Ocwen Financial Corporation
OCWEN FINANCIAL CORP (Form: 10-Q, Received: 08/04/2011 17:16:46)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
 
For the quarterly period ended June 30, 2011
   
 
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 Number: 1-13219
 
Ocwen Financial Corporation
(Exact name of registrant as specified in its charter)

Florida
 
65-0039856
(State or other jurisdiction
 
(I.R.S. Employer
of incorporation or organization)
 
Identification No.)

2002 Summit Boulevard, 6 th Floor, Atlanta, Georgia 30319
(Address of principal executive offices) (Zip Code)
 
(561) 682-8000
(Registrant’s telephone number, including area code)

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 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 whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
 
Large accelerated filer
x
Accelerated filer
  o
 
Non-accelerated filer
o (Do not check if a smaller reporting company)
Smaller reporting company
  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
 
Number of shares of Common Stock, $0.01 par value, outstanding as of July 29, 2011: 100,948,647 shares.
 
 
 

 

OCWEN FINANCIAL CORPORATION
 
FORM 10-Q
 
INDEX
 


     
PAGE
       
     
       
Item 1.  
3
 
       
   
3
 
         
   
4
 
         
   
5
 
         
   
6
 
         
   
7
 
         
   
8
 
         
Item 2.  
31
 
       
Item 3.  
47
 
       
Item 4.  
48
 
       
     
       
Item 1.  
48
 
       
Item 1A.  
48
 
       
Item 6.  
49
 
       
 
50
 
 
 
1

 
 
FORWARD-LOOKING STATEMENTS
 
This Quarterly 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 forward-looking 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,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict” or “continue” or the negative of such terms or other comparable terminology. Such statements are not guarantees of future performance as they are subject to certain assumptions, inherent risks and uncertainties in predicting future results. Important factors that could cause actual results to differ materially include, but are not limited to, the following:

 
our sources of liquidity; our ability to fund and recover advances, repay borrowings, and comply with debt covenants; and the adequacy of financial resources;
     
 
servicing portfolio characteristics, including prepayment speeds, float balances, delinquency and advances rates;
     
 
our ability to grow or otherwise adapt our business, including the availability of new servicing opportunities and joint ventures;
     
 
our ability to reduce our cost structure;
     
 
our ability to successfully modify delinquent loans, manage foreclosures and sell foreclosed properties;
     
 
our reserves, valuations, provisions and anticipated realization on assets;
     
 
our ability to effectively manage our exposure to interest rate changes and foreign exchange fluctuations;
     
 
our credit and servicer ratings and other actions from various rating agencies;
     
 
uncertainty related to general economic and market conditions, delinquency rates, home prices and real-estate owned disposition timelines;
     
 
uncertainty related to the actions of loan owners, including mortgage-backed securities investors, regarding loan putbacks or legal actions;
     
 
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;
     
 
uncertainty related to litigation or dispute resolution and inquiries from government agencies into past servicing and foreclosure practices; and
     
 
uncertainty related to legislation, regulations, regulatory agency actions, government programs and policies, industry initiatives and evolving best servicing practices.

Further information on the risks specific to our business is detailed within this report and our other reports and filings with the Securities and Exchange Commission (SEC) including our Annual Report on Form 10-K for the year ended December 31, 2010, our quarterly reports on Form 10-Q and our current reports on Form 8-K. Forward-looking statements speak only as of the date they were made and should not be relied upon. Ocwen Financial Corporation undertakes no obligation to update or revise forward-looking statements.
 
 
2

 
 
PART I – FINANCIAL INFORMATION
ITEM 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share data)

   
June 30,
2011
   
December 31,
2010
 
Assets
           
Cash
  $ 104,167     $ 127,796  
Restricted cash – for securitization investors
    1,507       727  
Loans held for resale, at lower of cost or fair value
    23,193       25,803  
Advances
    167,261       184,833  
Match funded advances
    1,421,636       1,924,052  
Loans, net – restricted for securitization investors
    62,344       67,340  
Mortgage servicing rights
    175,591       193,985  
Receivables, net
    53,066       69,518  
Deferred tax assets, net
    139,086       138,716  
Goodwill
    12,810       12,810  
Premises and equipment, net
    4,578       5,475  
Investments in unconsolidated entities
    12,611       12,072  
Other assets
    110,899       158,282  
Total assets
  $ 2,288,749     $ 2,921,409  
                 
Liabilities and Equity
               
Liabilities
               
Match funded liabilities
  $ 1,041,998     $ 1,482,529  
Secured borrowings – owed to securitization investors
    58,696       62,705  
Lines of credit and other secured borrowings
    41,458       246,073  
Servicer liabilities
    2,065       2,492  
Debt securities
    82,554       82,554  
Other liabilities
    106,152       140,239  
Total liabilities
    1,332,923       2,016,592  
                 
Commitments and Contingencies (Note 22)
               
                 
Equity
               
Ocwen Financial Corporation stockholders’ equity
               
Common stock, $.01 par value; 200,000,000 shares authorized; 100,948,647 and 100,726,947 shares issued and outstanding at June 30, 2011 and December 31, 2010, respectively
    1,009       1,007  
Additional paid-in capital
    469,541       467,500  
Retained earnings
    493,908       445,456  
Accumulated other comprehensive loss, net of income taxes
    (8,883 )     (9,392 )
Total Ocwen Financial Corporation stockholders’ equity
    955,575       904,571  
Non-controlling interest in subsidiaries
    251       246  
Total equity
    955,826       904,817  
Total liabilities and equity
  $ 2,288,749     $ 2,921,409  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
3

 
 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
(Dollars in thousands, except share data)

For the periods ended June 30,
 
Three months
   
Six months
 
   
2011
   
2010
   
2011
   
2010
 
Revenue
                       
Servicing and subservicing fees
  $ 95,837     $ 65,936     $ 198,342     $ 132,416  
Process management fees
    9,140       8,315       16,936       16,221  
Other revenues
    860       1,702       1,565       2,902  
Total revenue
    105,837       75,953       216,843       151,539  
                                 
