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 ~~September~~June 30, ~~2017~~2018



o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from: ____________________ to ____________________

Commission File No. 1-13219

OCWEN FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)



Florida		65-0039856
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1661 Worthington Road, Suite 100 West Palm Beach, Florida		33409
(Address of principal executive office)		(Zip Code)

(561) 682-8000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark 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	o		Accelerated filer	x
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	o
			Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes o No x

Number of shares of common stock outstanding as of ~~October 27, 2017: 130,859,058~~July 23, 2018: 133,912,425 shares

OCWEN FINANCIAL CORPORATION

FORM 10-Q

TABLE OF CONTENTS



		PAGE
PART I - FINANCIAL INFORMATION

Item 1.	Unaudited Consolidated Financial Statements	3

	Consolidated Balance Sheets at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017	4

	Consolidated Statements of Operations for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	5

	Consolidated Statements of Comprehensive ~~Income~~Loss for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	6

	Consolidated Statements of Changes in Equity for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	7

	Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 and ~~2016~~2017	8

	Notes to Unaudited Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5354

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	8279

Item 4.	Controls and Procedures	8482

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	8683

Item 1A.	Risk Factors	8683

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	8683

Item 6.	Exhibits	8684

Signatures		8885

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 statements include declarations regarding our management’s beliefs and current expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could”, “intend,” “consider,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict” or “continue” or the negative of such terms or other comparable terminology. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Our business has been undergoing substantial change, which has magnified such uncertainties. Readers should bear these factors in mind when considering forward-looking statements and should not place undue reliance on such statements. Forward-looking statements involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those suggested by such statements. In the past, actual results have differed from those suggested by forward-looking statements and this may happen again. Important factors that could cause actual results to differ include, but are not limited to, the risks discussed or referenced under Item 1A, Risk Factors and the following:

uncertainty related to claims, litigation, cease and desist orders and investigations brought by government agencies and private parties regarding our servicing, foreclosure, modification, origination and other practices, including uncertainty related to past, present or future investigations, litigation, cease and desist orders and settlements with state regulators, the Consumer Financial Protection Bureau (CFPB), ~~State Attorneys General,~~state attorneys general, the Securities and Exchange Commission (SEC), the Department of Justice or the Department of Housing and Urban Development (HUD) and actions brought under the False Claims Act by private parties on behalf of the United States of America regarding incentive and other payments made by governmental entities;

adverse effects on our business ~~as a result~~because of regulatory investigations, litigation, cease and desist orders or settlements;

reactions to the announcement of such investigations, litigation, cease and desist orders or settlements by key counterparties or others, including lenders, the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie ~~Mac)~~Mac, and together with Fannie Mae, the GSEs) and the Government National Mortgage Association (Ginnie Mae);

our ability to reach settlements with regulatory agencies and state attorneys general on reasonable terms and to comply with the terms of our ~~settlements with regulatory agencies;~~settlements;

increased regulatory scrutiny, and media attention;

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

our ability to effectively manage our regulatory and contractual compliance obligations;

our ability to comply with our servicing agreements, including our ability to comply with our agreements with, and the requirements of, Fannie Mae, Freddie Mac and Ginnie Mae and maintain our seller/servicer and other statuses with them;

the adequacy of our financial resources, including our sources of liquidity and ability to sell, fund and recover advances, repay borrowings and comply with our debt agreements, including the financial and other covenants contained in them;

our ability to invest excess liquidity at adequate risk-adjusted returns;

limits on our ability to repurchase our own stock as a result of regulatory settlements and other conditions;

our servicer and credit ratings as well as other actions from various rating agencies, including the impact of prior or future downgrades of our servicer and credit ratings;

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

volatility in our stock price;

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

our ability to contain and reduce our operating costs;

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

uncertainty related to legislation, regulations, regulatory agency actions, regulatory examinations, government programs and policies, industry initiatives and evolving best servicing practices;

the dependence of our ~~dependence~~business on New Residential Investment Corp. (NRZ), our largest client and the source for a substantial portion of our advance funding for non-agency mortgage servicing rights;

our ability to timely transfer mortgage servicing rights under our ~~July 2017~~ agreements with NRZ and our ability to maintain our long-term relationship with ~~NRZ under these~~NRZ;

our ability to complete the proposed acquisition of PHH, to successfully integrate its business, and to realize the strategic objectives and other benefits of the acquisition at the time anticipated or at all, including our ability to

integrate, maintain and enhance PHH’s servicing, subservicing and other business relationships, including its relationship with NRZ;

our ability to transition to a new ~~arrangements;~~servicing technology platform within the time and cost parameters anticipated and without significant disruptions to our customers and operations;

the loss of the services of our senior ~~managers;~~managers, including potential impacts from the recent retirement of our former chief executive officer and the recent resignation of our former chief financial officer;

our ability to execute effective chief executive and chief financial officer leadership transitions;

uncertainty related to general economic and market conditions, delinquency rates, home prices and disposition timelines on foreclosed properties;

uncertainty related to the actions of loan owners and guarantors, including mortgage-backed securities investors, GSEs, Ginnie Mae ~~trustees~~ and ~~government sponsored entities (GSEs),~~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 Department of Housing and Urban Development (HUD) or Department of Veterans Affairs (VA) ceasing to provide insurance;

uncertainty related to the processes for judicial and non-judicial foreclosure proceedings, including potential additional costs or delays or moratoria in the future or claims pertaining to past practices;

our ability to adequately manage and maintain real estate owned (REO) properties and vacant properties collateralizing loans that we service;

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

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

uncertainty related to the ability of third-party obligors and financing sources to fund servicing advances on a timely basis on loans serviced by us;

uncertainty related to the ability of our technology vendors to adequately maintain and support our systems, including our servicing systems, loan originations and financial reporting systems;

our ability to realize anticipated future gains from future draws on existing loans in our reverse mortgage portfolio;

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

uncertainty related to our ability to adapt and grow our business, including our new business initiatives;

our ability to meet capital requirements established by, or agreed with, regulators or counterparties;

our ability to protect and maintain our technology systems and our ability to adapt such systems for future operating environments; and

uncertainty related to the political or economic stability of foreign countries in which we have operations.

Further information on the risks specific to our business is detailed within this report and our other reports and filings with the SEC including ~~Amendment No. 1 to~~ our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 and our Quarterly ~~and Current~~ Reports on Form 10-Q and 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 ~~as a result~~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 thousands, except per share data)


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Assets
Cash	$	299,888		$	256,549		$	228,412		$	259,655
Mortgage servicing rights ($598,147 and $679,256 carried at fair value)	944,308			1,042,978
Mortgage servicing rights ($1,043,995 and $671,962 carried at fair value)							1,043,995			1,008,844
Advances, net	197,953			257,882			173,787			211,793
Match funded assets (related to variable interest entities (VIEs))	1,243,899			1,451,964			993,926			1,177,357
Loans held for sale ($200,438 and $284,632 carried at fair value)	223,662			314,006
Loans held for sale ($153,906 and $214,262 carried at fair value)							209,453			238,358
Loans held for investment, at fair value	4,459,760			3,565,716			5,143,758			4,715,831
Receivables, net	231,514			265,720			178,678			199,529
Premises and equipment, net	42,720			62,744			30,619			37,006
Other assets ($19,067 and $20,007 carried at fair value)(amounts related to VIEs of $26,647 and $43,331)	453,901			438,104
Other assets ($8,816 and $8,900 carried at fair value)(amounts related to VIEs of $20,021 and $27,359)							417,568			554,791
Total assets	$	8,097,605		$	7,655,663		$	8,420,196		$	8,403,164

Liabilities and Equity
Liabilities
HMBS-related borrowings, at fair value	$	4,358,277		$	3,433,781		$	5,040,983		$	4,601,556
Other financing liabilities ($447,843 and $477,707 carried at fair value)	536,981			579,031
Match funded liabilities (related to VIEs)	1,028,016			1,280,997			750,694			998,618
Other financing liabilities ($672,619 and $508,291 carried at fair value)							747,503			593,518
Other secured borrowings, net	544,589			678,543			340,418			545,850
Senior notes, net	347,201			346,789			347,612			347,338
Other liabilities ($71 and $1,550 carried at fair value)	693,119			681,239
Other liabilities ($2,448 and $635 carried at fair value)							591,803			769,410
Total liabilities	7,508,183			7,000,380			7,819,013			7,856,290

Commitments and Contingencies (Notes 20 and 21)
Commitments and Contingencies (Notes 19 and 20)

Equity
Ocwen Financial Corporation (Ocwen) stockholders’ equity
Common stock, $.01 par value; 200,000,000 shares authorized; 130,859,058 and 123,988,160 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively	1,309			1,240
Common stock, $.01 par value; 200,000,000 shares authorized; 133,912,425 and 131,484,058 shares issued and outstanding at June 30, 2018, and December 31, 2017, respectively							1,339			1,315
Additional paid-in capital	544,392			527,001			552,800			547,057
Retained earnings	42,400			126,167
Retained earnings (accumulated deficit)							47,056			(2,083		)
Accumulated other comprehensive loss, net of income taxes	(1,293		)	(1,450		)	(1,171		)	(1,249		)
Total Ocwen stockholders’ equity	586,808			652,958			600,024			545,040
Non-controlling interest in subsidiaries	2,614			2,325			1,159			1,834
Total equity	589,422			655,283			601,183			546,874
Total liabilities and equity	$	8,097,605		$	7,655,663		$	8,420,196		$	8,403,164

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 thousands, except per share data)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Revenue
Servicing and subservicing fees	$	233,220		$	302,235		$	761,523		$	906,993		$	222,227		$	255,801		$	444,365		$	528,303
Gain on loans held for sale, net	25,777			25,645			76,976			69,074			24,393			28,255			44,193			51,199
Other	25,645			31,568			79,307			87,192			6,961			27,244			25,280			53,662
Total revenue	284,642			359,448			917,806			1,063,259			253,581			311,300			513,838			633,164

Expenses
Compensation and benefits	90,538			92,942			272,750			287,613			69,838			90,411			147,913			182,212
Professional services													32,389			65,405			70,159			107,234
Servicing and origination	72,524			63,551			204,947			249,230			28,276			35,645			59,694			75,815
Professional services	38,417			65,489			145,651			257,795
Technology and communications	27,929			25,941			79,530			85,519			23,906			24,254			46,709			51,601
MSR valuation adjustments, net													33,118			41,568			50,247			82,020
Occupancy and equipment	15,340			16,760			49,569			62,213			12,859			16,480			25,473			34,229
Amortization of mortgage servicing rights	13,148			(2,558		)	38,560			18,595
Other	15,583			9,553			39,335			24,388			5,264			6,717			11,956			23,752
Total expenses	273,479			271,678			830,342			985,353			205,650			280,480			412,151			556,863

Other income (expense)
Interest income	4,099			5,158			12,101			14,488			3,355			4,239			6,055			8,002
Interest expense	(47,281		)	(110,961		)	(212,471		)	(308,083		)	(77,503		)	(81,128		)	(128,313		)	(165,190		)
Gain on sale of mortgage servicing rights, net	6,543			5,661			7,863			7,689			78			1,033			1,036			1,320
Other, net	(1,077		)	14,736			6,384			11,841			(2,266		)	3,428			(3,905		)	7,461
Total other expense, net	(37,716		)	(85,406		)	(186,123		)	(274,065		)	(76,336		)	(72,428		)	(125,127		)	(148,407		)

Income (loss) before income taxes	(26,553		)	2,364			(98,659		)	(196,159		)
Income tax benefit	(20,418		)	(7,110		)	(15,465		)	(7,214		)
Net income (loss)	(6,135		)	9,474			(83,194		)	(188,945		)
Loss before income taxes													(28,405		)	(41,608		)	(23,440		)	(72,106		)
Income tax expense													1,348			2,828			3,696			4,953
Net loss													(29,753		)	(44,436		)	(27,136		)	(77,059		)
Net income attributable to non-controlling interests	(117		)	(83		)	(289		)	(373		)	(78		)	(71		)	(147		)	(172		)
Net income (loss) attributable to Ocwen stockholders	$	(6,252	)	$	9,391		$	(83,483	)	$	(189,318	)
Net loss attributable to Ocwen stockholders													$	(29,831	)	$	(44,507	)	$	(27,283	)	$	(77,231	)

Income (loss) per share attributable to Ocwen stockholders
Loss per share attributable to Ocwen stockholders
Basic	$	(0.05	)	$	0.08		$	(0.66	)	$	(1.53	)	$	(0.22	)	$	(0.36	)	$	(0.20	)	$	(0.62	)
Diluted	$	(0.05	)	$	0.08		$	(0.66	)	$	(1.53	)	$	(0.22	)	$	(0.36	)	$	(0.20	)	$	(0.62	)

Weighted average common shares outstanding
Basic	128,744,152			123,986,987			125,797,777			123,991,343			133,856,132			124,582,280			133,490,828			124,300,171
Diluted	128,744,152			124,134,507			125,797,777			123,991,343			133,856,132			124,582,280			133,490,828			124,300,171

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)~~LOSS

(Dollars in thousands)


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2017			2016			2017			2016			2018			2017			2018			2017
Net income (loss)	$	(6,135	)	$	9,474		$	(83,194	)	$	(188,945	)
Net loss													$	(29,753	)	$	(44,436	)	$	(27,136	)	$	(77,059	)

Other comprehensive income, net of income taxes:
Reclassification adjustment for losses on cash flow hedges included in net income (1)	45			89			157			263			37			45			78			112
Total other comprehensive income, net of income taxes	45			89			157			263			37			45			78			112

Comprehensive income (loss)	(6,090		)	9,563			(83,037		)	(188,682		)
Comprehensive loss													(29,716		)	(44,391		)	(27,058		)	(76,947		)
Comprehensive income attributable to non-controlling interests	(117		)	(83		)	(289		)	(373		)	(78		)	(71		)	(147		)	(172		)
Comprehensive income (loss) attributable to Ocwen stockholders	$	(6,207	)	$	9,480		$	(83,326	)	$	(189,055	)
Comprehensive loss attributable to Ocwen stockholders													$	(29,794	)	$	(44,462	)	$	(27,205	)	$	(77,119	)


(1)	These losses are reclassified to Other, net in the unaudited consolidated statements of operations.

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~~SIX MONTHS ENDED ~~SEPTEMBER~~JUNE 30, ~~2017~~2018 AND ~~2016~~2017

(Dollars in thousands)


	Ocwen Stockholders																							Ocwen Stockholders
	Common Stock					Additional Paid-in Capital				Retained Earnings				Accumulated Other Comprehensive Income (Loss), Net of Taxes			Non-controlling Interest in Subsidiaries				Total			Common Stock				Additional Paid-in Capital				Retained Earnings (Accumulated Deficit)				Accumulated Other Comprehensive Income (Loss), Net of Taxes				Non-controlling Interest in Subsidiaries				Total
	Shares		Amount							Retained Earnings			Shares				Non-controlling Interest in Subsidiaries			Amount								Additional Paid-in Capital				Retained Earnings (Accumulated Deficit)				Accumulated Other Comprehensive Income (Loss), Net of Taxes				Non-controlling Interest in Subsidiaries				Total
Balance at December 31, 2017																								131,484,058	$	1,315		$	547,057			$	(2,083	)		$	(1,249	)		$	1,834			$	546,874
Net income (loss)																								—	—			—				(27,283		)		—				147				(27,136		)
Issuance of common stock																								1,875,000	19			5,700				—				—				—				5,719
Cumulative effect of fair value election - Mortgage servicing rights																								—	—			—				82,043				—				—				82,043
Cumulative effect of adoption of FASB Accounting Standards Update No. 2016-16																								—	—			—				(5,621		)		—				—				(5,621		)
Capital distribution to non-controlling interest																								—	—			—				—				—				(822		)		(822		)
Equity-based compensation and other																								553,367	5			43				—				—				—				48
Other comprehensive income, net of income taxes																								—	—			—				—				78				—				78
Balance at June 30, 2018																								133,912,425	$	1,339		$	552,800			$	47,056			$	(1,171	)		$	1,159			$	601,183

Balance at December 31, 2016	123,988,160		$	1,240		Additional Paid-in Capital			$	527,001			$	Accumulated Other Comprehensive Income (Loss), Net of Taxes	126,167		$	(1,450	)		Total		$	2,325	$	655,283	123,988,160			$	1,240			$	527,001			$	126,167			$	(1,450	)		$	2,325	$	655,283
Net income (loss)	—		—			—				(83,483		)		—			289				(83,194		)	—	—			—				(77,231		)		—				172				(77,059		)
Issuance of common stock	6,075,510		61			13,852				—				—			—				13,913
Cumulative effect of adoption of FASB Accounting Standards Update No. 2016-09	—		—			284				(284		)		—			—				—			—	—			284				(284		)		—				—				—
Equity-based compensation and other	795,388		8			3,255				—				—			—				3,263			790,388	8			1,903				—				—				—				1,911
Other comprehensive income, net of income taxes	—		—			—				—				157			—				157			—	—			—				—				112				—				112
Balance at September 30, 2017	130,859,058		$	1,309		$	544,392			$	42,400			$	(1,293	)	$	2,614			$	589,422


Balance at December 31, 2015	124,774,516		$	1,248		$	526,148			$	325,929			$	(1,763	)	$	3,076			$	854,638
Net income (loss)	—		—			—				(189,318		)		—			373				(188,945		)
Repurchase of common stock	(991,985	)	(10		)	(5,880		)		—				—			—				(5,890		)
Exercise of common stock options	69,805		1			441				—				—			—				442
Equity-based compensation and other	137,618		1			4,016				—				—			—				4,017
Capital distribution to non-controlling interest	—		—			—				—				—			(1,138		)		(1,138		)
Other comprehensive income, net of income taxes	—		—			—				—				263			—				263
Balance at September 30, 2016	123,989,954		$	1,240		$	524,725			$	136,611			$	(1,500	)	$	2,311			$	663,387
Balance at June 30, 2017																								124,778,548	$	1,248		$	529,188			$	48,652			$	(1,338	)		$	2,497			$	580,247

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 thousands)


	For the Nine Months Ended September 30,						For the Six Months Ended June 30,
	2017			2016			2018			2017
Cash flows from operating activities
Net loss	$	(83,194	)	$	(188,945	)	$	(27,136	)	$	(77,059	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Amortization of mortgage servicing rights	38,560			18,595
Loss on valuation of mortgage servicing rights, at fair value	78,437			63,609
Impairment charge (reversal) on mortgage servicing rights	(1,551		)	37,164
MSR valuation adjustments, net							50,247			82,020
Gain on sale of mortgage servicing rights, net	(7,863		)	(7,689		)	(1,036		)	(1,320		)
Realized and unrealized losses on derivative financial instruments	364			2,213
Provision for bad debts	57,274			61,191			25,879			31,918
Depreciation	20,430			18,277			12,640			13,439
Loss on write-off of fixed assets	6,834			—
Amortization of debt issuance costs	1,979			10,475			1,662			1,334
Equity-based compensation expense	4,489			4,000			772			3,263
Gain on valuation of financing liability	(27,024		)	—			(8,642		)	—
Net gain on valuation of mortgage loans held for investment and HMBS-related borrowings	(18,637		)	(22,329		)	(7,930		)	(11,381		)
Gain on loans held for sale, net	(39,542		)	(52,206		)	(16,744		)	(29,512		)
Origination and purchase of loans held for sale	(3,074,725		)	(4,575,264		)	(838,581		)	(2,243,475		)
Proceeds from sale and collections of loans held for sale	3,067,522			4,493,887			800,982			2,217,259
Changes in assets and liabilities:
Decrease in advances and match funded assets	285,066			343,129			182,481			226,742
Decrease in receivables and other assets, net	156,008			122,305			86,606			89,437
Increase (decrease) in other liabilities	(66,321		)	4,749
Decrease in other liabilities							(68,556		)	(28,053		)
Other, net	3,102			17,263			3,926			8,013
Net cash provided by operating activities	401,208			350,424			196,570			282,625

Cash flows from investing activities
Origination of loans held for investment	(961,642		)	(1,185,565		)	(487,472		)	(698,473		)
Principal payments received on loans held for investment	311,560			528,263			186,216			192,569
Purchase of mortgage servicing rights	(1,658		)	(15,969		)	—			(1,657		)
Proceeds from sale of mortgage servicing rights	2,263			45,254			224			1,464
Proceeds from sale of advances	6,119			74,982			4,726			3,719
Issuance of automotive dealer financing notes	(129,471		)	—			(19,642		)	(85,076		)
Collections of automotive dealer financing notes	119,389			—			52,581			76,264
Additions to premises and equipment	(7,365		)	(28,649		)	(6,398		)	(7,243		)
Other, net	1,480			9,483			3,577			2,277
Net cash used in investing activities	(659,325		)	(572,201		)	(266,188		)	(516,156		)

Cash flows from financing activities
Repayment of match funded liabilities, net	(252,981		)	(218,517		)	(247,924		)	(172,620		)
Proceeds from mortgage loan warehouse facilities and other secured borrowings	5,810,591			6,632,059			1,546,226			4,216,466
Repayments of mortgage loan warehouse facilities and other secured borrowings	(6,016,169		)	(6,834,720		)	(1,870,943		)	(4,299,411		)
Payment of debt issuance costs	(841		)	(2,242		)
Proceeds from sale of mortgage servicing rights accounted for as a financing	54,601			—			279,586			—
Proceeds from sale of reverse mortgages (HECM loans) accounted for as a financing (HMBS-related borrowings)	981,730			820,438			499,576			664,453
Repayment of HMBS-related borrowings	(287,908		)	(161,995		)	(181,548		)	(176,231		)
Issuance of common stock	13,913			—
Repurchase of common stock	—			(5,890		)
Other	(1,480		)	(1,094		)
Capital distribution to non-controlling interest							(822		)	—
Other, net							(991		)	(2,314		)
Net cash provided by financing activities	301,456			228,039			23,160			230,343

Net increase in cash	43,339			6,262
Cash at beginning of year	256,549			257,272
Cash at end of period	$	299,888		$	263,534
Net decrease in cash and restricted cash							(46,458		)	(3,188		)
Cash and restricted cash at beginning of year							302,560			302,398
Cash and restricted cash at end of period							$	256,102		$	299,210

Supplemental non-cash investing and financing activities
Issuance of common stock in connection with litigation settlement							$	5,719		$	—

The following table provides a reconciliation of cash and restricted cash reported within the consolidated balance sheets that sums to the total of the same such amounts reported in the unaudited consolidated statements of cash flows:



	June 30, 2018		June 30, 2017
Cash	$	228,412	$	251,472
Restricted cash and equivalents included in Other assets:
Debt service accounts	24,278		40,968
Other restricted cash	3,412		6,770
Total cash and restricted cash reported in the statements of cash flows	$	256,102	$	299,210

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~~JUNE 30, ~~2017~~2018

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

Note 1 – Organization, Business Environment and Basis of Presentation

Organization

Ocwen Financial Corporation (NYSE: OCN) (Ocwen, we, us and our) is a financial services holding company which, through its subsidiaries, originates and services loans. We are headquartered in West Palm Beach, Florida with offices located throughout the United States (U.S.) and in the United States Virgin Islands (USVI) and with operations located in India and the Philippines. Ocwen is a Florida corporation organized in February 1988.

Ocwen owns all of the common stock of its primary operating subsidiary, Ocwen Mortgage Servicing, Inc. (OMS), and directly or indirectly owns all of the outstanding stock of its other primary operating subsidiaries: Ocwen Loan Servicing, LLC (OLS), Ocwen Financial Solutions Private Limited (OFSPL), Homeward Residential, Inc. (Homeward) and Liberty Home Equity Solutions, Inc. (Liberty).

We perform ~~primary and master servicer~~servicing activities on behalf of ~~investors and~~ other servicers (subservicing), the largest being 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, the GSEs), the Government National Mortgage Association (Ginnie Mae) and private-label securitizations (non-Agency). As a subservicer or primary servicer, we may be required to make advances for certain ~~payments of~~ property ~~taxes~~tax and insurance ~~premiums,~~premium payments, default and property maintenance payments ~~as well as advances of~~and principal and interest payments on behalf of delinquent borrowers to mortgage loan investors before ~~collecting~~recovering them from borrowers. Most, but not all, of our subservicing agreements provide for us to be reimbursed for any such advances by the owner of the servicing rights. Advances made by us as primary servicer are recovered from the borrower or the mortgage loan investor. As master servicer, we collect mortgage payments from primary servicers and distribute the funds to investors in the mortgage-backed securities. To the extent the primary servicer does not advance the scheduled principal and interest, as master servicer we are responsible for advancing the shortfall, subject to certain limitations.

We originate, ~~purchase,~~ sell and securitize conventional (conforming to the underwriting standards of Fannie Mae or Freddie Mac; collectively referred to as Agency loans) and government-insured (Federal Housing Administration (FHA) or Department of Veterans Affairs (VA)) forward ~~and reverse~~ mortgages. The GSEs or Ginnie Mae guarantee these mortgage securitizations. We originate Home Equity Conversion Mortgages (HECM, or reverse mortgages) that are insured by the FHA and are an approved issuer of Home Equity Conversion Mortgage-Backed Securities (HMBS) that are guaranteed by Ginnie Mae.

We had a total of approximately ~~8,300~~6,600 employees at ~~September~~June 30, ~~2017~~2018 of which approximately ~~5,400~~4,500 were located in India and approximately ~~700~~500 were based in the Philippines. Our operations in India and the Philippines primarily provide internal support services, principally to our loan servicing business ~~as well as to~~and our corporate functions. Of our foreign-based employees, ~~nearly~~more than 80% were engaged in supporting our loan servicing operations as of ~~September~~June 30, ~~2017.~~2018.

Business Environment

We are facing certain challenges and uncertainties that could have significant adverse effects on our business, financial condition, liquidity and results of operations. The ability of management to appropriately address these challenges and uncertainties in a timely manner is critical to our ability to ~~successfully~~ operate our ~~business.~~business successfully.

WeLosses in prior years have ~~incurred a net loss for the nine months ended September 30, 2017, which follows losses in each of the last three fiscal years. While these losses have~~significantly eroded stockholders’ equity and weakened our financial condition, it is important to note that we generated positive operating cash flow in each of these periods. We expect our cash position to strengthen in fiscal 2017 as a result of the acceleration of proceeds we expect to receive in connection with our recent agreements with New Residential Investment Corp. (NRZ), which are discussed in additional detail in ~~Note 8 — Rights to MSRs~~. As a result of the acceleration of these payments from 2018 and 2019 and before considering other strategies discussed below, it is possible the business may not generate positive operating cash flow in one or more quarters of 2018.condition. In order to drive stronger financial performance, we ~~have begun exploring strategic approaches to streamline our business. To that end, we~~ are ~~seeking to focus~~focusing our operations on mortgage servicing, on retail forward lending, primarily servicing portfolio recapture, and on ~~portfolio recapture~~our reverse mortgage business. In addition, we have significantly strengthened our cash position through the receipt of a lump-sum fee payment of $279.6 million from NRZ in January 2018 in connection with our ~~forward lending retail channel. We have also taken various strategic actions with respect~~rights to ~~our forward lending business, as we continue to evaluate the overall~~ mortgage lending business and marketplace. In the second quarter of 2017, we closed our forward lending correspondent channel due to low margins and began selling all of our forward lending wholesale channel originations on a servicing released basis to reduce capital consumption. We have also entered into an agreement to sell certain assets of our forward lending wholesale operation, and, upon closing of that transaction, we intend to exit the forward lending wholesale business.rights agreements. See Note 208 — ~~Commitments~~Rights to MSRs for ~~additional~~further information. ~~While these changes may limit~~

On February 27, 2018, we entered into a Merger Agreement pursuant to which PHH Corporation (PHH) will become a wholly owned subsidiary of Ocwen. We believe our ~~generation~~acquisition of PHH will enable us to obtain the following key strategic and financial benefits:

Accelerate our transition to the Black Knight Financial Services, Inc. LoanSphere MSP® servicing platform;

Improve servicing and origination margin through better economies of scale;

Reduce fixed costs (on a combined basis) through reductions of redundant corporate overhead and other costs; and,

Provide a foundation to enable the combined servicing platform to resume new ~~servicing assets in the near term, we believe that they will, over time, improve our returns~~business and ~~improve cash flow relative~~growth activities to current operations. We are also evaluating our long-term strategy with respect to our reverse lending and automotive capital services activities, which could include the sale of one or both of these businesses or certain assets of these businesses.offset portfolio runoff.

Our business continues to be impacted by regulatory actions, regulatory settlements and the current regulatory environment. We have faced, and expect to continue to face, heightened regulatory and public scrutiny as well as stricter and more comprehensive regulation of our business. Since April 20, 2017, the CFPB, mortgage and banking regulatory agencies from 30 states and the District of Columbia and two state attorneys general have taken regulatory actions against us that alleged deficiencies in our compliance with laws and regulations relating to our servicing and lending activities. As of November 1, 2017, we have resolved these regulatory matters with 21 states and the District of Columbia while continuing to seek resolutions with the remaining nine states and the two state attorneys general. The consequences of these regulatory actions have included one rating agency downgrading our long-term corporate debt, several rating agencies putting our servicer ratings on watch and Ginnie Mae sending us a notice of violation that included a forbearance on exercising rights that has been extended until January 24, 2018. Our business, operating results and financial condition have been significantly impacted in recent periods by ~~legal~~regulatory actions against us and ~~other fees and settlement payments related to~~by significant litigation ~~and regulatory matters, including the costs of third-party monitoring firms under our regulatory settlements.~~matters. Should the number or scope of regulatory or legal actions against us increase or expand or should we be unable to reach reasonable resolutions ~~not be reached,~~in existing regulatory and legal matters, our business, reputation, financial condition, liquidity and results of operations could be materially and adversely ~~affected.~~affected, even if we are successful in our ongoing efforts to drive stronger financial performance. See Note ~~7 – Mortgage Servicing~~, ~~Note 11 – Borrowings~~, ~~Note 19~~18 – Regulatory Requirements and Note 2120 – Contingencies for further information.

~~With regard to~~Regarding the current maturities of our borrowings, as of ~~September~~June 30, ~~2017,~~2018 we have approximately ~~$1.0 billion~~$642.2 million of debt outstanding under facilities coming due in the next 12 ~~months, including scheduled payments under our Senior Secured Term Loan (SSTL), certain notes under our servicing advance match funded facilities and our mortgage loan warehouse facilities.~~months. Portions of our match funded facilities and all of our mortgage loan warehouse facilities have 364-day terms consistent with market practice. We have historically renewed these facilities on or before their expiration in the ordinary course of financing our business. We expect to renew, replace or extend all such borrowings to the extent necessary to finance our business on or prior to their respective maturities consistent with our historical experience.

Our debt agreements contain various qualitative and quantitative events of default provisions that include, among other things, noncompliance with covenants, breach of representations, or the occurrence of a material adverse change. Provisions of this type are commonly found in debt agreements such as ours. Certain of these provisions are open to subjective interpretation and, if our interpretation were contested by a lender, a court may ultimately be required to determine compliance or lack thereof. If a lender were to allege an event of default ~~whether as a result of recent events or otherwise,~~ and we are unable to avoid, remedy or secure a waiver, we could be subject to adverse ~~action~~actions by our lenders ~~including acceleration of outstanding obligations, enforcement of liens against the assets securing or otherwise supporting our obligations and other legal remedies, any of which~~that could have a material adverse impact on us. In addition, OLS, Homeward and Liberty are parties to seller/servicer agreements and/or subject to guidelines and regulations (collectively, seller/servicer obligations) with one or more of the GSEs, the Department of Housing and Urban Development (HUD), FHA, VA and Ginnie Mae. These seller/servicer obligations include financial requirements, including capital requirements related to tangible net worth, as defined by the applicable agency, as well as extensive requirements regarding servicing, selling and other matters. To the extent ~~that~~ these requirements are not met or waived, the applicable agency may, at its option, utilize a variety of remedies including requirements to provide certain information or take actions at the direction of the applicable agency, requirements to deposit funds as security for our obligations, sanctions, suspension or even termination of approved seller/servicer status, which would prohibit future originations or securitizations of forward or reverse mortgage loans or servicing for the applicable agency. Any of these actions could have a material adverse impact on us. ~~To date, none of these counterparties has communicated any material sanction, suspension or prohibition in connection with our seller/servicer obligations.~~ See Note 11 – Borrowings ~~and~~, Note 1918 – Regulatory Requirements and Note 20 – Contingenciesfor ~~additional~~further information.

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~~six months ended ~~September~~June 30, ~~2017~~2018 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, ~~2017.~~2018. The unaudited consolidated financial statements presented herein should be read in conjunction with the audited consolidated financial statements and related notes thereto included in ~~Amendment No. 1 to~~ our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2017.

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, ~~the amortization of mortgage~~

~~servicing rights,~~ income taxes, the provision for potential losses that may arise from litigation proceedings, ~~representation and warranty and other indemnification obligations,~~ and our going concern evaluation. In developing estimates and assumptions, management uses all available information; however, actual results could materially differ from those estimates and assumptions.

Reclassifications

Within the expenses section of the unaudited statement of operations for the three and six months ended June 30, 2017, we reclassified impairment charges and fair value gains and losses on mortgage servicing rights (MSRs), both previously included in the Servicing and origination line item, and Amortization of MSRs to a new line item titled MSR valuation adjustments, net.

As a result of our adoption on January 1, ~~2017~~2018 of FASB Accounting Standards Update (ASU) ~~2016-09,~~2016-18, ~~Compensation~~Statement of Cash Flows (Topic 230) - ~~Stock Compensation: Improvements to Accounting for Employee Share-Based Payments~~Restricted Cash, ~~excess tax benefits~~debt service accounts and other restricted cash which are included in Other assets on the consolidated balance sheets have been classified ~~along with other income tax~~as Cash and restricted cash ~~flows as an operating activity~~ in our ~~unaudited~~ consolidated statements of cash flows, rather than being separated from other income tax cash flows and classified as a financing activity. Additionally, cash paid by Ocwen when directly withholding shares for tax-withholding purposes has been classified as a financing activity in ourflows. Our revision of the unaudited consolidated ~~statements~~statement of cash flows ~~rather than being classified as~~for the six months ended June 30, 2017 to conform to the new standard resulted in an increase in net cash provided by operating ~~activity.~~activities of $1.9 million (reduction in the Decrease in receivables and other assets, net line item).

Certain amounts in the unaudited consolidated statement of cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 have been reclassified to conform to the current year presentation as follows:

Within the operating activities section, we reclassified ~~Net gain~~Amortization of MSRs, Loss on valuation of ~~mortgage loans held for investment~~MSRs, at fair value, and ~~HMBS-related borrowings from Other~~Impairment of MSRs to a new ~~separate~~ line item. In addition, we reclassified ~~amounts related~~Realized and unrealized gains on derivative financial instruments to ~~reverse mortgages from Gain on loans held for sale, net to Other.~~Other, net.

Within the financing activities section, ~~we reclassified Proceeds from exercise of stock options to Other. In addition,~~ we reclassified Repayments of HMBS-related borrowings from Repayments of mortgage loan warehouse facilities and other secured borrowings to a ~~new~~ separate line item.

We also reclassified Payment of debt issuance costs to Other, net. These reclassifications had no impact on ourconsolidated cash flows from operating, investing or financing activities.

~~Certain amounts in the unaudited consolidated balance sheet at December 31, 2016 have been reclassified to conform to the current year presentation as follows:~~

~~Within the total assets section, we reclassified Deferred tax assets, net to Other assets.~~

~~Within the total liabilities section, we reclassified HMBS-related borrowings from Financing liabilities to a new separate line item.~~

Recently Adopted ~~Accounting Standard~~

~~Compensation - Stock Compensation: Improvements to Employee Shared-Based Payment Accounting (ASU 2016-09)~~

In addition to the reclassification matters discussed above, ASU 2016-09 requires excess tax benefits associated with employee share-based payments to be recognized through the income statement, regardless of whether the benefit reduces income taxes payable in the current period. Prior to our adoption of this standard, excess tax benefits were recognized in additional paid-in capital and were not recognized until the deduction reduced income taxes payable. Additionally, concurrent with our adoption of ASU 2016-09, we made an accounting policy election to account for forfeitures when they occur, rather than estimating the number of awards that are expected to vest, as we had done prior to our adoption of this standard. Amendments requiring recognition of excess tax benefits in the income statement were adopted prospectively. Amendments related to the timing of when excess tax benefits are recognized and forfeitures were adopted using a modified retrospective transition method by means of cumulative-effect adjustments to equity as of January 1, 2017.

For the timing of the recognition of excess tax benefits, the cumulative-effect adjustment was to recognize an increase in retained earnings of $5.0 million and a deferred tax asset for the same amount. However, because we have determined that our U.S. and USVI deferred tax assets are not considered to be more likely than not realizable, we established an offsetting full valuation allowance on the deferred tax asset through a reduction in retained earnings.

For the change in accounting for forfeitures, we recognized a cumulative-effect adjustment through a reduction of $0.3 million in retained earnings and an increase in additional paid-in capital for the same amount. We also recognized the tax effect of this adjustment through an increase in retained earnings of $0.1 million and a deferred tax asset for the same amount. However, we also fully reserved the resulting deferred tax asset as an offsetting reduction in retained earnings.

~~Recently Issued~~ Accounting Standards

Revenue from Contracts with Customers ~~(ASU~~(Accounting Standards Update (ASU) 2014-09)

~~In May 2014, the FASB issued~~This ASU ~~2014-09 to clarify~~clarifies the principles for recognizing revenue and ~~to develop~~creates a common revenue standard. Under this ~~standard,~~ASU, an entity ~~should~~will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity ~~should~~will recognize revenue through ~~the following~~a five-step ~~process:~~

~~Step 1: Identify the contract(s) with a customer.~~

~~Step 2: Identify the performance obligations in the contract.~~

~~Step 3: Determine the transaction price.~~

~~Step 4: Allocate the transaction price to the performance obligations in the contract.~~

~~Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.~~

ASU 2014-09 will be effective for us on January 1, 2018. An entity should apply the amendments in this ASU either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect recognized at the date of initial application.process. The guidance in this standard does not apply to financial instruments and other contractual rights or obligations within the scope of ~~ASC~~Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 860, Transfers and Servicing, among other ASC topics. ~~We do not anticipate that~~ As a result, our adoption of this standard ~~will~~on a modified retrospective basis on January 1, 2018 did not have a material impact on our consolidated financial statements.

