SEC Filing | Ocwen Financial Corporation

View:

ocn-20230930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐			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		33409
West Palm Beach,	Florida
(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:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 Par Value	OCN	New York Stock Exchange

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 every Interactive Data File required to be submitted 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 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, a smaller reporting company or an 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

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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 ☐ No x

Number of shares of common stock outstanding as of October 31, 2023: 7,677,008 shares

OCWEN FINANCIAL CORPORATION

FORM 10-Q

TABLE OF CONTENTS


		PAGE
PART I - FINANCIAL INFORMATION

Item 1.	Unaudited Consolidated Financial Statements	4

	Consolidated Balance Sheets at September 30, 2023 and December 31, 2022	4

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022	5

	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022	6

	Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, 2023 and 2022	7

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	9

	Notes to Unaudited Consolidated Financial Statements	10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	53

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	90

Item 4.	Controls and Procedures	94

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	95

Item 1A.	Risk Factors	95

Item 6.	Exhibits	95

Signatures		96

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 statements regarding our financial position, business strategy and other plans and objectives for our future operations, are forward-looking statements.

Forward-looking statements may be identified by a reference to a future period or by the use of forward-looking terminology. Forward-looking statements are typically identified by words such as “expect”, “believe”, “foresee”, “anticipate”, “intend”, “estimate”, “goal”, “strategy”, “plan”, “target” and “project” or conditional verbs such as “will”, “may”, “should”, “could” or “would” or the negative of these terms, although not all forward-looking statements contain these words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. 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 under Part I, Item 1A, Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2022 and the following:

•the potential for ongoing disruption in the financial markets and in commercial activity generally related to changes in monetary and fiscal policy, United States political developments, geopolitical events and other sources of instability;

•the impacts of inflation, employment disruption, and other financial difficulties facing our borrowers;

•the impact of the recent failures and re-organization of banking institutions and continued uncertainty in the banking industry;

•our ability to timely reduce operating costs or generate offsetting revenue in proportion to the industry-wide decrease in originations activity, and the impact of cost-reduction initiatives on our business, operations, and financial performance;

•our ability to maintain and increase market share in our target markets, including in forward and reverse servicing;

•the amount of common stock or senior debt that we may repurchase under any future stock or debt repurchase programs, the timing of such repurchases, and the long-term impact, if any, of repurchases on the trading price of our stock or our financial condition;

•the extent to which our mortgage servicing rights (MSR) joint venture with Oaktree Capital Management L.P. and its affiliates (Oaktree), other transactions and our enterprise sales initiatives will generate additional subservicing volume and result in increased profitability;

•our ability, and the ability of MSR Asset Vehicle LLC (MAV), to bid competitively for, and close acquisitions of, MSRs on terms that will enable us to achieve our growth objectives and a favorable return on our investment in MAV;

•uncertainty related to the future of MAV, one our largest subservicing clients as of September 30, 2023, MAV’s continued ownership of its MSR portfolio after May 3, 2024, and any impact on our servicing revenue and MSR valuation adjustments as a result of the sale of MAV’s MSRs;

•the extent to which our ownership stake in MAV’s holding company may be diluted, resulting in a reduced ability for us to participate in certain routine management decisions;

•uncertainty related to our long-term relationship with Rithm Capital Corp. (Rithm), one of our largest subservicing clients as of September 30, 2023;

•our ability to identify, enter into and close additional strategic transactions, including the ability to obtain regulatory approvals, enter into definitive financing arrangements, and satisfy closing conditions, and the timing for doing so;

•our ability to efficiently integrate the operations and assets of acquired businesses and to retain their employees and customers over time;

•the adequacy of our financial resources, including our sources of liquidity and ability to sell, fund and recover servicing advances, forward and reverse whole loans, future draws on existing reverse loans, and Home Equity Conversion Mortgage (HECM) and forward loan buyouts and put-backs;

•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;

•our ability to repay, renew and extend borrowings, borrow additional amounts as and when required, meet our MSR or other asset investment objectives and comply with our debt agreements, including the financial and other covenants contained in them;

•increased servicing costs and reduced or delayed servicing income due to rising borrower delinquency levels, forbearance plans, moratoria on evictions and delays in foreclosure proceedings;

•the characteristics of our servicing portfolio, including prepayment speeds along with delinquency and advance rates;

•our ability to continue to collect certain expedited payment or convenience fees and potential liability for charging such fees;

•an increase in severe weather or natural disaster events resulting in costly disruptions to our operations and increased servicing costs due to property damage;

•our ability to successfully modify delinquent loans, manage foreclosures and maintain and sell foreclosed properties;

•adverse effects on our business related to past, present or future claims, litigation, cease and desist orders and investigations relating to our business practices, including those brought by private parties and 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);