Operating expenses
                               
Compensation and benefits
    15,253       13,089       30,040       25,866  
Amortization of mortgage servicing rights
    9,926       7,854       18,849       14,229  
Servicing and origination
    1,301       2,458       3,223       3,049  
Technology and communications
    6,373       6,191       13,245       11,855  
Professional services
    3,270       9,134       5,654       12,389  
Occupancy and equipment
    4,153       3,870       8,283       8,316  
Other operating expenses
    1,978       2,062       4,159       4,131  
Total operating expenses
    42,254       44,658       83,453       79,835  
                                 
Income from operations
    63,583       31,295       133,390       71,704  
                                 
Other income (expense)
                               
Interest income
    2,289       1,900       4,458       5,545  
Interest expense
    (21,813 )     (13,359 )     (59,356 )     (25,830 )
Loss on trading securities
          (1,710 )           (945 )
Loss on loans held for resale, net
    (1,616 )     (1,049 )     (2,520 )     (2,087 )
Equity in (loss) earnings of unconsolidated entities
    (680 )     343       (550 )     1,078  
Other, net
    (727 )     (4,158 )     103       (4,758 )
Other expense, net
    (22,547 )     (18,033 )     (57,865 )     (26,997 )
                                 
Income before income taxes
    41,036       13,262       75,525       44,707  
Income tax expense (benefit)
    14,653       (2,777 )     27,078       7,797  
Net income
    26,383       16,039       48,447       36,910  
Net loss (income) attributable to non-controlling interest in subsidiaries
    (5 )     (1 )     5       (12 )
Net income attributable to Ocwen Financial Corporation
  $ 26,378     $ 16,038     $ 48,452     $ 36,898  
                                 
Earnings per share attributable to Ocwen Financial Corporation
                               
Basic
  $ 0.26     $ 0.16     $ 0.48     $ 0.37  
Diluted
  $ 0.25     $ 0.15     $ 0.45     $ 0.35  
                                 
Weighted average common shares outstanding
                               
Basic
    100,943,402       100,168,953       100,853,424       100,072,950  
Diluted
    108,110,588       107,728,092       107,944,681       107,526,786  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
4

 
 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
(Dollars in thousands)
 
For the periods ended June 30,
 
Three months
   
Six months
 
   
2011
   
2010
   
2011
   
2010
 
                         
Net income
  $ 26,383     $ 16,039     $ 48,447     $ 36,910  
                                 
Other comprehensive income (loss), net of income taxes:
                               
                                 
Unrealized foreign currency translation income (loss ) arising during the period (1)
    6       (14 )     26       (84 )
                                 
Change in deferred loss on cash flow hedges arising during the period (2)
    (2,177 )     (7,403 )     (232 )     (7,403 )
Reclassification adjustment for losses on cash flow hedges included in net income (3)
    567       20       722       20  
Net change in deferred loss on cash flow hedges
    (1,610 )     (7,383 )     490       (7,383 )
                                 
Other (4)
    2             3        
                                 
Total other comprehensive income (loss), net of income taxes
    (1,602 )     (7,397 )     519       (7,467 )
                                 
Comprehensive income
    24,781       8,642       48,966       29,443  
                                 
Comprehensive loss attributable to non-controlling interests
    (5 )     4       (5 )     12  
                                 
Comprehensive income attributable to Ocwen Financial Corporation
  $ 24,776     $ 8,646     $ 48,961     $ 29,455  

(1)
Net of income tax (expense) benefit of $4 and $5 for the three months ended June 30, 2011 and 2010, respectively, and $(9) and $35 for the six months ended June 30, 2011 and 2010, respectively.
   
(2)
Net of income tax benefit of $1,231 and $4,348 for the three months ended June 30, 2011 and 2010, respectively, and $158 and $4,348 for the six months ended June 30, 2011 and 2010, respectively.
   
(3)
Net of income tax expense of $321 and $12 for the three months ended June 30, 2011 and 2010, respectively, and $409 and $12 for the six months ended June 30, 2011 and 2010, respectively.
   
(4)
Net of income tax expense of $1 for the six months ended June 30, 2011.
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
5

 
 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
FOR THE SIX MONTHS ENDED JUNE 30, 2011 AND 2010
(Dollars in thousands)

   
OCN Shareholders
             
   
Common Stock
   
Additional Paid-in
   
Retained
   
Accumulated
Other
Comprehensive
Loss,
   
 
Non-controlling Interest in
       
   
Shares
   
Amount
   
Capital
   
Earnings
   
Net of Taxes
   
Subsidiaries
   
Total
 
                                           
Balance at December 31, 2010
    100,726,947     $ 1,007     $ 467,500     $ 445,456     $ (9,392 )   $ 246     $ 904,817  
Net income (loss)
                      48,452             (5 )     48,447  
Exercise of common stock options
    210,336       2       577                         579  
Equity-based compensation
    11,364             1,464                         1,464  
Other comprehensive income, net of income taxes
                            509       10       519  
Balance at June 30, 2011
    100,948,647     $ 1,009     $ 469,541     $ 493,908     $ (8,883 )   $ 251     $ 955,826  

   
OCN Shareholders
             
   
 
 
Common Stock
   
 
Additional
Paid-in
   
 
 
 
Retained
   
Accumulated
Other
Comprehensive
Loss,
   
 
Non-controlling Interest in
       
   
Shares
   
Amount
   
Capital
   
Earnings
   
Net of Taxes
   
Subsidiaries
   
Total
 
                                           
Balance at December 31, 2009
    99,956,833     $ 1,000     $ 459,542     $ 405,198     $ (129 )   $ 252     $ 865,863  
Adoption of ASC 810 (FASB Statement No. 167), net of tax
                      2,274                   2,274  
Net income
                      36,898             12       36,910  
Exercise of common stock options
    217,775       2       1,023                         1,025  
Issuance of common stock awards to employees
    9,865                                      
Equity-based compensation
    7,654             1,325                         1,325  
Other comprehensive loss, net of income taxes
                            (7,443 )     (24 )     (7,467 )
Balance at June 30, 2010
    100,192,127     $ 1,002     $ 461,890     $ 444,370     $ (7,572 )   $ 240     $ 899,930  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
6