Financial Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01)

This ASU provides users with more useful information regarding the recognition, measurement, presentation, and disclosure of financial instruments and also improves the accounting model to better meet the requirements of today’s complex economic environment. Most changes in this ASU require the same information, but some changes will revise the geography of that information on the financial statements. Our adoption of this standard on January 1, 2018 did not have a material impact on our consolidated financial statements.

Statement of Cash Flows: Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15)

This ASU clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows under FASB ASC Topic 230, Statement of Cash Flows (ASC 230). Our adoption of this standard on January 1, 2018 did not have a material impact on our consolidated financial statements.

Income Taxes: Intra-Entity Transfers of Assets Other Than Inventory (ASU 2016-16)

This ASU requires an entity to recognize the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs. Previously, recognition of current and deferred income taxes for an intra-entity transfer was prohibited until the asset had been sold to an outside party. We adopted this standard on a modified retrospective basis on January 1, 2018 by recording a cumulative-effect reduction of $5.6 million to retained earnings.

Statement of Cash Flows: Restricted Cash (ASU 2016-18)

This ASU clarifies how changes in restricted cash are classified and presented in the statement of cash flows under ASC 230. This standard requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Our adoption of this standard on January 1, 2018 did not have a material impact on our consolidated financial statements. The amendments in this update have been applied using a retrospective transition method to each period presented. We have revised the unaudited consolidated statement of cash flows for the six months ended June 30, 2017 to conform to the new standard.

Business Combinations: Clarifying the Definition of a Business (ASU 2017-01)

~~In January 2017, the FASB issued~~This ASU ~~2017-01 to clarify~~clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. Our adoption of this standard on January 1, 2018 did not have a material impact on our consolidated financial statements.

Compensation: Stock Compensation (ASU 2017-09)

This ASU reduces both diversity in practice as well as cost and complexity when applying the modification accounting guidance in FASB ASC Topic 718, Compensation -- Stock Compensation, to a change to the terms or conditions of a share-based payment award. Our adoption of this standard on January 1, 2018 did not have a material impact on our consolidated financial statements.

Financial Instruments: Technical Corrections and Improvements to Financial Instruments - Overall (Subtopic 825-10) (ASU 2018-03)

This ASU provides clarification of areas in ASU 2016-01 by improving the measurement and reporting of certain financial assets and liabilities. Our adoption of this standard on July 1, 2018 will not have a material impact on our consolidated financial statements.

Income Taxes: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118 (ASU 2018-05)

This ASU adds various SEC paragraphs pursuant to the issuance of SEC Staff Accounting Bulletin No. 118 (SAB 118), which provides guidance for companies that are not able to complete their accounting for the income tax effects of the Tax Cuts and Jobs Act (Tax Act) in the period of enactment. We adopted the now codified guidance in SAB 118 as of December 31, 2017 and continue to rely on the guidance in these interim financial statements.

Accounting Standards Issued but Not Yet Adopted

Leases (ASU 2016-02)

This ASU will require a lessee to recognize assets and liabilities for leases with lease terms of more than 12 months, regardless of whether the lease is classified as a finance or operating lease. Additional disclosures of the amount, timing and uncertainty of cash flows arising from leases will be required. This standard will be effective for us on January 1, ~~2018.~~2019, with early application permitted. We do not anticipate that our adoption of this standard will have a material impact on our consolidated financial statements.

Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13)

This ASU will require timelier recording of credit losses on loans and other financial instruments. This standard aligns the accounting with the economics of lending by requiring banks and other lending institutions to immediately record the full amount of credit losses that are expected in their loan portfolios. The new guidance requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This standard requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. Additionally, the new guidance amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. This standard will be effective for us on January 1, 2020, with early application permitted. We are currently evaluating the effect of adopting this standard.

Receivables: Nonrefundable Fees and Other Costs (ASU 2017-08)

~~In March 2017, the FASB issued~~This ASU ~~2017-08 to amend~~amends the amortization period for certain purchased callable debt securities held at a premium. This standard shortens the amortization period for the premium to the earliest call date, rather than generally amortizing the premium as an adjustment of yield over the contractual life of the ~~instrument, as required by current GAAP.~~instrument. This standard will be effective for us on January 1, 2019. We do not anticipate that our adoption of this standard will have a material impact on our consolidated financial statements.

~~Compensation: Stock Compensation~~Income Statement - Reporting Comprehensive Income: Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income (ASU ~~2017-09)~~2018-02)

~~In May 2017,~~This ASU provides entities with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the ~~FASB issued ASU 2017-09 to provide clarity~~effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and ~~reduce both diversity in practice as well as cost and complexity when applying the modification accounting guidance in FASB ASC Topic 718,~~ ~~Compensation -- Stock Compensation, to a change to the terms or conditions of a share-based payment award.~~Jobs Act (or portion thereof) is recorded. This standard will be effective for us on January 1, ~~2018.~~2019. We do not anticipate that our adoption of this standard will have a material impact on our consolidated financial statements.

~~Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12)~~

~~In August 2017, the FASB issued ASU 2017-12 to improve the financial reporting of hedging relationships to better~~

portray the economic results of an entity’s risk management activities in its financial statements, and to make certain targeted improvements to simplify the application of the hedge accounting guidance in current GAAP. This standard will be effective for us on January 1, 2019, with early application permitted in any interim period. We are currently evaluating the effect of adopting this standard.

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 securitizations and asset-backed financing arrangements into three groups: (1) securitizations of residential mortgage loans, (2) financings of advances ~~on loans serviced for others~~ and (3) financings of automotive dealer financing notes.

We have determined that the special purpose entities (SPEs) created in connection with our match funded advance financing facilities are variable interest entities (VIEs) for which we are the primary beneficiary.

Securitizations of Residential Mortgage Loans

We securitize forward and reverse residential mortgage loans involving the GSEs and ~~Ginnie Mae and~~ loans insured by the FHA or ~~VA. We~~VA through Ginnie Mae. To the extent we retain the right to service these loans, ~~and~~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. ~~We also sell newly originated forward and reverse residential mortgage loans to unaffiliated third parties with servicing rights released.~~

Transfers of Forward Loans

We sell or securitize forward loans that we originate or ~~that we purchase~~purchased from third parties, generally in the form of mortgage-backed securities guaranteed by the GSEs or Ginnie Mae. Securitization ~~usually~~typically occurs within 30 days of loan closing or purchase. ~~To the extent we retain the servicing rights associated with the transferred loans, we receive a servicing fee~~

~~for services provided.~~ 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.

We report the gain or loss on the transfer of the loans held for sale in Gain on loans held for sale, net in the unaudited consolidated statements of operations along with the changes in fair value of the loans and the gain or loss on any related derivatives. We include all changes in loans held for sale and related derivative balances in operating activities in the unaudited consolidated statements of cash flows.

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


Periods ended September 30,	Three Months						Nine Months
Periods ended September 30,	2017			2016			2017			2016
													Three Months Ended June 30,						Six Months Ended June 30,
													2018			2017			2018			2017
Proceeds received from securitizations	$	687,502		$	1,511,991		$	2,711,651		$	3,878,461		$	338,199		$	1,022,152		$	715,698		$	2,024,149
Servicing fees collected	10,300			3,768			30,250			10,441			10,077			9,843			20,425			19,950
Purchases of previously transferred assets, net of claims reimbursed	(1,234		)	(271		)	(3,958		)	(1,051		)	(659		)	(1,737		)	(2,829		)	(2,724		)
	$	696,568		$	1,515,488		$	2,737,943		$	3,887,851		$	347,617		$	1,030,258		$	733,294		$	2,041,375

In connection with these transfers, we retained MSRs of ~~$3.6~~$2.1 million and ~~$18.6~~$4.5 million, and ~~$9.8~~$6.9 million and ~~$26.5~~$15.0 million, during the three and ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, ~~and 2016, respectively.~~respectively, which are reported in Gain on loans held for sale, net in the unaudited consolidated statements of operations. See Note 4 – Loans Held for Sale for additional information regarding gains or losses on the transfer of loans held for sale.

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.

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 our maximum exposure to loss including the ~~UPB~~unpaid principal balance (UPB) of the transferred ~~loans at the dates indicated:~~loans:


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Carrying value of assets:
Mortgage servicing rights, at amortized cost	$	98,314	$	94,492
Mortgage servicing rights, at fair value	224		233
Carrying value of assets
MSRs, at fair value					$	113,329	$	227
MSRs, at amortized cost					—		97,832
Advances and match funded advances	53,683		37,336		60,350		57,636
UPB of loans transferred	11,905,357		10,485,697		11,288,337		12,077,635
Maximum exposure to loss	$	12,057,578	$	10,617,758	$	11,462,016	$	12,233,330

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016, 7.7%~~2017, 7.4% and ~~7.6%~~8.9%, respectively, of the transferred residential loans that we service were 60 days or more past due.

Transfers of Reverse Mortgages

We are an approved issuer of Ginnie Mae Home Equity Conversion Mortgage-Backed Securities (HMBS) that are guaranteed by Ginnie Mae. We originate Home Equity Conversion Mortgages (HECM, or reverse mortgages) that are insured by the FHA. We pool ~~the~~HECM loans into HMBS that we sell into the secondary market with servicing rights retained or we sell the loans to third parties with servicing rights released. We have determined that loan transfers in the HMBS program do not meet the definition of a participating interest because of the servicing requirements in the product that require the issuer/servicer to absorb some level of interest rate risk, cash flow timing risk and incidental credit risk. As a result, the transfers of the HECM loans do not qualify for sale accounting, and therefore, we account for these transfers as financings. Under this accounting treatment, the HECM loans are classified as Loans held for investment, ~~- Reverse mortgages,~~ at fair value, on our unaudited consolidated balance sheets. ~~We record the proceeds from the transfer of assets as secured borrowings (HMBS-related borrowings) in Financing liabilities and recognize no gain or loss on the transfer.~~ Holders of participating interests in the HMBS have no recourse against the assets of Ocwen, except with respect to standard representations and warranties and our contractual obligation to service the HECM loans and the HMBS.

We measure the HECM loans and HMBS-related borrowings at fair value on a recurring basis. The changes in fair value of the HECM loans and HMBS-related borrowings are included in Other revenues in our unaudited consolidated statements of operations. Included in net fair value gains on the HECM loans and related HMBS borrowings are the interest income that we expect to be collected on the HECM loans and the interest expense that we expect to be paid on the HMBS-related borrowings.

We report originations and collections of HECM loans in investing activities in the unaudited consolidated statements of cash flows. We report net fair value gains on HECM loans and the related HMBS borrowings as an adjustment to the net cash provided by or used in operating activities in the unaudited consolidated statements of cash flows. Proceeds from securitizations of HECM loans and payments on HMBS-related borrowings are included in financing activities in the unaudited consolidated statements of cash flows.

At ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016, HMBS-related borrowings of $4.4 billion and $3.4 billion were outstanding. Loans held for investment, at fair value were $4.5 billion and $3.6 billion at September 30,~~ 2017, ~~and December 31, 2016, respectively. At September 30, 2017 and December 31, 2016,~~ Loans held for investment included ~~$39.2~~$81.2 million and ~~$81.3~~$83.8 million, respectively, of originated loans which had not yet been pledged as collateral. See Note 3 – Fair Value and Note 11 – Borrowings for additional information on HMBS-related borrowings and Loans held for ~~investment - Reverse mortgages.~~investment.

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. We consolidate these SPEs because we have determined that Ocwen is the primary beneficiary of the SPE. These SPEs issue debt supported by collections on the transferred advances, and we refer to this debt as Match funded liabilities.

We make ~~the~~ transfers to these SPEs ~~under~~in accordance with the terms of our advance financing facility agreements. Debt service accounts require us to remit collections on pledged advances to the trustee within two days of receipt. Collected funds that are not applied to reduce the related match funded debt until the payment dates specified in the indenture are classified as debt service accounts within Other assets in our consolidated balance sheets. The balances also include amounts that have been set aside from the proceeds of our match funded advance facilities to provide for possible shortfalls in the funds available to pay certain expenses and interest, as well as amounts set aside as required by our warehouse facilities as security for our obligations under the related agreements. The funds are held in interest earning accounts and those amounts related to match funded facilities are held in the name of the SPE created in connection with the facility.

We classify the transferred advances on our unaudited consolidated balance sheets as a component of Match funded assets and the related liabilities as Match funded liabilities. The SPEs use collections of the pledged advances to repay principal and interest and to pay the expenses of the SPE. Holders of the debt issued by these entities have recourse only to the assets of the SPE for satisfaction of the debt. The assets and liabilities of the advance financing SPEs are comprised solely of Match funded advances, Debt service accounts, Match funded liabilities and amounts due to affiliates. Amounts due to affiliates are eliminated in consolidation in our unaudited consolidated balance sheets.

Financings of Automotive Dealer Financing Notes

Match funded automotive dealer financing notes ~~result~~resulted from our transfers of short-term, inventory-secured loans to car dealers to an SPE in exchange for cash. We ~~consolidate~~consolidated this SPE because we ~~have~~ determined that Ocwen is the primary beneficiary of the SPE. ~~The SPE issues debt supported by collections on~~In January 2018, we decided to exit the ~~transferred loans.~~

independent used car dealer floor plan lending business conducted through Automotive Capital Services, Inc. (ACS). We ~~make the~~made transfers to the SPE ~~under~~in accordance with the terms of ~~our~~the automotive capital asset receivables financing facility ~~agreements.~~agreement, which we terminated in January 2018 in connection with our decision to exit the business. We ~~classify~~classified the transferred loans on our ~~unaudited~~ consolidated balance sheets as a component of Match funded assets and the related liabilities as Match funded liabilities. ~~The SPE uses collections of the pledged loans to repay principal and interest and to pay the expenses of the SPE.~~ Holders of the debt issued by the SPE ~~have~~had recourse only to the assets of the SPE for satisfaction of the debt. The assets and liabilities of the automotive capital asset receivables financing SPE are comprised solely of Match funded automotive dealer financing notes, Debt service accounts, Match funded liabilities and amounts due to affiliates. Amounts due to affiliates are eliminated in consolidation in our unaudited consolidated balance sheets.

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.


Level 1:	Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.


Level 2:	Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.


Level 3:	Unobservable inputs for the asset or liability.

We classify assets in their entirety based on the lowest level of input that is significant to the fair value measurement.

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 carried, at fair value are as ~~follows at the dates indicated:~~follows:



		June 30, 2018				December 31, 2017
	Level	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets
Loans held for sale
Loans held for sale, at fair value (a)	2	$	153,906	$	153,906	$	214,262	$	214,262
Loans held for sale, at lower of cost or fair value (b)	3	55,547		55,547		24,096		24,096

September 30, 2017 December 31, 2016
Level Carrying Value Fair Value Carrying Value Fair Value
Financial assets:

Loans held for sale:
Loans held for sale, at fair value (a) 2 $ 200,438
$ 200,438
$ 284,632
$ 284,632
Loans held for sale, at lower of cost or fair value (b) 3 23,224
23,224
29,374
29,374
Total Loans held for sale $ 223,662
$ 223,662
$ 314,006
$ 314,006

Loans held for investment (a) 3 $ 4,459,760
$ 4,459,760
$ 3,565,716
$ 3,565,716
Advances (including match funded) (c) 3 1,405,816
1,405,816
1,709,846
1,709,846
Automotive dealer financing notes (including match funded) (c) 3 36,036
38,578
33,224
33,147
Receivables, net (c) 3 231,514
231,514
265,720
265,720
Mortgage-backed securities, at fair value (a) 3 9,327
9,327
8,342
8,342
U.S. Treasury notes (a) 1 1,575
1,575
2,078
2,078

Financial liabilities:

Match funded liabilities (c) 3 $ 1,028,016
$ 1,023,241
$ 1,280,997
$ 1,275,059
Financing liabilities:
HMBS-related borrowings, at fair value (a) 3 $ 4,358,277
$ 4,358,277
$ 3,433,781
$ 3,433,781
Financing liability - MSRs pledged, at fair value (a) 3 447,843
447,843
477,707
477,707
Other (c) 3 89,138
68,615
101,324
81,805
Total Financing liabilities $ 4,895,258
$ 4,874,735
$ 4,012,812
$ 3,993,293
Other secured borrowings:
Senior secured term loan (c) (d) 2 $ 313,316
$ 322,238
$ 323,514
$ 327,674
Other (c) 3 231,273
231,273
355,029
355,029
Total Other secured borrowings $ 544,589
$ 553,511
$ 678,543
$ 682,703

Senior notes:
Senior unsecured notes (c) (d) 2 $ 3,122
$ 2,997
$ 3,094
$ 3,048
Senior secured notes (c) (d) 2 344,079
340,808
$ 343,695
352,255
Total Senior notes $ 347,201
$ 343,805
$ 346,789
$ 355,303

Derivative financial instruments assets (liabilities), at fair value (a):

Interest rate lock commitments 2 $ 4,969
$ 4,969
$ 6,507
$ 6,507
Forward mortgage-backed securities 1 973
973
(614 ) (614 )
Interest rate caps 3 1,839
1,839
1,836
1,836


		September 30, 2017				December 31, 2016					June 30, 2018						December 31, 2017
	Level	Carrying Value		Fair Value		Carrying Value		Fair Value		Level	Carrying Value			Fair Value			Carrying Value			Fair Value
Mortgage servicing rights:
Total Loans held for sale											$	209,453		$	209,453		$	238,358		$	238,358

Loans held for investment (a)										3	$	5,143,758		$	5,143,758		$	4,715,831		$	4,715,831
Advances (including match funded) (c)										3	1,167,713			1,167,713			1,356,393			1,356,393
Automotive dealer financing notes (including match funded) (c)										3	22			22			32,757			32,590
Receivables, net (c)										3	178,678			178,678			199,529			199,529
Mortgage-backed securities, at fair value (a)										3	1,732			1,732			1,592			1,592
U.S. Treasury notes (a)										1	1,560			1,560			1,567			1,567

Financial liabilities:
Match funded liabilities (c)										3	$	750,694		$	745,539		$	998,618		$	992,698
Financing liabilities:
HMBS-related borrowings, at fair value (a)										3	$	5,040,983		$	5,040,983		$	4,601,556		$	4,601,556
Financing liability - MSRs pledged, at fair value (a)										3	672,619			672,619			508,291			508,291
Other (c)										3	74,884			59,608			85,227			65,202
Total Financing liabilities											$	5,788,486		$	5,773,210		$	5,195,074		$	5,175,049
Other secured borrowings:
Senior secured term loan (c) (d)										2	$	233,786		$	240,475		$	290,068		$	299,741
Other (c)										3	106,632			106,632			255,782			255,782
Total Other secured borrowings											$	340,418		$	347,107		$	545,850		$	555,523

Senior notes:
Senior unsecured notes (c) (d)										2	$	3,122		$	3,138		$	3,122		$	2,872
Senior secured notes (c) (d)										2	344,490			356,987			344,216			355,550
Total Senior notes											$	347,612		$	360,125		$	347,338		$	358,422

Derivative financial instrument assets (liabilities), at fair value (a)
Interest rate lock commitments										2	$	3,315		$	3,315		$	3,283		$	3,283
Forward mortgage-backed securities										1	(2,422		)	(2,422		)	(545		)	(545		)
Interest rate caps										3	1,657			1,657			2,056			2,056

Mortgage servicing rights
Mortgage servicing rights, at fair value (a)	3	$	598,147	$	598,147	$	679,256	$	679,256	3	$	1,043,995		$	1,043,995		$	671,962		$	671,962
Mortgage servicing rights, at amortized cost (c) (e)	3	346,161		424,208		363,722		467,911		3	—			—			336,882			418,745
Total Mortgage servicing rights		$	944,308	$	1,022,355	$	1,042,978	$	1,147,167		$	1,043,995		$	1,043,995		$	1,008,844		$	1,090,707


(a)	Measured at fair value on a recurring basis.


(b)	Measured at fair value on a non-recurring basis.


(c)	Disclosed, but not carried, at fair value.


(d)	The carrying values are net of unamortized debt issuance costs and discount. See Note 11 – Borrowings for additional information.

(e)

~~Balances include~~Effective January 1, 2018, we elected fair value accounting for our MSRs previously accounted for using the amortization method, which included Agency MSRs and government-insured MSRs. The balance at December 31, 2017 includes the impaired government-insured stratum of amortization method MSRs, which iswas measured at fair value on a non-recurring basis and reported net of the valuation allowance. ~~Before applying the valuation allowance of $26.6 million, the carrying value of the impaired stratum at September 30, 2017 was $163.5 million.~~ At December 31, ~~2016,~~2017, the carrying value of this stratum was ~~$172.9~~$158.0 million before applying the valuation allowance of ~~$28.2~~$24.8 million.

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 - Reverse Mortgages HMBS-Related Borrowings Mortgage-Backed Securities Financing Liability - MSRs Pledged Derivatives MSRs Total
Three months ended September 30, 2017
Beginning balance $ 4,223,776
$ (4,061,626 ) $ 8,986
$ (441,007 ) $ 1,937
$ 625,650
$ 357,716
Purchases, issuances, sales and settlements:

Purchases —
—
—
—
655
—
655
Issuances 263,169
(317,277 ) —
(54,601 ) —
(715 ) (109,424 )
Sales —
—
—
—
—
(311 ) (311 )
Transfers to Real estate (Other assets) 88
—
—
—
—
—
88
Settlements (1) (118,991 ) 111,677
—
19,770
(403 ) —
12,053
144,266
(205,600 ) —
(34,831 ) 252
(1,026 ) (96,939 )
Total realized and unrealized gains (losses) included in earnings 91,718
(91,051 ) 341
27,995
(350 ) (26,477 ) 2,176
Transfers in and / or out of Level 3 —
—
—
—
—
—
—
Ending balance $ 4,459,760
$ (4,358,277 ) $ 9,327
$ (447,843 ) $ 1,839
$ 598,147
$ 262,953

Loans Held for Investment - Reverse Mortgages HMBS-Related Borrowings Mortgage-Backed Securities Financing Liability - MSRs Pledged Derivatives MSRs Total
Three months ended September 30, 2016
Beginning balance $ 3,057,564
$ (2,935,928 ) $ 9,063
$ (495,126 ) $ 200
$ 700,668
$ 336,441
Purchases, issuances, sales and settlements:
Purchases —
—
—
—
638
—
638
Issuances 509,900
(297,457 ) —
—
—
(50 ) 212,393
Sales —
—
—
—
—
(5 ) (5 )
Settlements (1) (289,428 ) 63,119
—
594
—
—
(225,715 )
220,472
(234,338 ) —
594
638
(55 ) (12,689 )
Total realized and unrealized gains (losses) included in earnings 61,605
(54,344 ) (23 ) —
(45 ) (4,505 ) 2,688
Transfers in and / or out of Level 3 —
—
—
—
—
—
—
Ending balance $ 3,339,641
$ (3,224,610 ) $ 9,040
$ (494,532 ) $ 793
$ 696,108
$ 326,440

Loans Held for Investment - Reverse Mortgages HMBS-Related Borrowings Mortgage-backed Securities Financing Liability - MSRs Pledged Derivatives MSRs Total
Nine months ended September 30, 2017
Beginning balance $ 3,565,716
$ (3,433,781 ) $ 8,342
$ (477,707 ) $ 1,836
$ 679,256
$ 343,662
Purchases, issuances, sales and settlements:

Purchases —
—
—
—
655
—
655
Issuances 961,642
(981,730 ) —
(54,601 ) —
(2,131 ) (76,820 )
Sales —
—
—
—
—
(541 ) (541 )
Transfers to Real estate (Other assets) (1,335 ) —
—
—
—
—
(1,335 )
Settlements (1) (311,560 ) 287,908
—
52,963
(445 ) —
28,866
648,747
(693,822 ) —
(1,638 ) 210
(2,672 ) (49,175 )
Total realized and unrealized gains (losses) included in earnings (2) 245,297
(230,674 ) 985
31,502
(207 ) (78,437 ) (31,534 )
Transfers in and / or out of Level 3 —
—
—
—
—
—
—
Ending Balance $ 4,459,760
$ (4,358,277 ) $ 9,327
$ (447,843 ) $ 1,839
$ 598,147
$ 262,953



	Loans Held for Investment - Reverse Mortgages			HMBS-Related Borrowings			Mortgage-Backed Securities		Financing Liability - MSRs Pledged			Derivatives			MSRs			Total
Three months ended June 30, 2018
Beginning balance	$	4,988,151		$	(4,838,193	)	$	1,679	$	(715,924	)	$	1,866		$	1,074,247		$	511,826
Purchases, issuances, sales and settlements
Purchases	—			—			—		—			95			3,507			3,602
Issuances	236,386			(276,751		)	—		—			—			(617		)	(40,982		)
Sales	—			—			—		—			—			(24		)	(24		)
Settlements	(103,497		)	100,737			—		49,962			—			—			47,202
Transfers (to) from:
Loans held for sale, at fair value	(257		)	—			—		—			—			—			(257		)
Other assets	(33		)	—			—		—			—			—			(33		)
Receivables, net	(22		)	—			—		—			—			—			(22		)
	132,577			(176,014		)	—		49,962			95			2,866			9,486
Total realized and unrealized gains (losses) included in earnings
Change in fair value	23,030			(26,776		)	53		(8,069		)	(304		)	(33,118		)	(45,184		)
Calls and other	—			—			—		1,412			—			—			1,412
	23,030			(26,776		)	53		(6,657		)	(304		)	(33,118		)	(43,772		)
Transfers in and / or out of Level 3	—			—			—		—			—			—			—
Ending balance	$	5,143,758		$	(5,040,983	)	$	1,732	$	(672,619	)	$	1,657		$	1,043,995		$	477,540


	Loans Held for Investment - Reverse Mortgages			HMBS-Related Borrowings			Mortgage-backed Securities		Financing Liability - MSRs Pledged			Derivatives			MSRs			Total			Loans Held for Investment - Reverse Mortgages			HMBS-Related Borrowings			Mortgage-Backed Securities		Financing Liability - MSRs Pledged			Derivatives			MSRs			Total
Nine months ended September 30, 2016
Three months ended June 30, 2017																					Three months ended June 30, 2017
Beginning balance	$	2,488,253		$	(2,391,362	)	$	7,985	$	(541,704	)	$	2,042		$	761,190		$	326,404		$	3,916,387		$	(3,739,265	)	$	8,658	$	(459,187	)	$	2,262		$	651,987		$	380,842
Purchases, issuances, sales and settlements:
Purchases, issuances, sales and settlements
Purchases	—			—			—		—			782			—			782			—			—			—		—			—			—			—
Issuances	1,185,565			(820,438		)	—		—			—			(1,325		)	363,802			351,392			(357,704		)	—		—			—			(711		)	(7,023		)
Sales	—			—			—		—			—			(148		)	(148		)	—			—			—		—			—			(2		)	(2		)
Settlements ~~(1)~~	(528,263		)	161,995			—		47,172			(81		)	—			(319,177		)	(112,279		)	101,132			—		16,194			(42		)	—			5,005
Transfers (to) from:
Other assets																					(1,423		)	—			—		—			—			—			(1,423		)
	657,302			(658,443		)	—		47,172			701			(1,473		)	45,259			237,690			(256,572		)	—		16,194			(42		)	(713		)	(3,443		)
Total realized and unrealized gains (losses) included in earnings (2)	194,086			(174,805		)	1,055		—			(1,950		)	(63,609		)	(45,223		)
Total realized and unrealized gains (losses) included in earnings
Change in fair value																					69,699			(65,789		)	328		1,986			(283		)	(25,624		)	(19,683		)
Transfers in and / or out of Level 3	—			—			—		—			—			—			—			—			—			—		—			—			—			—
Ending balance	$	3,339,641		$	(3,224,610	)	$	9,040	$	(494,532	)	$	793		$	696,108		$	326,440		$	4,223,776		$	(4,061,626	)	$	8,986	$	(441,007	)	$	1,937		$	625,650		$	357,716


~~(1)~~	~~Settlements for Loans held for investment - reverse mortgages consist chiefly of principal payments received, but also may include non-cash settlements of loans.~~

~~(2)~~

Total losses attributable to derivative financial instruments still held at September 30, 2017 and September 30, 2016 were $0.2 million and $0.5 million for the nine months ended September 30, 2017 and 2016, respectively. Total losses attributable to MSRs still held at September 30, 2017 and September 30, 2016 were $78.4 million and $62.4 million for the nine months ended September 30, 2017 and 2016, respectively.



	Loans Held for Investment - Reverse Mortgages			HMBS-Related Borrowings			Mortgage-backed Securities		Financing Liability - MSRs Pledged			Derivatives			MSRs			Total
Six months ended June 30, 2018
Beginning balance	$	4,715,831		$	(4,601,556	)	$	1,592	$	(508,291	)	$	2,056		$	671,962		$	281,594
Purchases, issuances, sales and settlements
Purchases	—			—			—		—			95			5,885			5,980
Issuances	487,472			(499,576		)	—		(279,586		)	—			(2,375		)	(294,065		)
Sales	—			—			—		—			—			(155		)	(155		)
Settlements	(186,216		)	181,548			—		104,509			(371		)	—			99,470
Transfers (to) from:
MSRs carried at amortized cost, net of valuation allowance	—			—			—		—			—			418,925			418,925
Loans held for sale, at fair value	(441		)	—			—		—			—			—			(441		)
Other assets	(137		)	—			—		—			—			—			(137		)
Receivables, net	(72		)	—			—		—			—			—			(72		)
	300,606			(318,028		)	—		(175,077		)	(276		)	422,280			229,505
Total realized and unrealized gains (losses) included in earnings
Change in fair value	127,321			(121,399		)	140		8,642			(123		)	(50,247		)	(35,666		)
Calls and other	—			—			—		2,107			—			—			2,107
	127,321			(121,399		)	140		10,749			(123		)	(50,247		)	(33,559		)
Transfers in and / or out of Level 3	—			—			—		—			—			—			—
Ending Balance	$	5,143,758		$	(5,040,983	)	$	1,732	$	(672,619	)	$	1,657		$	1,043,995		$	477,540



	Loans Held for Investment - Reverse Mortgages			HMBS-Related Borrowings			Mortgage-backed Securities		Financing Liability - MSRs Pledged			Derivatives			MSRs			Total
Six months ended June 30, 2017
Beginning balance	$	3,565,716		$	(3,433,781	)	$	8,342	$	(477,707	)	$	1,836		$	679,256		$	343,662
Purchases, issuances, sales and settlements
Purchases	—			—			—		—			—			—			—
Issuances	698,473			(664,453		)	—		—			—			(1,417		)	32,603
Sales	—			—			—		—			—			(230		)	(230		)
Settlements	(192,569		)	176,231			—		33,193			(42		)	—			16,813
Transfers (to) from:
Other assets	(1,423		)	—			—		—			—			—			(1,423		)
	504,481			(488,222		)	—		33,193			(42		)	(1,647		)	47,763
Total realized and unrealized gains (losses) included in earnings
Change in fair value	153,579			(139,623		)	644		3,507			143			(51,959		)	(33,709		)
Transfers in and / or out of Level 3	—			—			—		—			—			—			—
Ending balance	$	4,223,776		$	(4,061,626	)	$	8,986	$	(441,007	)	$	1,937		$	625,650		$	357,716

The methodologies that we use and key assumptions that we make to estimate the fair value of financial instruments and other assets and liabilities measured at fair value on a recurring or non-recurring basis and those disclosed, but not carried, at fair value are described below.

Loans Held for Sale

~~We originate and purchase residential mortgage loans that we intend to sell. We also own residential mortgage loans that are not eligible to be sold to the GSEs due to delinquency or other factors.~~ Residential forward and reverse mortgage loans that we intend to sell are carried at fair value as a result of a fair value election. Such loans are subject to changes in fair value due to fluctuations in interest rates from the closing date through the date of the sale of the loan into the secondary market. These loans are classified within Level 2 of the valuation hierarchy because the primary component of the price is obtained from observable values of mortgage forwards for loans of similar terms and characteristics. We have the ability to access this market, and it is the market into which conventional and government-insured mortgage loans are typically sold.

We repurchase certain loans from Ginnie Mae guaranteed securitizations in connection with loan modifications and loan resolution activity as part of our contractual obligations as the servicer of the loans. These loans are classified as loans held for sale at the lower of cost or fair value, in the case of modified loans, as we expect to redeliver (sell) the loans to new Ginnie Mae guaranteed securitizations. The fair value of these loans is estimated using published forward Ginnie Mae prices. Loans repurchased in connection with loan resolution activities are modified or otherwise remediated through loss mitigation activities or are reclassified to receivables. Because these loans are insured or guaranteed by the FHA or VA, the fair value of these loans represents the net recovery value taking into consideration the insured or guaranteed claim.

For all other loans held for sale, which we report at the lower of cost or fair value, market illiquidity has reduced the availability of observable pricing data. When we enter into an agreement to sell a loan or pool of loans to an investor at a set price, we value the loan or loans at the commitment price. We base the fair value of ~~uncommitted~~ loans for which we have no agreement to sell on the expected future cash flows discounted at a rate commensurate with the risk of the estimated cash flows.

Loans Held for Investment

We measure these loans at fair ~~value. For transferred reverse mortgage loans that do not qualify as sales for accounting purposes, we base the fair~~ value based on the expected future cash flows discounted over the expected life of the loans at a rate commensurate with the risk of the estimated cash flows. Significant assumptions include expected prepayment and delinquency rates and cumulative loss curves. The discount rate assumption for these assets is primarily based on an assessment of current market yields on newly originated reverse mortgage loans, expected duration of the asset and current market interest rates.

~~The more significant assumptions included in the valuations consisted of the following at the dates indicated:~~


	September 30, 2017		December 31, 2016
Significant valuation assumptions					June 30, 2018		December 31, 2017
Life in years
Range	6.1 to 6.9		5.5 to 8.7		3.3 to 9.0		4.4 to 8.1
Weighted average	6.4		6.1		5.9		6.4
Conditional repayment rate
Range	5.7% to 53.8%		5.2% to 53.8%		6.1% to 45.8%		5.4% to 51.9%
Weighted average	12.9	%	20.9	%	14.4	%	13.1	%
Discount rate	2.7	%	3.3	%	3.5	%	3.2	%

Significant increases or decreases in any of these assumptions in isolation could result in a significantly lower or higher fair value, respectively. The effects of changes in the assumptions used to value the loans held for investment are largely offset by the effects of changes in the assumptions used to value the HMBS-related borrowings that are associated with these loans.

Mortgage Servicing Rights

The significant components of the estimated future cash inflows for MSRs include servicing fees, late fees, float earnings and other ancillary fees. Significant cash outflows include the cost of servicing, the cost of financing servicing advances and compensating interest payments.

Third-party valuation experts generally utilize: (a) transactions involving instruments with similar collateral and risk profiles, adjusted as necessary based on specific characteristics of the asset or liability being valued; and/or (b) industry-standard modeling, such as a discounted cash flow model, in arriving at their estimate of fair value. The prices provided by the valuation experts reflect their observations and assumptions related to market activity, including risk premiums and liquidity adjustments. The models and related assumptions used by the valuation experts are owned and managed by them and, in many cases, the significant inputs used in the valuation techniques are not reasonably available to us. However, we ~~have an understanding of~~understand the processes and assumptions used to develop the prices based on our ongoing due diligence, which includes regular discussions with the valuation experts. We believe that the procedures executed by the valuation experts, supported by our verification and analytical procedures, provide reasonable assurance that the prices used in our unaudited consolidated financial statements comply with the accounting guidance for fair value measurements and disclosures and reflect the assumptions that a market participant would use.

We evaluate the reasonableness of our third-party experts’ assumptions using historical experience adjusted for prevailing market conditions. Assumptions used in the valuation of MSRs include:



•	Mortgage prepayment speeds	•	Delinquency rates
•	Cost of servicing	•	Interest rate used for computing float earnings
•	Discount rate	•	Compensating interest expense
•	Interest rate used for computing the cost of financing servicing advances	•	Collection rate of other ancillary fees

~~Amortized Cost MSRs~~

We estimate the fair value of MSRs carried at amortized cost using a process that involves either actual sale prices obtained or the use of independent third-party valuation experts, supported by commercially available discounted cash flow models and analysis of current market data. To provide greater price transparency to investors, we disclose actual Ocwen sale prices for orderly transactions where available in lieu of third-party valuations.

~~The more significant assumptions used in the valuations consisted of the following at the dates indicated:~~

September 30, 2017 December 31, 2016
Weighted average prepayment speed 9.5 % 8.9 %
Weighted average delinquency rate 12.0 % 11.1 %
Advance financing cost 5-year swap
5-year swap
Interest rate for computing float earnings 5-year swap
5-year swap
Weighted average discount rate 9.2 % 8.9 %
Weighted average cost to service (in dollars) $ 99
$ 108

We perform an impairment analysis based on the difference between the carrying amount and fair value after grouping the underlying loans into the applicable strata. Our strata are defined as conventional and government-insured.

Fair Value MSRs

MSRs carried at fair value are classified within Level 3 of the valuation hierarchy. The fair value is equal to the mid-point of the range of prices provided by third-party valuation experts, without adjustment, except in the event we have a potential or completed ~~Ocwen~~ sale, including transactions where we have executed letters of intent, in which case the fair value of the MSRs is disclosed at the estimated sale price. Fair value reflects actual Ocwen sale prices for orderly transactions where available in lieu of independent third-party valuations. Our valuation process includes discussions of bid pricing with the third-party valuation experts and presumably are contemplated along with other market-based transactions in their model validation.