•scrutiny of our compliance with COVID-19-related rules and regulations, including requirements instituted by state governments, the Federal National Mortgage Association (Fannie Mae), and Federal Home Loan Mortgage Corporation (Freddie Mac) (together, the GSEs), the Government National Mortgage Association (Ginnie Mae) and regulators;

•the reactions of key counterparties, including lenders, the GSEs and Ginnie Mae, to our regulatory engagements and litigation matters;

•any adverse developments in existing legal proceedings or the initiation of new legal proceedings;

•our ability to efficiently manage our regulatory and contractual compliance obligations and fully comply with all applicable requirements, and the costs of doing so;

•uncertainty related to changes in legislation, regulations, government programs and policies, industry initiatives, best servicing and lending practices, and media scrutiny of our business and industry;

•the extent to which changes in the law as well as changes in the interpretation of law may require us to modify our business practices and expose us to increased expense and litigation risk;

•our ability to interpret correctly and comply with current or future liquidity, net worth and other financial and other requirements of regulators, the GSEs and Ginnie Mae, as well as those set forth in our debt and other agreements, including our ability to identify and implement a cost-effective response to Ginnie Mae’s risk-based capital requirements that take effect in late 2024;

•our ability to comply with our servicing agreements, including our ability to comply with our agreements with the GSEs and Ginnie Mae and maintain our seller/servicer and other statuses with them;

•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;

•uncertainty related to the actions of loan owners and guarantors, including mortgage-backed securities investors, the GSEs, Ginnie Mae and trustees 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 the HUD, Department of Veterans Affairs (VA) or United States Department of Agriculture (USDA) ceasing to provide insurance;

•failure of our, or our vendors’, information technology or other security systems or breach of our, or our vendors’, privacy protections, including any failure to protect customers’ data;

•our reliance on our technology vendors to adequately maintain and support our systems, including our servicing systems, loan originations and financial reporting systems, and uncertainty relating to our ability to transition to alternative vendors, if necessary, without incurring significant cost or disruption to our operations;

•our ability to recruit and retain senior managers and key employees;

•increased compensation and benefits expense as a result of rising inflation and labor market trends;

•uncertainty related to our reserves, valuations, provisions and anticipated realization of assets;

•our ability to effectively manage our exposure to interest rate changes and foreign exchange fluctuations;

•our ability to effectively transform our operations in response to changing business needs, including our ability to do so without unanticipated adverse tax consequences;

•political or economic stability in the foreign countries in which we operate; and

•our ability to maintain positive relationships with our large shareholders and obtain their support for management proposals requiring shareholder approval.

Further information on the risks specific to our business is detailed within this report and our other reports and filings with the SEC including our Annual Report on Form 10-K for the year ended December 31, 2022, our Quarterly Report on Form 10-Q and our Current Reports on Form 8-K since such date. 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.

PART I – FINANCIAL INFORMATION

ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED BALANCE SHEETS

(Dollars in millions, except per share data)


	September 30, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	194.0	$	208.0
Restricted cash ($21.6 and $17.6 related to variable interest entities (VIEs))	71.8		66.2
Mortgage servicing rights (MSRs), at fair value	2,859.8		2,665.2
Advances, net ($471.4 and $608.4 related to VIEs)	564.6		718.9

Loans held for sale ($944.7 and $617.8 carried at fair value) ($277.4 and $0.0 related to VIEs)	948.3		622.7
Loans held for investment, at fair value ($5.9 and $6.7 related to VIEs)	7,783.5		7,510.8
Receivables, net ($29.4 and $0.0 related to VIEs)	164.7		180.8





Investment in equity method investee	39.5		42.2
Premises and equipment, net	16.1		20.2
Other assets ($14.0 and $8.0 carried at fair value) ($20.3 and $3.2 related to VIEs)	369.3		364.2

Total assets	$	13,011.7	$	12,399.2

Liabilities and Equity
Liabilities
Home Equity Conversion Mortgage-Backed Securities (HMBS) related borrowings, at fair value	$	7,613.6	$	7,326.8
Other financing liabilities, at fair value ($420.4 and $329.8 due to related party) ($5.9 and $6.7 related to VIEs)	1,380.3		1,137.4
Advance match funded liabilities ($402.2 and $512.5 related to VIEs)	403.0		513.7
Mortgage loan financing facilities, net ($166.4 and $0.0 related to VIEs)	1,034.7		702.7
MSR financing facilities, net	901.7		953.8

Senior notes, net ($237.2 and $230.2 due to related party)	594.1		599.6

Other liabilities ($24.4 and $15.8 carried at fair value)	639.2		708.5

Total liabilities	$	12,566.6	11,942.5

Commitments and Contingencies (Notes 19 and 20)

Stockholders’ Equity

Common stock, $.01 par value; 13,333,333 shares authorized; 7,677,008 and 7,526,117 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively	0.1		0.1