 
 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
 (Dollars in thousands)

   
For the six months ended June 30,
 
   
2011
   
2010
 
Cash flows from operating activities
           
Net income
  $ 48,447     $ 36,910  
Adjustments to reconcile net income to net cash provided by operating activities
               
Amortization of mortgage servicing rights
    18,849       14,229  
Amortization of debt discount
    7,343       2,104  
Amortization of debt issuance costs – senior secured term loan
    8,604        
Depreciation
    887       741  
Write-off of investment in commercial real estate property
          3,000  
Reversal of valuation allowance on mortgage servicing assets
    (701 )     (101 )
Loss on trading securities
          945  
Loss on loans held for resale, net
    2,520       2,087  
Equity in loss (earnings) of unconsolidated entities
    550       (1,078 )
Gain on extinguishment of debt
    (1,246 )     (152 )
(Increase) decrease in deferred tax assets, net
    (631 )     12,838  
Net cash provided by trading activities
          168,453  
Net cash provided by loans held for resale activities
    519       849  
Changes in assets and liabilities:
               
Decrease in advances and match funded advances
    518,493       153,997  
Decrease in receivables and other assets, net
    53,675       11,983  
Decrease in servicer liabilities
    (427 )     (36,702 )
Decrease in other liabilities
    (32,334 )     (13,282 )
Other, net
    5,836       3,974  
Net cash provided by operating activities
    630,384       360,795  
                 
Cash flows from investing activities
               
Purchase of mortgage servicing rights
          (23,425 )
Acquisition of advances and other assets in connection with the purchase of mortgage servicing rights
          (528,882 )
Distributions of capital from unconsolidated entities – Ocwen Structured Investments, LLC, Ocwen Nonperforming Loans, LLC and Ocwen REO, LLC
    1,639       2,146  
Investment in unconsolidated entity – Correspondent One S.A.
    (3,025 )      
Additions to premises and equipment
    (571 )     (2,202 )
Proceeds from sales of real estate
    648       2,046  
(Increase) decrease in restricted cash – for securitization investors
    (780 )     743  
Principal payments received on loans – restricted for securitization investors
    3,512       2,223  
Net cash provided (used) by investing activities
    1,423       (547,351 )
                 
Cash flows from financing activities
               
(Repayment of) proceeds from match funded liabilities
    (440,531 )     369,481  
Repayment of secured borrowings – owed to securitization investors
    (4,009 )     (4,852 )
Proceeds from lines of credit and other secured borrowings
          96,657  
Repayment of lines of credit and other secured borrowings
    (210,712 )     (53,904 )
Repayment of investment line
          (156,968 )
Repurchase of debt securities
          (11,659 )
Exercise of common stock options
    836       935  
Other
    (1,020 )     (667 )
Net cash (used) provided by financing activities
    (655,436 )     239,023  
                 
Net (decrease) increase in cash
    (23,629 )     52,467  
Cash at beginning of period
    127,796       90,919  
Cash at end of period
  $ 104,167     $ 143,386  
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
7

 
 
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
JUNE 30, 2011
(Dollars in thousands, except share data)
 
NOTE 1     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Organization
 
Ocwen Financial Corporation (NYSE: OCN) (Ocwen or OCN), through its subsidiaries, is a leading provider of residential and commercial mortgage loan servicing, special servicing and asset management services. Ocwen is headquartered in Atlanta, Georgia with offices in West Palm Beach, Florida, Orlando, Florida, the District of Columbia and support operations in India and Uruguay. Ocwen is a Florida corporation organized in February 1988. Ocwen Loan Servicing, LLC (OLS), a wholly-owned subsidiary of Ocwen, is a licensed mortgage servicer in all 50 states, the District of Columbia and two U.S. territories.
 
At June 30, 2011, Ocwen owned all of the outstanding stock of its primary subsidiaries: OLS, Ocwen Financial Solutions, Private Limited (OFSPL) and Investors Mortgage Insurance Holding Company. OCN also holds a 25% interest in Ocwen Structured Investments, LLC (OSI) and an approximate 25% interest in Ocwen Nonperforming Loans, LLC (ONL) and Ocwen REO, LLC (OREO). In March 2011, Ocwen and Altisource Portfolio Solutions S.A. (Altisource) each acquired a 50% equity interest in a newly formed entity, Correspondent One S.A. (Correspondent One).
 
Basis of Presentation
 
The accompanying unaudited interim consolidated financial statements have been prepared in conformity with the instructions of the Securities and Exchange Commission (SEC) to Form 10-Q and SEC Regulation S-X, Article 10, Rule 10-01 for interim financial statements. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (GAAP) for complete financial statements. In our opinion, the accompanying unaudited financial statements contain all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation. The results of operations and other data for the three and six months ended June 30, 2011 are not necessarily indicative of the results that may be expected for any other interim period or for the entire year ending December 31, 2011. The unaudited interim consolidated financial statements presented herein should be read in conjunction with the audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010.
 
The preparation of financial statements in conformity with GAAP requires that we make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from those estimates. Material estimates that are particularly significant relate to our fair value measurements, the provision for potential estimates that may arise from litigation proceedings, the amortization of mortgage servicing rights (MSRs) and the valuation of goodwill and deferred tax assets.
 
Principles of Consolidation
 
Our financial statements include the accounts of Ocwen and its majority-owned subsidiaries. We apply the equity method of accounting to investments when the entity is not a variable interest entity (VIE), and we are able to exercise significant influence, but not control, over the policies and procedures of the entity but own 50% or less of the voting securities. We account for our investments in OSI, ONL, OREO and Correspondent One using the equity method. We have eliminated intercompany accounts and transactions in consolidation.
 