A change in the valuation inputs utilized by the valuation experts might result in a significantly higher or lower fair value measurement. Changes in market interest rates tend to impact the fair value for Agency MSRs via prepayment speeds by altering the borrower refinance incentive and the non-Agency MSRs via a market rate indexed cost of advance funding. Other key assumptions used in the valuation of these MSRs include delinquency rates and discount rates.

~~The primary assumptions used in the valuations consisted of the following at the dates indicated:~~


	September 30, 2017						December 31, 2016
	Agency			Non-Agency			Agency			Non-Agency
Significant valuation assumptions													June 30, 2018						December 31, 2017
													Agency (1)			Non-Agency			Agency			Non-Agency
Weighted average prepayment speed	8.8		%	16.5		%	8.4		%	16.5		%	8.0		%	15.8		%	8.1		%	16.6		%
Weighted average delinquency rate	0.7		%	29.7		%	1.0		%	29.3		%	10.3		%	27.6		%	1.0		%	28.5		%
Advance financing cost	5-year swap			5-yr swap plus 2.75%			5-year swap			1-Month LIBOR (1ML) plus 3.5%			5-year swap			5-yr swap plus 2.75%			5-year swap			5-yr swap plus 2.75%
Interest rate for computing float earnings	5-year swap			5-yr swap minus .50%			5-year swap			1ML			5-year swap			5-yr swap minus 0.50%			5-year swap			5-yr swap minus 0.50%
Weighted average discount rate	9.0		%	12.6		%	9.0		%	14.9		%	9.0		%	12.9		%	9.0		%	13.0		%
Weighted average cost to service (in dollars)	$	63		$	312		$	64		$	307		$	106		$	301		$	64		$	305


(1)	Valuation assumptions for Agency MSRs at June 30, 2018 include assumptions for MSRs we carried at amortized cost at December 31, 2017. Effective January 1, 2018, we elected fair value accounting for our remaining MSRs that we had previously carried at amortized cost.

Amortized Cost MSRs

Prior to our fair value election on January 1, 2018 for our remaining portfolio of MSRs carried at amortized cost, we estimated the fair value using a process that involved either actual sale prices obtained or the use of independent third-party valuation experts, supported by commercially available discounted cash flow models and analysis of current market data. To provide greater price transparency to investors, we disclosed actual Ocwen sale prices for orderly transactions where available in lieu of third-party valuations.



Significant valuation assumptions	December 31, 2017
Weighted average prepayment speed	8.8		%
Weighted average delinquency rate	10.9		%
Advance financing cost	5-year swap
Interest rate for computing float earnings	5-year swap
Weighted average discount rate	9.2		%
Weighted average cost to service (in dollars)	$	108

We performed an impairment analysis based on the difference between the carrying amount and fair value after grouping the underlying loans into the applicable strata, which we defined as conventional and government-insured.

Advances

We value advances at their net realizable value, which generally approximates fair value, because advances have no stated maturity, are generally realized within a relatively short period of time and do not bear interest.

Receivables

The carrying value of receivables generally approximates fair value because of the relatively short period of time between their origination and realization.

~~Automotive Dealer Financing Notes~~

We estimate the fair value of our automotive dealer financing notes using unobservable inputs within an internally developed cash flow model. Key inputs included projected repayments, interest and fee receipts, deferrals, delinquencies, recoveries and charge-offs of the notes within the portfolio. The projected cash flows are then discounted at a rate commensurate with the risk of the estimated cash flows to derive the fair value of the portfolio. The more significant assumptions used in the valuation consisted of the following at the dates indicated:

September 30, 2017 December 31, 2016
Weighted average life in months 2.2
2.7
Average note rate 8.3 % 8.3 %
Discount rate 10.0 % 10.0 %
Loan loss rate 19.2 % 11.3 %

Mortgage-Backed Securities (MBS)

Our subordinate and residual securities are not actively traded, and therefore, we estimate the fair value of these securities using a process based onupon the ~~present value~~use of ~~expected future cash flows from the underlying mortgage pools. We use our best estimate of the key assumptions~~an independent third-party valuation expert. Where possible, we ~~believe are used by market participants. We calibrate our internally developed discounted cash flow models for~~consider observable trading activity ~~when appropriate to do so~~ in ~~light~~the valuation of ~~market liquidity levels.~~our securities. Key inputs include expected prepayment rates, delinquency and cumulative loss curves and discount rates commensurate with the risks. Where possible, we use observable inputs in the valuation of our securities. However, the subordinate and residual securities in which we have invested trade infrequently and therefore have few or no observable inputs and little price transparency. Additionally, during periods of market dislocation, the observability of inputs is further reduced. ~~Changes in the fair value of our investment in subordinate and residual securities are recognized in Other, net in the unaudited consolidated statements of operations.~~

Discount rates for the subordinate and residual securities are determined based upon an assessment of prevailing market conditions and prices for similar assets. We project the delinquency, loss and prepayment assumptions based on a comparison to actual historical performance curves adjusted for prevailing market conditions.

U.S. Treasury Notes

We classify U.S. Treasury notes as trading securities and account for them at fair value on a recurring basis. We base the fair value ~~of U.S. Treasury notes~~ on quoted prices in active markets to which we have access. Changes in the fair value of our investment in U.S. Treasury notes are recognized in Other, net in the consolidated statements of operations.

Match Funded Liabilities

For match funded liabilities that bear interest at a rate that is adjusted regularly based on a market index, the carrying value approximates fair value. For match funded liabilities that bear interest at a fixed rate, we determine fair value by discounting the future principal and interest repayments at a market rate commensurate with the risk of the estimated cash flows. We estimate principal repayments of match funded ~~advance~~ liabilities during the amortization period based on our historical advance collection rates and taking into consideration any plans to refinance the notes.

Financing Liabilities

HMBS-Related Borrowings

We have elected to measure these borrowings ~~at fair value. We recognize the proceeds from the transfer of reverse mortgages as a secured borrowing that we account for~~ at fair value. These borrowings are not actively traded, and therefore, quoted market prices are not available. We determine fair value by discounting the future principal and interest repayments over the estimated life of the borrowing at a market rate commensurate with the risk of the estimated cash flows. Significant assumptions include prepayments, discount rate and borrower mortality ~~rates for reverse mortgages.~~rates. The discount rate assumption for these liabilities is based on an assessment of current market yields for newly issued HMBS, expected duration and current market interest rates.

~~The more significant assumptions used in the valuations consisted of the following at the dates indicated:~~


	September 30, 2017		December 31, 2016
Significant valuation assumptions					June 30, 2018		December 31, 2017
Life in years
Range	6.1 to 6.9		4.5 to 8.7		3.3 to 9.0		4.4 to 8.1
Weighted average	6.4		5.1		5.9		6.4
Conditional repayment rate
Range	5.7% to 53.8%		5.2% to 53.8%		6.1% to 45.8%		5.4% to 51.9%
Weighted average	12.9	%	20.9	%	14.4	%	13.1	%
Discount rate	2.6	%	2.7	%	3.4	%	3.1	%

Significant increases or decreases in any of these assumptions in isolation would result in a significantly higher or lower fair value.

MSRs Pledged (Rights to MSRs)

We have elected to measure these borrowings at fair value. We recognize the proceeds received in connection with Rights to MSRs transactions as a secured borrowing that we account for at fair value. Fair value for the portion of the borrowing attributable to the MSRs underlying the Rights to MSRs is determined using the mid-point of the range of prices provided by third-party valuation experts. Fair value for the portion of the borrowing attributable to any lump sum payments received in connection with the transfer of MSRs underlying such Rights to MSRs to the extent such transfer is accounted for as a financing is determined by discounting the relevant future cash flows that were altered through such transfer using assumptions consistent with the mid-point of the range of prices provided by third-party valuation experts for the related MSR. ~~Since~~Because we have elected fair value for our portfolio of non-Agency MSRs, ~~future~~ fair value changes in the Financing Liability - MSRs Pledged ~~will be~~are partially offset by changes in the fair value of the related MSRs. See Note 8 — Rights to MSRs for additional information.

~~The more significant assumptions used in determination of the prices of the underlying MSRs consisted of the following at the dates indicated:~~


	September 30, 2017			December 31, 2016
Significant valuation assumptions							June 30, 2018			December 31, 2017
Weighted average prepayment speed	17.0		%	17.0		%	16.2		%	17.0		%
Weighted average delinquency rate	30.5		%	29.8		%	28.1		%	28.9		%
Advance financing cost	5-yr swap plus 2.75%			1ML plus 3.5%			5-yr swap plus 2.75%			5-year swap plus 2.75%
Interest rate for computing float earnings	5-yr swap minus .50%			1ML			5-yr swap minus 0.50%			5-year swap minus 0.50%
Weighted average discount rate	13.3		%	14.9		%	13.8		%	13.7		%
Weighted average cost to service (in dollars)	$	320		$	313		$	307		$	311

Significant increases or decreases in these assumptions in isolation would result in a significantly higher or lower fair value.

Secured Notes

We issued Ocwen Asset Servicing Income Series (OASIS), Series 2014-1 Notes secured by Ocwen-owned MSRs relating to Freddie Mac mortgages. We accounted for this transaction as a financing. We determine the fair value based on bid prices provided by third parties involved in the issuance and placement of the notes.

Other Secured Borrowings

The carrying value of secured borrowings that bear interest at a rate that is adjusted regularly based on a market index approximates fair value. For other secured borrowings that bear interest at a fixed rate, we determine fair value by discounting the future principal and interest repayments at a market rate commensurate with the risk of the estimated cash flows. For the ~~SSTL,~~Senior Secured Term Loan (SSTL), we based the fair value on quoted prices in a market with limited trading activity.

Senior Notes

We base the fair value on quoted prices in a market with limited trading activity.

Derivative Financial Instruments

Interest rate lock commitments (IRLCs) represent an agreement to purchase loans from a third-party originator or an agreement to extend credit to a mortgage applicant (locked pipeline), whereby the interest rate is set prior to funding. IRLCs are classified within Level 2 of the valuation hierarchy as the primary component of the price is obtained from observable values of mortgage forwards for loans of similar terms and characteristics. Fair value amounts of IRLCs are adjusted for expected “fallout” (locked pipeline loans not expected to close) using models that consider cumulative historical fallout rates and other factors.

We enter into forward MBS trades to provide an economic hedge against changes in the fair value of residential forward and reverse mortgage loans held for sale that we carry at fair value. Forward MBS trades are primarily used to fix the forward sales price that will be realized upon the sale of mortgage loans into the secondary market. Forward contracts are actively traded in the market and we obtain unadjusted market quotes for these ~~derivatives,~~derivatives; thus, they are classified within Level 1 of the valuation hierarchy.

In addition, we may use interest rate caps to minimize future interest rate exposure on variable rate debt issued on servicing advance financing facilities from increases in ~~1ML~~one-month or three-month Eurodollar rate (1ML or 3 ML, respectively) interest rates. The fair value for interest rate caps is based on counterparty market prices and adjusted for counterparty credit risk.

Note 4 – Loans Held for Sale

~~Loans Held for Sale - Fair Value~~

~~The following table summarizes the activity in the balance:~~


Nine months ended September 30,	2017			2016
Loans Held for Sale - Fair Value							Six Months Ended June 30,
							2018			2017
Beginning balance	$	284,632		$	309,054		$	214,262		$	284,632
Originations and purchases	2,204,028			3,141,205			497,980			1,547,169
Proceeds from sales	(2,310,294		)	(3,167,640		)	(559,042		)	(1,603,889		)
Principal collections	(3,684		)	(10,995		)	(7,315		)	(2,062		)
Transfers from Loans held for sale - Lower of cost or fair value	—			1,158
Transfers from Loans held for investment, at fair value							(1,628		)	—
Gain on sale of loans	22,131			23,627			21,030			9,396
Increase in fair value of loans	1,836			990
Increase (decrease) in fair value of loans							(10,872		)	3,838
Other	1,789			4,715			(509		)	406
Ending balance (1)	$	200,438		$	302,114		$	153,906		$	239,490


(1)	At ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, the balances include ~~$6.7~~$(5.9) million and ~~$13.0~~$8.7 million, respectively, of fair value adjustments.

At ~~September~~June 30, ~~2017~~,2018, loans held for sale, at fair value with a UPB of ~~$190.8~~$59.0 million were pledged as collateral to warehouse lines of credit in our Lending segment.

~~Loans Held for Sale - Lower of Cost or Fair Value~~

~~The following table summarizes the activity in the net balance:~~


Nine months ended September 30,	2017			2016
Loans Held for Sale - Lower of Cost or Fair Value							Six Months Ended June 30,
							2018			2017
Beginning balance	$	29,374		$	104,992		$	24,096		$	29,374
Purchases	870,697			1,434,059			340,601			696,306
Proceeds from sales	(746,999		)	(1,295,101		)	(227,041		)	(607,181		)
Principal collections	(6,545		)	(20,151		)	(7,584		)	(4,127		)
Transfers to Receivables, net	(137,807		)	(199,047		)
Transfers to Real estate (Other assets)	(711		)	(6,434		)
Transfers to Loans held for sale - Fair value	—			(1,158		)
Gain on sale of loans	8,332			18,259
Decrease in valuation allowance	1,566			4,637
Transfers (to) from:
Receivables, net							(78,514		)	(96,918		)
Other assets							(1,358		)	(435		)
Gain (loss) on sale of loans							957			(2,434		)
(Increase) decrease in valuation allowance							(218		)	3,573
Other	5,317			(2,405		)	4,608			3,311
Ending balance (1)	$	23,224		$	37,651		$	55,547		$	21,469

(1)

At ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, the balances include ~~$17.6~~$48.6 million and ~~$28.1~~$16.0 million, respectively, of loans that we ~~were required to repurchase~~repurchased from Ginnie Mae guaranteed securitizations pursuant to Ginnie Mae servicing guidelines. We may repurchase loans that have been modified, to facilitate loss reduction strategies, or as ~~part of our servicing obligations.~~otherwise obligated as a Ginnie Mae servicer. Repurchased loans ~~are~~may be modified or otherwise remediated through loss mitigation activities, may be sold to a third party, or are reclassified to receivables.

~~The changes in the valuation allowance are as follows:~~



Valuation Allowance - Loans Held for Sale at Lower of Cost or Fair Value	Three Months Ended June 30,						Six Months Ended June 30,
	2018			2017			2018			2017
Beginning balance	$	8,503		$	5,635		$	7,318		$	10,064
Provision	(572		)	490			281			854
Transfer from Liability for indemnification obligations (Other liabilities)	278			632			997			887
Sales of loans	(674		)	(600		)	(1,083		)	(5,646		)
Other	—			334			22			332
Ending balance	$	7,535		$	6,491		$	7,535		$	6,491

Periods ended September 30, Three Months Nine Months
2017 2016 2017 2016
Beginning balance $ 6,491
$ 15,933
$ 10,064
$ 14,658
Provision 906
(63 ) 1,761
2,100
Transfer from Liability for indemnification obligations (Other liabilities) 1,529
601
2,416
2,306
Sales of loans (426 ) (6,450 ) (6,071 ) (8,699 )
Other (2 ) —
328
(344 )
Ending balance $ 8,498
$ 10,021
$ 8,498
$ 10,021



Gain on Loans Held for Sale, Net	Three Months Ended June 30,						Six Months Ended June 30,
Gain on Loans Held for Sale, Net	2018			2017			2018			2017
Gain on sales of loans, net
MSRs retained on transfers of forward loans	$	2,075		$	6,906		$	4,453		$	15,032
Fair value gains related to transfers of reverse mortgage loans, net	16,481			14,049			27,449			21,687
Gain on sale of repurchased Ginnie Mae loans	265			4,753			957			3,756
Other, net	13,554			10,759			19,569			12,904
	32,375			36,467			52,428			53,379
Change in fair value of IRLCs	(1,265		)	(2,487		)	111			(1,428		)
Change in fair value of loans held for sale	(6,222		)	(1,854		)	(10,146		)	5,813
Gain (loss) on economic hedge instruments	(401		)	(3,670		)	1,998			(6,184		)
Other	(94		)	(201		)	(198		)	(381		)
	$	24,393		$	28,255		$	44,193		$	51,199

~~At September 30, 2017, Loans held for sale, at lower of cost or fair value, with a UPB of $8.2 million were pledged as collateral to a warehouse line of credit in our Servicing segment.~~

~~Gain on Loans Held for Sale, Net~~

~~The following table summarizes the activity in Gain on loans held for sale, net:~~

Periods ended September 30, Three Months Nine Months
2017 2016 2017 2016
MSRs retained on transfers of forward loans $ 3,572
$ 9,826
$ 18,604
$ 25,312
Fair value gains related to transfers of reverse mortgage loans, net 15,747
32,627
37,434
16,868
Gain on sale of repurchased Ginnie Mae loans 4,577
6,917
8,332
19,879
Other gains (losses) related to loans held for sale, net 6,730
(8,663 ) 19,635
15,673
Gain on sales of loans, net 30,626
40,707
84,005
77,732
Change in fair value of IRLCs (178 ) (2,523 ) (1,605 ) 4,148
Change in fair value of loans held for sale (2,078 ) (8,226 ) 3,735
13,486
Loss on economic hedge instruments (2,420 ) (4,051 ) (8,604 ) (25,677 )
Other (173 ) (262 ) (555 ) (615 )
$ 25,777
$ 25,645
$ 76,976
$ 69,074

Note 5 – Advances

~~Advances, net, which represent payments made on behalf of borrowers or on foreclosed properties, consisted of the following at the dates indicated:~~


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Principal and interest	$	16,951		$	31,334		$	14,598		$	20,207
Taxes and insurance	137,992			170,131			113,946			144,454
Foreclosures, bankruptcy and other	77,172			94,369			61,728			63,597
	232,115			295,834			190,272			228,258
Allowance for losses	(34,162		)	(37,952		)	(16,485		)	(16,465		)
	$	197,953		$	257,882		$	173,787		$	211,793

Advances at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016~~2017 include ~~$20.6~~$9.5 million and ~~$29.0~~$18.1 million, respectively, of ~~previously sold~~ advances ~~in connection with~~relating to sales of loans that did not qualify for sale accounting.

The following table summarizes the activity in net advances:

Nine months ended September 30, 2017 2016
Beginning balance $ 257,882
$ 444,298
Sales of advances (399 ) (24,572 )
Collections of advances, charge-offs and other, net (63,320 ) (125,701 )
Decrease (increase) in allowance for losses 3,790
(5,011 )
Ending balance $ 197,953
$ 289,014

~~The changes in the allowance for losses are as follows:~~



	Six Months Ended June 30,
	2018			2017
Beginning balance	$	211,793		$	257,882
Sales of advances	(877		)	(74		)
Collections of advances, charge-offs and other, net	(37,109		)	(56,218		)
(Increase) decrease in allowance for losses	(20		)	17,624
Ending balance	$	173,787		$	219,214


Periods ended September 30,	Three Months					Nine Months
Periods ended September 30,	2017		2016			2017			2016
Allowance for Losses											Three Months Ended June 30,						Six Months Ended June 30,
											2018			2017			2018			2017
Beginning balance	$	20,328	$	39,441		$	37,952		$	41,901	$	16,980		$	35,844		$	16,465		$	37,952
Provision ~~(1)~~	13,756		(6,865		)	17,054			581		977			(123		)	3,501			3,298
Recoveries (Charge-offs), net and other	78		14,336			(20,844		)	4,430
Net charge-offs and other											(1,472		)	(15,393		)	(3,481		)	(20,922		)
Ending balance	$	34,162	$	46,912		$	34,162		$	46,912	$	16,485		$	20,328		$	16,485		$	20,328


~~(1)~~	~~The provision for the three months ended September 30, 2017 increased in connection with re-performing government-insured loans for which certain advances are no longer recoverable.~~

Note 6 – Match Funded Assets

~~Match funded assets are comprised of the following at the dates indicated:~~


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Advances:
Advances
Principal and interest	$	574,175	$	711,272	$	447,781	$	523,248
Taxes and insurance	445,692		530,946		380,733		439,857
Foreclosures, bankruptcy, real estate and other	187,996		209,746		165,412		181,495
	1,207,863		1,451,964		993,926		1,144,600

Automotive dealer financing notes (1)	36,036		—		—		35,392
Allowance for losses					—		(2,635		)
	$	1,243,899	$	1,451,964	—		32,757

					$	993,926	$	1,177,357


(1)	In ~~2017,~~January 2018, we ~~entered into loan agreements under a new~~terminated our automotive dealer loan financing ~~facility to which these notes are pledged.~~facility.

The following table summarizes the activity in match funded assets:


Nine months ended September 30,	2017					2016
									Six Months Ended June 30,
									2018						2017
	Advances			Automotive Dealer Financing Notes		Advances			Advances			Automotive Dealer Financing Notes			Advances			Automotive Dealer Financing Notes
Beginning balance	$	1,451,964		$	—	$	1,706,768		$	1,144,600		$	32,757		$	1,451,964		$	—
Transfer from Other assets	—			25,180		—
Transfer (to) from Other assets									—			(36,896		)	—			25,180
Sales	(691		)	—		(7,757		)	—			—			(691		)	—
New advances/notes (Collections of pledged assets), net	(243,410		)	10,856		(164,689		)
New advances (collections), net									(150,674		)	1,504			(192,232		)	8,687
Decrease in allowance for losses (1)									—			2,635			—			—
Ending balance	$	1,207,863		$	36,036	$	1,534,322		$	993,926		$	—		$	1,259,041		$	33,867


(1)	The remaining allowance was charged off in connection with the exit from the ACS business.

Note 7 – Mortgage Servicing

~~Mortgage Servicing Rights – Amortization Method~~

~~The following table summarizes changes in the net carrying value of servicing assets that we account for using the amortization method:~~


Nine months ended September 30,	2017			2016
Mortgage Servicing Rights – Amortization Method							Six Months Ended June 30,
							2018			2017
Beginning balance	$	363,722		$	377,379		$	336,882		$	363,722
Fair value election - transfer of MSRs carried at fair value (1)							(361,670		)	—
Additions recognized in connection with asset acquisitions	1,658			15,968			—			1,657
Additions recognized on the sale of mortgage loans	18,604			26,494			—			15,032
Sales and other transfers	(814		)	(23,521		)	—			(1,066		)
Servicing transfers and adjustments							—			252
	383,170			396,320			(24,788		)	379,597
Amortization (1)	(38,560		)	(18,595		)	—			(25,412		)
Decrease (increase) in impairment valuation allowance (2)	1,551			(37,164		)
(Increase) decrease in impairment valuation allowance (1) (2)							24,788			(4,650		)
Ending balance	$	346,161		$	340,561		$	—		$	349,535

Estimated fair value at end of period	$	424,208		$	357,817		$	—		$	440,311

(1)

~~During 2016, principally in~~Effective January 1, 2018, we elected fair value accounting for our MSRs previously accounted for using the ~~third quarter, we participated in HUD’s Aged Delinquent Portfolio Loan Sale (ADPLS) program,~~amortization method, which ~~accelerates FHA insurance claims for~~included Agency MSRs and government-insured MSRs. This irrevocable election applies to all subsequently acquired or originated servicing assets and liabilities that have characteristics consistent with each of these classes. We recorded a ~~population~~cumulative-effect adjustment of ~~significantly delinquent FHA loans. The expedited claim filing process allows a servicer~~$82.0 million to ~~reduce significantly its standard claim losses on accepted loans by shortening~~retained earnings as of January 1, 2018 to reflect the servicing timeline and related expenses, some of which are not reimbursed by FHA insurance. Our participation required that we recognize $23.1 million of life-to-date losses on the claims filed in the third quarter of 2016. This loss is reported in Servicing and origination expense ~~in the unaudited consolidated statements of operations. Because the MSRs related to the loans that were assigned to HUD had negative carrying values, our recognition~~excess of the ~~losses on the loans reduced the negative carrying~~fair value of the Agency MSRs ~~thereby generating negative amortization expense~~over their carrying amount. We also recognized the tax effect of this adjustment through an increase in retained earnings of $6.8 million and a deferred tax asset for ~~this population of MSRs. In~~ the ~~third quarter of 2016, this ADPLS-related negative amortization expense of $18.1 million exceeded the positive amortization expense~~same amount. However, we established a full valuation allowance on the ~~remaining~~resulting deferred tax asset through a reduction in retained earnings. The government-insured MSRs ~~generating net negative amortization for the quarter.~~

were impaired by $24.8 million at December 31, 2017; therefore, these MSRs were already effectively carried at fair value.

(2)

Impairment of MSRs is recognized in ~~Servicing and origination expense~~MSR valuation adjustments, net in the unaudited consolidated statements of ~~operations.~~operations for the six months ended June 30, 2017. Impairment valuation allowance balance of $24.8 million was reclassified to reduce the carrying value of the related MSRs on January 1, 2018 in connection with our fair value election. See Note 3 – Fair Value for additional information regarding impairment and the valuation allowance.

~~Mortgage Servicing Rights – Fair Value Measurement Method~~

~~The following table summarizes changes in the fair value of servicing assets that we account for at fair value on a recurring basis:~~


Nine months ended September 30,	2017									2016
Mortgage Servicing Rights – Fair Value Measurement Method																			Six Months Ended June 30,
Mortgage Servicing Rights – Fair Value Measurement Method																			2018									2017
	Agency			Non-Agency			Total			Agency			Non-Agency			Total			Agency			Non-Agency			Total			Agency			Non-Agency			Total
Beginning balance	$	13,357		$	665,899		$	679,256		$	15,071		$	746,119		$	761,190		$	11,960		$	660,002		$	671,962		$	13,357		$	665,899		$	679,256
Fair value election - transfer of MSRs carried at amortized cost, net of valuation allowance																			336,882			—			336,882			—			—			—
Cumulative effect of fair value election																			82,043			—			82,043			—			—			—
Sales and other transfers	—			(2,672		)	(2,672		)	(3		)	(1,471		)	(1,474		)	—			(155		)	(155		)	—			(230		)	(230		)
Additions																			5,885			—			5,885			—			—			—
Servicing transfers and adjustments																			—			(2,375		)	(2,375		)	—			(1,417		)	(1,417		)
Changes in fair value (1):
Changes in valuation inputs or other assumptions	(131		)	2,303			2,172			(4,654		)	—			(4,654		)	20,460			4,989			25,449			36			—			36
Realization of expected future cash flows and other changes	(1,385		)	(79,224		)	(80,609		)	(1,399		)	(57,555		)	(58,954		)	(29,633		)	(46,063		)	(75,696		)	(950		)	(51,045		)	(51,995		)
Ending balance	$	11,841		$	586,306		$	598,147		$	9,015		$	687,093		$	696,108		$	427,597		$	616,398		$	1,043,995		$	12,443		$	613,207		$	625,650


(1)	Changes in fair value are recognized in ~~Servicing and origination expense~~MSR valuation adjustments, net in the unaudited consolidated statements of operations.

Because the mortgages underlying these MSRs permit the borrowers to prepay the loans, the value of the MSRs generally tends to diminish in periods of declining interest rates, an improving housing market or expanded product availability (as prepayments increase) and increase in periods of rising interest rates, a deteriorating housing market or reduced product availability (as prepayments decrease). The following table summarizes the estimated change in the value of the MSRs that we carry at fair value as of ~~September~~June 30, ~~2017~~2018 given hypothetical shifts in lifetime prepayments and yield assumptions:


	Adverse change in fair value						Adverse change in fair value
	10%			20%			10%			20%
Weighted average prepayment speeds	$	(59,993	)	$	(121,587	)	$	(94,457	)	$	(182,012	)
Discount rate (option-adjusted spread)	(10,383		)	(20,807		)	(30,071		)	(57,859		)

The sensitivity analysis measures the potential impact on fair values based on hypothetical changes, which in the case of our portfolio at ~~September~~June 30, ~~2017~~2018 are increased prepayment speeds and a decrease in the yield assumption.

Portfolio of Assets Serviced

The following table presents the composition of our primary servicing and subservicing portfolios by type of property serviced as measured by UPB. The servicing portfolio represents loans for which we own the servicing rights while subservicing represents all other loans. The UPB of assets serviced for others are not included on our unaudited consolidated balance sheets.


	Residential		Commercial		Total		Residential (1)		Commercial (2)		Total
UPB at September 30, 2017
UPB at June 30, 2018
Servicing	$	78,254,463	$	—	$	78,254,463	$	70,796,834	$	—	$	70,796,834
Subservicing	3,656,197		9,750		3,665,947		1,600,289		—		1,600,289
NRZ (1)	105,557,658		—		105,557,658
NRZ (3)							94,729,891		—		94,729,891
	$	187,468,318	$	9,750	$	187,478,068	$	167,127,014	$	—	$	167,127,014
UPB at December 31, 2016
UPB at December 31, 2017
Servicing	$	86,049,298	$	—	$	86,049,298	$	75,469,327	$	—	$	75,469,327
Subservicing	4,330,084		92,933		4,423,017		2,063,669		—		2,063,669
NRZ ~~(1)~~(3)	118,712,748		—		118,712,748		101,819,557		—		101,819,557
	$	209,092,130	$	92,933	$	209,185,063	$	179,352,553	$	—	$	179,352,553
UPB at September 30, 2016
UPB at June 30, 2017
Servicing	$	89,018,280	$	—	$	89,018,280	$	81,319,908	$	—	$	81,319,908
Subservicing	4,692,236		151,432		4,843,668		3,869,084		53,127		3,922,211
NRZ (1)	123,181,486		—		123,181,486
NRZ (3)							109,609,432		—		109,609,432
	$	216,892,002	$	151,432	$	217,043,434	$	194,798,424	$	53,127	$	194,851,551


(1)	Includes foreclosed real estate and small-balance commercial assets.


(2)	Consists of large-balance foreclosed real estate. During 2017, we sold or transferred servicing on the remaining managed assets.


(3)	UPB of loans serviced for which the Rights to MSRs have been sold to NRZ, including those subserviced for which third-party consents have been received and the MSRs have been transferred to NRZ.

Residential assets serviced includes foreclosed real estate. Residential assets serviced also includes small-balance commercial assets with a UPB of $1.0 billion, $1.4 billion and $1.5 billion at September 30, 2017, December 31, 2016 and September 30, 2016, respectively. Commercial assets consist of large-balance foreclosed real estate.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, we sold MSRs with a UPB of ~~$210.2~~$10.5 million and ~~$3.6 billion,~~$134.7 million, respectively.

A significant portion of the servicing agreements for our non-Agency servicing portfolio contain provisions where we could be terminated as servicer without compensation upon the failure of the serviced loans to meet certain portfolio delinquency or cumulative loss thresholds. As a result of the economic downturn beginning in 2007 - 2008, the portfolio delinquency and/or cumulative loss threshold provisions have been breached byin many private-label securitizations in our non-Agency servicing portfolio. To date, terminations as servicer as a result of a breach of any of these provisions have been minimal.

From time to time, rating agencies will assign an outlook (or a ratings watch) to the rating status of a mortgage servicer. A negative outlook is generally used to indicate that a rating “may be lowered,” while a positive outlook is generally used to indicate a rating “may be raised.”At June 30, 2018, S~~&P’s~~&P Global Ratings’ (S&P) servicer ratings outlook for Ocwen is ~~stable in general and its outlook for master servicing is positive.~~stable. Fitch Ratings, ~~changed the~~Inc.’s (Fitch) servicer ratings ~~Outlook to Negative from~~outlook is Stable ~~on April 25, 2017.~~and Moody’s

~~placed the~~ Investors Service, Inc.’s (Moody’s) servicer ratings are on Watch for ~~Downgrade on April 24, 2017. The Morningstar ratings were withdrawn on August 8, 2017 at the request of Ocwen. None of these three ratings has subsequently changed since these actions.~~

Certain of our servicing agreements require that we maintain specified servicer ratings from rating agencies such as Moody’s and S&P. Of 3,325 non-Agency servicing agreements, 712 with approximately $30.8 billion of UPB as of September 30, 2017 have minimum servicer ratings criteria. As a result of our current servicer ratings, termination rights have been triggered in 172 of these non-Agency servicing agreements. This represents approximately $9.7 billion in UPB as of September 30, 2017, or approximately 7% of our total non-Agency servicing portfolio.

Downgrade. Downgrades in servicer ratings could adversely affect our ability to sell or finance servicing advances and could impair our ability to consummate future servicing transactions or adversely affect our dealings with lenders, other contractual counterparties, and regulators, including our ability to maintain our status as an approved servicer by Fannie Mae and Freddie Mac. The servicer rating requirements of Fannie Mae do not necessarily require or imply immediate action, as Fannie Mae has discretion with respect to whether we are in compliance with their requirements and what actions it deems appropriate under the circumstances in the event that we fall below their desired servicer ratings.

~~Servicing Revenue~~Certain of our servicing agreements require that we maintain specified servicer ratings from rating agencies such as Moody’s and S&P. At June 30, 2018, non-Agency servicing agreements with a UPB of $27.9 billion have minimum servicer ratings criteria. As a result of our current servicer ratings, termination rights have been triggered in non-Agency servicing agreements with a UPB of $8.7 billion, or approximately 9% of our total non-Agency servicing portfolio. To date, terminations as servicer as a result of a breach of any of these provisions have been minimal.

~~The following table presents the components of servicing and subservicing fees:~~


Periods ended September 30,	Three Months				Nine Months
	2017		2016		2017		2016
Loan servicing and subservicing fees:
Servicing Revenue									Three Months Ended June 30,				Six Months Ended June 30,
									2018		2017		2018		2017
Loan servicing and subservicing fees
Servicing	$	63,071	$	74,105	$	197,712	$	229,686	$	55,783	$	66,018	$	114,779	$	134,640
Subservicing	1,760		2,989		5,877		11,436		871		1,964		1,786		4,118
NRZ	129,228		159,919		420,151		482,566		126,712		143,612		253,729		290,923
	194,059		237,013		623,740		723,688		183,366		211,594		370,294		429,681
Late charges	14,958		15,225		47,352		51,301		15,315		15,610		29,904		32,394
Home Affordable Modification Program (HAMP) fees	6,202		32,029		37,692		88,141
Custodial accounts (float earnings)									8,461		6,014		15,724		10,833
Loan collection fees	5,663		6,746		17,918		20,860		4,767		5,936		9,785		12,255
Home Affordable Modification Program (HAMP) fees (1)									4,153		10,506		8,256		31,489
Other	12,338		11,222		34,821		23,003		6,165		6,141		10,402		11,651
	$	233,220	$	302,235	$	761,523	$	906,993	$	222,227	$	255,801	$	444,365	$	528,303


(1)	The HAMP program expired on December 31, 2016. Borrowers who had requested assistance or to whom an offer of assistance had been extended as of that date had until September 30, 2017 to finalize their modification.

Float balances (balances in custodial accounts, which represent collections of principal and interest that we receive from borrowers) are held in escrow by an unaffiliated bank and are excluded from our unaudited consolidated balance sheets. Float balances amounted to ~~$2.0~~$1.7 billion and ~~$2.6~~$2.2 billion at ~~September~~June 30, ~~2017~~2018 and ~~September~~June 30, ~~2016,~~2017, respectively.

Note 8 — Rights to MSRs

In 2012 and 2013, we sold Rights to MSRs with respect to certain non-Agency MSRs and the related servicing advances to Home Loan Servicing Solutions, Ltd. (HLSS), an indirect wholly-owned subsidiary of NRZ. ~~We refer to the sale of Rights to MSRs and the related servicing advances as the NRZ/HLSS Transactions, and to the 2012 and 2013 agreements as the 2012 - 2013 Agreements.~~ While certain underlying economics of the MSRs were transferred, legal title was retained by Ocwen, causing the Rights to MSRs transactions to be accounted for as secured financings. We continue to recognize the MSRs and related financing liability on our consolidated balance sheet as well as the full amount of servicing revenue and changes in the fair value of the MSRs and related financing liability in our consolidated statements of operations.

On July 23, 2017 and January 18, 2018, we entered into a series of agreements with NRZ that collectively modify, supplement and supersede the arrangements among the parties as set forth in (i) the Master Servicing Rights Purchase Agreement dated as of October 1, 2012, as amended, and (ii) certain Sale Supplements, as amended (collectively, the Original Rights to MSRs Agreements). The July 23, 2017 agreements, as amended, include a Master Agreement, Transfer Agreement and Subservicing Agreement (collectively, the 2017 Agreements) pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer of the MSRs underlying the Rights to MSRs to NRZ and under which Ocwen will subservice mortgage loans underlying the MSRs for an initial term of five years (the Initial Term). While we continue the process of obtaining the third-party consents necessary to transfer the MSRs to NRZ, on January 18, 2018, the parties entered into new agreements regarding the Rights to MSRs that remained subject to the Original Rights to MSRs Agreements (including a Servicing Addendum) and amended the Transfer Agreement (collectively, New RMSR Agreements) to accelerate the implementation of certain parts of our arrangements in order to achieve the intent of the 2017 Agreements sooner. Ocwen will continue to service the related mortgage loans until the necessary third-party consents are obtained in order to transfer the applicable MSRs in accordance with the New RMSR Agreements. Upon receiving the required consents and transferring the MSRs, Ocwen will subservice the mortgage loans underlying the MSRs pursuant to the 2017 Agreements.

The 2017 Agreements and New RMSR Agreements provide for the conversion of the economics of the Original Rights to MSRs Agreements into a more traditional subservicing arrangement and involve upfront payments to Ocwen. Prior to the execution of the New RMSR Agreements, we received these payments upon obtaining the required third-party consents and the transfer of the MSRs. Upon execution of the New RMSR Agreements, we received the balance of these upfront payments. These upfront payments generally represent the net present value of the difference between the future revenue stream Ocwen would have received under the Original Rights to MSRs Agreements and the future revenue stream Ocwen expects to receive under the 2017 Agreements and the New RMSR Agreements. On September 1, 2017, pursuant to the 2017 Agreements, Ocwen successfully transferred MSRs with UPB of $15.9 billion to NRZ and received a lump-sum payment of $54.6 million. On January 18, 2018, Ocwen received a lump-sum payment of $279.6 million in accordance with the terms of the New RMSR Agreements.