Additional paid-in capital	551.6		547.0
Accumulated deficit	(104.2)		(87.9)
Accumulated other comprehensive loss, net of income taxes	(2.4)		(2.5)


Total stockholders’ equity	445.1		456.7
Total liabilities and stockholders’ equity	$	13,011.7	$	12,399.2

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in millions, except per share data)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue
Servicing and subservicing fees	$	237.8	$	215.6	$	707.5	$	643.3
Gain (loss) on reverse loans held for investment and HMBS-related borrowings, net	(0.4)		6.9		21.5		17.4
Gain (loss) on loans held for sale, net	8.2		18.9		36.3		16.7

Other revenue, net	10.0		8.3		24.0		26.1
Total revenue	255.5		249.7		789.4		703.4

MSR valuation adjustments, net	(16.4)		27.9		(134.2)		85.4

Operating expenses
Compensation and benefits	55.7		71.3		171.4		223.2
Servicing and origination	15.5		19.0		48.8		52.3
Technology and communications	13.1		14.4		39.5		44.0
Professional services	13.5		17.2		9.9		38.0
Occupancy and equipment	7.7		12.4		24.2		32.1


Other expenses	4.6		7.1		14.7		23.2
Total operating expenses	110.0		141.4		308.4		412.8

Other income (expense)
Interest income	25.9		13.7		60.2		30.6
Interest expense ($11.0, $10.6, $32.6, and $31.5 on amounts due to related party)	(74.3)		(50.4)		(204.8)		(126.1)
Pledged MSR liability expense ($14.5, $15.5, $41.8, and $45.0 on amounts due to related party)	(76.5)		(65.6)		(219.8)		(188.3)
Earnings of equity method investee	2.8		3.3		5.9		19.3
Gain on extinguishment of debt	1.2		—		1.2		0.9


Other, net	1.3		(4.3)		(1.9)		(8.6)
Other income (expense), net	(119.7)		(103.2)		(359.2)		(272.3)

Income (loss) before income taxes	9.5		33.0		(12.5)		103.7
Income tax expense (benefit)	1.0		(4.0)		3.8		(1.6)
Net income (loss)	$	8.5	$	36.9	$	(16.2)	105.4



Earnings (loss) per share
Basic	$	1.10	$	4.33	$	(2.13)	$	11.71
Diluted	$	1.05	$	4.17	$	(2.13)	$	11.34

Weighted average common shares outstanding
Basic	7,677,008		8,530,209		7,621,569		8,998,298
Diluted	8,060,078		8,866,925		7,621,569		9,295,857

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Dollars in millions)


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2023		2022		2023		2022
Net income (loss)	$	8.5	$	36.9	$	(16.2)	$	105.4

Other comprehensive income (loss), net of income taxes:


Change in unfunded pension plan obligation liability	—		0.1		—		0.3
Other	—		—		0.1		0.1
Comprehensive income (loss)	$	8.5	$	37.0	$	(16.1)	$	105.7

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Dollars in millions)


	Common Stock			Additional Paid-in Capital		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Income Taxes		Total
	Shares	Amount

Balance at June 30, 2023	7,677,008	$	0.1	$	548.7	$	(112.6)	$	(2.4)	$	433.8
Net income	—	—		—		8.5		—		8.5









Equity-based compensation and other	—	—		2.9		—		—		2.8

Balance at September 30, 2023	7,677,008	$	0.1	$	551.6	$	(104.2)	$	(2.4)	$	445.1

Balance at June 30, 2022	9,189,005	$	0.1	$	591.1	$	(45.2)	$	(2.1)	$	543.9
Net income	—	—		—		36.9		—		36.9




Repurchase of common stock	(1,254,411)	—		(36.5)		—		—		(36.5)



Equity-based compensation and other	—	—		1.7		—		—		1.7
Other comprehensive income, net of income taxes	—	—		—		—		0.1		0.1
Balance at September 30, 2022	7,934,594	$	0.1	$	556.3	$	(8.2)	$	(2.0)	$	546.1

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(Dollars in millions)



	Common Stock			Additional Paid-in Capital		(Accumulated Deficit) Retained Earnings		Accumulated Other Comprehensive Income (Loss), Net of Income Taxes		Total
	Shares	Amount

Balance at December 31, 2022	7,526,117	$	0.1	$	547.0	$	(87.9)	$	(2.5)	$	456.7
Net loss	—	—		—		(16.2)		—		(16.2)









Equity-based compensation and other	150,891	—		4.6		—		—		4.6
Other comprehensive income, net of income taxes	—	—		—		—		0.1		0.1
Balance at September 30, 2023	7,677,008	$	0.1	$	551.6	$	(104.2)	$	(2.4)	$	445.1