Variable Interest Entities
 
We evaluate each special purpose entity (SPE) for classification as a VIE. When an SPE meets the definition of a VIE and we determine that Ocwen is the primary beneficiary, we include the SPE in our consolidated financial statements.
 
We have determined that the SPEs created in connection with the match funded financing facilities discussed below are VIEs of which we are the primary beneficiary. We have also determined that we are the primary beneficiary for certain residential mortgage loan securitization trusts. The accounts of these SPEs are included in our consolidated financial statements.
 
Securitizations or Asset Backed Financing Arrangements
 
Ocwen or its subsidiaries have been a transferor in connection with a number of securitizations or asset-backed financing arrangements. We have continuing involvement with the financial assets of eight of the securitizations and three of the asset-backed financing arrangements. We also hold residual interests in and are the servicer for three securitizations where we were not a transferor.
 
 
8

 
 
We have aggregated these securitizations and asset-backed financing arrangements into two groups: (1) securitizations of residential mortgage loans and (2) financings of advances on loans serviced for others.
 
Securitizations of Residential Mortgage Loans. In prior years, we securitized residential mortgage loans using certain trusts. These transactions were accounted for as sales even though we continued to be involved with the trusts, typically by acting as the servicer or sub-servicer for the loans held by the trust and by retaining a beneficial ownership interest in the trust. The beneficial interests we held consisted of both subordinate and residual securities that were either retained at the time of the securitization or subsequently acquired.
 
For four of these trusts, we have determined that our involvement represents a variable interest and that we are the primary beneficiary. We have included these four trusts in our consolidated financial statements. Our involvement with each of the remaining trusts does not represent a variable interest, and therefore, we exclude them from our consolidated financial statements.
 
We have determined that Ocwen is the primary beneficiary of the four consolidated securitization trusts because:

 
1.
as the servicer we have the right to direct the activities that most significantly impact the economic performance of the trusts through our ability to manage the delinquent assets of the trusts, and
     
 
2.
as holder of all or a portion of the residual tranches of the securities issued by the trust, we have the obligation to absorb losses of the trusts, to the extent of the value of our investment, and the right to receive benefits from the trust, both of which could potentially be significant to the trusts.

For the three months ended June 30, 2011 and 2010, the four consolidated trusts generated income (loss) before income taxes of $186 and $(9), respectively. For the six months ended June 30, 2011 and 2010, these trusts generated income (loss) before income taxes of $(33) and $334, respectively. See Note 7 and Note 12 for additional information regarding Loans – restricted for securitization investors and Secured borrowings – owed to securitization investors.
 
The following table presents a summary of the involvement of Ocwen with unconsolidated securitization trusts and summary financial information for the trusts where we are the transferor and hold beneficial interests. Although we are the servicer for these trusts, the residual interests that we hold in these entities have no value and no potential return of significant cash flows. As a result, we are not exposed to loss from these holdings. Further, since our valuation of the residual interest is based on anticipated cash flows, we are unlikely to receive any future benefits from our residual interests in these trusts.
 
For the periods ended June 30,
 
Three months
   
Six months
 
   
2011
   
2010
   
2011
   
2010
 
Total servicing and subservicing fee revenues
  $ 727     $ 923     $ 1,570     $ 1,874  

   
As of
 
   
June 30,
2011
   
December 31,
2010
 
             
Total servicing advances
  $ 14,497     $ 16,886  
Total mortgage servicing rights at amortized cost
    1,246       1,330  
 
With regard to both the consolidated and the unconsolidated securitization trusts, we have no obligation to provide financial support to the trusts and have provided no such support. The creditors of the trusts can look only to the assets of the trusts themselves for satisfaction of the debt and have no recourse against the assets of Ocwen. Similarly, the general creditors of Ocwen have no claim on the assets of the trusts. Our exposure to loss as a result of our continuing involvement is limited to the carrying values of our investments in the residual and subordinate securities of the trusts, our mortgage servicing rights that are related to the trusts and our advances to the trusts. We consider the probability of loss arising from our advances to be remote because of their position ahead of most of the other liabilities of the trusts. At June 30, 2011 and December 31, 2010, our investment in the securities of the trusts was $2,509 and $2,691, respectively, all of which is eliminated in consolidation. See Note 5 and Note 8 for additional information regarding Advances and Mortgage servicing rights.
 
Financings of Advances on Loans Serviced for Others. Match funded advances on loans serviced for others result from our transfers of residential loan servicing advances to SPEs in exchange for cash. These SPEs issue debt supported by collections on the transferred advances. We made these transfers under the terms of three advance facility agreements. We classify the transferred advances on our Consolidated Balance Sheet as Match funded advances and the related liabilities as Match funded liabilities. Collections on the advances pledged to the SPEs are used to repay principal and interest and to pay the expenses of the entity. Holders of the debt issued by these entities can look only to the assets of the entities themselves for satisfaction of the debt and have no recourse against OCN. However, OLS has guaranteed the payment of the obligations under the securitization documents of one of the entities, Ocwen Servicer Advance Funding (Wachovia), LLC (OSAFW). The maximum amount payable under the guarantee is limited to 10% of the notes outstanding at the end of the facility’s revolving period on July 1, 2013. As of June 30, 2011, OSAFW had $162,839 of notes outstanding.
 
 
9

 
 
The following table summarizes the assets and liabilities of the SPEs formed in connection with our match funded advance facilities, at the dates indicated:
 
   
June 30,
2011
   
December 31,
2010
 
Match funded advances
  $ 1,421,636     $ 1,924,052  
Other assets
    67,684       103,448  
Total assets
  $ 1,489,320     $ 2,027,500  
                 
Match funded liabilities
  $ 1,041,998     $ 1,482,529  
Due to affiliates (1)
    363,172       262,900  
Other liabilities
    1,816       2,890  
Total liabilities
  $ 1,406,986     $ 1,748,319  

(1)
Amounts are payable to Ocwen and its consolidated affiliates and eliminated in consolidation.