Due to the length of the Initial Term of the Subservicing Agreement, the transactions in which MSRs are transferred as described above do not qualify as a sale and are accounted for as secured financings. A new liability is recognized in an amount equal to the fair value of any lump sum payments received in connection with the 2017 Agreements and New RMSR Agreements. Due diligence and consent-related costs are recorded in Professional services expense as incurred. Changes in the fair value of the financing liability are recognized in Interest expense.

In the event the required third-party consents are not obtained with respect to any dates specified in, and in accordance with the process set forth in, the New RMSR Agreements, such MSRs will either: (i) remain subject to the New RMSR Agreements at the option of NRZ, (ii) be acquired by Ocwen at a price determined in accordance with the terms of the New RMSR Agreements, or (iii) be sold to a third party in accordance with the terms of the New RMSR Agreements.

At any time during the Initial Term, NRZ may terminate the Subservicing Agreement and Servicing Addendum for convenience, subject to Ocwen’s right to receive a termination fee and proper notice. Following the Initial Term, NRZ may extend the term of the Subservicing Agreement and Servicing Addendum for additional three-month periods by providing proper notice. Following the Initial Term, the Subservicing Agreement and Servicing Addendum can be cancelled by Ocwen on an annual basis. NRZ and Ocwen have the ability to terminate the Subservicing Agreement and Servicing Addendum for cause if certain specified conditions occur.

Under the terms of the Subservicing Agreement and Servicing Addendum, in addition to a base servicing fee, Ocwen will continue to receive ancillary income, which primarily includes late fees, loan modification fees and Speedpay^® fees. NRZ will receive all float earnings and deferred servicing fees related to delinquent borrower payments, as well as be entitled to receive certain real estate owned (REO) related income including REO referral commissions.

Prior to January 18, 2018, MSRs as to which necessary transfer consents had not yet been obtained continued to be subject to the terms of the agreements entered into in 2012 and 2013. Under the 2012 and 2013 agreements, the servicing fees payable under the servicing agreements underlying the Rights to MSRs were apportioned between NRZ and us. NRZ retained a fee based on the UPB of the loans serviced, and OLS received certain fees, including a performance fee based on servicing fees paid less an amount calculated based on the amount of servicing advances and the cost of financing those advances.

Interest expense related to financing liabilities recorded in connection with the NRZ transactions is indicated in the table below.



	Three Months Ended June 30,					Six Months Ended June 30,
	2018			2017		2018			2017
Servicing fees collected on behalf of NRZ	$	126,712		$	143,612	$	253,729		$	290,923
Less: Subservicing fee retained by Ocwen	34,444			78,794		68,661			157,947
Net servicing fees remitted to NRZ	92,268			64,818		185,068			132,976
Less: Reduction (increase) in financing liability
Changes in fair value
Original Rights to MSRs Agreements	(8,897		)	—		(8,782		)	—
2017 Agreements and New RMSR Agreements	828			—		17,424			—
Runoff, settlement and other	48,847			16,194		101,887			33,193
	$	51,490		$	48,624	$	74,539		$	99,783

In April 2015, Ocwen ~~agreed, as part of an amendment to the 2012 - 2013 Agreements, to sell~~sold all economic beneficial rights to the “clean-up call rights” to which we ~~are~~were entitled pursuant to servicing agreements that underlie the Rights to MSRs to NRZ for a payment upon exercise of 0.50% of the UPB of all performing mortgage loans (mortgage loans that are current or 30 days or less delinquent) associated with such clean-up call. ~~Clean-up call rights generally allow~~As a servicer or master servicer to purchase the remaining mortgage loans and REO out of a securitization, after the stated principal balance of such mortgage loans in the securitization falls below a specified percentage (generally equal to or lower than 10%result of the ~~original balance), for a price generally equal~~2017 Agreements and the New RMSR Agreements, Ocwen is no longer entitled to the ~~outstanding balance of~~0.50% purchase price but will continue to be reimbursed for costs incurred with respect to such ~~mortgage loans plus interest~~efforts and ~~certain other amounts.~~receives administrative fees. We received ~~$0.8~~$2.3 million and ~~$5.5 million and $1.3 million and $2.4~~$4.7 million during the three and ~~nine~~six months ended ~~September~~June 30, 2017, ~~and 2016,~~ respectively, from NRZ in connection with such clean-up calls.

On July 23, 2017, we entered into a master agreement (Master Agreement), transfer agreement (Transfer Agreement) and subservicing agreement (Subservicing Agreement) (collectively, the 2017 Agreements) pursuant to which the parties agreed to undertake certain actions to facilitate the transfer of the MSRs underlying the Rights to MSRs to NRZ and under which Ocwen will subservice the MSRs for an initial term of five years (Initial Term). Upon obtaining the required third-party consents, and upon transfer of the MSRs, NRZ will pay a lump sum to us, with the amount determined in accordance with the Master

Agreement as of each transfer date. In the event third-party consents are not received by July 23, 2018, or earlier if mutually agreed, any non-transferred MSRs may (i) become subject to a new mortgage servicing rights agreement to be negotiated between Ocwen and NRZ, (ii) be acquired by Ocwen or, if Ocwen does not desire or is otherwise unable to purchase, sold to a third party in accordance with the terms of the Master Agreement, or (iii) remain subject to the terms of the 2012 - 2013 Agreements.

~~The following table provides details of activity related to Rights to MSRs transactions:~~

Nine months ended September 30, 2017 2017 Agreements 2012 - 2013 Agreements
MSR MSR
UPB Carrying Value UPB Carrying Value Financing Liability (1) (2)
Beginning balance $ —
$ —
$ 118,712,748
$ 477,707
$ (477,707 )
Transfers upon receipt of consents 15,872,374
31,253
(15,872,374 ) (31,253 ) —
Receipt of lump sum payment in connection with transfer of MSRs to NRZ (3) —
—
—
—
(54,601 )
Calls (4) (134,705 ) (322 ) (1,132,497 ) (4,156 ) 4,478
Sales and other transfers —
—
(57,793 ) —
—
Changes in fair value (3):
Changes in valuation inputs or other assumptions —
(2,444 ) —
(1,471 ) 27,024
Realization of expected future cash flows and other changes —
(1,459 ) —
(52,266 ) —
Decrease in impairment valuation allowance —
—
—
13,769
—
Runoff, settlements and other (217,048 ) —
(11,613,047 ) 1,529
52,963
Ending balance $ 15,520,621
$ 27,028
$ 90,037,037
$ 403,859
$ (447,843 )

Advances N/A $ 2,727,107


~~(1)~~	~~Carried at fair value in accordance with fair value election.~~

~~(2)~~

~~Under ASC 470-50,~~ ~~Debt - Modifications and Extinguishments~~, Ocwen is deemed to have had a significant modification and debt extinguishment in connection with the Rights to MSRs secured financing liability. Because the secured financing liability is accounted for at fair value, there was no gain or loss recognized in connection with this debt extinguishment. As permitted by ASC 825-10-25, ~~Financial Instruments - Recognition - Fair Value Option, a significant modification of debt is an event that creates a fair value option election date.~~

~~(3)~~

The amount of the lump sum payment is based on a contractual schedule that approximates the net present value of the difference in cash flows under the 2017 Agreements versus the 2012 - 2013 Agreements, and was determined based on the weighted average characteristics, such as contractual servicing fee rates and delinquency, of the MSRs underlying the Rights to MSRs. The difference between the characteristics of the MSRs underlying the Rights to MSRs that are transferred in any period, relative to the weighted average loan characteristics used to determine the lump sum payment, will result in an increase (characteristics of transferred MSRs compare favorably to the weighted average) or decrease (characteristics of transferred MSRs compare unfavorably to the weighted average) in the fair value of the financing liability. The fair value of the portion of the financing liability recognized in connection with the September 1, 2017 transfer declined $37.6 million primarily due to the transferred MSRs having a contractual servicing fee rate of ~~33.4 bps~~ ~~as compared to the weighted average of~~ ~~47.1 bps~~.

~~(4)~~

Represents the UPB and carrying value of MSRs in connection with clean-up call rights exercised by NRZ, for MSRs transferred to NRZ under the 2017 Agreements, or by Ocwen at NRZ’s direction, for MSRs underlying the 2012 - 2013 Agreements. Ocwen derecognizes the MSRs and the related financing liability upon collapse of the securitization. Income recognized in connection with clean-up calls is reported in other income in our unaudited consolidated statements of operations.

The 2017 Agreements obligate NRZ to a standstill through January 23, 2019, subject to limited exceptions, on exercising rights it may otherwise have under the 2012 - 2013 Agreements to replace Ocwen as servicer of certain MSRs in the event of a termination event with respect to an affected servicing agreement underlying the MSRs resulting from a servicer rating downgrade.

Under the terms of the Subservicing Agreement, in addition to a base servicing fee, Ocwen will continue to receive ancillary income, which primarily includes late fees, HAMP or other loan modification fees and Speedpay^® ~~fees. NRZ will~~

~~receive all float earnings and deferred servicing fees related to delinquent borrower payments, as well as be entitled to receive all REO-related income including REO referral commissions.~~

At any time during the Initial Term, NRZ may terminate the Subservicing Agreement for convenience, subject to Ocwen’s right to receive a termination fee and proper notice. Following the Initial Term, NRZ may extend the term of the Subservicing Agreement for additional three-month periods by providing proper notice. Following the Initial Term, the Subservicing Agreement can be cancelled by Ocwen on an annual basis. NRZ and Ocwen have the ability to terminate the Subservicing Agreement for cause if certain conditions specified in the Subservicing Agreement occur.

Under the 2012 - 2013 Agreements, the servicing fees payable under the servicing agreements underlying the Rights to MSRs are apportioned between NRZ and us. NRZ retains a fee based on the UPB of the loans serviced, and OLS receives certain fees, including a performance fee based on servicing fees actually paid less an amount calculated based on the amount of servicing advances and the cost of financing those advances.

Due to the length of the Initial Term of the Subservicing Agreement, this transaction does not qualify as a sale and is accounted for as a secured financing. As consents are received and MSRs transfer to NRZ, a new liability is recognized in an amount equal to the lump sum payment Ocwen receives in connection with such transfer. Due diligence and consent-related costs are recorded in Professional services expense as incurred. Changes in the fair value of the financing liability are recognized in Interest expense.

~~Interest expense related to financing liabilities recorded in connection with the NRZ Transactions is indicated in the table below.~~

Periods ended September 30, Three Months Nine Months
2017 2016 2017 2016
Servicing fees collected on behalf of NRZ $ 129,228
$ 159,919
$ 420,151
$ 482,566
Less: Subservicing fee retained by Ocwen 68,536
87,506
226,483
257,408
Net servicing fees remitted to NRZ 60,692
72,413
193,668
225,158
Less: Reduction (increase) in financing liability
Changes in fair value 27,024
(807 ) 27,024
(1,555 )
Runoff, settlement and other 19,770
594
52,963
47,172
$ 13,898
$ 72,626
$ 113,681
$ 179,541

Interest expense for the nine months ended September 30, 2016 includes $10.5 million of fees incurred in connection with our agreement to compensate NRZ for certain increased costs associated with its servicing advance financing facilities that were the direct result of a previous downgrade of our S&P servicer rating.

Note 9 – Receivables

September 30, 2017 December 31, 2016
Servicing:
Government-insured loan claims, net (1) $ 118,113
$ 133,063
Due from custodial accounts 34,423
44,761
Reimbursable expenses 31,565
29,358
Due from NRZ 11,548
21,837
Other 13,551
27,086
209,200
256,105
Income taxes receivable 38,666
61,932
Other receivables (2) 46,519
21,125
294,385
339,162
Allowance for losses (1) (62,871 ) (73,442 )
$ 231,514
$ 265,720


~~(1)~~	At September 30, 2017 and December 31, 2016, the allowance for losses related to receivables of our Servicing business. Allowance for losses related to defaulted FHA or VA insured loans repurchased from Ginnie Mae guaranteed securitizations (government-insured loan claims) at September 30, 2017 and December 31, 2016 were $48.7 million and $53.3 million, respectively.



	June 30, 2018			December 31, 2017
Servicing-related receivables:
Government-insured loan claims, net	$	112,296		$	114,971
Reimbursable expenses	32,704			31,709
Due from custodial accounts	25,751			36,122
Due from NRZ	15,411			14,924
Other	7,662			11,959
	193,824			209,685
Income taxes receivable	34,738			36,831
Other receivables	15,347			19,600
	243,909			266,116
Allowance for losses	(65,231		)	(66,587		)
	$	178,678		$	199,529

At June 30, 2018 and December 31, 2017, the allowance for losses related to receivables of our Servicing business. Allowance for losses related to defaulted FHA or VA insured loans repurchased from Ginnie Mae guaranteed securitizations (government-insured loan claims) at June 30, 2018 and December 31, 2017 were $53.2 million and $53.3 million, respectively.


~~(2)~~	At September 30, 2017, the balance includes $13.0 million in connection with the recovery of prior legal settlement expenses and $14.0 million for insurance recovery in connection with accrued legal fees and settlements outstanding at September 30, 2017.



Allowance for Losses - Government-Insured Loan Claims	Three Months Ended June 30,						Six Months Ended June 30,
Allowance for Losses - Government-Insured Loan Claims	2018			2017			2018			2017
Beginning balance	$	57,593		$	41,438		$	53,340		$	53,258
Provision	8,658			9,467			19,034			19,907
Net charge-offs and other	(13,096		)	(4,328		)	(19,219		)	(26,588		)
Ending balance	$	53,155		$	46,577		$	53,155		$	46,577

Note 10 – Other Assets


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Contingent loan repurchase asset ~~(1)~~	$	318,954	$	246,081	$	331,158	$	431,492
Debt service accounts	38,753		42,822		24,278		33,726
Prepaid expenses ~~(2)~~	33,951		57,188		15,603		22,559
Prepaid representation, warranty and indemnification claims - Agency MSR sale					15,173		20,173
Real estate					5,724		3,070
Prepaid lender fees, net	9,896		9,023		5,170		9,496
Derivatives, at fair value					4,998		5,429
Other restricted cash					3,412		9,179
Mortgage backed securities, at fair value	9,327		8,342		1,732		1,592
Derivatives, at fair value	7,852		9,279
Interest-earning time deposits					1,694		4,739
Automotive dealer financing notes, net					22		—
Prepaid income taxes	6,314		8,392		—		5,621
Interest-earning time deposits	5,380		6,454
Real estate	3,700		5,249
Automotive dealer financing notes, net	—		33,224
Other	19,774		12,050		8,604		7,715
	$	453,901	$	438,104	$	417,568	$	554,791


~~(1)~~	With respect to previously transferred Ginnie Mae mortgage loans for which we have the right or the obligation to repurchase under the applicable agreement, we re-recognize the loans in Other assets and a corresponding liability in Other liabilities.


~~(2)~~	In connection with the sale of Agency MSRs in 2015, we placed $52.9 million in escrow for the payment of representation, warranty and indemnification claims associated with the underlying loans. Prepaid expenses at September 30, 2017 and December 31, 2016 includes the remaining balance of $20.2 million and $34.9 million, respectively.

Automotive dealer financing notes represent short-term inventory-secured floor plan loans – provided to independent used car dealerships through our Automotive Capital Services (ACS) venture – that have not been pledged to our automotive dealer loan financing facility. The balance ofloans. At December 31, 2017, the notes ~~of $8.6 million and $37.6 million~~ are reported net of an allowance of ~~$8.6 million and $4.4 million at September 30, 2017 and December 31, 2016, respectively.~~$7.7 million. Changes in the allowance are as follows:


Periods ended September 30,	Three Months					Nine Months
Periods ended September 30,	2017			2016		2017		2016
										Three Months Ended June 30,						Six Months Ended June 30,
										2018			2017			2018			2017
Beginning balance	$	9,586		$	164	$	4,371	$	27	$	2,767		$	10,516		$	7,664		$	4,371
Provision	(1,019		)	108		4,196		245		(512		)	(930		)	(265		)	5,215
Net charge-offs and other										(2,255		)	—			(7,399		)	—
Ending balance	$	8,567		$	272	$	8,567	$	272	$	—		$	9,586		$	—		$	9,586

Note 11 – Borrowings

~~Match Funded Liabilities~~


					September 30, 2017				December 31, 2016
Match Funded Liabilities																	June 30, 2018				December 31, 2017
Borrowing Type	Maturity (1)	Amorti- zation Date (1)	Available Borrowing Capacity (2)		Weighted Average Interest Rate (3)		Balance		Weighted Average Interest Rate (3)		Balance		Maturity (1)	Amorti- zation Date (1)	Available Borrowing Capacity (2)		Weighted Average Interest Rate (3)		Balance		Weighted Average Interest Rate (3)		Balance
Advance Financing Facilities:
Advance Receivables Backed Notes - Series 2014-VF3 (4)	Aug. 2047	Aug. 2017	$	—	—	%	$	—	3.12	%	$	74,394
Advance Receivables Backed Notes - Series 2014-VF4 (4)	Aug. 2048	Aug. 2018	34,366		4.27		70,634		3.12		74,394		Aug. 2048	Aug. 2018	$	69,990	4.25	%	$	10	4.29	%	$	67,095
Advance Receivables Backed Notes - Series 2015-VF5 (4)	Aug. 2048	Aug. 2018	34,366		4.27		70,634		3.12		74,394		Aug. 2048	Aug. 2018	69,990		4.25		10		4.29		67,095
Advance Receivables Backed Notes - Series 2015-T3 (5)	Nov. 2047	Nov. 2017	—		—		—		3.48		400,000
Advance Receivables Backed Notes - Series 2017-T1 (5)	Sep. 2048	Sep. 2018	—		2.64		250,000		—		—
Advance Receivables Backed Notes - Series 2016-T1 (5)	Aug. 2048	Aug. 2018	—		2.77		265,000		2.77		265,000		Aug. 2048	Aug. 2018	—		2.77		265,000		2.77		265,000
Advance Receivables Backed Notes - Series 2016-T2 (5)	Aug. 2049	Aug. 2019	—		2.99		235,000		2.99		235,000		Aug. 2049	Aug. 2019	—		2.99		235,000		2.99		235,000
Advance Receivables Backed Notes - Series 2017-T1 (5)													Sep. 2048	Sep. 2018	—		2.64		250,000		2.64		250,000
Total Ocwen Master Advance Receivables Trust (OMART)			68,732		2.29	%	891,268		3.14	%	1,123,182				139,980		2.80		750,020		3.02		884,190
Ocwen Servicer Advance Receivables Trust III (OSART III) - Advance Receivables Backed Notes, Series 2014-VF1 (6)	Dec. 2047	Dec. 2017	23,134		4.41	%	51,866		4.03	%	63,093		Dec. 2048	Dec. 2018	54,399		5.35		601		4.63		33,768
Ocwen Freddie Advance Funding (OFAF) - Advance Receivables Backed Notes, Series 2015-VF1 (7)	Jun. 2048	Jun. 2018	51,274		4.16	%	58,726		3.54	%	94,722		Jun. 2049	Jun. 2019	64,927		4.70		73		4.52		56,078
Total Servicing Advance Financing Facilities			143,140		2.51	%	1,001,860		3.21	%	1,280,997				259,306		2.80	%	750,694		3.16	%	974,036

Automotive Dealer Loan Financing Facility:
Loan Series 2017-1	Feb. 2021	Feb. 2019	36,922		6.48	%	13,078		—	%	—
Loan Series 2017-2	Mar. 2021	Mar. 2019	36,922		6.23		13,078		—		—
Total Automotive Capital Asset Receivables Trust (ACART) (8)			73,844		6.36	%	26,156		—	%	—
Automotive Capital Asset Receivables Trust (ACART) - Loan Series 2017-1 (8)													Feb. 2021	Feb. 2019	—		—	%	—		6.77	%	24,582

			$	216,984	2.61	%	$	1,028,016	3.21	%	$	1,280,997			$	259,306	2.80	%	$	750,694	3.25	%	$	998,618

(1)

The amortization date of our facilities is the date on which the revolving period ends under each advance facility note and repayment of the outstanding balance must begin if the note is not renewed or extended. The maturity date is the date on which all outstanding balances must be repaid. In all of our advance facilities, there are multiple notes outstanding. For each note, after the amortization date, all collections that represent the repayment of advances pledged to the facility must be applied to reduce the balance of the note outstanding, and any new advances are ineligible to be financed.


(2)	Borrowing capacity is available to us provided that we have ~~additional~~ eligible collateral to pledge. Collateral may only be pledged to one facility. At ~~September~~June 30, ~~2017, $41.9~~2018, $97.4 million of the available borrowing capacity of our advance financing notes could be used based on the amount of eligible collateral that had been pledged.


(3)	1ML was ~~1.23%~~2.09% and ~~0.77%~~1.56% at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.

(4)

Effective January 1, 2018, the borrowing capacity of the Series 2014-VF4 and the Series 2015-VF5 variable rate notes were each reduced from $105.0 million to $70.0 million. The interest rate was based on 1ML, with a ceiling of 125 basis points (bps), plus a margin of 235 to 635 bps. On ~~August 11, 2017,~~July 13, 2018, we increased the borrowing capacity of the Series ~~2014-VF4~~2015-VF5 variable notes to $225.0 million and ~~Series 2014-VF5 variable rate notes from $70.0 million~~extended the amortization date to ~~$105.0 million. In addition, we voluntarily terminated the Series 2014-VF3 note. There is a ceiling of~~ ~~125 basis points (bps)~~ ~~for 1ML in determining the~~December 15, 2019, with interest ~~rate for these notes. Rates~~computed based on the ~~individual notes are based on 1ML~~lender’s cost of funds plus a ~~margin of 235 to 635 bps.~~

margin of 105 to 250 bps. The increased capacity was used on July 16, 2018 to redeem the Series 2016-T1 term notes with an outstanding balance of $265.0 million and an amortization date of August 15, 2018. We also voluntarily terminated the Series 2014-VF4 variable notes on such date.

(5)

Under the terms of the agreement, we must continue to borrow the full amount of the Series 2016-T1, ~~and~~ Series 2016-T2 and 2017-T1 fixed-rate term notes until the amortization date. ~~On September 15, 2017, we terminated~~If there is insufficient eligible collateral to support the level of borrowing, the excess cash proceeds in an amount necessary to make up the deficit are not distributed to Ocwen but are held by the trustee, and interest expense continues to be based on the full amount of the outstanding notes. The Series ~~2015-T3 note,~~2016-T1, Series 2016-T2 and ~~we entered into~~Series 2017-T1 term notes have a total combined borrowing capacity of $750.0 million. Rates on the individual classes of notes range from 2.50% to 4.45%. The Series 2016-T1 term notes were redeemed on July 16, 2018.

2017-T1 notes. If there is insufficient collateral to support the level of borrowing, the excess cash proceeds are not distributed to Ocwen but are held by the trustee, and interest expense continues to be based on the full amount of the notes. The Series 2016-T1 and Series 2016-T2 notes have a total borrowing capacity of $500.0 million. The Series 2017-T1 notes have a borrowing capacity of $250.0 million. Rates on the individual notes range from 2.4989% to 4.4456%.


(6)	The maximum borrowing capacity under this facility is ~~$75.0~~$55.0 million. There is a ceiling of 75300 bps for ~~1ML~~the 3ML in determining the interest rate for these variable rate notes. Rates on the individual notes are based on the lender’s cost of funds plus a margin of ~~230~~235 to ~~470~~475 bps.

(7)

~~The combined~~On June 7, 2018, the borrowing capacity of the ~~Series 2015-VF1 Notes~~notes was ~~$160.0~~reduced from $110.0 million ~~at December 31, 2016. Rates on the individual notes are based on 1ML plus a margin of 240~~ to ~~480 bps. On June 8, 2017, we negotiated a renewal of this facility through June 7, 2018. As part of this renewal, we reduced the combined borrowing capacity of the Series 2015-VF1 Notes to $110.0~~$65.0 million with interest computed based on the lender’s cost of funds plus a margin of ~~250~~180 to ~~500~~450 bps. There is a ceiling of 300 bps for ~~1ML~~3ML in determining the interest rate for these variable rate notes.

(8)

~~We entered into~~On January 23, 2018, we voluntarily terminated the ~~loan agreements for the~~Loan Series 2017-1 Notes on February 24, 2017 and for the Series 2017-2 Notes on March 17, 2017. The committed borrowing capacity for each of the Series 2017-1 and Series 2017-2 variable rate notes is $50.0 million. From time to time, we may request increases in the aggregate maximum borrowing capacity of the facility to $200.0 million. Rates on the Series 2017-1 notes are based on 1ML plus a margin of 500 bps and rates on the Series 2017-2 notes are based on the lender’s cost of funds plus a margin of 500 bps.Notes.

Pursuant to the ~~2012 - 2013~~2017 Agreements and New RMSR Agreements, NRZ ~~assumed the obligation~~is obligated to fund new servicing advances with respect to the MSRs underlying the Rights to ~~MSRs in the NRZ/HLSS Transactions.~~MSRs. We are dependent upon NRZ for funding the servicing advance obligations for Rights to MSRs where we are the servicer. NRZ currently uses advance financing facilities in order to fund a substantial portion of the servicing advances that they are contractually obligated to purchase pursuant to our agreements with them. As of ~~September~~June 30, ~~2017,~~2018, we were the servicer onof Rights to MSRs sold to NRZ pertaining to approximately ~~$90.0~~$94.7 billion in UPB and the associated outstanding servicing advances as of such date were approximately ~~$2.7~~$2.4 billion. Should NRZ’s advance financing facilities fail to perform as envisaged or should NRZ otherwise be unable to meet its advance funding obligations, our liquidity, financial condition and business could be materially and adversely affected. As the servicer, we are contractually required under our servicing agreements to make the relevant servicing advances even if NRZ does not perform its contractual obligations to fund those advances. ~~On July 23, 2017, we entered into a series of new agreements with NRZ (the 2017 Agreements) that provide for the conversion of NRZ’s existing Rights to MSRs to fully-owned MSRs.~~ See Note 8 — Rights to MSRs for additional information.

In addition, although we are not an obligor or guarantor under NRZ’s advance financing facilities, we are a party to certain of the facility documents as the servicer of the underlying loans on which advances are being financed. As the servicer, we make certain representations, warranties and covenants, including representations and warranties in connection with ~~our sale of~~ advances subsequently sold to, or reimbursed by, NRZ.

~~Financing Liabilities~~

Borrowings Collateral Interest Rate Maturity September 30, 2017 December 31, 2016
HMBS-Related Borrowings, at fair value (1) Loans held for investment 1ML + 264 bps (1) $ 4,358,277
$ 3,433,781
Other Financing Liabilities:
Financing liability – MSRs pledged, at fair value
2012 - 2013 Agreements MSRs (2) (2) 430,887
477,707
2017 Agreements MSRs (3) (3) 16,956
—
447,843
477,707

Secured Notes, Ocwen Asset Servicing Income Series, Series 2014-1 (4) MSRs (4) Feb. 2028 74,695
81,131
Financing liability – Advances pledged (5) Advances on loans (5) (5) 14,443
20,193
536,981
579,031
$ 4,895,258
$ 4,012,812



Financing Liabilities				Outstanding Balance
Borrowing Type	Collateral	Interest Rate	Maturity	June 30, 2018		December 31, 2017
HMBS-Related Borrowings, at fair value (1)	Loans held for investment	1ML + 260 bps	(1)	$	5,040,983	$	4,601,556
Other Financing Liabilities
MSRs pledged, at fair value
Original Rights to MSRs Agreements	MSRs	(2)	(2)	471,662		499,042
2017 Agreements and New RMSR Agreements	MSRs	(3)	(3)	200,957		9,249
				672,619		508,291
Secured Notes, Ocwen Asset Servicing Income Series, Series 2014-1 (4)	MSRs	(4)	Feb. 2028	68,830		72,575
Advances pledged (5)	Advances on loans	(5)	(5)	6,054		12,652
				747,503		593,518

				$	5,788,486	$	5,195,074


(1)	Represents amounts due to the holders of beneficial interests in Ginnie Mae guaranteed HMBS. The beneficial interests have no maturity dates, and the borrowings mature as the related loans are repaid.


(2)	This financing liability ~~arose in connection with sales proceeds received in 2012 and 2013 as part of the Rights to MSRs transactions with NRZ/HLSS and~~ has no contractual maturity or repayment schedule. The balance of the liability is adjusted each reporting period to its fair value based on the present value of the estimated future cash flows underlying the related MSRs.

(3)

This financing liability arose in connection with ~~the~~ lump sum ~~payment~~payments received ~~in September 2017~~ upon ~~subsequently obtaining the required third-partyconsents and~~ transfer of legal title of the MSRs related to the Rights to MSRs transactions to NRZ in September 2017. In connection with ~~NRZ/HLSS~~the execution of the New RMSR Agreements in ~~2012 and 2013. We~~January 2018, we received a lump sum payment of ~~$54.6~~$279.6 million as compensation for foregoing certain payments under the ~~2012 and 2013 agreements. This liability has no contractual maturity or repayment schedule.~~Original Rights to MSRs Agreements. The balance of the liability is adjusted each reporting period to its fair value based on the present value of the ~~estimated future cash flows. See~~ ~~Note 3 – Fair Value~~ ~~and~~ ~~Note 8 — Rights to MSRs~~ ~~for additional information.~~

estimated future cash flows. The expected maturity of the liability is April 30, 2020, the date through which we were scheduled to be the servicer on loans underlying the Rights to MSRs per the Original Rights to MSRs Agreements.

(4)

OASIS noteholders are entitled to receive a monthly payment ~~amount~~ equal to the sum of: (a) ~~the designated servicing fee amount (21~~21 basis points of the UPB of the reference pool of Freddie Mac ~~mortgages);~~mortgages; (b) any termination payment amounts; (c) any excess refinance amounts; and (d) the note redemption amounts, each as defined in the indenture supplement for the notes. ~~We accounted for this transaction as a financing.~~ Monthly amortization of the liability is estimated using the proportion of monthly projected service fees on the underlying MSRs as a percentage of lifetime projected fees, adjusted for the term of the ~~security.~~notes.


(5)	Certain sales of advances did not qualify for sales accounting treatment and were accounted for as a financing. This financing liability has no contractual maturity. The effective interest rate is based on 1ML plus a margin of 450 bps.

~~Other Secured Borrowings~~


Borrowings		Collateral	Interest Rate	Maturity	Available Borrowing Capacity (1)		September 30, 2017			December 31, 2016
Other Secured Borrowings																			Outstanding Balance
Borrowing Type														Collateral	Interest Rate	Termination / Maturity	Available Borrowing Capacity (1)		June 30, 2018			December 31, 2017
SSTL (2)			1ML Euro-dollar rate + 500 bps with a Eurodollar floor of 100 bps	Dec. 2020	$	—	$	322,438		$	335,000			(2)	1-Month Euro-dollar rate + 500 bps with a Eurodollar floor of 100 bps (2)	Dec. 2020	$	—	$	239,875		$	298,251
Mortgage loan warehouse facilities:
Mortgage loan warehouse facilities
Repurchase agreement (3)		Loans held for sale (LHFS)	1ML + 200 - 345 bps	Aug. 2018	45,516		41,984			12,370				Loans held for sale (LHFS)	1ML + 200 - 345 bps	Aug. 2018	87,500		—			8,221
Master repurchase agreements (4)		LHFS	1ML + 200 bps; 1ML floor of 0.0%	Feb. 2018	—		—			173,543
Participation agreements ~~(5)~~(4)		LHFS	N/A	Apr. 2018	—		141,800			92,739				LHFS	N/A	(4)	—		30,811			161,433
Participation agreements (6)		LHFS (reverse mortgages)	1ML + 275 bps; 1ML floor of 300 or 350 bps	Nov. 2017	—		47,489			26,254
Mortgage warehouse agreement (5)														LHFS (reverse mortgages)	1ML + 275 bps; 1ML floor of 350 bps	Oct. 2018	—		9,506			32,042
Master repurchase agreement ~~(7)~~(6)		LHFS (reverse mortgages)	1ML + 275 bps; 1ML floor of 25 bps	Jan. 2018	—		—			50,123				LHFS (forward and reverse mortgages)	1ML + 225 bps forward; 1ML + 275 bps reverse	Dec. 2018	84,286		65,714			54,086
Master repurchase agreement (7)														LHFS (reverse mortgages)	Prime + 0.0% (4.0% floor)	Dec. 2018	—		601			—
					45,516		231,273			355,029							171,786		106,632			255,782

					$	45,516	553,711			690,029							$	171,786	346,507			554,033
Unamortized debt issuance costs - SSTL	Unamortized debt issuance costs - SSTL						(6,045		)	(7,612		)	Unamortized debt issuance costs - SSTL						(4,035		)	(5,423		)
Discount - SSTL	Discount - SSTL						(3,077		)	(3,874		)	Discount - SSTL						(2,054		)	(2,760		)
							$	544,589		$	678,543								$	340,418		$	545,850

Weighted average interest rate							5.20		%	4.56		%	Weighted average interest rate						5.70		%	5.22		%

(1)

~~For~~Available borrowing capacity for our mortgage loan warehouse facilities ~~available borrowing capacity~~ does not consider the amount of the facility that the lender has extended on an uncommitted basis. Of the borrowing capacity extended on a committed basis, ~~$29.3~~$57.8 million could be used at ~~September~~June 30, ~~2017~~2018 based on the amount of eligible collateral that ~~had been~~could be pledged.

(2)

~~On December 5, 2016, we entered into an~~Under the terms of the Amended and Restated Senior Secured Term Loan Facility Agreement ~~that established a new SSTL~~ with aan original borrowing capacity of $335.0 million, ~~and a maturity date of December 5, 2020. We~~we may request increases to the loan amount of up to $100.0 million, ~~in total,~~ with additional increases subject to certain limitations. We are required to make quarterly principal payments of $4.2 million on the SSTL, ~~in an amount of $4.2 million,~~ the first of which was paid on March 31, 2017.

The borrowings under the SSTL are secured by a first priority security interest in substantially all of the assets of Ocwen, OLS and the other guarantors thereunder, excluding among other things, 35% of the capital stock of foreign subsidiaries, securitization assets and equity interests of securitization entities, assets securing permitted funding indebtedness and non-recourse indebtedness, REO assets, servicing agreements where an acknowledgment from the GSE has not been obtained, as well as other customary carve-outs.

Borrowings bear interest, at the election of Ocwen, at a rate per annum equal to either (a) the base rate (the greatest of (i) the prime rate in effect on such day, (ii) the federal funds rate in effect on such day plus 0.50% and (iii) ~~the one-month Eurodollar rate (1ML))~~1ML), plus a margin of 4.00% and

subject to a base rate floor of 2.00% or (b) ~~the one-month Eurodollar rate,~~1ML, plus a margin of 5.00% and subject to a ~~one-month Eurodollar~~1ML floor of 1.00%. To date, we have elected option (b) to determine the interest rate.

(3)

$87.5 million of the maximum borrowing amount of $137.5 million is available on a committed basis and the remainder is available at the discretion of the lender. ~~Effective January 1, 2018, the committed amount shall be reduced to $50.0 million.~~ We primarily use this facility to fund the repurchase of certain loans from Ginnie Mae guaranteed securitizations in connection with loan modifications and loan resolution activity as part of our contractual obligations as the servicer of the loans. ~~On August 1, 2017, we entered into an amendment to lower the advance rates under this facility by 3%.~~


(4)	~~On August 1, 2017, we elected to voluntarily terminate these agreements.~~

~~(5)~~

Under these participation agreements, the lender provides financing for a combined total of $250.0 million at the discretion of the lender. The participation ~~agreement allows~~agreements allow the lender to acquire a 100% beneficial interest in the underlying mortgage loans. The transaction does not qualify for sale accounting treatment and is accounted for as a secured borrowing. The lender earns the stated interest rate of the underlying mortgage loans while the loans are financed under the participation agreement. On ~~April 25, 2017, the term of~~May 31, 2018, we renewed these ~~participation agreements was extended to~~facilities through April 30, ~~2018.~~2019 ($175.0 million) and May 31, 2019 ($75.0 million).

~~(6)~~(5)

Under ~~these~~this participation ~~agreements,~~agreement, the lender provides ~~uncommitted reverse mortgage~~ financing for ~~a combined total of $110.0~~$100.0 million at the discretion of the lender. The participation agreement allows the lender to acquire a 100% beneficial interest in the underlying mortgage loans. The transaction does not qualify for sale accounting treatment and is accounted for as a secured borrowing.

(6)

Under this agreement, the lender provides financing on a committed basis for up to $150.0 million. The agreement allows the lender ~~earns the stated~~to acquire a 100% beneficial interest ~~rate of~~in the underlying mortgage ~~loans while the loans are financed under the participation agreement. On October 27, 2017, we renewed one of the agreements through October 12, 2018~~loans. The transaction does not qualify for sale accounting treatment and ~~increased the maximum borrowing capacity of the facility from $50.0 million to $100.0 million~~.is accounted for as a secured borrowing.


(7)	~~On August 18, 2017, we elected~~Under this agreement, the lender provides financing for up to ~~voluntarily terminate~~ $50.0 million at the ~~master repurchase agreement.~~discretion of the lender.

~~Senior Notes~~

September 30, 2017 December 31, 2016
6.625% Senior unsecured notes due May 15, 2019 $ 3,122
$ 3,122
8.375% Senior secured notes due November 15, 2022 346,878
346,878
350,000
$ 350,000
Unamortized debt issuance costs (2,799 ) (3,211 )
$ 347,201
$ 346,789



Senior Notes	Interest Rate	Maturity	Outstanding Balance
Senior Notes	Interest Rate	Maturity	June 30, 2018			December 31, 2017
Senior unsecured notes (1)	6.625%	May 2019	$	3,122		$	3,122
Senior secured notes (2)	8.375%	Nov. 2022	346,878			346,878
			350,000			350,000
Unamortized debt issuance costs			(2,388		)	(2,662		)
			$	347,612		$	347,338


(1)	Ocwen may redeem all or a part of the remaining Senior Unsecured Notes, upon not less than 30 nor more than 60 days’ notice, at a redemption price (expressed as a percentage of principal amount) of 100.000% beginning May 15, 2018 plus accrued and unpaid interest and additional interest, if any.