Balance at December 31, 2021	9,208,312	$	0.1	$	592.6	$	(113.6)	$	(2.4)	$	476.7
Net income	—	—		—		105.4		—		105.4




Repurchase of common stock	(1,338,498)	—		(38.8)		—		—		(38.8)


Equity-based compensation and other	64,780	—		2.5		—		—		2.5
Other comprehensive income, net of income taxes	—	—		—		—		0.3		0.3
Balance at September 30, 2022	7,934,594	$	0.1	$	556.3	$	(8.2)	$	(2.0)	$	546.1

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in millions)


	For the Nine Months Ended September 30,
	2023		2022
Cash flows from operating activities
Net income (loss)	$	(16.2)	$	105.4
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
MSR valuation adjustments, net	204.5		(4.1)
Loss on sale of MSRs, net	0.3		0.3

Provision for bad debts (advances and receivables)	20.0		15.2
Provision for (reversal of) indemnification obligations	4.0		2.7
Depreciation	4.9		7.6

Amortization of debt issuance costs and discount	12.0		7.5
Amortization of intangibles	4.2		3.3
Equity-based compensation expense	6.8		2.8
Gain on extinguishment of debt	(1.2)		(0.9)




Net loss (gain) on valuation of loans held for investment and HMBS-related borrowings	(10.6)		15.8
Gain on loans held for sale, net	(36.3)		(16.7)
Earnings of equity method investee	(5.9)		(19.3)
Distribution of earnings from equity method investee	5.9		19.3

Origination and purchase of loans held for sale	(9,830.5)		(13,489.3)
Proceeds from sale and collections of loans held for sale	9,341.8		13,527.6
Changes in assets and liabilities:
Decrease in advances, net	147.7		101.8
Decrease in receivables and other assets, net	32.9		19.0
(Increase) decrease in derivatives, net	(80.8)		2.9
Decrease in other liabilities	(64.7)		(25.3)
Other, net	(10.2)		(5.0)
Net cash provided by (used in) operating activities	(271.4)		270.6

Cash flows from investing activities
Origination of loans held for investment	(771.8)		(1,494.0)
Principal payments received on loans held for investment	808.1		1,322.5
Acquisition of loans held for investment, net	—		(4.1)
Acquisition of reverse mortgage subservicing agreements	—		(6.9)
Purchase of MSRs	(89.6)		(174.9)
Proceeds from sale of MSRs	0.2		149.1


Proceeds from sale of advances	6.1		2.5


Additions to premises and equipment	(2.2)		(4.8)
Purchase of real estate	(10.3)		(0.9)
Proceeds from sale of real estate	13.1		6.2
Proceeds from sale of premises and equipment	0.1		0.1

Distribution from (investment in) equity method investee, net	2.7		(15.5)


Net cash used in investing activities	(43.6)		(220.6)
Cash flows from financing activities
Repayment of advance match funded liabilities, net	(110.6)		(54.8)

Proceeds from (repayment of) mortgage loan financing facilities, net	332.9		(265.5)
Proceeds from MSR financing facilities	767.0		379.7
Repayment of MSR financing facilities	(817.9)		(257.8)
Repurchase and repayment of Senior notes	(12.5)		(23.6)


Payment of debt issuance costs	(4.1)		(1.3)
Proceeds from other financing liabilities - Sale of MSRs accounted for as secured financing	173.1		78.7
Proceeds from other financing liabilities - Excess Servicing Spread (ESS) liability	68.7		36.2
Repayment of other financing liabilities	(71.1)		(82.4)
Proceeds from sale of Home Equity Conversion Mortgages (HECM, or reverse mortgages) accounted for as a financing (HMBS-related borrowings)	783.7		1,507.6
Repayment of HMBS-related borrowings	(802.4)		(1,319.8)


Repurchase of common stock	—		(38.8)



Net cash provided by (used in) financing activities	306.7		(41.6)

Net increase (decrease) in cash, cash equivalents and restricted cash	(8.3)		8.4
Cash, cash equivalents and restricted cash at beginning of year	274.2		263.4
Cash, cash equivalents and restricted cash at end of period	$	265.9	$	271.8

Supplemental non-cash investing and financing activities:

Recognition (derecognition) of gross right-of-use asset and lease liability:
Right-of-use asset	$	(1.3)	$	8.0
Lease liability	(1.3)		8.0

Transfers of loans held for sale to real estate owned (REO)	15.1		1.0
Transfer from loans held for investment to loans held for sale	4.6		30.4



Derecognition of MSRs and Other financing liabilities, at fair value:
MSR, at fair value	$	(32.5)	$	(39.0)
Other financing liability, at fair value - MSR pledged liability	(32.5)		(35.9)

Loans held for investment acquired at fair value	$	—	$	224.1
HMBS-related borrowings assumed at fair value	—		(219.5)
Purchase price holdback	—		(0.5)
Net cash paid to acquire loans held for investment	$	—	$	4.1