See Note 6 and Note 11 for additional information regarding Match funded advances and Match funded liabilities.
 
Reclassification
 
Within the operating activities section of the Consolidated Statement of Cash Flows for 2010, we reclassified the $2,104 adjustment for amortization of the discount on the fee reimbursement advance borrowing from the Decrease in other liabilities line item to Amortization of debt discount, to conform to the 2011 presentation. Also within the operating activities section, we reclassified the $152 gain on extinguishment of debt from Other, net to the new line item, Gain on extinguishment of debt, to conform to the 2011 presentation.
 
NOTE 2
RECENT ACCOUNTING PRONOUNCEMENTS
 
Accounting Standards Update (ASU) 2011-02 (ASC 310, Receivables): A Creditor’s Determination of Whether a Restructuring Is a Troubled Debt Restructuring. The amendments in this ASU clarify the guidance on a creditor’s evaluation of whether it has granted a concession and whether a debtor is experiencing financial difficulties. This additional guidance will assist creditors in determining whether a restructuring or modification of a receivable meets the criteria to be considered a troubled debt restructuring. If the restructuring is considered a troubled debt restructuring, creditors are required to make certain disclosures in their financial statements. In addition, the calculation of the allowance for credit losses for that receivable follows the impairment guidance specific to impaired receivables.
 
The amendments in this ASU are effective for the first interim or annual period beginning on or after June 15, 2011, and should be applied retrospectively to the beginning of the annual period of adoption. An entity should disclose the information which was deferred by ASU 2011-01, Receivables (Topic 310): Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20, for interim and annual periods beginning on or after June 15, 2011. We do not expect the adoption of this standard to have a material impact on our consolidated financial statements.
 
ASU 2011-03 (ASC 860, Transfers and Servicing): Reconsideration of Effective Control for Repurchase Agreements . ASC 860 prescribes when an entity may or may not recognize a sale upon the transfer of financial assets subject to repurchase agreements. That determination is based, in part, on whether the entity has maintained effective control over the transferred financial assets. Repurchase agreements are accounted for as secured financings if the transferee has not surrendered control over the transferred assets. The amendments in this ASU remove from the assessment of effective control the criterion relating to the transferor’s ability to repurchase or redeem financial assets on substantially the agreed terms, even in the event of default by the transferee. The Financial Accounting Standards Board (FASB) concluded that this criterion is not a determining factor of effective control. Consequently, the amendments in this update also eliminate the requirement to demonstrate that the transferor possesses adequate collateral to fund substantially all the cost of purchasing replacement financial assets.
 
 
10

 
 
The guidance in this ASU is effective for the first interim or annual period beginning on or after December 15, 2011. The guidance should be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. We do not expect our adoption of the provisions in this ASU to have a material impact on our consolidated financial statements.
 
ASU 2011-04 (ASC 820, Fair Value Measurement): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs . The amendments in this ASU explain how to measure fair value. They do not require additional fair value measurements and are not intended to establish valuation standards or affect valuation practices outside of financial reporting. The amendments clarify FASB’s intent about the application of existing fair value measurement and disclosure requirements and prescribe certain additional disclosures about fair value measurements, including: for fair value measurements within Level 3 of the fair value hierarchy, disclosing the valuation process used and the sensitivity of fair value measurement to changes in unobservable inputs; and for items not carried at fair value but for which fair value must be disclosed, categorization by level of the fair value hierarchy. The provisions of this ASU are effective for interim and annual periods beginning on or after December 15, 2011, with early adoption prohibited. We do not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements.
 
ASU 2011-05 (ASC 220, Comprehensive Income): Presentation of Comprehensive Income , Current U.S. GAAP allows reporting entities three alternatives for presenting other comprehensive income and its components in financial statements. One of those presentation options is to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. This ASU eliminates that option. This ASU also requires consecutive presentation of the statement of net income and other comprehensive income and requires an entity to present reclassification adjustments from other comprehensive income to net income on the face of the financial statements. The provisions of this ASU are effective for interim and annual periods beginning after December 15, 2011. Our adoption of this standard will not have a material impact on our consolidated financial statements.
 
NOTE 3
PENDING ACQUISITION
 
On June 5, 2011, Ocwen Financial Corporation and The Goldman Sachs Group, Inc. (Seller) entered into a Purchase Agreement (the Agreement) pursuant to which, among other things, Ocwen agreed to acquire, subject to certain conditions (i) all of the outstanding partnership interests of Litton Loan Servicing LP (Litton), a subsidiary of Seller and provider of servicing and subservicing of primarily non-prime residential mortgage loans (the Business) and (ii) certain interest-only servicing strips currently owned by Goldman, Sachs & Co., a subsidiary of Seller. These and other transactions contemplated by the Agreement are referred to herein as the “Transaction.” The Transaction will result in the acquisition by Ocwen of a servicing portfolio of approximately $41,200,000 in unpaid principal balance of primarily non-prime residential mortgage loans (UPB) as of March 31, 2011 and the servicing platform of the Business based in Houston, Texas, Dallas, Texas and Atlanta, Georgia.
 
The base purchase price for the Transaction is $263,654 which is payable by Ocwen in cash at closing subject to certain adjustments at closing. In addition, subject to adjustments based on outstanding servicer advances at closing, Ocwen will pay approximately $337,400 to retire a portion of the outstanding debt on an existing advance facility currently provided by an affiliate of Seller to Litton and will enter into a new facility to finance approximately $2,470,000 of servicing advances associated with the Business as more specifically described below.
 