(2)	The Senior Secured Notes are guaranteed by Ocwen, OMS, Homeward Residential Holdings, Inc., Homeward and ACS (the Guarantors). The Senior Secured Notes are secured by second priority liens on the assets and properties of OLS and the Guarantors that secure the first priority obligations under the SSTL, excluding certain MSRs.

~~Senior Unsecured Notes~~

Ocwen may redeem all or a part of the remaining Senior Unsecured Notes, upon not less than 30 nor more than 60 days’ notice, at the redemption price (expressed as percentages of principal amount) of 103.313% and 100.000% for the twelve-month periods beginning May 15, 2017 and 2018, respectively, plus accrued and unpaid interest and additional interest, if any.

~~Senior Secured Notes~~

The Senior Secured Notes are guaranteed by Ocwen, OMS, Homeward Residential Holdings, Inc., Homeward and ACS (the Guarantors). The Senior Secured Notes are secured by second priority liens on the assets and properties of OLS and the Guarantors that secure the first priority obligations under the SSTL, excluding certain MSRs.

At any time, OLS may redeem all or a part of the Senior Secured Notes, upon not less than 30 nor more than 60 days’ notice at a specified redemption price, plus accrued and unpaid interest to the date of redemption. Prior to November 15, 2018, the Senior Secured Notes may be redeemed at a redemption price equal to 100.0% of the principal amount of the Senior Secured Notes redeemed, plus the applicable make whole premium (as defined in the ~~indenture)~~Indenture). On or after November 15, 2018, OLS may redeem all or a part of the Senior Secured Notes at the redemption prices (expressed as percentages of principal amount) specified in the Indenture. The redemption prices during the twelve-month periods beginning on November 15^th of each year are as follows:



Year		Redemption Price
2018		106.281%
2019		104.188%
2020		102.094%
2021 and thereafter		100.000%

At any time, on or prior to November 15, 2018, OLS may, at its option, use the net cash proceeds of one or more equity offerings (as defined in the Indenture) to redeem up to 35.0% of the principal amount of all Senior Secured Notes issued at a redemption price equal to 108.375% of the principal amount of the Senior Secured Notes redeemed plus accrued and unpaid interest to the date of redemption, provided that: (i) at least 65.0% of the principal amount of all Senior Secured Notes issued under the Indenture (including any additional Senior Secured Notes) remains outstanding immediately after any such redemption; and (ii) OLS makes such redemption not more than 120 days after the consummation of any such ~~Equity Offering.~~equity offering.

Upon a change of control (as defined in the ~~indenture)~~Indenture), OLS is required to make an offer to the holders of the Senior Secured Notes to repurchase all or a portion of each holder’s Senior Secured Notes at a purchase price equal to 101.0% of the principal amount of the Senior Secured Notes purchased plus accrued and unpaid interest to the date of purchase.

~~In connection with our issuance of the Senior Secured Notes, we incurred certain costs that we capitalized and are amortizing over the period from the date of issuance to November 15, 2022.~~

Credit Ratings

Credit ratings are intended to be an indicator of the creditworthiness of a particular company, security or obligation. ~~On July 25, 2017,~~As of June 30, 2018, the S&P ~~affirmed our~~ long-term corporate rating ofwas “B-” and removed our ratings from CreditWatch with Negative implications. On July 26, 2017, Kroll Bond Rating Agency affirmed our corporate ratings at “CCC” and removed our ratings from Watch Downgrade status. On June 16, 2017,. Moody’s ~~downgraded our~~ long-term corporate rating towas “Caa1” ~~from “B3.~~and Fitch’s long-term issuer default rating was “B-”. On June ~~15, 2017,~~25, 2018, Ocwen announced its decision not to renew its corporate rating by Fitch ~~placed~~as part of our ~~ratings on Negative.~~ongoing efforts to reduce costs. It is possible that additional actions by credit rating agencies could have a material adverse impact on our liquidity and funding position, including materially changing the terms on which we may be able to borrow money.

Covenants

Under the terms of our debt agreements, we are subject to various qualitative and quantitative covenants. Collectively, these covenants include:

Financial covenants;

Covenants to operate in material compliance with applicable laws;

Restrictions on our ability to engage in various activities, including but not limited to incurring additional debt, paying dividends ofor making distributions on or purchasing equity interests of Ocwen, repurchasing or redeeming capital stock or junior capital, repurchasing or redeeming subordinated debt prior to maturity, issuing preferred stock, selling or transferring assets or making loans or investments or acquisitions or other restricted payments, entering into mergers or consolidations or sales of all or substantially all of the assets of Ocwen and its subsidiaries, creating liens on assets to secure debt of OLS or any Guarantor ~~enter~~and entering into transactions with ~~an affiliate;~~affiliates;

Monitoring and reporting of various specified transactions or events, including specific reporting on defined events affecting collateral underlying certain debt agreements; and

Requirements to provide audited financial statements within specified timeframes, including ~~a requirement under our SSTL~~requirements that Ocwen’s financial statements and the related audit report be unqualified as to going concern.

Many of the restrictive covenants arising from the indenture for the Senior Secured Notes will be suspended if the Senior Secured Notes achieve an investment-grade rating from both Moody’s and S&P and if no default or event of default has occurred and is continuing.

Financial covenants in certain of our debt agreements require that we maintain, among other things:

a 40% loan to collateral value ratio, as defined under our SSTL, as of the last date of any fiscal quarter; and

specified levels of tangible net worth and liquidity at the ~~consolidated and~~ OLS ~~levels.~~level.

As of ~~September~~June 30, ~~2017,~~2018, the most restrictive consolidated tangible net worth requirements contained in our debt agreements were for a minimum of $1.1 billion in consolidated tangible net worth, as defined, at OLS under our match funded debt ~~agreements~~ and ~~two repurchase agreements and $450.0 million at Ocwen under an automotive dealer loan financing facility.~~certain of our other debt agreements.

As a result of the covenants to which we are subject, we may be limited in the manner in which we conduct our business and may be limited in our ability to engage in favorable business activities or raise additional capital to finance future operations or satisfy future liquidity needs. In addition, breaches or events that may result in a default under our debt agreements include, among other things, nonpayment of principal or interest, noncompliance with our covenants, breach of representations, the occurrence of a material adverse change, insolvency, bankruptcy, certain material judgments and changes of control.

Covenants and default provisions of this type are commonly found in debt agreements such as ours. Certain of these covenants and default provisions are open to subjective interpretation and, if our interpretation was contested by a lender, a court may ultimately be required to determine compliance or lack thereof. In addition, our debt agreements generally include cross default provisions such that a default under one agreement could trigger defaults under other agreements. If we fail to comply with our debt agreements and are unable to avoid, remedy or secure a waiver of any resulting default, we may be subject to adverse action by our lenders, including termination of further funding, acceleration of outstanding obligations, enforcement of liens against the assets securing or otherwise supporting our obligations and other legal remedies. Our lenders can waive their contractual rights in the event of a default.

We believe that we are in compliance with all of the qualitative and quantitative covenants in our debt agreements as of the date of these financial statements.

Note 12 – Other Liabilities


	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
Contingent loan repurchase liability	$	318,954	$	246,081	$	331,158	$	431,492
Due to NRZ	100,914		83,248
Other accrued expenses	80,187		80,021		57,083		75,088
Accrued legal fees and settlements	59,943		93,797		54,295		51,057
Due to NRZ					34,921		98,493
Servicing-related obligations	35,959		35,324		31,106		35,239
Liability for indemnification obligations	23,823		27,546		21,541		23,117
Checks held for escheat	19,804		16,890		20,112		19,306
Accrued interest payable	14,910		3,698		6,870		5,172
Liability for mortgage insurance contingency					6,820		6,820
Deferred revenue					4,504		3,463
Liability for uncertain tax positions					3,271		3,252
Amounts due in connection with MSR sales	13,996		39,398		2,654		8,291
Liability for uncertain tax positions (1)	—		23,216
Derivatives, at fair value					2,448		635
Other	24,629		32,020		15,020		7,985
	$	693,119	$	681,239	$	591,803	$	769,410

We establish a liability for legal settlements, including fines and penalties, judgments on appeal and filed and/or threatened claims for which we believe it is probable that a loss has been or will be incurred and the amount can be reasonably estimated. See Note 20 – Contingenciesfor additional information.



Accrued Legal Fees and Settlements	Three Months Ended June 30,						Six Months Ended June 30,
Accrued Legal Fees and Settlements	2018			2017			2018			2017
Beginning balance	$	46,305		$	82,037		$	51,057		$	93,797
Accrual for probable losses (1)	2,330			67,565			9,782			78,315
Payments (2)	(1,607		)	(39,393		)	(7,643		)	(65,253		)
Issuance of common stock in settlement of litigation (3)	—			—			(5,719		)	—
Net increase in accrued legal fees	5,031			6,811			4,732			7,618
Other	2,236			—			2,086			2,543
Ending balance	$	54,295		$	117,020		$	54,295		$	117,020


(1)	~~On September 15, 2017,~~Consists of amounts accrued for probable losses in connection with legal and regulatory settlements and judgments. Such amounts are reported in Professional services expense in the ~~statute~~unaudited consolidated statements of ~~limitation expired~~operations.


(2)	Includes cash payments made in connection with ~~respect to our remaining uncertain tax position for which~~resolved legal and regulatory matters.


(3)	In January 2018, Ocwen issued 1,875,000 shares of common stock in connection with a ~~liability had~~ previously ~~been recorded. This liability was derecognized and recorded as an income tax benefit during the three months ended September 30, 2017. See~~ ~~Note 16 - Income Taxes~~ ~~for additional information.~~approved securities litigation settlement.

~~Note 13 – Equity~~

~~As disclosed in~~ ~~Note 8 — Rights to MSRs~~, on July 23, 2017, Ocwen and certain of its subsidiaries entered into a series of agreements with NRZ related to NRZ’s Rights to MSRs. On the same date, Ocwen and NRZ entered into a share purchase agreement pursuant to which Ocwen sold NRZ 6,075,510 shares of newly-issued Ocwen common stock for $13.9 million. Ocwen received the sales proceeds from NRZ on July 24, 2017 and issued the shares. The shares have not been registered under the Securities Act of 1933 and were issued and sold in reliance upon the exemption from registration contained in Section 4(a)(2) of the Act and Rule 506(b) promulgated thereunder.

Note 1413 – Derivative Financial Instruments and Hedging Activities

~~Because many~~The following table summarizes derivative activity, including the derivatives used in each of our current derivative agreements are not exchange-traded, we are exposed to credit loss in the event of nonperformance by the counterparty to the agreements. We manage counterparty credit risk by entering into financial instrument transactions through national exchanges, primary dealers or approved counterparties and the use of mutual

~~margining agreements whenever possible to limit potential exposure. We regularly evaluate the financial position and creditworthiness of our counterparties.~~identified hedging programs. The notional amount of our contracts does not represent our exposure to credit loss. None of the derivatives was designated as a hedge for accounting purposes at June 30, 2018:



				Interest Rate Risk
				IRLCs and Loans Held for Sale			Borrowings
	IRLCs			Forward MBS Trades			Interest Rate Caps
Notional balance at December 31, 2017	$	96,339		$	240,823		$	375,000
Additions	630,919			295,512			140,000
Amortization	—			—			(140,000		)
Maturities	(514,924		)	(337,902		)	—
Terminations	(105,916		)	—			—
Notional balance at June 30, 2018	$	106,418		$	198,433		$	375,000

Maturity	June 2018 - July 2018			Sept. 2018			July 2018 - May 2020

Fair value of derivative assets (liabilities) (1) at:
June 30, 2018	$	3,315		$	(2,422	)	$	1,657
December 31, 2017	3,283			(545		)	2,056

Gains (losses) on derivatives during the six months ended:	Gain on Loans Held for Sale, Net						Other, Net
June 30, 2018	$	111		$	1,998		$	(78	)
June 30, 2017	(1,428		)	(6,184		)	31


(1)	Derivatives are reported at fair value in Other assets or in Other liabilities on our unaudited consolidated balance sheets.

As loans are originated and sold or as loan commitments expire, our forward MBS trade positions mature and are replaced by new positions based upon new loan originations and commitments and expected time to sell.

Foreign Currency Exchange Rate Risk

Our operations in India and the Philippines expose us to insignificant foreign currency exchange rate risk.

Interest Rate Risk

~~Match Funded Liabilities~~Interest Rate Lock Commitments

A loan commitment binds us (subject to the loan approval process) to fund the loan at the specified rate, regardless of whether interest rates have changed between the commitment date and the loan funding date. As ~~required by certain of our advance financing arrangements, we have purchased~~such, outstanding IRLCs are subject to interest rate ~~caps~~risk and related price risk during the period from the date of the commitment through the loan funding date or expiration date. The borrower is not obligated to ~~minimize future~~obtain the loan; thus, we are subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs. Our interest rate exposure ~~from increases in the interest~~ on ~~our~~these derivative loan commitments is hedged with freestanding derivatives such as forward contracts. We enter into forward contracts with respect to both fixed and variable rate ~~debt as a result of increases in the index, such as 1ML, which is used in determining the interest rate on the debt. We currently do not hedge our fixed rate debt.~~loan commitments.

Loans Held for Sale, at Fair Value

Mortgage loans held for sale that we carry at fair value are subject to interest rate and price risk from the loan funding date until the date the loan is sold into the secondary market. Generally, the fair value of a loan will decline in value when interest rates increase and will rise in value when interest rates decrease. To mitigate this risk, we enter into forward MBS trades to provide an economic hedge against those changes in fair value on mortgage loans held for sale. Forward MBS trades are primarily used to fix the forward sales price that will be realized upon the sale of mortgage loans into the secondary market.

~~Interest Rate Lock Commitments~~

~~A loan commitment binds us (subject to the loan approval process) to fund the loan at the specified rate, regardless~~

Match Funded Liabilities

As required by certain of ~~whether interest rates~~our advance financing arrangements, we have ~~changed between the commitment date and the loan funding date. As such, outstanding IRLCs are subject to~~purchased interest rate ~~risk and related price risk during the period from the date of the commitment through the loan funding date or expiration date. The borrower is not obligated~~caps to ~~obtain the loan, thus we are subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLCs. Our~~minimize future interest rate exposure from increases in the interest on ~~these derivative loan commitments is hedged with freestanding derivatives~~our variable rate debt as a result of increases in the index, such as ~~forward contracts. We enter into forward contracts with respect to both fixed and variable rate loan commitments.~~

~~The following table summarizes derivative activity, including the derivatives~~1ML, which is used in ~~each of~~determining the interest rate on the debt. We currently do not hedge our ~~identified hedging programs:~~fixed rate debt.

Interest Rate Risk
IRLCs and Loans Held for Sale Borrowings
IRLCs Forward MBS Trades Interest Rate Caps (1)
Notional balance at December 31, 2016 $ 360,450
$ 609,177
$ 955,000
Additions 3,192,031
2,094,533
110,000
Amortization —
—
(316,667 )
Maturities (2,728,640 ) (1,340,603 ) —
Terminations (617,050 ) (993,407 ) (300,000 )
Notional balance at September 30, 2017 $ 206,791
$ 369,700
$ 448,333

Maturity Oct. 2017 - Dec. 2017 Oct. 2017 - Nov. 2017 Oct. 2017 - May 2019

Fair value of derivative assets (liabilities) (2) at:

September 30, 2017 $ 4,969
$ 973
$ 1,839
December 31, 2016 6,507
(614 ) 1,836

Gains (losses) on derivatives during the nine months ended: Gain on Loans Held for Sale, Net Gain on Loans Held for Sale, Net Other, Net
September 30, 2017 $ (1,605 ) $ (8,604 ) $ (207 )
September 30, 2016 4,148
(25,677 ) (1,950 )


~~(1)~~	Excludes commitments on two interest rate caps we entered into in August 2017 which are related to the OMART advance financing facility and which become effective in November 2017. These interest rate caps have a notional value and fair value of $23.3 million and $0.8 million at September 30, 2017, respectively.


~~(2)~~	~~Derivatives are reported at fair value in Other assets or in Other liabilities on our unaudited consolidated balance sheets.~~

Included in ~~Accumulated other comprehensive loss (AOCL)~~AOCL at ~~September~~June 30, 2018 and 2017, ~~and 2016, respectively,~~ were ~~$1.3~~$1.1 million and ~~$1.5~~$1.3 million of deferred unrealized losses, before taxes of $0.1 million and $0.1 million, respectively, on interest rate swaps that we had designated as cash flow hedges.

~~Other income (expense), net, includes the following related to derivative financial instruments:~~

Periods ended September 30, Three Months Nine Months
2017
2016
2017 2016
Losses on economic hedges $ (350 )
$ (45 )
$ (207 ) $ (1,950 )
Write-off of losses in AOCL for a discontinued hedge relationship (45 )
(89 )
(157 ) (263 )
$ (395 )
$ (134 )
$ (364 ) $ (2,213 )

Note 1514 – Interest Expense

~~The following table presents the components of interest expense:~~

Periods ended September 30, Three Months Nine Months
2017 2016 2017 2016
Financing liabilities $ 15,317
$ 73,096
$ 118,579
$ 193,675
Match funded liabilities 11,981
17,349
37,499
53,656
Other secured borrowings 10,990
13,450
30,174
38,877
Senior notes 7,452
6,130
22,355
18,399
Other 1,541
936
3,864
3,476
$ 47,281
$ 110,961
$ 212,471
$ 308,083

~~Interest expense that we expect to be paid on the HMBS-related borrowings is included with net fair value gains in Other revenues.~~



	Three Months Ended June 30,				Six Months Ended June 30,
	2018		2017		2018		2017
Financing liabilities
NRZ	$	51,490	$	48,624	$	74,539	$	99,783
Other financing liabilities	1,349		1,669		2,544		3,479
	52,839		50,293		77,083		103,262
Match funded liabilities	7,714		12,669		17,262		25,518
Other secured borrowings	8,044		9,636		16,232		19,184
Senior notes	7,452		7,447		14,903		14,903
Other	1,454		1,083		2,833		2,323
	$	77,503	$	81,128	$	128,313	$	165,190

Note 1615 - Income Taxes

Our effective tax rate for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 was (15.8)% and ~~2016 was 15.7% and 3.7%~~(6.9)%, respectively, on ~~pre-tax losses~~loss before income taxes of ~~$98.7~~$23.4 million and ~~$196.2~~$72.1 million, respectively. The ~~increase~~change in the effective tax rate for the six months ended June 30, 2018, compared with the same period in 2017, was primarily due to the mix of earnings among different tax jurisdictions with different statutory tax rates, which impacts the amount of the tax benefit or expense recorded. The most significant potential benefit of the Tax Act, the reduction in the U.S. federal corporate income tax rate from 35% to 21% effective January 1, 2018, did not have an impact on our effective tax rate ~~and~~as we are currently generating losses in the U.S. for which a tax benefit has not been recorded as we have recognized a full valuation allowance on our U.S. deferred tax assets. We recognized incremental income tax ~~benefits recorded on~~expense of $1.7 million for the ~~pre-tax losses is due primarily to~~Base Erosion and Anti-Abuse Tax (BEAT) provision of the ~~tax benefit recognized on~~Tax Act in the ~~reversal of uncertain tax positions (including interest and penalties) due to the expiration of applicable statutes of limitation during the nine~~six months ended ~~September~~June 30, ~~2017, as compared to additional~~2018. This increase in income tax expense related to implementing provisions of the Tax Act that were effective January 1, 2018 was offset by a reduction in income tax expense as a result of our adoption of ASU 2016-16 on January 1, 2018, as the deferred tax effects of intra-entity transfers of assets recognized ~~during~~as prepaid income taxes are no longer amortized to income tax expense over the ~~nine months ended September 30, 2016~~life of the asset. Income tax expense related to uncertain tax positions ~~offset~~declined in ~~part by~~the six months ended June 30, 2018 as compared to the same period of 2017.

The reduction in the statutory U.S. federal rate is expected to positively impact our future U.S. after-tax earnings. However, the ultimate impact is subject to the effect of other complex provisions in the Tax Act (including BEAT, Global Intangible Low-Taxed Income (GILTI) and revised interest deductibility limitations) which we are currently reviewing. It is possible that any impact of these provisions could significantly reduce the benefit of the reduction in the statutory U.S. federal rate. Due to the uncertain practical and technical application of many of these provisions in the Tax Act, at this time, we are unable to make a ~~decrease~~final determination of the precise impact on our future earnings, and our accounting for the Tax Act remains incomplete.

However, as previously disclosed, at December 31, 2017 we were able to reasonably estimate certain effects and, therefore, recorded provisional adjustments associated with the deemed repatriation transition tax and the reduction in the statutory U.S. federal tax ~~benefits resulting from our inability~~rate. We have not recorded any additional measurement-period adjustments related to ~~carry back current losses that are being generated~~the transition tax or the reduction in the U.S. federal tax rate during the six months ended June 30, 2018. We are continuing to gather additional information and ~~USVI~~expect to complete our accounting for the transition tax ~~jurisdictions.~~within the prescribed measurement period.

~~A reconciliation~~Also, as previously disclosed, at December 31, 2017 we were not yet able to reasonably estimate the effects of certain elements of the ~~beginning~~Tax Act, such as BEAT, GILTI and ~~ending amount of the total liability for uncertain tax positions is as follows for the nine months ended September 30:~~

2017 2016
Beginning balance $ 16,994
$ 32,548
Reductions for settlements (387 ) (14,420 )
Lapses in statutes of limitation (16,607 ) (524 )
Ending balance $ —
$ 17,604

~~As of September 30, 2017 and 2016, we had $0.0 million and $17.6 million, respectively, of unrecognized tax benefits, all of which if recognized would affect the effective tax rate. We accrue~~revised interest and penalties related to unrecognized tax benefits in our provision for income taxes. At September 30, 2017 and 2016, we had accrued interest and penalties related to unrecognized tax benefits of $0.0 million and $6.1 million, respectively.deductibility limitations. Therefore, no provisional adjustments were recorded.

Because of the complexity of the new GILTI tax rules, we are continuing to evaluate this provision of the Tax Act and the application of ASC 740. Under U.S. GAAP, we are permitted to make an accounting policy election of either (1) treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) or (2) factoring such amounts into a company’s measurement of its deferred taxes (the “deferred method”). Our ~~major jurisdiction~~selection of an accounting policy related to the new GILTI tax ~~years that remain subject~~rules will depend, in part, on analyzing our global income to ~~examination~~determine whether we expect to have future U.S. inclusions in taxable income related to GILTI and, if so, what the impact is expected to be. Whether we expect to have future U.S. inclusions in taxable income related to GILTI depends on a number of different aspects of our estimated future results of global operations, and as a result, we are not yet able to reasonably estimate the long-term effects of this provision of the Tax Act. Therefore, we have not recorded any deferred tax effects related to GILTI in our ~~U.S. federal tax return for~~financial statements and have not made a policy election regarding whether to record deferred taxes on GILTI or to apply the ~~years ended December 31, 2014 through~~period cost method as of June 30, 2018. We have, however, included an estimate of the present, our USVI corporate tax return for the years ended December 31, 2014 through the present, and our India corporate tax returns for the years ended March 31, 2010 through the present. We currently do not have any tax returns under income tax examination2018 current GILTI impact in the ~~U.S. or USVI~~calculation of our annualized effective tax ~~jurisdictions.~~rate for 2018. In addition, we have included an estimate of the 2018 current BEAT impact in the calculation of our annualized effective tax rate for 2018. We expect to complete our accounting within the prescribed measurement period.

Note 1716 – Basic and Diluted Earnings (Loss) per Share

Basic earnings or loss per share excludes common stock equivalents and is calculated by dividing net income or loss attributable to Ocwen common stockholders by the weighted average number of common shares outstanding during the period. We calculate diluted earnings or loss per share by dividing net income or loss attributable to Ocwen by the weighted average number of common shares outstanding including the potential dilutive common shares related to outstanding stock options and restricted stock awards. ~~The following is a reconciliation~~For the three and six months ended June 30, 2018 and 2017, we have excluded the effect of all stock options and common stock awards from the ~~calculation~~computation of ~~basic~~diluted loss per share ~~to diluted loss per share:~~because of the anti-dilutive effect of our reported net loss.


Periods ended September 30,	Three Months					Nine Months
	2017			2016		2017			2016
												Three Months Ended June 30,						Six Months Ended June 30,
												2018			2017			2018			2017
Basic loss per share
Net income (loss) attributable to Ocwen stockholders	$	(6,252	)	$	9,391	$	(83,483	)	$	(189,318	)
Net loss attributable to Ocwen stockholders												$	(29,831	)	$	(44,507	)	$	(27,283	)	$	(77,231	)

Weighted average shares of common stock	128,744,152			123,986,987		125,797,777			123,991,343			133,856,132			124,582,280			133,490,828			124,300,171

Basic earnings (loss) per share	$	(0.05	)	$	0.08	$	(0.66	)	$	(1.53	)
Basic loss per share												$	(0.22	)	$	(0.36	)	$	(0.20	)	$	(0.62	)

Diluted loss per share ~~(1)~~
Net income (loss) attributable to Ocwen stockholders	$	(6,252	)	$	9,391	$	(83,483	)	$	(189,318	)
Net loss attributable to Ocwen stockholders												$	(29,831	)	$	(44,507	)	$	(27,283	)	$	(77,231	)

Weighted average shares of common stock	128,744,152			123,986,987		125,797,777			123,991,343			133,856,132			124,582,280			133,490,828			124,300,171
Effect of dilutive elements (1):
Effect of dilutive elements
Stock option awards	—			—		—			—			—			—			—			—
Common stock awards	—			147,520		—			—			—			—			—			—
Dilutive weighted average shares of common stock	128,744,152			124,134,507		125,797,777			123,991,343			133,856,132			124,582,280			133,490,828			124,300,171

Diluted earnings (loss) per share	$	(0.05	)	$	0.08	$	(0.66	)	$	(1.53	)
Diluted loss per share												$	(0.22	)	$	(0.36	)	$	(0.20	)	$	(0.62	)

Stock options and common stock awards excluded from the computation of diluted earnings per share
Anti-dilutive ~~(2)~~(1)	6,600,164			6,890,882		5,121,844			7,285,539			6,492,703			6,709,154			6,498,025			4,382,684
Market-based ~~(3)~~(2)	862,446			1,917,456		862,446			1,917,456			645,984			862,446			645,984			862,446


(1)	For the three and nine months ended September 30, 2017 and the nine months ended September 30, 2016, we have excluded the effect of stock options and common stock awards from the computation of diluted loss per share because of the anti-dilutive effect of our reported net loss.


~~(2)~~	Stock options were anti-dilutive because their exercise price was greater than the average market price of Ocwen’s stock.


~~(3)~~(2)	Shares that are issuable upon the achievement of certain market-based performance criteria related to Ocwen’s stock price.

Note 1817 – Business Segment Reporting

Our business segments reflect the internal reporting that we use to evaluate operating performance of services and to assess the allocation of our resources. While our expense allocation methodology for the current period is consistent with that used in prior periods presented, during the first quarter of 2017, we moved certain functions which had been associated with corporate cost centers to our Lending and Servicing segments because these functions align more closely with those segments. As applicable, the results of operations for the three and nine months ended September 30, 2016 have been recast to conform to the current period presentation. As a result of these changes, income before income taxes for the Lending segment for the three and nine months ended September 30, 2016 decreased by $2.3 million and $7.4 million, respectively, while income before income taxes for the Servicing segment increased by the same amounts for the same periods.

A brief description of our current business segments is as follows:

Servicing. This segment is primarily comprised of our core residential servicing business. We provide residential and commercial mortgage loan servicing, special servicing and asset management services. We earn fees for providing these services to owners of the mortgage loans and foreclosed real estate. In most cases, we provide these services either because we purchased the MSRs from the owner of the mortgage, retained the MSRs on the sale of residential mortgage loans or because we entered into a subservicing or special servicing agreement with the entity that owns the MSR. Our residential servicing portfolio includes conventional, government-insured and non-Agency loans. Non-Agency loans include subprime loans, which represent residential loans that generally did not qualify under GSE guidelines or have subsequently become delinquent.

Lending. The Lending segment originates ~~and purchases~~ conventional and government-insured residential forward and reverse mortgage loans ~~mainly~~ through correspondent lending arrangements, broker relationships (wholesale) and directly with mortgage customers (retail). The loans are typically sold shortly after origination into a liquid market on a servicing retained (securitization) or servicing released (sale to a third party) basis. In ~~the second quarter of~~ 2017, we closed our forward correspondent ~~forward~~ lending channel ~~due to low margins~~ and ~~began selling all of our~~exited the forward wholesale forward lending channel originations on a servicing released basis to reduce capital consumption. In the third quarter of 2017, we entered into an agreement to sell certain of our wholesale forward lending assets, and, upon closing of that transaction, we intend to exit the wholesale forward lending business. We continue to ~~acquire~~originate loans through ~~the~~our forward retail ~~forward~~ lending channel as well as through all three channels of reverse mortgage lending.

Corporate Items and Other. Corporate Items and Other includes revenues and expenses of ~~ACS and~~ CR Limited (CRL), our wholly-owned captive reinsurance subsidiary, and our other business activities that are individually insignificant, revenues and expenses that are not directly related to other reportable segments, interest income on short-term investments of cash, interest expense on corporate debt and certain corporate expenses. Our cash balances are included in Corporate Items and Other. CRL provides re-insurance related to coverage on foreclosed real estate properties owned or serviced by us. In January 2018, we decided to exit the ACS ~~provides short-term~~business and have liquidated the majority of our portfolio of inventory-secured loans to independent used car ~~dealers to finance their inventory.~~dealers.

We allocate a portion of interest income to each business segment, including interest earned on cash balances and short-term investments. We also allocate expenses incurred by corporate support services to each business segment.

Financial information for our segments is as follows:


	Servicing			Lending			Corporate Items and Other			Corporate Eliminations		Business Segments Consolidated			Three Months Ended June 30, 2018
Results of Operations															Servicing			Lending			Corporate Items and Other			Corporate Eliminations		Business Segments Consolidated
Three months ended September 30, 2017
Revenue	$	246,545		$	31,935		$	6,162		$	—	$	284,642		$	230,509		$	19,002		$	4,070		$	—	$	253,581

Expenses	218,565			38,412			16,502			—		273,479
Expenses (1)															166,888			17,785			20,977			—		205,650

Other income (expense):
Interest income	144			2,857			1,098			—		4,099			1,466			1,360			529			—		3,355
Interest expense	(28,568		)	(4,504		)	(14,209		)	—		(47,281		)	(62,675		)	(1,472		)	(13,356		)	—		(77,503		)
Gain on sale of mortgage servicing rights, net	6,543			—			—			—		6,543			77			—			1			—		78
Other	(418		)	555			(1,214		)	—		(1,077		)	(403		)	294			(2,157		)	—		(2,266		)
Other expense, net	(22,299		)	(1,092		)	(14,325		)	—		(37,716		)
Other income (expense), net															(61,535		)	182			(14,983		)	—		(76,336		)

Income (loss) before income taxes	$	5,681		$	(7,569	)	$	(24,665	)	$	—	$	(26,553	)	$	2,086		$	1,399		$	(31,890	)	$	—	$	(28,405	)


	Servicing			Lending			Corporate Items and Other			Corporate Eliminations		Business Segments Consolidated			Three Months Ended June 30, 2017
Three months ended September 30, 2016
Revenue	$	319,080		$	30,696		$	9,672		$	—	$	359,448

Expenses	202,156			30,013			39,509			—		271,678

Other income (expense):
Interest income	59			3,990			1,109			—		5,158
Interest expense	(101,138		)	(3,684		)	(6,139		)	—		(110,961		)
Gain on sale of mortgage servicing rights, net	5,661			—			—			—		5,661
Other	13,943			322			471			—		14,736
Other income (expense), net	(81,475		)	628			(4,559		)	—		(85,406		)

Income (loss) before income taxes	$	35,449		$	1,311		$	(34,396	)	$	—	$	2,364

Nine months ended September 30, 2017
Results of Operations															Servicing			Lending			Corporate Items and Other			Corporate Eliminations		Business Segments Consolidated
Revenue	$	802,347		$	95,457		$	20,002		$	—	$	917,806		$	271,784		$	32,776		$	6,740		$	—	$	311,300

Expenses	637,406			100,628			92,308			—		830,342			201,928			32,886			45,666			—		280,480

Other income (expense):
Interest income	406			8,612			3,083			—		12,101			174			3,007			1,058			—		4,239
Interest expense	(159,822		)	(11,171		)	(41,478		)	—		(212,471		)	(63,903		)	(3,383		)	(13,842		)	—		(81,128		)
Gain on sale of mortgage servicing rights, net	7,863			—			—			—		7,863			1,033			—			—			—		1,033
Other	4,642			658			1,084			—		6,384			2,058			(128		)	1,498			—		3,428
Other expense, net	(146,911		)	(1,901		)	(37,311		)	—		(186,123		)	(60,638		)	(504		)	(11,286		)	—		(72,428		)

Income (loss) before income taxes	$	18,030		$	(7,072	)	$	(109,617	)	$	—	$	(98,659	)	$	9,218		$	(614	)	$	(50,212	)	$	—	$	(41,608	)

Nine months ended September 30, 2016
															Six months ended June 30, 2018
Revenue	$	951,727		$	89,255		$	22,277		$	—	$	1,063,259		$	456,605		$	48,197		$	9,036		$	—	$	513,838

Expenses	734,326			85,471			165,556			—		985,353
Expenses (1)															337,984			38,081			36,086			—		412,151

Other income (expense):
Interest income	(102		)	11,805			2,785			—		14,488			1,894			2,852			1,309			—		6,055
Interest expense	(278,808		)	(10,829		)	(18,446		)	—		(308,083		)	(97,193		)	(3,417		)	(27,703		)	—		(128,313		)
Gain on sale of mortgage servicing rights, net	7,689			—			—			—		7,689			1,036			—			—			—		1,036
Other	11,406			982			(547		)	—		11,841			(1,790		)	620			(2,735		)	—		(3,905		)
Other income (expense), net	(259,815		)	1,958			(16,208		)	—		(274,065		)	(96,053		)	55			(29,129		)	—		(125,127		)

Income (loss) before income taxes	$	(42,414	)	$	5,742		$	(159,487	)	$	—	$	(196,159	)	$	22,568		$	10,171		$	(56,179	)	$	—	$	(23,440	)

															Six months ended June 30, 2017
Revenue															$	555,802		$	63,522		$	13,840		$	—	$	633,164

Expenses															418,842			62,217			75,804			—		556,863

Other income (expense):
Interest income															261			5,754			1,987			—		8,002
Interest expense															(131,254		)	(6,667		)	(27,269		)	—		(165,190		)
Gain on sale of mortgage servicing rights, net															1,320			—			—			—		1,320
Other															5,060			103			2,298			—		7,461
Other expense, net															(124,613		)	(810		)	(22,984		)	—		(148,407		)

Income (loss) before income taxes															$	12,347		$	495		$	(84,948	)	$	—	$	(72,106	)

Servicing Lending Corporate Items and Other Corporate Eliminations Business Segments Consolidated
Total Assets

September 30, 2017 $ 2,905,817
$ 4,679,641
$ 512,147
$ —
$ 8,097,605

December 31, 2016 $ 3,312,371
$ 3,863,862
$ 479,430
$ —
$ 7,655,663

September 30, 2016 $ 3,455,613
$ 3,662,339
$ 467,498
$ —
$ 7,585,450



Total Assets	Servicing		Lending		Corporate Items and Other		Corporate Eliminations		Business Segments Consolidated
June 30, 2018	$	2,851,910	$	5,242,716	$	325,570	$	—	$	8,420,196

December 31, 2017	$	3,033,243	$	4,945,456	$	424,465	$	—	$	8,403,164

June 30, 2017	$	2,975,458	$	4,483,652	$	473,282	$	—	$	7,932,392


	Servicing			Lending		Corporate Items and Other		Business Segments Consolidated
Depreciation and Amortization Expense												Servicing		Lending		Corporate Items and Other		Business Segments Consolidated
Three months ended September 30, 2017
Three months ended June 30, 2018											Three months ended June 30, 2018
Depreciation expense												$	1,256	$	25	$	4,834	$	6,115
Amortization of debt discount												—		—		442		442
Amortization of debt issuance costs												—		—		1,005		1,005

Three months ended June 30, 2017											Three months ended June 30, 2017
Depreciation expense	$	1,525		$	57	$	5,408	$	6,990			$	1,466	$	55	$	4,835	$	6,356
Amortization of mortgage servicing rights	13,081			67		—		13,148				12,627		70		—		12,697
Amortization of debt discount	—			—		258		258				—		—		268		268
Amortization of debt issuance costs	—			—		644		644				—		—		661		661

Three months ended September 30, 2016
Six months ended June 30, 2018											Six months ended June 30, 2018
Depreciation expense												$	2,613	$	54	$	9,973	$	12,640
Amortization of debt discount												—		—		706		706
Amortization of debt issuance costs												—		—		1,662		1,662

Six months ended June 30, 2017											Six months ended June 30, 2017
Depreciation expense	$	2,730		$	48	$	3,651	$	6,429			$	2,869	$	105	$	10,465	$	13,439
Amortization of mortgage servicing rights	(2,634		)	76		—		(2,558		)		25,271		141		—		25,412
Amortization of debt discount	240			—		—		240				—		—		539		539
Amortization of debt issuance costs	3,645			—		332		3,977				—		—		1,334		1,334

Nine months ended September 30, 2017
Depreciation expense	$	4,393		$	162	$	15,875	$	20,430
Amortization of mortgage servicing rights	38,351			209		—		38,560
Amortization of debt discount	—			—		797		797
Amortization of debt issuance costs	—			—		1,979		1,979

Nine months ended September 30, 2016
Depreciation expense	$	5,068		$	184	$	13,025	$	18,277
Amortization of mortgage servicing rights	18,360			235		—		18,595
Amortization of debt discount	623			—		—		623
Amortization of debt issuance costs	9,466			—		1,009		10,475


(1)	Expenses in the Corporate Items and Other segment for the three and six months ended June 30, 2018 includes $1.6 million and $7.3 million, respectively, of severance expense attributable to headcount reductions in connection with our strategic initiatives to exit the ACS business and the forward lending correspondent and wholesale channels, as well as our overall efforts to reduce costs.

