax benefits resulting from our inability to carry back current losses that are being generated in the U.S. and USVI tax jurisdictions.
Year Ended December 31, 2016 versus 2015
Servicing and subservicing fees for 2016 were $345.2 million, or 23%, lower than 2015, primarily due to sales of MSRs in 2015, portfolio runoff and lower modification volume. During 2016, we recognized net gains of $8.5 million in Other income on the sale of MSRs relating to loans with a UPB of $3.7 billion as compared to $83.9 million in net gains on the sale of MSRs in 2015 relating to loans with a UPB of $87.6 billion.
Gains on loans held for sale for 2016 declined $44.6 million, or 33%, as compared to 2015. Gains on loans held for sale from our lending operations decreased $21.7 million, primarily because of origination volume declines in our higher margin forward lending retail channel, due in part to our sales of MSRs, which reduced recapture (our ability to convert borrowers in our current servicing portfolio into newly originated loans), and generally lower margins in our forward correspondent and wholesale lending channels. This was partially offset by higher volume in the forward lending wholesale channel. In our servicing business, gains on sales of loans decreased by $23.2 million.
Expenses were $254.9 million, or 17%, lower in 2016 as compared to 2015.
MSR amortization and valuation adjustments (including both fair value adjustments and impairment charges) of $124.0 million for 2016, decreased $90.7 million as compared to 2015 principally due to a decrease in impairment charges related to our government insured MSRs and the effects of portfolio runoff and MSR sales and the benefit (lower amortization) recognized during 2016 related to the sale of the ADPLS and HUD Note Sales programs.
Monitor expenses for 2016 were $81.7 million, an increase of $31.8 million primarily attributed to costs related to the CA Auditor. Monitor expenses declined over the course of 2016 from a peak of $30.0 million in the first quarter to $8.5 million in the fourth quarter.
Excluding MSR amortization and valuation adjustments and monitor expenses, expenses for 2016 were $196.1 million, or 19%, lower than the prior year. This decline reflected our progress implementing cost improvement initiatives.
Technology and communications expense declined $44.4 million, or 29%, primarily because of our decision to reduce our dependence on third-party service providers and bring a greater proportion of our technology services in-house. The decline in Technology and communications expense was offset in large part by an increase in technology-related Compensation and benefits expense. Servicing and origination expense, excluding MSR valuation adjustments, declined by $40.3 million, or 18%, in 2016 as higher government-insured losses in connection with our participation in the ADPLS and HUD Note Sales programs were more than offset by lower provisions and charge-offs of non-recoverable advances and receivables. Compensation and benefits expense declined $33.7 million, or 8%, in 2016 as average headcount declined by 9%, including an 11% reduction in U.S.-based headcount. The decline in headcount occurred principally in our Servicing business where headcount declined by 17%, including a 29% reduction in the U.S. Occupancy and equipment expense declined by $32.7 million, or 29%, largely because of the effect of the decline in the size of the servicing portfolio on various expenses, including postage and other delivery services, and the effect of the declines in headcount. Professional services expense, excluding monitor expenses, was $2.6 million, or 1%, lower in 2016 as compared to 2015. Professional services expense for 2015 included $25.1 million of financial and legal advisory fees incurred in connection with evaluating adjustments to our capital structure and exploring other strategic options. Other expenses declined largely due to a $12.2 million decline in bank charges as a result of negotiating lower