For purposes of the Transaction, Ocwen has received a term sheet from Seller for a servicing advance facility in an amount sufficient to finance all of the servicing advances outstanding as of closing (the Full Seller Advance Facility) or, alternatively, the portion of the servicing advances outstanding as of closing (the Partial Seller Advance Facility) which is not otherwise financed through the commitments of The Royal Bank of Scotland plc, Barclays Bank PLC and Bank of America, N.A., in an aggregate amount not to exceed $2,100,000 (the Third Party Advance Facility). Subject to certain conditions and limitations, Seller has the option to determine whether Ocwen will be required to close on the Full Seller Advance Facility (without the Third Party Advance Facility) or the Partial Seller Advance Facility and the Third Party Advance Facility. Ocwen has also received a commitment letter from Barclays Bank PLC to provide a senior secured term loan facility of $575,000 (the Term Loan Facility) to finance the Transaction. The closing of the financing contemplated by the Term Loan Facility and the Third Party Advance Facility are not conditions to the closing under the Agreement.
 
Each of Seller and Ocwen has provided various representations, warranties and covenants in the Agreement. Seller has agreed, among other things, to (i) conduct the Business in the ordinary course of business consistent with past custom and practice during the period prior to the consummation of the Transaction and (ii) under certain conditions, to make post-closing adjustments for certain subservicing of whole loans that is terminated or transferred from Litton to another service provider within one year following the consummation of the Transaction. Ocwen has agreed, among other things, to use commercially reasonable efforts to obtain and close on debt financing in an aggregate amount that is sufficient to finance the Transaction, including the full amount of the purchase price and related fees and expenses.
 
 
11

 
 
As part of the Transaction, Seller and Ocwen have agreed to indemnification provisions for the benefit of the other party. Additionally, Seller has agreed to retain certain contingent liabilities for fines and penalties that could potentially be imposed by certain government authorities relating to Litton’s pre-closing foreclosure and servicing practices. Further, Seller and Ocwen have agreed to share certain losses arising out of third-party claims in connection with Litton’s pre-closing performance under its servicing agreements.
 
The Agreement contains specified termination rights for the parties. Among other circumstances, the Agreement may be terminated by either Seller or Ocwen if the closing has not occurred by November 1, 2011 (the Termination Date); provided, that if either party fails to receive certain requisite regulatory approvals by such date, the Termination Date may be extended until January 1, 2012. The consummation of the Transaction is subject to the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 as amended and other conditions.
 
The transaction is expected to close on September 1, 2011. Through June 30, 2011, we have incurred approximately $500 of fees for professional services related to the acquisition which are included in Operating expenses for the second quarter of 2011. Professional fees incurred in connection with advance financing and debt financing for the Transaction have been deferred and are included in Other liabilities in the Consolidated Balance Sheet.
 
NOTE 4
FAIR VALUE OF FINANCIAL INSTRUMENTS
 
The carrying amounts and the estimated fair values of our financial instruments are as follows at the dates indicated:
 
   
June 30, 2011
   
December 31, 2010
 
   
Carrying
Value
   
Fair
Value
   
Carrying
Value
   
Fair
Value
 
Financial assets:
                       
Loans held for resale
  $ 23,193     $ 23,193     $ 25,803     $ 25,803  
Loans, net – restricted for securitization investors
    62,344       59,642       67,340       64,795  
Advances
    1,588,897       1,588,897       2,108,885       2,108,885  
Receivables, net
    53,066       53,066       69,518       69,518  
Financial liabilities:
                               
Match funded liabilities
  $ 1,041,998     $ 1,045,433     $ 1,482,529     $ 1,486,476  
Lines of credit and other secured borrowings
    41,458       42,437       246,073       252,722  
Secured borrowings – owed to securitization investors
    58,696       57,133       62,705       62,105  
Servicer liabilities
    2,065       2,065       2,492       2,492  
Debt securities
    82,554       87,733       82,554       75,325  
Derivative financial instruments, net
  $ (15,787 )   $ (15,787 )   $ (15,351 )   $ (15,351 )
 
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 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.
 
The three broad categories are:

 
Level 1:
Quoted prices in active markets for identical assets or liabilities.
     
 
Level 2:
Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
     
 
Level 3:
Unobservable inputs for the asset or liability.

Where available, we utilize quoted market prices or observable inputs rather than unobservable inputs to determine fair value. We classify assets in their entirety based on the lowest level of input that is significant to the fair value measurement.
 
 
12

 
 
The following table presents assets and liabilities measured at fair value categorized by input level within the fair value hierarchy:
 
   
Carrying value
   
Level 1
   
Level 2
   
Level 3
 
At June 30, 2011:
                       
Measured at fair value on a recurring basis:
                       
Derivative financial instruments, net (1)
  $ (15,787 )           $ (15,787 )
Measured at fair value on a non-recurring basis:
                           
Loans held for resale (2)
    23,193               23,193  
Mortgage servicing rights (3)
    725               725  
                             
At December 31, 2010:
                           
Measured at fair value on a recurring basis:
                           
Derivative financial instruments, net (1)
  $ (15,351 )           $ (15,351 )
Measured at fair value on a non-recurring basis:
                           
Loans held for resale (2)
    25,803               25,803  
Mortgage servicing rights (3)
    334               334  

(1)
The derivative financial instruments are not exchange-traded and therefore quoted market prices or other observable inputs are not available. Fair value is based on estimates provided by third-party pricing sources. See Note 15 for additional information on our derivative financial instruments.
   
(2)
Loans held for resale are reported at the lower of cost or fair value. The fair value of loans for which we do not have a firm commitment to sell is based upon a discounted cash flow analysis with the expected future cash flows discounted at a rate commensurate with the risk of the estimated cash flows. Significant assumptions include collateral and loan characteristics, prevailing market conditions and the creditworthiness of the borrower. All loans held for resale were measured at fair value because the cost exceeded the estimated fair value. At June 30, 2011 and December 31, 2010, the carrying value of loans held for resale is net of a valuation allowance of $14,680 and $14,611, respectively. Current market illiquidity has reduced the availability of observable pricing data. Consequently, we classify loans within Level 3 of the fair value hierarchy.
   