Note 1918 – Regulatory Requirements

Our business is subject to extensive regulation by federal, state and local governmental authorities, including the ~~CFPB,~~Consumer Financial Protection Bureau (CFPB), HUD, the SEC and various state agencies that license ~~audit~~ and conduct examinations of our servicing and lending activities. In addition, we operate under a number of regulatory settlements that subject us to ongoing ~~monitoring or reporting.~~reporting and other obligations. From time to time, we also receive requests (including requests in the form of subpoenas and civil investigative demands) from federal, state and local agencies for records, documents and information relating to our servicing and lending activities. The GSEs (and their conservator, the Federal Housing Finance Authority (FHFA)), Ginnie Mae, the United States Treasury Department, various investors, non-Agency securitization trustees and others also subject us to periodic reviews and audits.

In the current regulatory environment, we have faced and expect to continue to face heightened regulatory and public scrutiny as an organization as well as stricter and more comprehensive regulation of the entire mortgage sector. We continue to work diligently to assess and understand the implications of the regulatory environment in which we operate and to meet the requirements of the changing environment in which we operate. We devote substantial resources to regulatory compliance, while, at the same time, striving to meet the needs and expectations of our customers, clients and other stakeholders. Our failure to comply with applicable federal, state and local laws, regulations and licensing requirements could lead to (i)

administrative fines and penalties and litigation, (ii) loss of our licenses and approvals to engage in our servicing and lending

businesses, (iii) governmental investigations and enforcement actions, (iv) civil and criminal liability, including class action lawsuits and actions to recover incentive and other payments made by governmental entities, (v) breaches of covenants and representations under our servicing, debt or other agreements, (vi) damage to our reputation, (vii) inability to raise capital or otherwise fund our operations and (viii) inability to execute on our business strategy. In addition to amounts paid to resolve regulatory matters, we could incur costs to comply with the terms of such resolutions, including, but not limited to, the costs of audits, reviews and third-party firms to monitor our compliance with such resolutions. We have recognized $177.5 million in such third-party monitoring costs from January 1, 2014 through September 30, 2017 in connection with the 2013 Ocwen National Mortgage Settlement, our 2014 settlement with the New York Department of Financial Services (NY DFS) and our 2015 settlement with the California Department of Business Oversight (CA DBO).

We must comply with a large number of federal, state and local consumer protection and other laws and regulations, including, among others, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the Telephone Consumer Protection Act, the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act, the Real Estate Settlement Procedures Act (RESPA), the Truth in Lending Act (TILA), the Servicemembers Civil Relief Act, the Homeowners Protection Act, the Federal Trade Commission Act, the Fair Credit Reporting Act, ~~and~~ the Equal Credit Opportunity Act, as well as individual state licensing and foreclosure laws, individual state and local laws relating to registration of vacant or foreclosed properties, and federal and local bankruptcy rules. These laws and regulations apply to many facets of our business, including loan origination, default servicing and collections, use of credit reports, safeguarding of non-public personally identifiable information about our customers, foreclosure and claims handling, investment of, and interest payments on, escrow balances and escrow payment features and fees assessed on borrowers, and they mandate certain disclosures and notices to borrowers. These requirements can and do change as laws and regulations are enacted, promulgated, amended, interpreted and enforced, including through CFPB interpretive bulletins and other regulatory pronouncements. In addition, the actions of legislative bodies and regulatory agencies relating to a particular matter or business practice may or may not be coordinated or consistent. As a result, ensuring ongoing compliance with applicable legal and regulatory requirements can be challenging. The recent trend among federal, state and local legislative bodies and regulatory agencies as well as state attorneys general has been toward increasing laws, regulations, investigative proceedings and enforcement actions with regard to residential real estate lenders and servicers. New regulatory and legislative measures, or changes in enforcement practices, including those related to the technology we use, could, either individually or in the aggregate, require significant changes to our business practices, impose additional costs on us, limit our product offerings, limit our ability to efficiently pursue business opportunities, negatively impact asset values or reduce our revenues. Accordingly, they could materially and adversely affect our business and our financial condition, liquidity and results of operations.

Ocwen has various subsidiaries, including OLS, Homeward, Liberty, OFSPL and ~~Liberty,~~Ocwen Business Solutions, Inc. (OBS) that are licensed to originate and/or service forward and reverse mortgage loans in those jurisdictions in which they operate and which require licensing. Our licensed entities are required to renew their licenses, typically on an annual basis, and to do so they must satisfy the license renewal requirements of each jurisdiction, which generally include financial requirements such as providing audited financial statements and satisfying minimum net worth requirements and non-financial requirements such as satisfactory completion of examinations relating to the licensee’s compliance with applicable laws and regulations. Failure to satisfy any of the requirements to which our licensed entities are subject could result in a variety of regulatory actions ranging from a fine, a directive requiring a certain step to be taken, entry into a consent order, a suspension or, ultimately, a revocation of a license, any of which could have a material adverse impact on our business, reputation, results of operations and financial condition. The minimum net worth requirements to which our licensed entities are subject are unique to each state and type of license. We believe our licensed entities were in compliance with all of their minimum net worth requirements at ~~September~~June 30, ~~2017.~~2018.

OLS, Homeward and Liberty are also subject to seller/servicer obligations under agreements with one or more of the GSEs, HUD, FHA, VA and Ginnie Mae. These seller/servicer obligations ~~include~~contain financial requirements, including capital requirements related to tangible net worth, as defined by the applicable agency, an obligation to provide audited consolidated financial statements within 90 days of the applicable entity’s fiscal year end as well as extensive requirements regarding servicing, selling and other matters. To the extent that these requirements are not met or waived, the applicable agency may, at its option, utilize a variety of remedies including requirements to provide certain information or take actions at the direction of the applicable agency, requirements to deposit funds as security for our obligations, sanctions, suspension or even termination of approved seller/servicer status, which would prohibit future originations or securitizations of forward or reverse mortgage loans or servicing for the applicable agency. Any of these actions could have a material adverse impact on us. To date, none of these counterparties has communicated any material sanction, suspension or prohibition in connection with our seller/servicer obligations. See Note 20 – Contingencies for additional information relating to our recent interactions with Ginnie Mae as a result of the state regulatory actions discussed in that note. We believe we were in compliance with ~~the related~~applicable net worth requirements at ~~September~~June 30, ~~2017.~~2018. Our non-Agency servicing agreements also contain requirements regarding servicing practices and other matters, and a failure to comply with these requirements could have a material adverse impact on our business. ~~See~~ ~~Note 20 — Commitments~~ ~~for additional information relating to our recent interactions with Ginnie Mae as a result of the state regulatory actions discussed in that note.~~

The most restrictive of the various net worth requirements referenced above is based on the total assets of OLS, and the required net worth was ~~$394.3~~$263.4 million at ~~September~~June 30, 2018.

New York Department of Financial Services. In December 2014, we entered into a consent order (the 2014 NY Consent Order) with the NY DFS as a result of an investigation relating to Ocwen’s servicing of residential mortgages. In March 2017,

we entered into another consent order with the NY DFS (the 2017 NY Consent Order) that provided for the termination of the engagement of the monitor appointed pursuant to the 2014 NY Consent Order and for us to comply with certain reporting and other obligations.

The 2017 NY Consent Order requires us to update the NY DFS quarterly on our implementation of certain operational enhancements that we and the NY DFS agreed should be made. We made what we believe to be our final required report to the NY DFS in December 2017. Our updates to date show that all agreed upon enhancements are being implemented. Pursuant to the 2017 NY Consent Order, the NY DFS has the right to examine Ocwen to assess our implementation of such enhancements and the general safety and soundness of our servicing operations. As a result of such examination, if the NY DFS concludes that we have materially failed to implement such enhancements or otherwise finds that our servicing operations are materially deficient, the NY DFS may require Ocwen to hire an independent consultant to review and issue additional recommendations on our servicing operations. The 2017 NY Consent Order grants the NY DFS the additional right to conduct an on-site examination of Ocwen’s servicing practices in order to determine whether to approve Ocwen’s request to ease the restrictions on its ability to acquire new MSRs. To the extent that the NY DFS servicing examination results in adverse findings against Ocwen, the NY DFS could determine not to ease restrictions on our acquiring MSRs or to take other regulatory actions against us, including imposing fines or penalties or otherwise restricting our business activities. Any such actions could have a material adverse impact on our business, financial condition liquidity and results of operations.

California Department of Business Oversight. In January 2015, OLS entered into a consent order (the 2015 CA Consent Order) with the CA DBO relating to our alleged failure to produce certain information and documents during a routine licensing examination. In February 2017, we entered into another consent order with the CA DBO (the 2017 CA Consent Order) that terminated the 2015 CA Consent Order and resolved open matters between us and the CA DBO. We believe that we have completed those obligations of the 2017 CA Consent Order that have already come due, and we have so notified the CA DBO. We have certain remaining reporting and other obligations under the 2017 CA Consent Order. Pursuant to the 2017 CA Consent Order, the CA DBO has engaged a third-party administrator who, at the expense of the CA DBO, has commenced work to confirm that Ocwen has completed certain commitments under the 2017 CA Consent Order. If the CA DBO were to allege that we failed to comply with these or other obligations under the 2017 CA Consent Order or that we otherwise were in breach of applicable laws, regulations or licensing requirements, the CA DBO could take regulatory actions against us, including imposing fines or penalties or otherwise restricting our business activities. Any such actions could have a material adverse impact on our business, financial condition liquidity and results of operations.

Separately, in June 2018, we entered into a consent order with the CA DBO in order to resolve a finding stemming from a lending examination of Homeward. Pursuant to the consent order, we consented to a finding that certain records maintained by Homeward were not in compliance with certain California statutory requirements. Homeward cooperated in the examination, timely produced requested documents and records, and confirmed that no borrowers were overcharged as a result. No fines or penalties were payable under the consent order.

There are a number of foreign laws and regulations that are applicable to our operations outside of the U.S., including laws and regulations that govern licensing, employment, safety, taxes and insurance and laws and regulations that govern the creation, continuation and the winding up of companies as well as the relationships between shareholders, our corporate entities, the public and the government in these countries. Non-compliance with these laws and regulations could result in

adverse actions against us, including (i) restrictions on our operations in these ~~counties,~~countries, (ii) fines, penalties or sanctions or (iii) reputational damage.

Note 2019 — Commitments

Unfunded Lending Commitments

We have originated floating-rate reverse mortgage loans under which the borrowers have additional borrowing capacity of ~~$1.4~~$1.5 billion at ~~September~~June 30, ~~2017.~~2018. This additional borrowing capacity is available on a scheduled or unscheduled payment basis. We also had short-term commitments to lend ~~$189.5~~$85.2 million and ~~$17.3~~$21.2 million in connection with our forward and reverse mortgage loan ~~interest rate lock commitments,~~IRLCs, respectively, outstanding at ~~September~~June 30, ~~2017.~~2018. We finance originated and purchased forward and reverse mortgage loans with repurchase and participation agreements, commonly referred to as warehouse lines.

Long Term Contracts

Our business is currently dependent on many of the services and products provided by a subsidiary of Altisource Portfolio Solutions, S.A. (Altisource) under long-term agreements, many of which include renewal provisions.

Each of Ocwen and OMS are parties to a Services Agreement, a Technology Products Services Agreement, an Intellectual Property Agreement and a Data Center and Disaster Recovery Services Agreement with Altisource. Under the Services Agreements, Altisource provides various business process outsourcing services, such as valuation services and property preservation and inspection services, among other things. Altisource provides certain technology products and support services

under the Technology Products Services Agreements and the Data Center and Disaster Recovery Services Agreements. These agreements expire August 31, 2025. Ocwen and Altisource have also entered into a Master Services Agreement pursuant to which Altisource currently provides ~~certain loan origination~~title services to ~~Homeward and Liberty, and~~Liberty. Ocwen also has a General Referral Fee agreement with Altisource pursuant to which Ocwen receives referral fees which are paid out of the commission that would otherwise be paid to Altisource as the selling broker in connection with real estate sales services provided by Altisource. However, for MSRs that transferred to NRZ in September 2017, as well as those subject to the New RMSR Agreements we entered into in January 2018, we are not entitled to REO referral commissions.

Our servicing system runs on an information technology system that we license from Altisource pursuant to a statement of work under the Technology Products Services Agreements. If Altisource were to fail to fulfill its contractual obligations to us, including through a failure to provide services at the required level to maintain and support our systems, or if Altisource were to become unable to fulfill such obligations, our business and operations would suffer. In addition, if Altisource fails to develop and maintain its technology so as to provide us with a competitive platform, our business could suffer. We are currently in the process of transitioning to a new servicing system and have entered into agreements with certain subsidiaries of Black Knight, Inc. (Black Knight) pursuant to which we plan to transition to Black Knight’s LoanSphere MSP^® ~~(MSP)~~ servicing system. Should Ocwen ~~currently anticipates a twenty-four month implementation~~not complete its acquisition of PHH, we anticipate an 18 to 24-month timeline ~~for its~~to complete our transition onto the ~~MSP~~new servicing system. The PHH merger would likely substantially accelerate that timeline, depending upon the timing of the closing. Based on substantive discussions with Altisource prior to entering into our agreements with Black Knight, Ocwen ~~plans~~expects to ~~negotiate~~enter into mutually acceptable agreements that provide for Ocwen’s transition to the LoanSphere MSP^® servicing system and the termination of the statement of work for the use of the REALServicing system.

Certain services provided by Altisource under these agreements are charged to the borrower and/or mortgage loan investor. Accordingly, such services, while derived from our loan servicing portfolio, are not reported as expenses by Ocwen. These services include residential property valuation, residential property preservation and inspection services, title services and real estate sales-related services. Similar to other vendors, in the event that Altisource’s activities do not comply with the applicable servicing criteria, we could be exposed to liability as the servicer and it could negatively impact our relationships with our servicing clients, borrowers or regulators, among others.

~~Wholesale Forward Lending~~

We Under certain circumstances, we would have ~~decided~~recourse under our contractual agreements with Altisource if we were to ~~exit the forward lending wholesale business, and have agreed to sell certain assets related to this business. These assets consist primarily~~experience adverse consequences as a result of furniture, fixtures and equipment located at our Westborough, Massachusetts facility and meet the requisite accounting criteria for classification as held-for-sale at September 30, 2017. The buyer is expected to assume a facilities lease and to offer positions to certain Ocwen employees in the business. We have recognized a loss of $6.8 million related to the divestiture in our third quarter 2017 results which is reported in Other expenses in our unaudited consolidated statements of operations. This loss is primarily related to our write-off of the capitalized balance of software developed internally for the forward lending wholesale business. Additionally, we estimate that $1.0 million to $2.0 million of severance expense will be incurred. The closing of the transaction is expected to occur in the fourth quarter, subject to customary closing conditions.Altisource’s non-compliance with applicable servicing criteria.

Note 2120 – Contingencies

When we become aware of a matter involving uncertainty for which we may incur a loss, we assess the likelihood of any loss. If a loss contingency is probable and the amount of the loss can be reasonably estimated, we record an accrual for the loss.

In such cases, there may be an exposure to potential loss in excess of the amount accrued. Where a loss is not probable but is reasonably possible or where a loss in excess of the amount accrued is reasonably possible, we disclose an estimate of the amount of the loss or range of possible losses for the claim if a reasonable estimate can be made, unless the amount of such reasonably possible loss is not material to our financial position, results of operations or cash flows. If a reasonable estimate of loss cannot be made, we do not accrue for any loss or disclose any estimate of exposure to potential loss even if the potential loss could be material and adverse to our business, reputation, financial condition and results of operations. An assessment regarding the ultimate outcome of any such matter involves judgments about future events, actions and circumstances that are inherently uncertain. The actual outcome could differ materially. Where we have retained external legal counsel or other professional advisers, such advisers assist us in making such assessments.

Litigation

In the ordinary course of business, we are a defendant in, or a party or potential party to, many threatened and pending legal proceedings, including proceedings brought by regulatory agencies (discussed further under “Regulatory” below), those brought on behalf of various classes of claimants, and those brought derivatively on behalf of Ocwen against certain current or former officers and directors or others.

The majority of these proceedings are based on alleged violations of federal, state and local laws and regulations governing our mortgage servicing and lending activities, including, among others, the Dodd-Frank Act, the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act (FDCPA), the Real Estate Settlement Procedures Act, the Truth in Lending Act, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Homeowners Protection Act, the Federal Trade Commission Act, the Telephone Consumer Protection Act (TCPA), the Equal Credit Opportunity Act, as well as individual state licensing and foreclosure laws and federal and local bankruptcy rules. Such proceedings include wrongful foreclosure and eviction actions, allegations of wrongdoing in connection with lender-placed insurance arrangements, claims relating to our ~~pre-foreclosure~~ property preservation activities, claims related to REO management, claims relating to our written and telephonic communications with our borrowers such as claims under the ~~Telephone Consumer Protection Act,~~TCPA, claims related to our payment, escrow and other processing operations, claims relating to fees imposed on borrowers relating to payment processing, payment facilitation, or payment convenience, claims related to ancillary products marketed and sold to borrowers, and claims regarding certifications of our legal compliance related

to our participation in certain government programs. In some of these proceedings, claims for substantial monetary damages are asserted against us. For example, we are a defendant in various class action matters alleging that (1) certain fees we assess on borrowers are marked up improperly in violation of applicable state and federal law; and (2) the solicitation and marketing to borrowers of certain ancillary products was unfair and deceptive.

In view of the inherent difficulty of predicting the outcome of any threatened or pending legal proceedings, particularly where the claimants seek very large or indeterminate damages or where the matters present novel legal theories or involve a large number of parties, we generally cannot predict what the eventual outcome of such proceedings will be, what the timing of the ultimate resolution will be, or what the eventual loss, if any, will be. Any material adverse resolution could materially and adversely affect our business, reputation, financial condition and results of operations.

Where we determine that a loss contingency is probable in connection with a pending or threatened legal proceeding and the amount of our loss can be reasonably estimated, we record an accrual for the loss. ~~Excluding expenses of internal or external legal counsel, we~~We have accrued ~~$31.9 million as of September 30, 2017~~ for losses relating to threatened and pending litigation that we believe are probable and reasonably estimable based on current information regarding these matters. Where we determine that a loss is not probable but is reasonably possible or where a loss in excess of the amount accrued is reasonably possible, we disclose an estimate of the amount of the loss or range of possible losses for the claim if a reasonable estimate can be made, unless the amount of such reasonably possible loss is not material to our financial position, results of operations or cash flows. It is possible that we will incur losses relating to threatened and pending litigation that materially exceed the amount accrued. Our accrual for probable and estimable legal and regulatory matters, including accrued legal fees, was $54.3 million at June 30, 2018. We cannot currently estimate the amount, if any, of reasonably possible losses above amounts that have been recorded at ~~September~~June 30, ~~2017.~~2018.

~~We have previously disclosed several securities fraud~~In 2014, plaintiffs filed a putative class action ~~lawsuits filed~~ against Ocwen and certain of its officers and directors that contain allegations in connection with the restatements of our 2013 and first quarter 2014 financial statements and our December 2014 Consent Order with the NY DFS, among other matters. Those lawsuits have been consolidated and are pending in the United States District Court for the ~~Southern~~Northern District of ~~Florida in~~Alabama, alleging that Ocwen violated the ~~matter captioned~~FDCPA by charging borrowers a convenience fee for making certain loan payments. See ~~In re~~McWhorter et al. v. Ocwen ~~Financial Corporation Securities Litigation~~, ~~9:14-cv-81057-WPD (S.D. Fla.~~Loan Servicing, LLC, 2:15-cv-01831 (N.D. Ala.) ~~(such consolidated lawsuit,~~. The plaintiffs are seeking statutory damages under the ~~Securities Class Action).~~

~~In July 2017, following a mediated settlement process resulting in all parties' acceptance of~~FDCPA, compensatory damages and injunctive relief. The presiding court previously ruled on Ocwen’s motions to dismiss, and Ocwen answered the ~~mediator's recommendation for settlement, we reached~~operative complaint. Ocwen subsequently entered into an agreement in principle to settle this matter. Subject to final approval by the court, the settlement will include an aggregate cash payment by Ocwen to the plaintiffs of $49.0 million (of which Ocwen expects to recover $14.0 million from insurance proceeds), and an issuance to the plaintiffs of an aggregate of 2,500,000 shares of Ocwen's common stock. Under certain circumstances related to the price of Ocwen's common stock over the five trading days prior to court approval of the settlement, the amount of shares issuable could be increased so that the aggregate number of shares issued has a total value of $7.0 million. However, in no event will Ocwen be required to issue more than 4% of the number of shares of its common stock outstanding as of the date of court approval. Further, in lieu of issuing shares, Ocwen may elect to pay the plaintiffs $7.0 million in cash. Attorneys' fees for the plaintiffs will be paid from the amounts described above.

We paid the $49.0 million cash portion of the settlement in July 2017 and have a remaining accrual of $7.0 million recorded as of September 30, 2017 in connection with this settlement. We cannot currently estimate the amount, if any, of reasonably possible loss above such accrual. The $7.0 million is included within the $31.9 million litigation accrual referenced

~~above. Recoveries from insurance will reduce our aggregate exposure for~~resolve this matter, and ~~have been recorded as a reduction of Professional services expense in~~ the ~~unaudited consolidated statements of operations.~~

presiding court is considering motions to approve the settlement. While Ocwen believes that it has sound legal and factual defenses, Ocwen has agreed to this settlement in principle in order to avoid the uncertain outcome of litigation and the additional expense and demands on the time of its senior management that ~~a trial~~such litigation would involve. ~~Following written submissions to the court, in August 2017, the presiding judge preliminarily approved the settlement.~~ There can be no assurance that the ~~settlement~~court will be finally ~~approved by~~approve the ~~court.~~settlement. In the event the settlement is not finally approved, the litigation would continue, and we would vigorously defend the allegations made against Ocwen. ~~If our efforts~~Our accrual with respect to ~~defend against such claims were not successful, our business, financial condition, liquidity and results of operations could be materially and adversely affected.~~

In January 2016, Ocwen was named as a defendant in a separate “opt-out” securities fraud action brought on behalf of certain putative shareholders of Ocwen based on similar allegations to those containedthis matter is included in the ~~securities fraud class action lawsuit described~~$54.3 million legal and regulatory accrual referenced above.~~See~~ ~~Broadway Gate Master Fund, Ltd. et al. v. Ocwen Financial Corporation et al., 9:16-cv-80056-WPD (S.D. Fla.)~~. Dispositive motions are pending in this lawsuit, and trial is set to commence on November 27, 2017. Additional lawsuits may be filed against us in relation to these matters. At this time, Ocwen is unable to predict We cannot currently estimate the ~~outcome~~amount, if any, of ~~this existing “opt-out” lawsuit or any additional lawsuits that may be filed, the~~reasonably possible loss ~~or range of loss, if any, associated with~~above the resolution of such lawsuits or the potential impact such lawsuits may have on us or our operations. Ocwen and the other defendants intend to vigorously defend against such lawsuits. If our efforts to defend these lawsuits are not successful, our business, financial condition, liquidity and results of operations could be materially and adversely affected.amount accrued.

As a result of the federal and state regulatory actions described below under “Regulatory”, and the impact on our stock price, several putative securities fraud class action lawsuits have been filed against Ocwen and certain of its officers that contain allegations in connection with Ocwen’s statements concerning its efforts to satisfy the evolving regulatory environment, and the resources it devoted to regulatory compliance, among other matters. Additional lawsuits may be filed against us in relation to these matters. At this time, Ocwen is unable to predict the outcome of these existing lawsuits or any additional lawsuits that may be filed, the possible loss or range of loss, if any, associated with the resolution of such lawsuits or the potential impact such lawsuits may have on us or our operations. Ocwen and the other defendants intend to vigorously defend against such lawsuits. If our efforts to defend these lawsuits are not successful, our business, financial condition, liquidity and results of operations could be materially and adversely affected.

Ocwen has been named in putative class actions and individual actions related to its compliance with the ~~Telephone Consumer Protection Act.~~TCPA. Generally, plaintiffs in these actions allege that Ocwen knowingly and willfully violated the ~~Telephone Consumer Protection Act~~TCPA by using an automated telephone dialing system to call class members’ cell phones without their consent. On July 28, 2017, Ocwen entered into an agreement in principle to resolve two such putative class actions, which have been consolidated in the United States District Court for the Northern District of Illinois. See Snyder v. Ocwen Loan Servicing, LLC, 1:14-cv-08461-MFK (N.D. Ill.); Beecroft v. Ocwen Loan Servicing, LLC, 1:16-cv-08677-MFK (N.D. Ill.). Subject to final approval by the court, the settlement will include the establishment of a settlement fund to be distributed to impacted borrowers that submit claims for settlement benefits pursuant to a claims administration process. Our accrual with respect to this matter is included in the $31.9 million litigation accrual referenced above. We cannot currently estimate the amount, if any, of reasonably possible loss above the amount accrued.

While Ocwen believes that it has sound legal and factual defenses, Ocwen agreed to this settlement in principle in order to avoid the uncertain outcome of litigation and the additional expense and demands on the time of its senior management that such litigation would involve. The court has preliminarily approved the settlement ~~but~~and we have paid the settlement amount into an escrow account held by the settlement administrator. However, there can be no assurance that itthe court will finally approve the settlement. In the event the settlement is not finally approved, the litigation would continue, and we would vigorously defend the allegations made against Ocwen. Additional lawsuits may be filed against us in relation to these matters. At this time, Ocwen is unable to predict the outcome of these existing lawsuits or any additional lawsuits that may be filed, the possible loss or range of loss, if any, associated with the resolution of such lawsuits or the potential impact such lawsuits may have on us or our operations. Ocwen intends to vigorously defend against these lawsuits. If our efforts to defend these lawsuits are not successful, our business, financial condition liquidity and results of operations could be materially and adversely affected.

~~On February 17, 2017, OFC, OLS and Homeward signed an agreement with two qui tam relators to settle~~We have previously disclosed ~~litigation~~the settlement of the consolidated securities fraud class action lawsuit that contained allegations in connection with the restatements of our 2013 and first quarter 2014 financial statements, among other matters, ~~relating to claims under the False Claims Act (the Fisher Cases). The settlement agreement, which was subsequently approved by~~in the United States District Court for the Southern District of Florida captioned In re Ocwen Financial Corporation Securities Litigation, 9:14-cv-81057-WPD (S.D. Fla.) (such consolidated lawsuit, the Securities Class Action). In March 2018 and April 2018, respectively, Ocwen was named as a defendant in two separate “opt-out” securities fraud actions brought on behalf of certain putative shareholders of Ocwen based on similar allegations to those contained ~~no admission~~in the Securities Class Action. See

Brahman Partners et al. v. Ocwen Financial Corporation et al., 9:18-cv-80359-DMM (S.D. Fla.) and Owl Creek et al. v. Ocwen Financial Corporation et al., 9:18-cv-80506-BB(S.D. Fla.). Our accrual with respect to these matters is included in the $54.3 million legal and regulatory accrual referenced above. We cannot currently estimate the amount, if any, of ~~liability or wrongdoing by~~reasonably possible loss above the amount accrued. Ocwen and ~~provided for~~ the ~~payment~~other defendants intend to vigorously defend against these lawsuits. If our efforts to defend these lawsuits are not successful, our business, financial condition, liquidity and results of ~~$15.0 million~~operations could be materially and adversely affected.

We have previously disclosed that as a result of the April 2017 federal and state regulatory actions described below under “Regulatory”, and the impact on our stock price, several putative securities fraud class action lawsuits were filed against Ocwen and certain of its officers that contain allegations in connection with Ocwen’s statements concerning its efforts to satisfy the evolving regulatory environment, and the resources it devoted to regulatory compliance, among other matters. Those lawsuits were consolidated in the United States ~~and $15.0 million~~District Court for the ~~private citizens’ attorneys’ fees~~Southern District of Florida in the matter captioned Carvelli v. Ocwen Financial Corporation et al., 9:14-cv-9:17-cv-80500-RLR (S.D. Fla.). On April 27, 2018, the court in Carvelli granted our motion to dismiss, and ~~costs. We paid~~dismissed the ~~settlement amount~~consolidated case with prejudice. Plaintiffs thereafter filed a notice of appeal. Ocwen and the other defendants intend to defend themselves vigorously. Additional lawsuits may be filed against us in ~~April 2017.~~relation to these matters. At this time, Ocwen is unable to predict the outcome of this existing lawsuit or any additional lawsuits that may be filed, the possible loss or range of loss, if any, associated with the resolution of such lawsuits or the potential impact such lawsuits may have on us or our operations. If additional lawsuits are filed, Ocwen intends to vigorously defend itself against such lawsuits. If our efforts to defend the existing lawsuit or any future lawsuit are not successful, our business, financial condition, liquidity and results of operations could be materially and adversely affected.

In several recent court actions, mortgage loan sellers against whom repurchase claims have been asserted based on alleged breaches of representations and warranties are defending on various grounds including the expiration of statutes of limitation, lack of notice and opportunity to cure, and vitiation of the obligation to repurchase as a result of foreclosure or charge-off of the

loan. We have entered into tolling agreements with respect to our role as servicer for a small number of securitizations relating to our performance under the servicing agreements for those securitizations and may enter into additional tolling agreements in the future. Other court actions have been filed against certain RMBS trustees alleging that the trustees breached their contractual and statutory duties by, among other things, failing to require the loan servicers to abide by the servicers’ obligations and failing to declare that certain alleged servicing events of default under the applicable contracts occurred.

Ocwen is a party in certain of these actions, is the servicer for certain securitizations involved in other such actions and is the servicer for other securitizations as to which actions have been threatened by certificate holders. We intend to vigorously defend ourselves in the lawsuits to which we have been named a party. Should Ocwen be made a party to other similar actions or should Ocwen be asked to indemnify any parties to such actions, we may need to defend ourselves against allegations that we failed to service loans in accordance with applicable agreements and that such failures prejudiced the rights of repurchase claimants against loan sellers or otherwise diminished the value of the trust collateral. At this time, we are unable to predict the ultimate outcome of these lawsuits, the possible loss or range of loss, if any, associated with the resolution of these lawsuits or any potential impact they may have on us or our operations. If, however, we were required to compensate claimants for losses related to the alleged loan servicing breaches, then our business, liquidity, financial condition and results of operations could be adversely affected.

In addition, a number of RMBS trustees have received notices of default alleging material failures by servicers to comply with applicable servicing agreements. Although Ocwen has not yet been sued by an RMBS trustee in response to a notice of default, there is a risk that Ocwen could be replaced as servicer as a result of said notices, that the trustees could take legal action on behalf of the trust certificateholders, or, under certain circumstances, that the RMBS investors who issue notices of default could seek to press their allegations against Ocwen, independent of the trustees. ~~At present,~~Previously, one such group of affiliated RMBS investors sought to direct one trustee to bring suit against Ocwen. The trustee declined to bring suit, and the RMBS investors instead brought suit against Ocwen directly. The court dismissed the RMBS investors’ suit without prejudice on October 4, 2017, and the RMBS investors ~~have~~ subsequently filed an amended complaint. On January 23, 2018, the court dismissed the RMBS investors’ amended suit with prejudice. The RMBS investors thereafter appealed the district court’s dismissal. Ocwen ~~intends to defend itself vigorously.~~is vigorously defending itself. We are unable at this time to predict what, if any, actions any trustee will take in response to a notice of default, nor can we predict at this time the potential loss or range of loss, if any, associated with the resolution of any notices of default or the potential impact on our operations. If Ocwen were to be terminated as servicer, or other related legal actions were pursued against Ocwen, it could have an adverse effect on Ocwen’s business, financing activities, financial condition and results of operations.

Regulatory

We are subject to a number of ongoing federal and state regulatory examinations, cease and desist orders, consent orders, inquiries, subpoenas, civil investigative demands, requests for information and other actions. Where we determine that a loss contingency is probable in connection with a regulatory matter and the amount of our loss can be reasonably estimated, we

record an accrual for the loss. Where we determine that a loss is not probable but is reasonably possible or where a loss in excess of the amount accrued is reasonably possible, we disclose an estimate of the amount of the loss or range of possible losses for the claim if a reasonable estimate can be made, unless the amount of such reasonably possible loss is not material to our financial position, results of operations or cash flows. It is possible that we will incur losses relating to regulatory matters that materially exceed any accrued amount. Predicting the outcome of any regulatory matter is inherently difficult and we generally cannot predict the eventual outcome of any regulatory matter or the eventual loss, if any, associated with the outcome.

~~CFPB~~

Prior to the CFPB instituting legal proceedings, we had been engaged with the CFPB in efforts to resolve the matter. We recorded $12.5 million as of December 31, 2016 as a result of these discussions. If we are successful in defending ourselves against the CFPB, it is possible that our losses could be less than $12.5 million. It is also possible that we could incur losses that materially exceed the amount accrued, and the resolution of the matters raised by the CFPB could have a material adverse impact on our business, reputation, financial condition, liquidity and results of operations. We cannot currently estimate the amount, if any, of reasonably possible loss above amounts previously accrued.

~~State Licensing, State Attorneys General and Other Matters~~

Our licensed entities are required to renew their licenses, typically on an annual basis, and to do so they must satisfy the license renewal requirements of each jurisdiction, which generally include financial requirements such as providing audited financial statements or satisfying minimum net worth requirements and non-financial requirements such as satisfactorily completing examinations as to the licensee’s compliance with applicable laws and regulations. Failure to satisfy any of the requirements to which our licensed entities are subject could result in a variety of regulatory actions ranging from a fine, a directive requiring a certain step to be taken, a suspension or, ultimately, a revocation of a license, any of which could have a material adverse impact on our results of operations and financial condition. In addition, we receive information requests and other inquiries, both formal and informal in nature, from our state financial regulators as part of their general regulatory oversight of our servicing and lending businesses. We also regularly engage with state attorneys general and the CFPB and, on occasion, we engage with other federal agencies, including the Department of Justice and various inspectors general on various matters, including responding to information requests and other inquiries. Many of our regulatory engagements arise from a complaint that the entity is investigating, although some are formal investigations or proceedings. The GSEs (and their conservator, FHFA), HUD, FHA, VA, Ginnie Mae, the United States Treasury Department, and others also subject us to periodic reviews and audits. We have in the past resolved, and may in the future resolve, matters via consent orders or payment of monetary amounts to settle issues identified in connection with examinations or regulatory or other oversight activities, and such resolutions could have material and adverse effects on our business, reputation, operations, results of operations and financial condition.

On April 20, 2017 and shortly thereafter, mortgage and banking regulatory agencies from 30 states and the District of Columbia issued orders against OLS and certain other Ocwen companies that alleged deficiencies in our compliance with laws and regulations relating to our servicing and lending activities. In general, the orders were styled as “cease and desist orders,” and we use that term to refer to all of the orders for ease of reference; we also include the District of Columbia as a state when we reference states below for ease of reference. All of the cease and desist orders were applicable to OLS, but additional Ocwen entities were named in some orders, including Ocwen Financial Corporation, OMS, Homeward and Liberty. While each cease and desist order was different, the orders generally prohibited a range of actions, including (1) acquiring new MSRs (17 states), (2) originating or acquiring new mortgage loans, where we would be the servicer (13 states), (3) originating or acquiring new mortgage loans (4 states) and (4) conducting foreclosure activities (2 states), among others. In addition, in July 2017, and in connection with the cease and desist orders, we received a subpoena from one state seeking information relating to lender placed insurance activities, consumer complaints and certain other matters, with which we have cooperated. Following the issuance of the orders, we reached agreements with certain regulatory agencies to obtain delays in the enforcement of certain terms or exceptions to certain terms contained in the cease and desist orders. Additionally, we revised our operations based on the terms of the orders while we sought to negotiate resolutions.

We have entered into agreements with 19 states plus the District of Columbia to resolve these regulatory actions. These agreements generally contain the following key terms (the Multi-State Common Settlement Terms):

~~Ocwen will not acquire any new residential mortgage servicing rights until April 30, 2018.~~


•	~~Ocwen will develop a plan of action and milestones regarding its transition from the servicing system we currently use, REALServicing~~^®~~, to an alternate servicing system and, with certain exceptions, will not board any new loans onto the REALServicing system.~~

In the event that Ocwen chooses to merge with or acquire an unaffiliated company or its assets in order to effectuate a transfer of loans from the REALServicing system, Ocwen must give the applicable regulatory agency prior notice to the signing of any final agreement and the opportunity to object. If no objection is received, the provisions of the first bullet point above shall not prohibit the transaction, or limit the transfer of loans from the REALServicing system onto the merged or acquired company’s alternate servicing system. In the event that an unaffiliated company merges with or acquires Ocwen or Ocwen’s assets, the provisions of the first bullet point above shall not prohibit the transaction, or limit the transfer of loans from the REALServicing system onto the merging or acquiring company’s alternate servicing system.

Ocwen will engage a third-party auditor to perform an analysis with respect to our compliance with certain federal and state laws relating to escrow by testing approximately 9,000 loan files relating to residential real property in various states, and Ocwen must develop corrective action plans for any errors that are identified by the third-party auditor.

~~Ocwen will develop and submit for review a plan to enhance our consumer complaint handling processes.~~

~~Ocwen will provide financial condition reporting on a confidential basis as part of each state’s supervisory framework through September 2020.~~

In addition to the terms described above, Ocwen has agreed with the Texas regulatory agency on certain additional communications with and for Texas borrowers, as well as certain review and reporting obligations. We also entered into an agreement to resolve the regulatory action brought by Tennessee on separate terms that addressed concerns generally related to financial reporting and two additional states have either withdrawn or allowed their respective cease and desist orders to expire.