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited consolidated balance sheets and the unaudited consolidated statements of cash flows:


	September 30, 2023		September 30, 2022
Cash and cash equivalents	$	194.0	$	226.6
Restricted cash and equivalents:
Debt service accounts	29.7		16.1
Other restricted cash	42.2		29.2
Total cash, cash equivalents and restricted cash reported in the statements of cash flows	$	265.9	$	271.8

The accompanying notes are an integral part of these unaudited consolidated financial statements

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023

(Dollars in millions, except per share data and unless otherwise indicated)


Note 1 - Organization and Basis of Presentation

Organization

Ocwen Financial Corporation (NYSE: OCN) (Ocwen, OFC, we, us and our) is a non-bank mortgage servicer and originator providing solutions to homeowners, clients, investors and others through its primary operating subsidiary, PHH Mortgage Corporation (PMC). We are headquartered in West Palm Beach, Florida with offices and operations in the United States (U.S.), the United States Virgin Islands (USVI), India and the Philippines. Ocwen is a Florida corporation organized in February 1988.

Ocwen directly or indirectly owns all of the outstanding common stock of its operating subsidiaries, including PMC since its acquisition on October 4, 2018, Ocwen Financial Solutions Private Limited (OFSPL) and Ocwen USVI Services, LLC (OVIS). Effective May 3, 2021, Ocwen holds a 15% equity interest in MAV Canopy HoldCo I, LLC (MAV Canopy) that invests in mortgage servicing assets through its licensed mortgage subsidiary MSR Asset Vehicle LLC (MAV). See Note 10 - Investment in Equity Method Investee and Related Party Transactions for additional information.

We perform servicing activities related to our own MSR portfolio (primary) and on behalf of other servicers (subservicing), the largest being Rithm Capital Corp. (Rithm), formerly known as New Residential Investment Corp. (NRZ), and investors (primary and master servicing), including the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively referred to as GSEs), the Government National Mortgage Association (Ginnie Mae, and together with the GSEs, the Agencies) and private-label securitizations (PLS, or non-Agency).

We source our servicing portfolio through multiple channels, including retail, wholesale, correspondent, flow MSR purchase agreements, the Agency Cash Window programs and bulk MSR purchases. We originate, sell and securitize conventional (conforming to the GSE underwriting standards) loans and government-insured (Federal Housing Administration (FHA), Department of Veterans Affairs (VA) or United States Department of Agriculture (USDA)) forward mortgage loans, generally with servicing retained. The GSEs or Ginnie Mae guarantee these mortgage securitizations. We originate and purchase Home Equity Conversion Mortgage (HECM) loans, or reverse mortgages, which are mostly insured by the FHA and we are an approved issuer of Home Equity Conversion Mortgage-Backed Securities (HMBS) that are guaranteed by Ginnie Mae.

We had a total of approximately 4,600 employees at September 30, 2023 of which approximately 3,100 were located in India and approximately 400 were based in the Philippines. Our operations in India and the Philippines provide internal support services to our loan servicing and originations businesses and our corporate functions.

Basis of Presentation

The accompanying unaudited 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 consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. The results of operations and other data for the three and nine months ended September 30, 2023 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2023. The unaudited 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, 2022.

Change in Presentation

Effective in the fourth quarter of 2022, in our consolidated statements of operations we present all fair value gains and losses of Other financing liabilities, at fair value in MSR valuation adjustments, net (previously reported in Pledged MSR liability expense). In addition, effective December 31, 2022, we changed our accounting policy from the nature of the distribution approach to the cumulative earnings approach for classifying distributions from our equity method investee MAV Canopy between operating and investing cash flows. The consolidated statements of operations for the three and nine months ended September 30, 2022, and the consolidated statements of cash flows for the nine months ended September 30, 2022, have been recast to conform to the current presentation policy. For additional information, including the impact on previously

reported periods, see the “Change in Presentation” section of Note 1 to our audited consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2022.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires that management 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. Such estimates and assumptions include, but are not limited to, those that relate to fair value measurements, income taxes and the provision for losses that may arise from contingencies including litigation proceedings. In developing estimates and assumptions, management uses all available information; however, actual results could materially differ from those estimates and assumptions.

Recently Adopted Accounting Standards

Business Combinations (Accounting Standards Codification (ASC) 805) - Accounting for Contract Assets and Contract Liabilities (ASU 2021-08)

The amendments in this Accounting Standards Update (ASU) apply to all entities that enter into a business combination within the scope of Subtopic 805-10, Business Combinations— Overall. The amendments in this ASU are issued to improve the accounting for acquired revenue contracts with customers in a business combination by addressing diversity in practice and inconsistency related to the following: (1) recognition of an acquired contract liability and (2) payment terms and their effect on subsequent revenue recognized by the acquirer. The amendments in this ASU require that an entity (acquirer) recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with ASC 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts. To achieve this, an acquirer may assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue contracts. Generally, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements (if the acquiree prepared financial statements in accordance with GAAP).