(3)
Balances represent the carrying value of the impaired stratum of MSRs, net of a valuation allowance of $2,163 and $2,864 at June 30, 2011 and December 31, 2010, respectively. The estimated fair value exceeded amortized cost for all other strata. See Note 8 for additional information on MSRs, including significant assumptions used in their valuation.
 
 
13

 
 
The following tables present a reconciliation of the changes in fair value of our Level 3 assets that we measure at fair value on a recurring basis for the periods indicated:
 
   
Derivative Financial Instruments
 
For the periods ended June 30, 2011:
 
Three months
   
Six months
 
             
Beginning balance
  $ (12,397 )   $ (15,351 )
                 
Purchases, issuances, sales and settlements:
               
Purchases
           
Issuances
           
Sales
           
Settlements
    25       71  
      25       71  
                 
Total realized and unrealized gains and (losses) (1):
               
Included in Other, net
    (895 )     (1,248 )
Included in Other comprehensive income (loss)
    (2,520 )     741  
      (3,415 )     (507 )
                 
Transfers in and / or out of Level 3
           
Ending balance
  $ (15,787 )   $ (15,787 )

         
Trading Securities
       
Three months ended June 30, 2010:
 
Derivative
Financial
Instruments
   
Auction Rate
Securities
   
Subordinates
and
Residuals
   
Total
 
                         
Beginning balance
  $ (480 )   $ 125,036     $ 59     $ 124,615  
                                 
Purchases, issuances, sales and settlements:
                               
Purchases
                       
Issuances
                       
Sales
          (45,260 )           (45,260 )
Settlements
    76                   76  
      76       (45,260 )           (45,184 )
                                 
Total realized and unrealized gains and (losses) (1) (2):
                               
Included in Loss on trading securities
          (1,703 )     (7 )     (1,710 )
Included in Other, net
    (155 )                 (155 )
Included in Other comprehensive income (loss)
    (11,719 )                 (11,719 )
      (11,874 )     (1,703 )     (7 )     (13,584 )
                                 
Transfers in and / or out of Level 3
                       
Ending balance
  $ (12,278 )   $ 78,073     $ 52     $ 65,847  
 
 
14

 
 
         
Trading Securities
       
Six months ended June 30, 2010:
 
Derivative
Financial
Instruments
   
Auction Rate
Securities
   
Subordinates
and
Residuals
   
Total
 
                         
Beginning balance
  $ (45 )   $ 247,464     $ 59     $ 247,478  
                                 
Purchases, issuances, sales and settlements:
                               
Purchases
                       
Issuances
                       
Sales
          (75,108 )           (75,108 )
Settlements
    76       (93,345 )           (93,269 )
      76       (168,453 )           (168,377 )
                                 
Total realized and unrealized gains and (losses) (1) (2):
                               
Included in Loss on trading securities
          (938 )     (7 )     (945 )
Included in Other, net
    (590 )                 (590 )
Included in Other comprehensive income (loss)
    (11,719 )                 (11,719 )
      (12,309 )     (938 )     (7 )     (13,254 )
                                 
Transfers in and / or out of Level 3
                       
Ending balance
  $ (12,278 )   $ 78,073     $ 52     $ 65,847  

(1)
Total net losses attributable to derivative financial instruments for the three and six months ended June 30, 2011 include losses of $3,415 and $289, respectively, on derivatives held at June 30, 2011. Net losses attributable to derivative financial instruments for the three and six months ended June 30, 2010 were comprised exclusively of losses on derivatives held at June 30, 2010.
   
(2)
Total net losses on trading securities for the three and six months ended June 30, 2010 include unrealized gains (losses) of $(53) and $559, respectively, on auction rate securities held at June 30, 2010.

NOTE 5
ADVANCES
 
Advances, representing payments made on behalf of borrowers or on foreclosed properties, consisted of the following at the dates indicated:
 
   
June 30,
2011
   
December 31,
2010
 
Servicing:
           
Principal and interest
  $ 73,570     $ 82,060  
Taxes and insurance
    53,604       49,785  
Foreclosure and bankruptcy costs
    24,554       27,163  
Other
    11,380       21,701  
      163,108       180,709  
Corporate Items and Other
    4,153       4,124  
    $ 167,261     $ 184,833  
 
Servicing advances of $62,918 and $75,489 were pledged as collateral under the term reimbursement advance borrowing as of June 30, 2011 and December 31, 2010, respectively. See Note 13 for additional information regarding the fee reimbursement advance facility.
 
 
15

 
 
NOTE 6
MATCH FUNDED ADVANCES
 
Match funded advances on residential loans we service for others, as more fully described in Note 1—Principles of Consolidation-Financings of Advances on Loans Serviced for Others, are comprised of the following at the dates indicated:
 
   
June 30,
 2011
   
December 31,
2010
 
Principal and interest
  $ 583,814     $ 947,990  
Taxes and insurance
    574,466       684,928  
Foreclosure and bankruptcy costs
    120,379       140,181  
Real estate servicing costs
    112,044       116,064  
Other
    30,933       34,889  
    $ 1,421,636     $ 1,924,052  
 
NOTE 7
LOANS – RESTRICTED FOR SECURITIZATION INVESTORS
 
Loans – restricted for securitization investors are held by four securitization trusts that we include in our consolidated financial statements, as more fully described in Note 1—Securitizations of Residential Mortgage Loans. Loans – restricted for securitization investors consisted of the following at:
 
   
June 30,
 2011
   
December 31,
2010
 
Single family residential loans (1)
  $ 64,827     $ 69,718  
Allowance for loans losses
    (2,483 )     (2,378 )
    $ 62,344     $ 67,340  

(1)
Includes nonperforming loans of $11,649 and $12,933 at June 30, 2011 and December 31, 2010, respectively.

At June 30, 2011, the trusts held 1,499 loans that are secured by first or second liens on one- to four-family residential properties. These loans have a weighted average coupon rate of 9.26% and a weighted average remaining life of 132 months.
 