~~As of November 1, 2017, the total number of jurisdictions where we have reached a resolution is 22.~~

These agreements are generally documented as consent orders or consent agreements that resolve the specific cease and desist or other order brought by the applicable regulatory agency and contain the specific terms agreed with each agency, which in certain instances include certain state specific reporting or other requirements. In all of the above-described agreements, Ocwen neither admitted nor denied liability. None of the agreements contain any monetary fines or penalties, although we will incur costs complying with the terms of these settlements, including in connection with the escrow analysis and transition to a new servicing system. In addition, in the event errors were to be uncovered during the escrow analysis, we could incur costs remedying such errors or other actions could be taken against by regulators or others.

We continue to seek timely resolutions with the remaining nine state regulatory agencies. If Ocwen is successful in reaching such resolutions, they may contain some or all of the Multi-State Common Settlement Terms and may also contain additional terms, including potentially monetary fines or penalties or additional restrictions on our business. There can be no assurance that Ocwen will be able to reach resolutions with the remaining regulatory agencies. It is possible that the outcome of the remaining regulatory actions, whether through negotiated settlements or other resolutions, could be materially adverse to our business, reputation, financial condition, liquidity and results of operations. We cannot currently estimate the amount, if any, of reasonably possible loss related to these matters.

Certain of the state regulators’ cease and desist orders reference a confidential supervisory memorandum of understanding (MOU) that we entered into with the Multistate Mortgage Committee (MMC), a multistate coalition of various mortgage banking regulators, and six states relating to a servicing examination from 2013 to 2015. The MOU contained various provisions relating to servicing practices and safety and soundness aspects of the regulatory review, as a step toward closing the 2013-2015 examination. There were no monetary or other penalties under the MOU. Ocwen responded to the MOU items, and continues to provide certain reports and other information pursuant to the MOU.

In April 2017, and concurrent with the issuance of the cease and desist orders and the filing of the CFPB lawsuit discussed above, two state attorneys general took actions against us relating to our servicing practices. The Florida Attorney General filed a lawsuit in the federal district court for the Southern District of Florida against Ocwen, OMS and OLS alleging violations of federal and state consumer financial laws relating to our servicing business. These claims are similar to the claims made by the CFPB. The Florida Attorney General’s lawsuit seeks injunctive and equitable relief, costs, and civil money penalties in excess of $10,000 per confirmed violation of the applicable statute. As previously disclosed, the Massachusetts Attorney General had sent us a civil investigative demand requesting information relating to various aspects of our servicing practices, including lender-placed insurance and property preservation fees. Subsequently, the Massachusetts Attorney General filed a lawsuit against OLS in the Superior Court for the Commonwealth of Massachusetts alleging violations of state consumer financial laws relating to our servicing business, including with respect to our activities relating to lender-placed insurance and property preservation fees. The Massachusetts Attorney General’s lawsuit seeks injunctive and equitable relief, costs, and civil money penalties of $5,000 per confirmed violation of the applicable statute. While we endeavor to negotiate appropriate resolutions in these two matters, we are vigorously defending ourselves, as we believe we have valid defenses to the claims made in both lawsuits. The outcome of these two lawsuits, whether through negotiated settlements, court rulings or otherwise, could potentially involve monetary fines or penalties or additional restrictions on our business and could be materially adverse to our business, reputation, financial condition, liquidity and results of operations. We cannot currently estimate the amount, if any, of reasonably possible loss related to these matters.

On occasion, we engage with agencies of the federal government on various matters. For example, OLS received a letter from the Department of Justice, Civil Rights Division, notifying OLS that the Department of Justice had initiated a general investigation into OLS’s policies and procedures to determine whether violations of the Servicemembers Civil Relief Act by OLS might exist. The letter stated that at this point, the investigation is preliminary in nature and the Department of Justice has not made any determination as to whether OLS violated the act. In addition, Ocwen is one of three defendants in an administrative complaint pending with HUD brought by a non-profit organization alleging discrimination in the manner in which the company maintains REO properties in minority communities. We believe the allegations to be without merit and intend to vigorously defend ourselves against these allegations.

for a period of 90 days from the date of the letter. During such forbearance period, Ginnie Mae has asked Ocwen to provide certain information regarding the cease and desist orders and certain information regarding Ocwen’s business plan, financial results and operations. Ginnie Mae stated that it reserves the right to make additional requests of Ocwen and to restrict or terminate Ocwen’s participation in the Ginnie Mae mortgage-backed securities program. Based on our conversations with Ginnie Mae, we understand that Ginnie Mae views this as a violation with a prescribed remedy and that the purpose of the notice is to provide for a period of resolution. We have provided and intend to continue to provide information to Ginnie Mae as we seek to resolve its concerns, including with respect to our efforts to settle the state regulatory and operational matters outlined by Ginnie Mae. Ginnie Mae has indicated to us that resolution of the state regulators’ cease and desist orders would substantially address its concerns and that there may be other alternatives to address them as well. Based on our progress in resolving the matters raised by Ginnie Mae, Ginnie Mae has extended the forbearance period for an additional 90 days. We continue to operate as a Ginnie Mae issuer in all respects and continue to participate in Ginnie Mae issuing of mortgage-backed securities and home equity conversion loan pools in the ordinary course.

Adverse actions by Ginnie Mae could materially and adversely impact our business, reputation, financial condition, liquidity and results of operations, including if Ginnie Mae were to terminate us as an issuer or servicer of Ginnie Mae securities or otherwise take action indicating that such a termination was planned. For example, such actions could make financing our business more difficult, including by making future financing more expensive or if a lender were to allege a default under our debt agreements, which could trigger cross-defaults under all of our other material debt agreements.

~~New York Department of Financial Services~~

In December 2014, we entered into a consent order (the 2014 NY Consent Order) with the NY DFS as a result of an investigation relating to Ocwen’s servicing of residential mortgages. The 2014 NY Consent Order contained monetary and non-monetary provisions including the appointment of a third-party operations monitor (NY Operations Monitor) to monitor various aspects of our operations and restrictions on our ability to acquire MSRs that effectively prohibit any such future acquisitions until we have satisfied certain specified conditions. We were also required to pay all reasonable and necessary costs of the NY Operations Monitor, and those costs were substantial.

On March 27, 2017, we entered into a consent order (the 2017 NY Consent Order) with the NY DFS that provided for (1) the termination of the engagement of the NY Operations Monitor on April 14, 2017, (2) a regulatory examination of our servicing business, following which the NY DFS would make a determination on whether the restrictions on our ability to acquire MSRs contained in the 2014 NY Consent Order should be eased and (3) certain reporting and other obligations, including in connection with matters identified in a final report by the NY Operations Monitor. In addition, the 2017 NY Consent Order provides that if the NY DFS concludes that we have materially failed to comply with our obligations under the order or otherwise finds that our servicing operations are materially deficient, the NY DFS may, among other things, and, in addition to its general authority to take regulatory action against us, require us to retain an independent consultant to review and issue recommendations on our servicing operations.

The NY Operations Monitor delivered its final report on April 14, 2017 when its engagement terminated. The final report contained certain recommended operational enhancements to which we have responded. Under the 2017 NY Consent Order, we are required to update the NY DFS quarterly on our implementation of the enhancements that we and the NY DFS agreed should be made. Our updates to date show that all agreed upon enhancements are being implemented.

~~California Department of Business Oversight~~

In January 2015, OLS entered into a consent order (the 2015 CA Consent Order) with the CA DBO relating to our failure to produce certain information and documents during a routine licensing examination. The order contained monetary and non-monetary provisions, including the appointment of an independent third-party auditor (the CA Auditor) to assess OLS’ compliance with laws and regulations impacting California borrowers and a prohibition on acquiring any additional MSRs for loans secured in California. We were also required to pay all reasonable and necessary costs of the CA Auditor, and those costs were substantial.

On February 17, 2017, OLS and two other subsidiaries, Ocwen Business Solutions, Inc. (OBS) and OFSPL, reached an agreement, in three consent orders (collectively, the 2017 CA Consent Order), with the CA DBO that terminated the 2015 CA Consent Order and resolved open matters between the CA DBO and OLS, OBS and OFSPL, including certain matters relating to OLS’ servicing practices and the licensed activities of OBS and OFSPL. The 2017 CA Consent Order does not involve any admission of wrongdoing by OLS, OBS or OFSPL. Additionally, we have certain reporting and other obligations under the 2017 CA Consent Order. We believe that we have completed those obligations of the 2017 CA Consent Order that have already come due, and we have so notified the CA DBO. If the CA DBO were to allege that we failed to comply with these obligations or otherwise were in breach of applicable laws, regulations or licensing requirements, it could take regulatory action against us.

~~Ocwen 2013 National Mortgage Settlement~~

In December 2013, we entered into a settlement with the CFPB and various state attorneys general and other state agencies that regulate the mortgage servicing industry relating to various allegations regarding deficient mortgage servicing practices (the Ocwen National Mortgage Settlement). The settlement contained monetary and non-monetary provisions, including quarterly testing on various metrics relating to servicing standards agreed under the Ocwen National Mortgage Settlement.

In September 2017, Ocwen reached an agreement in principle with the Monitoring Committee established under the Ocwen National Mortgage Settlement relating to a previously disclosed potential violation of one of the tested metrics during the first quarter of 2017. In order to resolve the matter and without agreeing with the Monitoring Committee’s allegations, Ocwen agreed to pay $1.0 million and to provide notices to certain borrowers with active lender placed insurance policies. On September 26, 2017, the court overseeing the Ocwen National Mortgage Settlement issued an order approving the agreement in principle. The parties reached this agreement in principle following the filing of the final report of the Office of Mortgage Settlement Oversight under the Ocwen National Mortgage Settlement. With this final report, the Office of Mortgage Settlement Oversight has concluded all monitoring and testing activities under the Ocwen National Mortgage Settlement.

~~Securities and Exchange Commission~~

In February 2015, we received a letter from the New York Regional Office of the SEC (the Staff) informing us that it was conducting an investigation relating to the use of collection agents by mortgage loan servicers. We believe that the February 2015 letter was also sent to other companies in the industry. On February 11, 2016, we received a letter from the Staff informing us that it was conducting an investigation relating to fees and expenses incurred in connection with liquidated loans and REO properties held in non-Agency RMBS trusts. We cooperated with the SEC in both of these matters and voluntarily produced documents and information. On October 2, 2017, we received confirmation from the Staff that it had concluded both investigations as they relate to Ocwen and, based on the Staff’s information as of such date, the Staff did not intend to recommend that any related enforcement action be taken against Ocwen.

To the extent that an examination, audit or other regulatory engagement results in an alleged failure by us to comply with applicable laws, regulations or licensing requirements, or if allegations are made that we have failed to comply with applicable laws, regulations or licensing requirements or the commitments we have made in connection with our regulatory settlements (whether such allegations are made through administrative actions such as cease and desist orders, through legal proceedings or otherwise) or if other regulatory actions of a similar or different nature are taken in the future against us, this could lead to (i) administrative fines and penalties and litigation, (ii) loss of our licenses and approvals to engage in our servicing and lending businesses, (iii) governmental investigations and enforcement actions, (iv) civil and criminal liability, including class action lawsuits and actions to recover incentive and other payments made by governmental entities, (v) breaches of covenants and representations under our servicing, debt or other agreements, (vi) damage to our reputation, (vii) inability to raise capital or otherwise fund our operations and (viii) inability to execute on our business strategy. Any of these occurrences could increase our operating expenses and reduce our revenues, hamper our ability to grow or otherwise materially and adversely affect our business, reputation, financial condition, liquidity and results of operations.

CFPB

On April 20, 2017, the CFPB filed a lawsuit in the federal district court for the Southern District of Florida against Ocwen, OMS and OLS alleging violations of federal consumer financial laws relating to our servicing business dating back to 2014. The CFPB’s claims include allegations regarding (1) the adequacy of Ocwen’s servicing system and integrity of Ocwen’s mortgage servicing data, (2) Ocwen’s foreclosure practices and (3) various purported servicer errors with respect to borrower escrow accounts, hazard insurance policies, timely cancellation of private mortgage insurance, handling of customer complaints, and marketing of optional products. The CFPB alleges violations of unfair, deceptive acts or abusive practices, as well as violations of specific laws or regulations. The CFPB does not claim specific monetary damages, although it does seek consumer relief, disgorgement of allegedly improper gains, and civil money penalties. We believe we have factual and legal defenses to the CFPB’s allegations and are vigorously defending ourselves. Prior to the initiation of legal proceedings, we had been engaged with the CFPB in efforts to resolve the matter and recorded $12.5 million as of December 31, 2016 as a result of these discussions. Our accrual with respect to this matter is included in the $54.3 million legal and regulatory accrual referenced above. The outcome of the matters raised by the CFPB, whether through negotiated settlements, court rulings or otherwise, could have a material adverse impact on our business, reputation, financial condition, liquidity and results of operations.

State Licensing, State Attorneys General and Other Matters

Our licensed entities are required to renew their licenses, typically on an annual basis, and to do so they must satisfy the license renewal requirements of each jurisdiction, which generally include financial requirements such as providing audited financial statements or satisfying minimum net worth requirements and non-financial requirements such as satisfactorily completing examinations as to the licensee’s compliance with applicable laws and regulations. Failure to satisfy any of the requirements to which our licensed entities are subject could result in a variety of regulatory actions ranging from a fine, a directive requiring a certain step to be taken, entry into a consent order, a suspension or ultimately a revocation of a license, any of which could have a material adverse impact on our results of operations and financial condition. In addition, we receive information requests and other inquiries, both formal and informal in nature, from our state financial regulators as part of their general regulatory oversight of our servicing and lending businesses. We also regularly engage with state attorneys general and the CFPB and, on occasion, we engage with other federal agencies, including the Department of Justice and various inspectors general on various matters, including responding to information requests and other inquiries. Many of our regulatory engagements arise from a complaint that the entity is investigating, although some are formal investigations or proceedings. The GSEs (and their conservator, FHFA), HUD, FHA, VA, Ginnie Mae, the United States Treasury Department, and others also subject us to periodic reviews and audits. We have in the past resolved, and may in the future resolve, matters via consent orders, payments of monetary amounts and other agreements in order to settle issues identified in connection with examinations or other oversight activities, and such resolutions could have material and adverse effects on our business, reputation, operations, results of operations and financial condition.

On April 20, 2017 and shortly thereafter, mortgage and banking regulatory agencies from 29 states and the District of Columbia took regulatory actions against OLS and certain other Ocwen companies that alleged deficiencies in our compliance with laws and regulations relating to our servicing and lending activities. An additional state regulator brought legal action together with that state’s attorney general, as described below. In general, the regulatory actions took the form of orders styled as “cease and desist orders,” and we use that term to refer to all of the orders for ease of reference; for ease of reference we also

include the District of Columbia as a state when we reference states below. All of the cease and desist orders were applicable to OLS, but additional Ocwen entities were named in some orders, including Ocwen Financial Corporation, OMS, Homeward, Liberty, OFSPL and OBS. Following the issuance of the orders, we reached agreements with certain regulatory agencies to obtain delays in the enforcement of certain terms or exceptions to certain terms contained in the cease and desist orders. Additionally, we revised our operations based on the terms of the orders while we sought to negotiate resolutions.

We have entered into agreements with 29 states plus the District of Columbia to resolve these regulatory actions. These agreements generally contain the following key terms (the Multi-State Common Settlement Terms):

Ocwen would not acquire any new residential mortgage servicing rights until April 30, 2018.


•	Ocwen will develop a plan of action and milestones regarding its transition from the servicing system we currently use, REALServicing^®, to an alternate servicing system and, with certain exceptions, will not board any new loans onto the REALServicing system.

In the event that Ocwen chooses to merge with or acquire an unaffiliated company or its assets in order to effectuate a transfer of loans from the REALServicing system, Ocwen must give the applicable regulatory agency prior notice to the signing of any final agreement and the opportunity to object (which prior notice requirement is independent of, and in addition to, applicable state law notice and consent requirements relating to change of control transactions). If no objection is received, the provisions of the first bullet point above shall not prohibit the transaction or limit the transfer of loans from the REALServicing system onto the merged or acquired company’s alternate servicing system. In the event that an unaffiliated company merges with or acquires Ocwen or Ocwen’s assets, the provisions of the first bullet point above shall not prohibit the transaction or limit the transfer of loans from the REALServicing system onto the merging or acquiring company’s alternate servicing system.

Ocwen will develop and submit for review a plan to enhance our consumer complaint handling processes.

Ocwen will provide financial condition reporting on a confidential basis as part of each state’s supervisory framework through September 2020.

In addition to the terms described above, Ocwen entered into settlements with certain states on different or additional terms, which include making additional communications with and for borrowers, certain review, reporting and remediation obligations, and the following additional terms:

Ocwen agreed with the Connecticut regulatory agency to pay certain amounts only in the event we fail to comply with certain requirements under our agreement with Connecticut.

In its agreement with the Maryland regulatory agency, Ocwen agreed to complete an independent management assessment and enterprise risk assessment and to a prohibition, with certain de minimis exceptions, on repurchases of our stock until December 7, 2018. Ocwen also agreed to make certain payments to Maryland, to provide remediation to certain borrowers in the form of cash payments or credits and to pay certain amounts only in the event we fail to comply with certain requirements under our agreement with Maryland.

Ocwen agreed with the Massachusetts regulatory agency to pay $1.0 million to the Commonwealth of Massachusetts Mortgage Education Trust. Ocwen and the Massachusetts regulatory agency also agreed on a schedule pursuant to which we will regain eligibility to acquire residential MSRs on Massachusetts loans (including loans originated by Ocwen) as it meets certain thresholds in its transition to a new servicing platform. All restrictions on Massachusetts MSR acquisitions will be lifted when Ocwen completes the second phase of a three-phase data integrity audit which will be conducted by an independent third-party following completion of Ocwen’s servicing platform transition.

Following the resolution with Massachusetts, we have resolved all of the administrative actions (but not all of the legal actions, which are described below) taken by state regulators on April 20, 2017 and shortly thereafter.

We have taken substantial steps toward fulfilling our commitments under the agreements described above, including, developing and providing periodic updates regarding our plan to transition to an alternate loan servicing system (which our pending acquisition of PHH could help to accelerate), developing and implementing certain enhancements to our consumer complaint process, engaging a third-party auditor who is currently performing escrow-related testing, and complying with our other information sharing and reporting obligations.

In April 2017, and concurrent with the issuance of the cease and desist orders and the filing of the CFPB lawsuit discussed above, two state attorneys general took actions against us relating to our servicing practices. The Florida Attorney General, together with the Florida Office of Financial Regulation, filed a lawsuit in the federal district court for the Southern District of Florida against Ocwen, OMS and OLS alleging violations of federal and state consumer financial laws relating to our servicing business. These claims are similar to the claims made by the CFPB. The Florida lawsuit seeks injunctive and equitable relief, costs, and civil money penalties in excess of $10,000 per confirmed violation of the applicable statute.

The Massachusetts Attorney General filed a lawsuit against OLS in the Superior Court for the Commonwealth of Massachusetts alleging violations of state consumer financial laws relating to our servicing business, including with respect to our activities relating to lender-placed insurance and property preservation fees. Previously, the Massachusetts Attorney General had sent us a civil investigative demand requesting information relating to various aspects of our servicing practices, including lender-placed insurance and property preservation fees. The Massachusetts Attorney General’s lawsuit seeks injunctive and equitable relief, costs, and civil money penalties of $5,000 per confirmed violation of the applicable statute.

While we endeavor to negotiate appropriate resolutions in these two matters, we are vigorously defending ourselves, as we believe we have valid defenses to the claims made in both lawsuits. The outcome of these two lawsuits, whether through negotiated settlements, court rulings or otherwise, could potentially involve monetary fines or penalties or additional restrictions on our business and could be materially adverse to our business, reputation, financial condition, liquidity and results of operations. We cannot currently estimate the amount, if any, of reasonably possible loss related to these matters above amounts currently accrued.

Our accrual with respect to the administrative and legal actions initiated on April 20, 2017 and shortly thereafter is included in the $54.3 million litigation and regulatory matters accrual referenced above. We will also incur costs complying with the terms of the settlements we have entered into, including in connection with the escrow review and transition to a new servicing system. For example, with respect to the escrow review, which is currently underway, we will incur remediation costs to the extent that errors are identified which require remediation. If we fail to comply with the terms of our settlements, additional administrative or legal regulatory actions could be taken against us. Such actions could have a materially adverse impact on our business, reputation, financial condition, liquidity and results of operations.

Certain of the state regulators’ cease and desist orders reference a confidential supervisory memorandum of understanding (MOU) that we entered into with the Multistate Mortgage Committee (MMC), a multistate coalition of various mortgage banking regulators, and six states relating to a servicing examination from 2013 to 2015. The MOU contained various provisions relating to servicing practices and safety and soundness aspects of the regulatory review, as a step toward closing the 2013-2015 examination. There were no monetary or other penalties under the MOU. Ocwen responded to the MOU items and continues to provide certain reports and other information pursuant to the MOU.

On occasion, we engage with agencies of the federal government on various matters. For example, OLS received a letter from the Department of Justice, Civil Rights Division, notifying OLS that the Department of Justice had initiated a general investigation into OLS’s policies and procedures to determine whether violations of the Servicemembers Civil Relief Act by OLS might exist. The letter stated that at this point, the investigation is preliminary in nature and the Department of Justice has not made any determination as to whether OLS violated the act. In addition, Ocwen was named as a defendant in a HUD administrative complaint filed by a non-profit organization alleging discrimination in the manner in which the company maintains REO properties in minority communities. In February 2018, this matter was administratively closed, and similar claims were filed in federal court. We believe these claims are without merit and intend to vigorously defend ourselves.

In April 2017, Ocwen received a subpoena from the Office of Inspector General of HUD requesting the production of documentation related to lender-placed insurance arrangements with a mortgage insurer and the amounts paid for such insurance. We understand that other servicers in the industry have received similar subpoenas. In May 2016, Ocwen received a subpoena from the Office of Inspector General of HUD requesting the production of documentation related to HECM loans originated by Liberty. We understand that other lenders in the industry have received similar subpoenas. In May 2017, Ocwen received a subpoena from the Office of the Special Inspector General for the Troubled Asset Relief Program requesting documents and information related to Ocwen’s participation from 2009 to the present in the Treasury Department’s Making Home Affordable Program and its Home Affordable Modification Program. We have been providing documents and information in response to these subpoenas.

In July 2017, we received a letter from Ginnie Mae in which Ginnie Mae informed us that the state regulators’ cease and desist orders discussed above create a material change in Ocwen’s business status under Chapter 3 of the Ginnie Mae MBS Guide, and Ginnie Mae has accordingly declared an event of default under Guaranty Agreements between Ocwen and Ginnie Mae. In the letter, Ginnie Mae notified Ocwen that it would forbear from immediately exercising any rights relating to this matter for a period of 90 days from the date of the letter; however, it reserved the right to make additional requests of Ocwen and to restrict or terminate Ocwen’s participation in the Ginnie Mae mortgage-backed securities program. Based on our conversations with Ginnie Mae, we understand that Ginnie Mae views this as a violation with a prescribed remedy and that the purpose of the notice is to provide for a period of resolution. During such forbearance period, which was extended three times based on the information supplied and the progress we had made, Ocwen provided certain information regarding the cease and desist orders, our resolutions of the cease and desist orders and Ocwen’s business plan, financial results and operations. On July 17, 2018, Ginnie Mae informed us in an e-mail that it considers the matters raised in its July 2017 letter resolved, and that it will provide a formal letter which may contain specific, continuing oversight criteria regarding the matters raised in the July 2017 letter. We continue to operate as a Ginnie Mae issuer in all respects and continue to participate in Ginnie Mae issuing of mortgage-backed securities and home equity conversion loan pools in the ordinary course.

Loan Put-Back and Related Contingencies

Our contracts with purchasers of originated loans contain provisions that require indemnification or repurchase of the related loans under certain circumstances. While the language in the purchase contracts varies, they contain provisions that require us to indemnify purchasers of related loans or repurchase such loans if:

representations and warranties concerning loan quality, contents of the loan file or loan underwriting circumstances are inaccurate;

adequate mortgage insurance is not secured within a certain period after closing;

a mortgage insurance provider denies coverage; or

there is a failure to comply, at the individual loan level or otherwise, with regulatory requirements.

Additionally, in one of the servicing contracts that Homeward acquired in 2008 from Freddie Mac, Homeward assumed the origination representations and warranties even though it did not originate the loans.

We ~~receive~~received origination representations and warranties from our network of approved originators in connection with loans we ~~purchase~~purchased through our correspondent lending channel. To the extent that we have recourse against a third-party originator, we may recover part or all of any loss we incur.

We believe that, as a result of the current market environment, many purchasers of residential mortgage loans are particularly aware of the conditions under which originators must indemnify or repurchase loans and under which such purchasers would benefit from enforcing any indemnification rights and repurchase remedies they may have.

In our lending business, we have exposure to indemnification risks and repurchase requests. If home values were to decrease, our realized loan losses from loan repurchases and indemnifications may increase as well. As a result, our liability for

repurchases may increase beyond our current expectations. If we are required to indemnify or repurchase loans that we originate and sell, or where we have assumed this risk on loans that we service, as discussed above, in either case resulting in losses that exceed our related liability, our business, financial condition and results of operations could be adversely affected.

We have exposure to origination representation, warranty and indemnification obligations because of our lending, sales and securitization activities and in connection with our servicing practices. We initially recognize these obligations at fair value. Thereafter, the estimation of the liability considers probable future obligations based on industry data of loans of similar type segregated by year of origination, to the extent applicable, and estimated loss severity based on current loss rates for similar loans, our historical rescission rates and the current pipeline of unresolved demands. Our historical loss severity considers the historical loss experience that we incur upon sale or liquidation of a repurchased loan as well as current market conditions. We monitor the adequacy of the overall liability and make adjustments, as necessary, after consideration of other qualitative factors including ongoing dialogue and experience with our counterparties.

At ~~September~~June 30, ~~2017~~2018 and ~~September~~June 30, ~~2016,~~2017, we had outstanding representation and warranty repurchase demands of ~~$40.2~~$29.0 million UPB ~~(213~~(184 loans) and ~~$59.3~~$55.8 million UPB ~~(272~~(282 loans), respectively. We review each demand and monitor through resolution, primarily through rescission, loan repurchase or make-whole payment.

The following table presents the changes in our liability for representation and warranty obligations, compensatory fees for foreclosures that may ultimately exceed investor timelines and similar indemnification obligations:


Nine months ended September 30,	2017			2016
							Six Months Ended June 30,
							2018			2017
Beginning balance	$	24,285		$	36,615		$	19,229		$	24,285
Provision for representation and warranty obligations	(3,285		)	(2,403		)	2,072			(5,125		)
New production reserves	554			615			198			381
Payments made in connection with sales of MSRs	—			(1,320		)
Charge-offs and other (1)	(3,036		)	(6,396		)	(3,643		)	209
Ending balance	$	18,518		$	27,111		$	17,856		$	19,750


(1)	Includes principal and interest losses realized in connection with repurchased loans, make-whole, indemnification and fee payments and settlements net of recoveries, if any.

We believe that it is reasonably possible that losses beyond amounts currently recorded for potential representation and warranty obligations and other claims described above could occur, and such losses could have an adverse impact on our results of operations, financial condition or cash flows. However, based on currently available information, we are unable to estimate a range of reasonably possible losses above amounts that have been recorded at ~~September~~June 30, ~~2017~~2018.

Other

OLS, on its own behalf and on behalf of various investors, has been engaged in a variety of activities to seek payments from mortgage insurers for unpaid claims, including claims where the mortgage insurers paid less than the full claim amount. Ocwen believes that many of the actions by mortgage insurers were in violation of the applicable insurance policies and insurance law. Ocwen is in the process of settlement discussions with certain mortgage insurers. In some cases, Ocwen has entered into tolling agreements, initiated arbitration or litigation, or taken other similar actions. While we expect the ultimate outcome to result in recovery of some unpaid mortgage insurance claims, we cannot quantify the likely amount at this time.

We may, from time to time, have ~~outstanding~~ affirmative indemnification claims against parties from whom we ~~have previously~~ acquired ~~MSRs.~~MSRs or other assets. Although we ~~are pursuing~~pursue these claims, we cannot currently estimate the amount, if any, of ~~our recoveries, which could be material.~~further recoveries.


ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share amounts and unless otherwise indicated)

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as other portions of this Form 10-Q, may contain certain statements that constitute forward-looking statements within the meaning of the federal securities laws. ~~You~~In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “intend,” “consider,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict” or “continue” or the negative of such terms or other comparable terminology. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Our business has been undergoing substantial change, which has magnified such risks and uncertainties. You should bear these factors in mind when considering ~~such~~forward-looking statements and should not place undue reliance on such statements. Forward-looking statements involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those suggested by such statements. In the past, actual results have differed from those suggested by forward-looking statements, and this may happen again. You should consider all uncertainties and risks discussed or referenced in this report,

including those under “Forward-Looking Statements” and Item 1A, Risk Factors, as well as those discussed in our other reports and filings with the SEC, including those in ~~Amendment No. 1 to~~ our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 and ~~those in our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K since such date.~~any subsequent SEC filings.

OVERVIEW

General

We are a financial services company that services and originates loans. Our goal is to be a world-class servicing and lending company that delivers service excellence to our customers and servicing clients and strong returns to our shareholders.

The majority of our revenues are generated from our ~~servicing business, which is primarily comprised of our~~ residential mortgage servicing business. As of September 30, 2017, our residential mortgage servicing portfolio consisted of 1,267,553 loans with a UPB of $187.5 billion. In our lending business, we primarily originate, purchase, sell and securitize conventional and government-insured forward mortgage loans and reverse mortgages. In the third quarter of 2017, our lending business originated or purchased forward and reverse mortgage loans with a UPB of $541.2 million and $227.8 million, respectively. We are currently exploring streamlining our focus and re-evaluating our long-term strategy with respect to certain forward and reverse lending activities, as described further below.

We are a leader in the servicing industry in foreclosure prevention and loss mitigation that helps families stay in their homes and improves financial outcomes for mortgage loan investors. Our leadership in the industry is evidenced by our high cure rate for delinquent loans and above average rate of continuing performance by homeowners whose loans we have modified. Overall, Ocwen has completed nearly 755,000 loan modifications from January 1, 2008 through September 30, 2017.

~~Asset sales, portfolio runoff and~~However, regulatory restrictions on acquisitions of MSRs, portfolio runoff and asset sales have resulted in a ~~60%~~64% decline in our servicing portfolio as compared to December 31, 2013. As a result, our revenues have decreased significantly and, while ~~some of our expenses~~we have ~~reduced significantly,~~made progress, we have not been able to reduce our overall expenses by a comparative amount, in part because ~~we have made significant investments in~~of the relatively fixed nature of our ~~risk and compliance infrastructure during this period.~~corporate overhead. In addition, continuing regulatory and legal matters have negatively impacted our results. We have incurred a net loss in each of the last four fiscal years and in the first half of 2018, which has significantly eroded stockholders’ equity and weakened our financial condition.

We are continuing to seek operational efficiencies to manage our cost structure as our servicing portfolio continues to shrink. However, there are limits to our ability to reduce costs through operational adjustments. ~~In addition, due~~Ultimately, we believe that it is unlikely that we will be able to return to sustained profitability simply by reducing our costs through operational adjustments. Given the relative size of our corporate overhead, including the risk and compliance infrastructure necessary to operate as a non-bank mortgage servicer and lender, we believe that we will need to grow our future revenues in order to return to sustained profitability.

Accordingly, on February 27, 2018, we entered into a Merger Agreement pursuant to which PHH will become a wholly owned subsidiary of Ocwen. We believe our acquisition of PHH will enable us to obtain the following key strategic and financial benefits:

Accelerate Ocwen’s transition to the ~~expiration~~Black Knight Financial Services, Inc. LoanSphere MSP® servicing platform;

Improve servicing and origination margins through improved economies of scale;

Reduce fixed costs (on a combined basis) through reductions of redundant corporate overhead and other costs; and,

Provide a foundation to enable the ~~Federal Government’s HAMP loan modification program, our~~combined servicing ~~revenues have been negatively impacted by lower HAMP fees, which have been a significant component of servicing revenue in prior periods. As well, we are continuing~~platform to ~~make investments in our servicing technology. For example, we~~resume new business and growth activities to offset portfolio runoff.

We are currently targeting closing the transaction in the ~~process~~third quarter of ~~transitioning~~2018, subject to ~~a new servicing system~~regulatory approvals and other closing conditions. There can be no assurances the merger will be completed timely or at all or that the desired strategic and financial benefits will be realized.

We have begun investing excess cash amounts to achieve targeted investment returns within our risk appetite and we have ~~begun migrating~~also deployed excess cash to ~~a new document storage platform. While these~~reduce secured borrowings. We continue to evaluate options to grow our revenues through select investments. There can be no assurances we will be able to execute on our plans or that the returns on such investments will ~~involve upfront costs, we believe these investments will be beneficial to~~ultimately meet our business in the long term. While we are currently restricted in our ability to acquire MSRs, we would, absent regulatory restrictions, consider acquiring servicing if we viewed the purchase price and other terms to be attractive and determined such acquisitions were an appropriate use of our available capital at such time. Generally, we would benefit from economies of scale if we were able to increase the size of our servicing portfolio, and acquiring servicing would allow us to counteract to an extent the negative impacts on our business from revenues declining faster than expenses.

During July 2017, we entered into agreements with NRZ to convert NRZ’s existing Rights to MSRs to fully-owned MSRs. In effect, the new arrangements provide for the conversion of the existing arrangements into a more traditional subservicing arrangement and involve upfront payments to Ocwen as MSRs transfer to NRZ over time. As MSRs transfer to NRZ (following receipt of the necessary third-party consents), NRZ will pay a lump sum to Ocwen upon each transfer of such MSRs in exchange for Ocwen foregoing payments under the 2012 - 2013 Agreements. The amount of these lump sum payments is based on the amortized value of the transferred MSRs and decreases over time. The first MSRs transferred effective September 1, 2017. Conceptually, these upfront payments are a proxy for the net present value of the difference between higher future fees for servicing the mortgage loans under the 2012 - 2013 Agreements and the lower fees for servicing the mortgage loans under the new Subservicing Agreement. If the necessary third-party consents are not obtained by July 23, 2018, our agreements with NRZ provide for certain alternative arrangements to be put in place or for the MSRs to remain subject to the terms of the 2012 - 2013 Agreements. NRZ also made an equity investment in Ocwen, acquiring 6,075,510 newly-issued common shares for $13.9 million.targets.

As a general matter, we intend to continue to evaluate returns on our existing MSR portfolio, and we may decide to sell select portions of our portfolio or to enter into transactions ~~similar~~with similarities to the ~~2012 - 2013 Agreements~~agreements we have entered into with NRZ if we believe that such actions will benefit Ocwen versus holding the assets over a longer term.

~~As part of our cost structure and performance optimizing initiatives,~~While we have ~~begun exploring strategic approaches to streamline~~received aggregate lump-sum payments of $334.2 million in connection with our ~~business~~2017 Agreements and leverage our competitive advantages. To that end, we are seeking to focus our operations on mortgage servicing and on our retail forward lending channel, primarily through retail lending recapture. While we believe that our reverse mortgage business has performed well, we are currently evaluating our long-term strategythe New RMSR Agreements with ~~respect to our reverse lending activities, including~~NRZ, these upfront payments generally represent the ~~potential sale~~net present value of the ~~reverse lending business or certain assets of~~difference between the ~~business. In addition, as previously disclosed, we~~future revenue stream Ocwen would have ~~taken various strategic actions with respect~~received under the Original Rights to ~~our forward lending business, as we continue to evaluate~~MSRs Agreements and the overall mortgage lending business and marketplace. For instance, earlier this year we closed our correspondent forward lending channel due to low margins and began selling all of our wholesale forward lending channel originations on a servicing released basis to reduce capital consumption. We have now entered into an agreement to sell certainfuture revenue

stream Ocwen expects to receive under the 2017 Agreements. Accordingly, the new agreements provide for a larger portion of ~~our wholesale forward lending assets, and, upon closing of that transaction, we intend~~future servicing compensation to exit the wholesale forward lending business. While these changes may limit our generation of new servicing assets in the near term, we believe that they will, over time, improve our returns and improve cash flow relative to current operations.

In addition, as previously disclosed, we have been evaluating our long-term strategy for our ACS business. While we still believe that this business has long-term potential, it is a relatively capital intensive business. As our ability to raise capital at competitive levels in the current business and regulatory environment is limited, we believe the ACS business may be worth more to a depository institution, an investment fund or an existing auto industry participant than it is to us. We are therefore considering the potential benefits of monetizing our investment in this business in the near term.

To the extent we generate cash proceeds from any sales of assets or businesses, we will, subject to the terms of our debt and other agreements, evaluate the best use of such cash which could include working capital, investments in new assets and reductions in debt to the extent permissible.retained by NRZ.

We have faced, and expect to continue to face, heightened regulatory and public scrutiny as well as stricter and more comprehensive regulation of our business. Since April 20, 2017, the CFPB, mortgage and banking regulatory agencies from 30 states and the District of Columbia and two state attorneys general have taken regulatory actions against us that alleged deficiencies in our compliance with laws and regulations relating to our servicing and lending activities. As of November 1, 2017, we have resolved these regulatory matters with 22 jurisdictions while continuing to seek resolutions with the remaining nine jurisdictions and the two state attorney generals. On an ongoing basis, weWe work diligently to assess the implications of the regulatory environment in which we operate and to meet the requirements of the current environment. We devote substantial resources to regulatory compliance and to addressing regulatory actions and engagements, while, at the same time, striving to meet the needs and expectations of our customers, servicing clients and other stakeholders. Our business, operating results and financial condition have been significantly impacted in recent periods by restrictions on our business arising from regulatory settlements and by legal fees, settlement payments and other ~~fees and settlement payments~~expenses related to regulatory matters. Our business, operating results and financial condition have also been significantly impacted in recent periods by litigation ~~and regulatory~~ matters, ~~including the costs~~some of ~~third-party monitoring firms under~~which have either stemmed from or been negatively impacted by our regulatory ~~settlements.~~ challenges.