Our adoption of this ASU on January 1, 2023 did not have a material impact on our consolidated financial statements.

Financial Instruments—Credit Losses (ASC 326) Troubled Debt Restructurings and Vintage Disclosures (ASU 2022-02)

The amendments in this ASU are related to 1) troubled debt restructurings (TDRs) and 2) vintage disclosures which affect all entities after they have adopted ASU 2016-13. The amendments eliminate the accounting guidance for TDRs by creditors in Subtopic 310-40 Receivables – Troubled Debt Restructurings by Creditors, while enhancing disclosure requirements for certain loan refinancing and restructurings by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying the recognition and measurement guidance for TDRs, an entity must apply the loan refinancing and restructuring guidance in ASC 310-20-35-9 through 35-11 to determine whether a modification results in a new loan or a continuation of an existing loan. The amendments in this ASU also requires an entity to disclose current-period gross write-offs by year of origination for financing receivables and net investments in leases with the scope of ASC 326 – Financial Instruments – Credit Losses – Measured at Amortized Cost.

Our adoption of this ASU on January 1, 2023 did not have a material impact on our consolidated financial statements.

Accounting Standards Issued but Not Yet Adopted

Leases (ASC 842) Common Control Arrangements (ASU 2023-01)

The amendments in this ASU affect 1) all lessees that are a party to a lease between entities under common control in which there are leasehold improvements, and apply to all entities and 2) require leasehold improvements associated with common control leases be a) amortized by the lessee over the useful life of the leasehold improvements to the common group (regardless of lease term) and b) accounted for as a transfer between two entities under common control through an adjustment to equity, if and when the lessee no longer controls the use of the underlying asset.

The amendments in this ASU are effective for us on January 1, 2024. We do not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements.

Business Combinations - Joint Venture Formations (ASC 805-60): Recognition and Initial Measurement (ASU 2023-05)

The amendments in this ASU require a joint venture to apply a new basis of accounting upon formation for the initial contribution of nonmonetary and monetary assets, initially measured at fair value (with exceptions to fair value measurement consistent with business combinations guidance). This ASU does not amend the definition of a joint venture, the accounting by an equity method investor for its investment in a joint venture, or the accounting by a joint venture for contributions received after its formation.

The amendments in this ASU are effective prospectively for all joint venture formations with a formation date on or after January 1, 2025, with early adoption permitted. A joint venture formed before January 1, 2025 may elect to apply the amendments retrospectively if it has sufficient information. We do not anticipate that the adoption of this standard will have a material impact on our consolidated financial statements.


Note 2 – Securitizations and Variable Interest Entities

We securitize, sell and service forward and reverse residential mortgage loans and regularly transfer financial assets in connection with asset-backed financing arrangements. We have aggregated these transfers of financial assets and asset-backed financing arrangements using special purpose entities (SPEs) or variable interest entities (VIEs) into the following groups: (1) securitizations of residential mortgage loans, (2) financings of advances and (3) MSR financings. Financing transactions that do not use SPEs or VIEs are disclosed in Note 12 – Borrowings.

Securitizations of Residential Mortgage Loans

Transfers of Forward Loans

We sell or securitize forward loans that we originate or purchase from third parties, generally in the form of mortgage-backed securities guaranteed by the GSEs or Ginnie Mae. Securitization typically occurs within 30 days of loan closing or purchase. We act only as a fiduciary and do not have a variable interest in the securitization trusts. As a result, we account for these transactions as sales upon transfer.

The following table presents a summary of cash flows received from and paid to securitization trusts related to transfers of loans accounted for as sales that were outstanding:


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Proceeds received from securitizations	$	4,619.0	$	5,227.5	$	9,233.9	$	12,925.3
Servicing fees collected (1)	31.0		21.6		86.2		67.2
Purchases of previously transferred assets, net of claims reimbursed	(4.0)		(3.5)		(11.1)		(10.3)
	$	4,646.0	$	5,245.5	$	9,309.0	$	12,982.1

(1)We receive servicing fees based upon the securitized loan balances and certain ancillary fees, all of which are reported in Servicing and subservicing fees in the unaudited consolidated statements of operations.

In connection with these transfers, we retained MSRs of $71.4 million and $134.0 million during the three and nine months ended September 30, 2023, respectively, and $70.2 million and $176.2 million during the three and nine months ended September 30, 2022, respectively.