NOTE 8
MORTGAGE SERVICING RIGHTS
 
Servicing Assets. The following table summarizes the activity in the carrying value of residential servicing assets for the six months ended June 30, 2011:
 
Balance at December 31, 2010
  $ 193,985  
Purchases
     
Decrease in impairment valuation allowance
    701  
Amortization (1)
    (19,095 )
Balance at June 30, 2011
  $ 175,591  

(1)
In the Consolidated Statement of Operations, Amortization of mortgage servicing rights is reported net of the amortization of servicing liabilities and includes the amount of charges we recognized to increase servicing liability obligations.

The following table presents the composition of our servicing and subservicing portfolios by type of property serviced as measured by UPB. The servicing portfolio represents purchased mortgage servicing rights while subservicing generally represents all other mortgage servicing rights.
 
   
Residential
   
Commercial
   
Total
 
UPB of Assets Serviced:
               
June 30, 2011:
                 
Servicing
  $ 46,919,799     $     $ 46,919,799  
Subservicing (1)
    23,910,768       343,125       24,253,893  
    $ 70,830,567     $ 343,125     $ 71,173,692  
December 31, 2010:
                       
Servicing
  $ 51,252,380     $     $ 51,252,380  
Subservicing (1)
    22,634,011       434,305       23,068,316  
    $ 73,886,391     $ 434,305     $ 74,320,696  

(1)
Residential subservicing includes non-performing loans serviced for Freddie Mac.
 
 
16

 
 
MSRs are an intangible asset representing the right to service a portfolio of mortgage loans. We generally obtain MSRs by purchasing them from the owners of the mortgage loans. Residential assets serviced consist principally of mortgage loans, primarily subprime, but also include foreclosed real estate. Commercial assets serviced consist of foreclosed real estate. Assets serviced for others are not included on our Consolidated Balance Sheet.
 
Custodial accounts, which hold funds representing collections of principal and interest we receive from borrowers, are held in escrow by an unaffiliated bank and excluded from our Consolidated Balance Sheet. Custodial accounts amounted to approximately $397,000 and $320,300 at June 30, 2011 and December 31, 2010, respectively.
 
Valuation Allowance for Impairment. During 2008, we established a valuation allowance for impairment of $3,624 on the high-loan-to-value stratum of our mortgage servicing rights as the estimated fair value was less than the carrying value. Changes in the valuation allowance for impairment are reflected in Servicing and origination expenses in our Consolidated Statement of Operations. Net of the current valuation allowance of $2,163, the carrying value of this stratum was $725 at June 30, 2011. For all other strata, the fair value was above the carrying value at June 30, 2011.
 
The estimated fair value of residential MSRs at June 30, 2011 and December 31, 2010 was $213,767 and $237,407, respectively. The more significant assumptions used in the June 30, 2011 valuation include prepayment speeds ranging from 11.2% to 23.3% (depending on loan type) and 90+ non-performing delinquency rates ranging from 15.9% to 28.3% (depending on loan type). Other assumptions include an interest rate of 1-month LIBOR plus 4% for computing the cost of financing advances, an interest rate of 1-month LIBOR for computing float earnings and a discount rate of 20%.
 
Servicing Liabilities. Servicing liabilities are included in Other liabilities. See Note 14 for additional information.
 
NOTE 9
RECEIVABLES
 
Receivables consisted of the following at the dates indicated:
 
   
Receivables
   
Allowance for Credit Losses
   
Net
 
June 30, 2011
                 
Servicing (1)
  $ 43,519     $ (386 )   $ 43,133  
Income taxes receivable
    4,073             4,073  
Affordable housing (2)
    7,014       (5,068 )     1,946  
Due from Altisource (3)
    2,356             2,356  
Other
    2,804       (1,246 )     1,558  
    $ 59,766     $ (6,700 )   $ 53,066  
                         
December 31, 2010
                       
Servicing (1)
  $ 59,436     $ (262 )   $ 59,174  
Income taxes receivable
    3,620             3,620  
Affordable housing (2)
    6,882       (5,866 )     1,016  
Due from Altisource (3)
    2,445             2,445  
Other
    4,586       (1,323 )     3,263  
    $ 76,969     $ (7,451 )   $ 69,518  

(1)
The balances at June 30, 2011 and December 31, 2010 arise from our Servicing business and primarily include reimbursable expenditures due from investors and amounts to be recovered from the custodial accounts of the trustees.
   
(2)
The balances at June 30, 2011 and December 31, 2010 primarily represent annual payments to be received through June 2014 for proceeds from sales of investments in affordable housing properties. None of these receivables is delinquent.
   
(3)
See Note 20 for additional information regarding our relationship with Altisource.
 
 
17

 
 
 
Receivable balances are evaluated individually. The change in the allowance for credit losses for the six months ended June 30, 2011 and the balance of the related receivables at those dates were as follows:
 
   
Affordable
Housing
   
Other
   
Total
 
                   
Beginning allowance for credit losses balance
  $ 5,866     $ 1,323     $ 7,189  
Charge offs
          (7 )     (7 )
Recoveries
          (70 )     (70 )
Provision (reversal), net
    (798 )           (798 )
Ending allowance for credit losses balance
  $ 5,068     $ 1,246     $ 6,314  
                         
Ending receivables balance
  $ 7,014     $ 2,804     $ 9,818  
 
NOTE 10
OTHER ASSETS
 
Other assets consisted of the following at the dates indicated:
 
   
June 30,
2011
   
December 31,
2010
 
Debt service accounts (1)
  $ 53,656     $ 86,234  
Interest earning collateral deposits (2)
    27,264       25,738  
Prepaid lender fees and debt issuance costs, net (3)
    11,743       22,467  
Term note (4)
    4,200       5,600  
Real estate, net
    3,910       4,682  
Other
    10,126       13,561  
    $ 110,899