55



fees and higher deposit rates and because 2015 included $18.4 million of costs to maintain and exit the legacy ResCap servicing platform.
Interest expense for 2016 declined $69.8 million, or 14%, as compared to 2015 primarily due to declines in the value of the NRZ financing liability, principally because of runoff of the NRZ servicing portfolio, and to lower SSTL borrowings as a result of principal prepayments, including both voluntary and required prepayments from proceeds of sales of MSRs. These declines were offset in part by the recognition in 2016 of previously unamortized debt issuance costs related to the prior SSTL facility, as well as discount related to the new SSTL facility, and fees paid to lenders and third-party service providers in connection with the exchange of 6.625% Senior Unsecured Notes due 2019 for 8.375% Senior Second Lien Notes due 2022.
Other, net for 2016 includes $14.8 million received in connection with the execution of clean-up call rights related to five small-balance commercial mortgage securitization trusts. This income relates to the value of the underlying collateral held by the trusts, including amounts on deposit in spread accounts (cash collateral). We also recognized a loss of $2.8 million on the sale of the commercial loans purchased as part of the transaction, which we reported in Gain on loans held for sale, net. See Note 7 — Mortgage Servicing to the Consolidated Financial Statements for additional information. In 2015, as a result of MSR sales, we accelerated the recognition of $6.0 million of deferred losses in Other, net on a swap that had been designated for accounting purposes as a hedge of the purchase price of an MSR acquisition.
Although we incurred a pre-tax loss of $206.4 million for 2016, we recorded an income tax benefit of only $7.0 million because the tax benefit recorded on the pre-tax loss is reduced by an additional valuation allowance on our deferred tax assets. In addition, the mix of earnings among different tax jurisdictions with different statutory tax rates impacts the amount of the tax benefit or expense recorded. Finally, we recognized income tax expense related to uncertain tax positions. The overall effective tax rate for 2016 was 3.4%, compared to (90.0)% for 2015. This change primarily resulted from the fact that we recorded a full valuation allowance on our net deferred tax assets in 2015.

56



Financial Condition Summary
 
December 31,
 
 
 
 
 
2017
 
2016
 
$ Change
 
% Change
Cash
$
259,655

 
$
256,549

 
$
3,106

 
1
 %
Mortgage servicing rights ($671,962 and $679,256 carried at fair value)
1,008,844

 
1,042,978

 
(34,134
)
 
(3
)
Advances and match funded advances
1,356,393

 
1,709,846

 
(353,453
)
 
(21
)
Loans held for sale ($214,262 and $284,632 carried at fair value)
238,358

 
314,006

 
(75,648
)
 
(24
)
Loans held for investment, at fair value
4,715,831

 
3,565,716

 
1,150,115

 
32

Other assets ($8,900 and $20,007 carried at fair value)
824,083

 
766,568

 
57,515

 
8

Total assets
$
8,403,164

 
$
7,655,663

 
$
747,501

 
10
 %
 
 
 
 
 
 
 
 
Total Assets by Segment
 
 
 
 
 
 
 
Servicing
$
3,033,243

 
$
3,312,371

 
$
(279,128
)
 
(8
)%
Lending
4,945,456

 
3,863,862

 
1,081,594

 
28

Corporate Items and Other
424,465

 
479,430

 
(54,965
)
 
(11
)
 
$
8,403,164

 
$
7,655,663

 
$
747,501

 
10
 %
 
 
 
 
 
 
 
 
HMBS-related borrowings, at fair value
$
4,601,556

 
$
3,433,781

 
$
1,167,775

 
34

Match funded liabilities
998,618

 
1,280,997

 
(282,379
)
 
(22
)
Other financing liabilities ($508,291 and $477,707 carried at fair value)
593,518

 
579,031

 
14,487

 
3

SSTL and other secured borrowings
545,850

 
678,543

 
(132,693
)
 
(20
)
Senior notes
347,338

 
346,789

 
549

 

Other liabilities ($635 and $1,550 carried at fair value)
769,410

 
681,239

 
88,171

 
13

Total liabilities
7,856,290

 
7,000,380

 
855,910

 
12

 
 
 
 
 
 
 
 
Total Ocwen stockholders’ equity
545,040

 
652,958

 
(107,918
)
 
(17
)
Non-controlling interest in subsidiaries
1,834

 
2,325

 
(491
)
 
(21
)
Total equity
546,874

 
655,283

 
(108,409
)
 
(17
)
Total liabilities and equity
$
8,403,164

 
$
7,655,663

 
$
747,501

 
10
 %
 
 
 
 
 
 
 
 
Total Liabilities by Segment
 
 
 
 
 
 
 
Servicing
$
2,233,431

 
$
2,369,697

 
$
(136,266
)
 
(6
)%
Lending
4,861,928

 
3,785,974

 
1,075,954

 
28

Corporate Items and Other
760,931