Certain obligations arise from the agreements associated with our transfers of loans. Under these agreements, we may be obligated to repurchase the loans, or otherwise indemnify or reimburse the investor or insurer for losses incurred due to material breach of contractual representations and warranties. We receive customary origination representations and warranties from our network of approved correspondent lenders. To the extent that we have recourse against a third-party originator, we may recover part or all of any loss we incur. Also refer to the Loan Put-Back and Related Contingencies section of Note 20 – Contingencies.

The following table presents the carrying amounts of our assets that relate to our continuing involvement with forward loans that we have transferred with servicing rights retained as well as an estimate of our maximum exposure to loss including the UPB of the transferred loans:


	September 30, 2023		December 31, 2022
Carrying value of assets
MSRs, at fair value	$	698.4	$	524.3
Advances	62.3		75.9
UPB of loans transferred (1)	45,093.6		37,571.1
Maximum exposure to loss (2)	$	45,854.2	$	38,171.2

(1)Includes $9.7 billion and $6.8 billion of loans delivered to Ginnie Mae as of September 30, 2023 and December 31, 2022, respectively, and includes loan modifications repurchased and delivered through the Ginnie Mae Early Buyout Program (EBO).

(2)The maximum exposure to loss in the table above is primarily based on the remaining UPB of loans serviced and assumes all loans were deemed worthless as of the reporting date. It does not take into consideration the proceeds from the underlying collateral liquidation, recoveries or any other recourse available to us, including from mortgage insurance, guarantees or correspondent sellers. We do not believe the maximum exposure to loss from our involvement with these previously transferred loans is representative of the actual loss we are likely to incur based on our contractual rights and historical loss experience and projections. Also, refer to the Loan Put-Back and Related Contingencies section in Note 20 – Contingencies.

At September 30, 2023 and December 31, 2022, 2.4% and 2.5%, respectively, of the transferred residential loans that we service were 60 days or more past due, including 60 days or more past due loans under forbearance. This includes 7.2% and 8.3%, respectively, of loans delivered to Ginnie Mae that are 60 days or more past due.

Transfers of Reverse Mortgages

We pool HECM loans into HMBS that we sell into the secondary market with servicing rights retained. As the transfers of the HECM loans do not qualify for sale accounting, we account for these transfers as financings, with the HECM loans classified as Loans held for investment, at fair value, on our unaudited consolidated balance sheets.

Financing of Loans Held for Sale, Receivables and Other Assets using SPEs

In 2021, we consolidated an SPE (trust) in connection with a warehouse mortgage loan financing facility structured as a gestation repurchase facility whereby Agency mortgage loans are transferred by PMC to the trust for collateralization purposes. As of December 31, 2022, the certificates issued by the trust and pledged as collateral had been reduced to zero. As of September 30, 2023, $150.0 million loans held for sale were pledged as collateral for $150.0 million debt certificates issued by the trust.

In June 2023, we completed a private placement securitization of HECM loans that are insured by the FHA and REO properties, also referred to as reverse mortgage buyouts. The securitized assets include assets originated by PHH and assets acquired in April 2023. The securitization trust, Ocwen Loan Investment Trust 2023-HB1 (OLIT) issued senior and mezzanine class Notes to third party investors. We retain certain mezzanine class Notes and ownership interests and service the underlying assets. We determined we were the primary beneficiary, thus consolidate the securitization trust, OLIT and related depositor. Recourse for the Notes is limited to the assets of OLIT. Also refer to Note 12 – Borrowings.

The table below presents the carrying value and classification of the assets and liabilities reported on our consolidated balance sheet that are associated with the securitized reverse mortgage loans buyouts and financing liabilities:


	September 30, 2023
Mortgage loans (Loans held for sale, at fair value)	$	127.4
Receivables, net	29.4
REO (Other Assets)	13.4
Debt service accounts (Restricted cash)	8.4
Outstanding borrowings (Mortgage loan financing facilities, net)	190.2
Unamortized discount and debt issuance costs (Mortgage loan financing facilities, net)	23.9

Interest Reserve Account (Restricted cash)	0.5

Financings of Advances using SPEs

Match funded advances, i.e., advances that are pledged as collateral to our advance facilities, result from our transfers of residential loan servicing advances to SPEs - that we include in our consolidate financial statements - in exchange for cash.

The table below presents the carrying value and classification of the assets and liabilities of the advance financing facilities:


	September 30, 2023		December 31, 2022
Match funded advances (Advances, net)	$	471.4	$	608.4
Debt service accounts (Restricted cash)	11.0		15.8


Advance match funded liabilities	402.2		512.5

MSR Financings using SPEs

We consolidate two SPEs (PMC ESR Trusts) in connection with a third-party financing facility secured by certain of PMC’s Fannie Mae and Freddie Mac MSRs (Agency MSRs) and one SPE (PMC PLS ESR Issuer LLC) in connection with our PLS MSR financing facility (Ocwen Excess Spread-Collateralized Notes, Series 2022-PLS1 Class A).

The table below presents the carrying value and classification of the assets and liabilities of the Agency MSR financing facility and the PLS Notes facility:


	September 30, 2023		December 31, 2022

MSRs pledged (MSRs, at fair value)	$	501.9	$	696.9
Debt service account (Restricted cash)	1.7		1.8

Outstanding borrowings (MSR financing facilities, net)	283.8		366.5


Note 3 – Fair Value

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.

The carrying amounts and the estimated fair values of our financial instruments and certain of our nonfinancial assets measured at fair value on a recurring or non-recurring basis or disclosed, but not measured, at fair value are as follows:


		September 30, 2023				December 31, 2022
	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets
Loans held for sale
Loans held for sale, at fair value (a) (e)	3, 2	$	944.7	$	944.7	$	617.8	$	617.8
Loans held for sale, at lower of cost or fair value (b)	3	3.6		3.6		4.9		4.9
Total Loans held for sale		$	948.3	$	948.3	$	622.7	$	622.7

Loans held for investment, at fair value
Loans held for investment - Reverse mortgages (a)	3	$	7,777.6	$	7,777.6	$	7,504.1	$	7,504.1
Loans held for investment - Restricted for securitization investors (a)	3	5.9		5.9		6.7		6.7
Total Loans held for investment, at fair value		$	7,783.5	$	7,783.5	$	7,510.8	$	7,510.8

Advances, net (c)	3	$	564.6	$	564.6	$	718.9	$	718.9

Receivables, net (c)	3	164.7		164.7		180.8		180.8


		September 30, 2023				December 31, 2022
	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial liabilities
Advance match funded liabilities (c)	3	$	403.0	$	403.0	$	513.7	$	513.7
Financing liabilities, at fair value
HMBS-related borrowings (a)	3	$	7,613.6	$	7,613.6	$	7,326.8	$	7,326.8
Other financing liabilities
Financing liability - Pledged MSR liability (a)	3	$	1,119.1	$	1,119.1	$	931.7	$	931.7
Financing liability - Excess Servicing Spread (ESS) (a)	3	255.4		255.4		199.0		199.0
Financing liability - Owed to securitization investors (a)	3	5.9		5.9		6.7		6.7

Total Other financing liabilities		$	1,380.3	$	1,380.3	$	1,137.4	$	1,137.4



Mortgage loan financing facilities (c) (d)	3	1,034.7		1,038.5		702.7		702.7
MSR financing facilities (c) (d)	3	901.7		884.0		953.8		932.1

Senior notes:
PMC Senior secured notes due 2026 (c) (d)	2	$	356.8	$	324.2	$	369.4	$	331.4
OFC Senior secured notes due 2027 (c) (d)	3	237.2		227.9		230.2		223.9
Total Senior notes		$	594.1	$	552.1	$	599.6	$	555.2

Derivative financial instrument assets (liabilities), net
Interest rate lock commitments (IRLCs) (a)	3	$	(1.1)	$	(1.1)	$	(0.7)	$	(0.7)
Forward sales of loans (a)	1	1.3		1.3		0.5		0.5
TBA / Forward mortgage-backed securities (MBS) trades (a)	1	(9.6)		(9.6)		(0.7)		(0.7)
Interest rate swap futures (a)	1	(10.2)		(10.2)		(13.6)		(13.6)
TBA forward pipeline trades (a)	1	10.6		10.6		6.6		6.6
Option contracts (a)	1	(1.4)		(1.4)		—		—
Other (a)	3	(0.2)		(0.2)		(0.1)		(0.1)

MSRs (a)	3	$	2,859.8	$	2,859.8	$	2,665.2	$	2,665.2

(a)Measured at fair value on a recurring basis in our financial statements.

(b)Measured at fair value on a non-recurring basis in our financial statements.

(c)Disclosed, but not measured at fair value in our financial statements.

(d)The carrying values are net of unamortized debt issuance costs and discount. See Note 12 – Borrowings for additional information.

(e)Loans repurchased from Ginnie Mae securitizations with a fair value of $199.8 million (includes loans which were previously classified as Level 2) and $32.1 million at September 30, 2023 and December 31, 2022, respectively, are classified as Level 3. The newly originated portfolio of loans held for sale pending securitization with the Agencies is classified as Level 2.

The following tables present a reconciliation of the changes in fair value of Level 3 assets and liabilities that we measure at fair value on a recurring basis:


	Loans Held for Investment - Restricted for Securitization Investors		Financing Liability - Owed to Securitization Investors		Loans Held for Sale - Fair Value		ESS Financing Liability		IRLCs
Three months ended September 30, 2023
Beginning balance	$	6.0	$	(6.0)	$	197.4	$	(258.5)	$	1.4