To the extent we are unable to avoid, mitigate or offset similar expenses in future periods, our business, operating results and financial condition will continue to be adversely affected, even if we are successful in our ongoing efforts to optimize our cost structure and improve our financial ~~performance.~~

As discussed above, we have previously disclosed that we are in the process of transitioning to a new servicing system. We have entered into agreements with certain subsidiaries of Black Knight, Inc. (Black Knight) pursuant to which we plan to transition to Black Knight’s LoanSphere MSP^® ~~(MSP) servicing system. The MSP servicing system includes loan boarding, payment processing, escrow administration,~~performance through strategic and ~~default management, among~~ other functions. We also plan to use certain ancillary services offered by Black Knight. Ocwen currently anticipates a twenty-four month implementation timeline for its transition onto the MSP servicing system. Once loans are boarded onto the MSP servicing system, the agreements have an initial term of seven years. Black Knight has significant market share and a number of the largest mortgage servicers use the MSP servicing system.transactions.

Results of Operations and Financial Condition

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our unaudited consolidated financial statements and the related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of ~~operation~~operations appearing in ~~Amendment No. 1 to~~ our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2016.~~2017.

~~Our results~~



Results of Operations Summary	Three Months Ended June 30,						% Change		Six Months Ended June 30,						% Change
Results of Operations Summary	2018			2017			% Change		2018			2017			% Change
Revenue
Servicing and subservicing fees	$	222,227		$	255,801		(13	)%	$	444,365		$	528,303		(16	)%
Gain on loans held for sale, net	24,393			28,255			(14	)	44,193			51,199			(14	)
Other	6,961			27,244			(74	)	25,280			53,662			(53	)
Total revenue	253,581			311,300			(19	)	513,838			633,164			(19	)

Expenses
Compensation and benefits	69,838			90,411			(23	)	147,913			182,212			(19	)
Professional services	32,389			65,405			(50	)	70,159			107,234			(35	)
Servicing and origination	28,276			35,645			(21	)	59,694			75,815			(21	)
Technology and communications	23,906			24,254			(1	)	46,709			51,601			(9	)
MSR valuation adjustments, net	33,118			41,568			(20	)	50,247			82,020			(39	)
Occupancy and equipment	12,859			16,480			(22	)	25,473			34,229			(26	)
Other	5,264			6,717			(22	)	11,956			23,752			(50	)
Total expenses	205,650			280,480			(27	)	412,151			556,863			(26	)

Other income (expense)
Interest income	3,355			4,239			(21	)	6,055			8,002			(24	)
Interest expense	(77,503		)	(81,128		)	(4	)	(128,313		)	(165,190		)	(22	)
Gain on sale of mortgage servicing rights, net	78			1,033			(92	)	1,036			1,320			(22	)
Other, net	(2,266		)	3,428			(166	)	(3,905		)	7,461			(152	)
Total other expense, net	(76,336		)	(72,428		)	4		(125,127		)	(148,407		)	(17	)

Loss before income taxes	(28,405		)	(41,608		)	(34	)	(23,440		)	(72,106		)	(70	)
Income tax expense	1,348			2,828			(52	)	3,696			4,953			(25	)
Net loss	(29,753		)	(44,436		)	(35	)	(27,136		)	(77,059		)	(67	)
Net income attributable to non-controlling interests	(78		)	(71		)	10		(147		)	(172		)	(15	)
Net loss attributable to Ocwen stockholders	$	(29,831	)	$	(44,507	)	(35	)%	$	(27,283	)	$	(77,231	)	(67	)%

Segment income (loss) before income taxes
Servicing	$	2,086		$	9,218		(77	)%	$	22,568		$	12,347		83	%
Lending	1,399			(614		)	(328	)	10,171			495			n/m
Corporate Items and Other	(31,890		)	(50,212		)	(36	)	(56,179		)	(84,948		)	(34	)
	$	(28,405	)	$	(41,608	)	(32	)%	$	(23,440	)	$	(72,106	)	(67	)%
n/m: not meaningful

Three Months Ended June 30, 2018 versus 2017

Servicing and subservicing fees were $33.6 million, or 13%, lower than the second quarter of ~~operations for the three months ended September 30,~~ 2017, ~~were favorably impacted by a $37.6 million reduction of interest expense recognized in connection~~primarily due to portfolio runoff, consistent with the ~~fair value~~14% and 13% decline in residential portfolio average UPB and loan count, respectively. The number of completed modifications declined marginally as the ~~financing liability recognized~~reduction in connection with the transfer of MSRs to NRZ under the 2017 Agreements and by a $23.6 million income tax benefit recognized upon the reversal of the liability for uncertain tax positions, including related accrued interest and penalties,HAMP modifications due to the expiration of ~~applicable statutes~~the program on December 31, 2016 was mostly offset by an increased focus on non-HAMP modifications.

Other revenue for the second quarter of ~~limitation. We received~~2018 declined $20.3 million, or 74%, largely due to a ~~$54.6~~$9.1 million ~~lump sum payment~~decline in ~~connection~~REO referral commissions which are retained by NRZ effective with the transfer of $15.9 billion in MSRs to NRZ during the quarter. The amount of lump sum payment is based on a contractual schedule that approximates the net present value of the difference in cash flows under the 2017 Agreements versus the 2012-2013New RMSR Agreements, and was determined based on the weighted average characteristics, such as contractual servicing fee rates and delinquency, of the MSRs underlying the Rights to MSRs. The fair value of the portion of the financing liability recognized in connection with the transfer declined primarily due to the transferred MSRs having a ~~contractual servicing fee rate of 33.4 bps as compared to the weighted average of 47.1 bps used in the contractual schedule. Changes~~$7.1 million unfavorable net change in the fair value of reverse mortgages and the related financing liability ~~are recorded in~~due to higher interest ~~expense. A decrease in the fair value of the financing liability reduces interest expense and increases in the fair value increase interest expense.~~rates reducing

~~Operations Summary~~portfolio life. Also, CRL premium revenue declined $1.7 million consistent with the decline in the number of foreclosed real estate properties in the servicing portfolio, and loan origination fees were lower on lower lending segment production volumes as a result of our strategic decisions to exit the forward lending correspondent and wholesale channels.

~~The following table presents summarized consolidated operating results:~~MSR valuation adjustments, net, decreased $8.5 million, or 20%, as compared to the second quarter of 2017, primarily due to a net $5.0 million favorable change in valuation assumptions related to our non-Agency MSRs.

Periods ended September 30, Three Months Nine Months
2017 2016 % Change 2017 2016 % Change
Revenue
Servicing and subservicing fees $ 233,220
$ 302,235
(23 )% $ 761,523
$ 906,993
(16 )%
Gain on loans held for sale, net 25,777
25,645
1
76,976
69,074
11
Other 25,645
31,568
(19 ) 79,307
87,192
(9 )
Total revenue 284,642
359,448
(21 ) 917,806
1,063,259
(14 )

Expenses
Compensation and benefits 90,538
92,942
(3 ) 272,750
287,613
(5 )
Servicing and origination 72,524
63,551
14
204,947
249,230
(18 )
Professional services 38,417
65,489
(41 ) 145,651
257,795
(44 )
Technology and communications 27,929
25,941
8
79,530
85,519
(7 )
Occupancy and equipment 15,340
16,760
(8 ) 49,569
62,213
(20 )
Amortization of mortgage servicing rights 13,148
(2,558 ) (614 ) 38,560
18,595
107
Other 15,583
9,553
63
39,335
24,388
61
Total expenses 273,479
271,678
1
830,342
985,353
(16 )

Other income (expense)

Interest expense (47,281 ) (110,961 ) (57 ) (212,471 ) (308,083 ) (31 )
Gain on sale of mortgage servicing rights, net 6,543
5,661
16
7,863
7,689
2
Other, net 3,022
19,894
(85 ) 18,485
26,329
(30 )
Total other expense, net (37,716 ) (85,406 ) (56 ) (186,123 ) (274,065 ) (32 )

Income (loss) before income taxes (26,553 ) 2,364
n/m
(98,659 ) (196,159 ) (50 )
Income tax benefit (20,418 ) (7,110 ) 187
(15,465 ) (7,214 ) 114
Net income (loss) (6,135 ) 9,474
(165 ) (83,194 ) (188,945 ) (56 )
Net income attributable to non-controlling interests (117 ) (83 ) 41
(289 ) (373 ) (23 )
Net income (loss) attributable to Ocwen stockholders $ (6,252 ) $ 9,391
(167 )% $ (83,483 ) $ (189,318 ) (56 )%

Segment income (loss) before income taxes:
Servicing $ 5,681
$ 35,449
(84 )% $ 18,030
$ (42,414 ) (143 )%
Lending (7,569 ) 1,311
(677 ) (7,072 ) 5,742
(223 )
Corporate Items and Other (24,665 ) (34,396 ) (28 ) (109,617 ) (159,487 ) (31 )
$ (26,553 ) $ 2,364
n/m
$ (98,659 ) $ (196,159 ) (50 )%
n/m: not meaningful

Excluding MSR valuation adjustments, net, expenses were $66.4 million, or 28%, lower as compared to the second quarter of 2017.

~~Three~~Compensation and benefits expense for the second quarter of 2018 declined $20.6 million, or 23%, as average headcount declined by 24%, including a 31% reduction in U.S.-based headcount, consistent with our continuing efforts to reduce costs and our strategic decisions to exit the ACS business and the forward lending correspondent and wholesale channels. Headcount in our Servicing business declined by 19%, including a 16% reduction in the U.S., in line with reductions in our residential servicing portfolio and expiration of the HAMP modification program.

Professional services expense was $33.0 million, or 50%, lower in the second quarter of 2018 as compared to the second quarter of 2017 primarily due to a $30.4 million decline in legal expenses largely attributed to an increase in the accrual for a securities class action matter during the second quarter of 2017, which we subsequently settled. Professional services expense for the second quarter of 2018 includes $2.0 million of fees related to the PHH Merger Agreement.

Servicing and origination expense decreased $7.4 million, or 21%, as compared to the second quarter of 2017 primarily due to a $4.5 million reduction in losses related to non-recoverable advances and receivables, a $1.1 million decline in CRL reinsurance commission expense due to the decline in foreclosed real estate properties, and a general decline in other expenses that was primarily driven by reductions in our servicing portfolio and loan production volume.

Interest expense for the second quarter of 2018 declined $3.6 million, or 4%, as compared to the second quarter of 2017, primarily because of a $5.0 million decrease in interest on match funded liabilities, consistent with the decline in servicing advances, and a $1.9 million decrease in interest on borrowings under our mortgage loan warehouse facilities. These declines were offset in part by a $2.9 million increase in interest expense on the NRZ financing liabilities, which we account for at fair value.

Six Months Ended ~~September~~June 30, ~~2017~~2018 versus ~~2016~~2017

Servicing and subservicing fees ~~for the third quarter of 2017 were $69.0~~declined $83.9 million, or ~~23%~~16%, ~~lower than~~in the ~~third quarter of 2016,~~six months ended June 30, 2018 as compared to the same period in 2017, primarily due to portfolio ~~runoff. Additionally, the number of~~runoff and a reduction in completed ~~modifications declined as a result of the expiration of the HAMP program on December 31, 2016.~~modifications. The average UPB and ~~average number of assets~~loan count in our residential portfolio declined 14% and 12%, respectively, as compared to the ~~third quarter of 2016.~~six months ended June 30, 2017.

~~Expenses were $1.8~~The $28.4 million, or ~~1%, higher~~53% decline in ~~the third quarter of 2017~~Other revenue as compared to the ~~third quarter~~six months ended June 30, 2017 is primarily due to a $17.7 million decline in REO referral commissions, a $3.5 million decline in CRL premiums and a $3.5 million unfavorable net change in the fair value of ~~2016.~~reverse mortgages and the related financing liability. Loan origination fees also declined on lower correspondent and wholesale loan production.

~~Monitor expenses, which are included in Professional services expense,~~MSR valuation adjustments, net, decreased ~~$13.5~~$31.8 million, or 39%, as compared to the ~~third quarter~~six months ended June 30, 2017, primarily driven by the favorable impact of ~~2016~~an increase in interest rates on the fair value of our Agency MSRs and a net favorable change in valuation assumptions related to our non-Agency MSRs.

Excluding MSR valuation adjustments, net, expenses were $112.9 million, or 24%, lower as compared to the six months ended June 30, 2017.

Compensation and benefits expense for the six months ended June 30, 2018 declined $34.3 million, or 19%, as average headcount declined by 23%, including a 28% reduction in U.S.-based headcount. Headcount in our Servicing business declined by 20%, including a 16% reduction in the U.S. The reduction in Compensation and benefits expense resulting from the decline in headcount was offset in part by the recognition of $7.4 million of related severance expense in the six months ended June 30, 2018.

Professional services expense was $37.1 million, or 35%, lower for the six months ended June 30, 2018 as compared to same period of 2017 primarily asdue to a ~~result~~$36.2 million decline in legal expenses and a $4.9 million decrease in monitor expenses, offset in part by $4.9 million of ~~reduced costs~~fees related to the PHH Merger Agreement and $2.1 million of fees incurred during the six months ended June 30, 2018 in connection with our conversion of NRZ’s Rights to MSRs to fully-owned MSRs. The CA Auditor ~~whose~~ appointment was terminated in February 2017 and the NY Operations Monitor ~~whose~~ appointment was terminated in April 2017. We are not currently incurring any expenses related to regulatory monitors.

~~MSR amortization~~Servicing and ~~valuation adjustments (including both fair value adjustments and impairment charges)~~origination expense decreased $16.1 million, or 21%, ~~increased $33.3 million~~ as compared to the ~~third quarter of 2016, principally~~six months ended June 30, 2017 primarily due to a ~~$22.0~~$7.5 million ~~increase~~decrease in ~~fair value~~the government-insured claim loss provisions due to a decline in claims, a $2.7

million reduction in losses related to non-recoverable advances and receivables, a $2.4 million reduction in CRL reinsurance commissions and a ~~$15.7 million increase~~general decline in ~~amortization. The increase~~other expenses resulting from the declines in ~~fair value loss primarily resulted from a $20.2 million benefit recognized in the third quarter~~our servicing portfolio and loan production volume.

Declines of 2016 related to collateral performance improvements that increased the value of the MSRs. The increase in amortization expense primarily resulted from an $18.1 million benefit recognized in the third quarter of 2016 related to the sale of non-performing loans conveyed to HUD as part of the ADPLS program. During the third quarter of 2017 and 2016, we reversed impairment charges related to our government insured MSRs of $6.2$8.8 million and ~~$1.9~~$4.9 million ~~respectively.~~

~~Excluding MSR amortization~~in Occupancy and ~~valuation adjustments~~equipment and ~~monitor~~Technology and communication expenses, ~~expenses were $18.0 million, or 7%, lower~~respectively, as compared to the ~~third quarter~~six months ended June 30, 2017, are largely a result of ~~2016. Professional~~the decline in the size of our servicing portfolio and our cost reduction efforts that include bringing technology services ~~expense, excluding monitor expenses, was $13.5~~in-house and closing and consolidating certain facilities.

The $11.8 million, or ~~27%~~50%, ~~lower~~decrease in ~~the third quarter of 2017~~Other expenses as compared to the ~~third quarter of 2016~~six months ended June 30, 2017 is due in large part to a ~~$9.2~~$5.5 million decline in ~~legal expenses. Professional services expense~~the provision for losses on ACS automotive dealer financing notes as a result of the ~~third~~$6.1 million provision we recognized in the first quarter of ~~2017 includes $3.7~~2017; we largely exited the ACS business in January 2018, and a $3.0 million of fees incurred in connection with converting NRZ’s Rights to MSRs to fully-owned MSRs. The third quarter of 2016 included $10.0 million recorded in connection with our discussions with the CA DBO that resulted in the termination of the 2015 CA Consent Order. Servicing and origination expense, excluding MSR valuation adjustments, decreased $8.7 million, or 14%, primarily due to a decrease in the loss provision related to Ginnie Mae claim receivables.

~~Compensation and benefits expense declined $2.4 million, or 3%, as average headcount declined by 15%, including an 11%~~ reduction in ~~U.S.-based headcount. The decline in headcount occurred principally in our Servicing business where headcount declined by 21%, including~~advertising expenses as a ~~15% reduction in~~result of exiting the ~~U.S.~~

~~The $6.0 million, or 63%, increase in Other expenses is due to a $6.8 million charge to write-off the carrying value of internally-developed software~~ ~~used in our wholesale~~ forward lending ~~business in connection with our decision to exit that channel~~correspondent and ~~sell the~~ ~~furniture, fixtures and equipment located at our Westborough, Massachusetts facility~~wholesale channels.

Interest expense for the ~~third quarter of 2017~~six months ended June 30, 2018 declined ~~$63.7~~$36.9 million, or ~~57%~~22%, as compared to the ~~third quarter~~same period of ~~2016~~2017 primarily ~~due to~~because of a ~~$58.7~~$25.2 million decline in interest expense on the NRZ financing liabilities ~~due~~and an $8.3 million decrease in interest on match funded liabilities. The decline related to ~~a $37.6 million favorable adjustment to the fair value of~~ the NRZ financing ~~liability recognized in connection with the transfer of MSRs, as well as the decline in the average UPB~~liabilities was due to runoff of the NRZ servicing portfolio ~~due to runoff. The~~and $8.6 million of net favorable fair value ~~adjustment was~~adjustments primarily ~~driven by the characteristics of Rights~~attributed to MSRs with a UPB of $15.9 billion that were converted to fully-owned MSRs during the quarter, relative to the $54.6 million lump sum payment received from NRZ. For the Rights to MSRs that were converted during the quarter, the characteristics of the underlying MSRs did not correspond to the weighted average loan characteristics used to determine the lump sum payment, resulting in a decline in theinitial fair value of the financing liability primarily due to the transferred MSRs having a contractual servicing fee rate of 33.4 bps as compared to the weighted average of 47.1 bps used in the lump sum contractual schedule. As additional Rights to MSRs may transfer in the future, the recognition may include the reversal of any gain associated solely with such characteristics. Also, interest expense was lower on match funded liabilities consistent with the decline in servicing advances and the effect of higher amortization of facility costs in the third quarter of 2016.

Other, net for the third quarter of 2016 includes $12.8 million received in connection with the execution of clean-up call rights related to four small-balance commercial mortgage securitization trusts. We also recognized a $2.5 million loss on the sale of the commercial loans purchased as part of the transaction, which we reported in Gain on loans held for sale, net.

~~Nine Months Ended September 30, 2017 versus 2016~~

Servicing and subservicing fees declined $145.5 million, or 16%, in the nine months ended September 30, 2017 as compared to the same period of 2016. This decline is primarily due to portfolio runoff and a reduction in the number of completed modifications. The average UPB and average number of assets in our residential portfolio declined 10% and 8%, respectively, as compared to the nine months ended September 30, 2016.

Gains on loans held for sale for the nine months ended September 30, 2017 increased $7.9 million, or 11%, as compared to the nine months ended September 30, 2016. Gains on loans held for sale from our lending operations increased $11.6 million, primarily as a result of higher origination volumes and margins in our reverse lending business.

~~Expenses for the nine months ended September 30, 2017 were $155.0 million, or 16%, lower than the same period of 2016.~~

Monitor expenses for the nine months ended September 30, 2017 were $66.8 million lower than the same period last year, primarily as a result of the termination of the CA Auditor and NY Operations Monitor appointments in 2017. MSR amortization

and valuation adjustments decreased $3.9 million, or 3%, due to a $38.7 million decrease in impairment charges related to our government insured MSRs and the effects of portfolio runoff, offset by a $20.0 million increase in amortization and a $14.8 million increase in fair value losses. The higher impairment in 2016 reflects a significant decrease in interest rates, whereas rates have remained relatively flat in 2017. The increase in fair value loss is due to the $20.2 million benefit recognized in the third quarter of 2016 related to collateral performance improvements that increased the value of the MSRs. The increase in amortization expense resulted from a benefit recognized during the nine months ended September 30, 2016 related to the ~~sale of non-performing loans conveyed to HUD as part~~$279.6 million lump-sum upfront payment we received in January 2018 in accordance with the terms of the ~~ADPLS program.~~New RMSR Agreements.

~~Excluding MSR amortization and valuation adjustments and monitor expenses, expenses~~Although we incurred a pre-tax loss of $23.4 million for the ~~nine~~six months ended ~~September~~June 30, 2017 were $84.2 million, or 11%, lower than the same period a year ago. Professional services expense, excluding monitor expenses, was $45.3 million, or 25%, lower for the nine months ended September 30, 2017 as compared to the same period of 2016 due to a $39.7 million decline in legal expenses. We2018, we recorded $35.8 million of anticipated recoveries of litigation settlements in the second quarter of 2017 as an offset to legal expenses. Professional services expense for the nine months ended September 30, 2017 includes $5.0 million of fees in connection with converting NRZ’s Rights to MSRs to fully-owned MSRs. Servicing and origination expense, excluding MSR valuation adjustments, decreased $20.4 million, or 14%, primarily due to a decrease in the Ginnie Mae related loss provision and claim losses.

Compensation and benefits expense declined $14.9 million, or 5%, as average headcount declined by 12%, including a 9% reduction in U.S.-based headcount. The decline in headcount occurred principally in our Servicing business where headcount declined by 20%, including a 19% reduction in the U.S. Occupancy and equipment expense declined by $12.6 million, or 20%, largely because of the effect of the decline in the size of the servicing portfolio on various expenses, particularly postage and other delivery services, and the effect of consolidating facilities. Technology and communications expense declined by $6.0 million, or 7%, because of efforts to bring technology services in-house and the effects of a declining servicing portfolio on technology fees.

~~Other expenses increased by $14.9 million, or 61%, primarily due to the $6.8 million charge recognized in the third quarter of 2017 to write-off the carrying value of internally-developed software~~ ~~used in our wholesale forward lending business and~~ a $4.0 million increase in provision for losses on automotive dealer financing notes. The loss provision recorded by the ACS business on its portfolio of automotive dealer financing notes was required principally because of the deterioration since December 31, 2016 in the credit quality of notes due from certain dealers. Due to the increase in the age of these notes, we have assumed that the notes due from these dealers are fully collateral-dependent, with no recoveries beyond estimated liquidation value of the remaining unsold inventory.

Interest expense for the nine months ended September 30, 2017 declined $95.6 million, or 31%, as compared to the same period of the prior year due in large part to a $65.9 million reduction in interest expense on the NRZ financing liabilities driven by declines in the value of the NRZ financing liability, principally as a result of the decline in the average UPB of the NRZ servicing portfolio due to runoff and because of the $37.6 million reduction in fair value of the NRZ financing liability recognized in connection with the transfer of MSRs, as discussed above. In addition, interest expense for the nine months ended September 30, 2016 included $10.5 million of additional payments to NRZ to compensate it for certain increased costs associated with an earlier downgrade of our S&P servicer rating. Lower interest expense on match funded liabilities is consistent with the decline in servicing advances and the effect of the higher amortization of facility costs in 2016.

~~Although the pre-tax loss for the nine months ended September 30, 2017 declined by $97.5 million, or 50%, to $98.7 million, the~~ income tax ~~benefit actually increased $8.3~~expense of $3.7 million or 114%, to $15.5 million. This is primarily due to the income tax benefit recognized on the reversal of the remaining liability for uncertain tax positions at the expiration of the statute of limitations in September 2017. The change is also due to the mix of earnings among different tax jurisdictions with different statutory tax rates, which impacts the amount of the tax benefit or expense recorded. Income tax expense for the six months ended June 30, 2018 includes additional expense related to the Tax Act that was partially offset by a reduction in expense related to the tax effects of intra-entity asset transfers that is no longer recognized effective with our adoption of ASU 2016-16 on January 1, 2018. Income tax expense related to uncertain tax positions declined in the six months ended June 30, 2018 as compared to the same period of 2017. The overall effective tax rate for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017 ~~was 15.7%~~is (15.8)% and (6.9)%, compared to 3.7% for the nine months ended September 30, 2016. This rate change primarily resulted from the tax benefit recognized on the reversal of uncertain tax positions during the nine months ended September 30, 2017, as compared to additional income tax expense recognized during the nine months ended September 30, 2016 related to uncertain tax positions, offset in part by a decrease in tax benefits resulting from our inability to carry back current losses that are being generated in the U.S. and USVI tax jurisdictions.respectively.

~~Financial Condition Summary~~

~~The following table presents summarized consolidated balance sheet data at the dates indicated:~~


	September 30, 2017		December 31, 2016		% Change
Financial Condition Summary							June 30, 2018		December 31, 2017		% Change
Cash	$	299,888	$	256,549	17	%	$	228,412	$	259,655	(12	)%
Mortgage servicing rights	944,308		1,042,978		(9	)	1,043,995		1,008,844		3
Advances and match funded advances	1,405,816		1,709,846		(18	)
Advances and match funded assets							1,167,713		1,389,150		(16	)
Loans held for sale	223,662		314,006		(29	)	209,453		238,358		(12	)
Loans held for investment, at fair value	4,459,760		3,565,716		25		5,143,758		4,715,831		9
Other	764,171		766,568		—		626,865		791,326		(21	)
Total assets	$	8,097,605	$	7,655,663	6	%	$	8,420,196	$	8,403,164	—	%

Total assets by segment:
Total Assets by Segment
Servicing	$	2,905,817	$	3,312,371	(12	)%	$	2,851,910	$	3,033,243	(6	)%
Lending	4,679,641		3,863,862		21		5,242,716		4,945,456		6
Corporate Items and Other	512,147		479,430		7		325,570		424,465		(23	)
	$	8,097,605	$	7,655,663	6	%	$	8,420,196	$	8,403,164	—	%

HMBS-related borrowings, at fair value	$	4,358,277	$	3,433,781	27	%	$	5,040,983	$	4,601,556	10	%
Other financing liabilities	536,981		579,031		(7	)	747,503		593,518		26
Match funded liabilities	1,028,016		1,280,997		(20	)	750,694		998,618		(25	)
SSTL and other secured borrowings, net	544,589		678,543		(20	)	340,418		545,850		(38	)
Senior notes, net	347,201		346,789		—		347,612		347,338		—
Other	693,119		681,239		2		591,803		769,410		(23	)
Total liabilities	$	7,508,183	$	7,000,380	7	%	$	7,819,013	$	7,856,290	—

Total liabilities by segment:
Total Ocwen stockholders’ equity							600,024		545,040		10
Non-controlling interest in subsidiaries							1,159		1,834		(37	)
Total equity							601,183		546,874		10
Total liabilities and equity							$	8,420,196	$	8,403,164	—	%

Total Liabilities by Segment
Servicing	$	2,108,172	$	2,369,697	(11	)%	$	1,987,064	$	2,233,431	(11	)%
Lending	4,597,191		3,785,974		21		5,161,554		4,861,928		6
Corporate Items and Other	802,820		844,709		(5	)	670,395		760,931		(12	)
	$	7,508,183	$	7,000,380	7	%	$	7,819,013	$	7,856,290	—	%

Total equity	$	589,422	$	655,283	(10	)%
n/m: not meaningful

Changes in the composition and balance of our assets and liabilities during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 are principally attributable to Loans held for investment and Financing liabilities, which increased ~~as a result~~because of our reverse mortgage securitizations which are accounted for as secured financings. Match funded liabilities declined consistent with lower advances and match funded advances on a declining servicing portfolio. Total equity ~~declined~~increased as a result of the effect of our fair value election for MSRs previously accounted for using the amortization method less the net loss ~~we incurred~~recognized for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018. Our fair value election for these MSRs resulted in an $82.0 million increase in retained earnings recorded as of January 1, 2018 to reflect the excess of the fair value of the MSRs over their carrying amount on the election date.

SEGMENT RESULTS OF OPERATIONS

Our activities are organized into two reportable business segments that reflect our primary lines of business - Servicing and Lending - as well as a Corporate Items and Other segment. While our expense allocation methodology for the current period is consistent with that used in prior periods presented, during the first quarter of 2017, we moved certain functions which had been associated with corporate cost centers to our Lending and Servicing segments because these functions align more closely with those segments. As applicable, the results of operations for the three and nine months ended September 30, 2016 have been recast to conform to the current period presentation. As a result of these changes, income before income taxes for the Lending segment decreased for the three and nine months ended September 30, 2016 by $2.3 million and $7.4 million, respectively, while loss before income taxes for the Servicing segment decreased by the same amount for the same periods.

Servicing

We earn contractual monthly servicing fees pursuant to servicing agreements (which are typically payable as a percentage of UPB) as well as ancillary fees, including late fees, HAMP fees, ~~float earnings,~~ REO referral commissions, float earnings and Speedpay^® fees ~~and late fees, in connection with~~relating to owned MSRs. We also earn fees under both subservicing and special servicing arrangements with banks and

other institutions that own the MSRs. We typically earn these fees either as a percentage of UPB or on a per loan basis. Per loan fees typically vary based on delinquency status. As of June 30, 2018, we serviced 1.1 million loans with an aggregate UPB of $167.1 billion.

~~Loan Resolutions~~

~~Because we recognize~~Prior to January 18, 2018, for loans underlying Rights to MSRs, the servicing fees ~~as revenue when~~were apportioned between NRZ and us such that NRZ retained a fee based on the UPB of the loans serviced, and OLS received certain fees, ~~are earned, loan resolution activities are important to our financial performance. We recognize delinquent~~including a performance fee based on servicing fees paid less an amount calculated based on the amount of servicing advances and ~~late fees as revenue when we collect cash on resolved loans, where permitted. Loan resolution activities address~~ the ~~pipeline~~cost of delinquent loans and generally lead to (i) modification of the loan terms, (ii) repayment plan alternatives, (iii) a discounted payoff of the loan (e.g., a “short sale”) or (iv) foreclosure or deed-in-lieu-of-foreclosure and sale of the resulting REO. Loan modifications must be made in accordance with the applicable servicing agreement as such agreements may require approvals or impose restrictions upon, or even forbid, loan modifications. To select the best loan modification option for a borrower, we perform a structured analysis, using a proprietary model, of all options using information provided by the borrowerfinancing those advances as well as ~~external data, including recent broker price opinions~~ancillary fees (other than float earnings). From January 18, 2018 going forward, in addition to ~~value the mortgaged property. Our proprietary model includes, among other things, an assessment of re-default risk.~~

~~Because~~ a ~~significant portion of our loan modifications in recent years have been in connection with the HAMP~~base servicing fee, Ocwen will continue to receive certain ancillary fees, primarily late fees, loan modification program, its expiration on December 31, 2016 has adversely affected our servicing revenue and the financial performance of our servicing segment. While our other modification programs do not include the incentive fee portion of revenue that is received with respect to successful HAMP modifications, we expect to continue to realize the other benefits associated with such resolutions, including the collection of delinquent servicing fees and ~~lower costs of servicing the performing loan. We estimate the balance of~~Speedpay® fees, while NRZ will receive all float earnings, deferred servicing fees related to delinquent borrower payments ~~was $325.8 million~~ and ~~$380.2 million, respectively,~~certain REO-related income including REO referral commissions.

Effective January 1, 2018, our entire portfolio of MSRs is carried at ~~September 30, 2017~~fair value. Prior to that date, conforming and ~~December 31, 2016. Deferred~~government insured MSR classes were carried at amortized cost. We are reporting changes in fair value, amortization and impairments related to our MSRs in MSR valuation changes, net on our unaudited consolidated statements of operations. The value of our MSRs are typically correlated to changes in interest rates; as interest rates rise the value of the servicing ~~fees~~portfolio typically rises as a result of lower prepayment speeds. Valuation is also impacted by loan delinquency rates whereby as delinquency rates decline, the value of the servicing portfolio rises. While we do not hedge changes in the fair value of our MSRs, we do have a hedge to the extent the MSRs underlie the Rights to MSRs transactions as we have elected fair value for such financing liability. Changes in fair value of the financing liability, which are recorded in interest expense in our unaudited consolidated statements of operations, partially offset the changes in fair value of the related MSRs.

We recognize the proceeds received in connection with Rights to MSRs transactions as a secured borrowing that we elected to account for at fair value. Fair value for the portion of the borrowing attributable to the MSRs underlying ~~NRZ’s~~the Rights to MSRs ~~were $270.7 million at September 30, 2017. We are contractually obligated~~is determined using the mid-point of the range of prices provided by third-party valuation experts. Fair value for the portion of the borrowing attributable to ~~remit to NRZ all deferred servicing fees collected~~any lump sum payments received in connection with the transfer of MSRs underlying Rights to MSRs. However, under our 2012 and 2013 agreements with NRZ, in addition to base servicing fees, we are entitled to performance fees that increase to the extent we collect deferred servicing fees. As such the majority of the deferred servicing fees collected are recognized by us as additional revenue without a corresponding increase in interest expense related to the NRZ financing liability. On July 23, 2017, we executed on our previously announced agreement in principle with NRZ to convert NRZ’s existing Rights to MSRs to ~~fully-owned MSRs. As MSRs~~the extent such transfer ~~to NRZ under our July 2017 agreements, we will subservice~~is accounted for as a financing is determined by discounting the mortgage loans to which the MSRs relate and NRZ will receive all deferred service fees. We estimate the balance of deferred servicing fees for the $15.5 billion in UPB that has been converted to fully-owned MSRs to be $17.3 million as of September 30, 2017.

~~Advance Obligation~~

As a servicer, we are generally obliged to advance funds in the event borrowers are delinquent on their monthly mortgage related payments. We advance principal and interest (P&I Advances), taxes and insurance (T&I Advances) and legal fees, property valuation fees, property inspection fees, maintenance costs and preservation costs on properties that have been foreclosed (Corporate Advances). For loans in non-Agency securitization trusts, if we determine that our P&I Advances cannot be recovered from the projectedrelevant future cash flows ~~we generally have~~that were altered through such transfer using assumptions consistent with the right to cease making P&I Advances, declare advances, where permitted including T&I and Corporate advances, in excess of net proceeds to be non-recoverable and, in most cases, immediately recover any such excess advances from the general collection accountsmid-point of the ~~respective trust. With T&I and Corporate Advances,~~range of prices provided by third-party valuation experts for the related MSR. Since we ~~continue to advance if net~~have elected fair value for our portfolio of non-Agency MSRs, future ~~cash flows exceed projected future advances without regard to advances already made.~~

~~Most of our advances have~~fair value changes in the ~~highest reimbursement priority (i.e., they are “top~~Financing Liability - MSRs Pledged will be partially offset by changes in the fair value of the waterfall”) so that we are entitled to repayment from respective loan or REO liquidation proceeds before any interest or principal is paid on the bonds that were issued by the trust. In the majority of cases, advances in excess of respective loan or REO liquidation proceeds may be recovered from pool-level proceeds. The costs incurred in meeting these obligations consist principally of the interest expense incurred in financing the servicing advances. Most, but not all, subservicing agreements provide for more rapid reimbursement of any advances from the owner of the servicing rights. NRZ effectively funds advances on loans for which we have sold therelated MSRs. See Note 8 — Rights to MSRs ~~because NRZ is contractually required to reimburse us~~ for ~~the advances we make on those loans under our agreements with NRZ.~~additional information.

Third-Party Servicer Ratings

~~Similar to~~Like other servicers, we are the subject of mortgage servicer ratings or rankings (collectively, ratings) issued and revised from time to time by rating agencies including Moody’s, S&P and Fitch. Favorable ratings from these agencies are important to the conduct of our loan servicing and lending ~~businesses.~~

businesses, and downgrades in these ratings could adversely impact them.

The following table summarizes our key ratings by these rating agencies:



	Moody’s	S&P	Fitch
Residential Prime Servicer	SQ3-	Average	RPS3-
Residential Subprime Servicer	SQ3-	Average	RPS3-
Residential Special Servicer	SQ3-	Average	RSS3-
Residential Second/Subordinate Lien Servicer	SQ3-	Average	RPS3-
Residential Home Equity Servicer	—	—	RPS3-
Residential Alt-A Servicer	—	—	RPS3-
Master Servicing	SQ3	Average	RMS3-
Ratings Outlook (1)	N/A	Stable	~~Negative~~Stable

Date of last action	April 24, 2017	~~August 9, 2016~~February 26, 2018	April 25, 2017

In addition to servicer ratings, each of the rating agencies will from time to time assign an outlook (or a ratings watch such as Moody’s review status) to the rating status of a mortgage servicer. A negative outlook is generally used to indicate that a rating “may be lowered,” while a positive outlook is generally used to indicate a rating “may be raised.” S&P’s servicer ratings outlook for Ocwen is stable in general and its outlook for master servicing is positive. Fitch Ratings changed the servicer ratings Outlook to Negative from Stable on April 25, 2017. Moody’s placed the servicer ratings on Watch for Downgrade on April 24, 2017.

Failure to maintain minimum servicer ratings could adversely affect our ability to sell or fund servicing advances going forward, could affect the terms and availability of debt financing facilities that we may seek in the future, and could impair our ability to consummate future servicing transactions or adversely affect our dealings with lenders, other contractual counterparties, and regulators, including our ability to maintain our status as an approved servicer by Fannie Mae and Freddie Mac. The servicer rating requirements of Fannie Mae do not necessarily require or imply immediate action, as Fannie Mae has discretion with respect to whether we are in compliance with their requirements and what actions it deems appropriate under the circumstances in the event that we fall below their desired servicer ratings. Under our July 2017 agreements with NRZ, NRZ has agreed to a standstill through January 23, 2019, subject to limited exceptions, on exercising rights it would otherwise have under the existing 2012 and 2013 agreements to replace Ocwen as servicer of certain MSRs in the event of a termination event with respect to an affected servicing agreement underlying the MSRs resulting from a servicer rating downgrade.


(1)	Moody’s placed the servicer ratings on Watch for Downgrade on April 24, 2017.

The following table presents ~~the~~selected results of operations of our Servicing segment. The amounts presented are before the elimination of balances and transactions with our other segments:


Periods ended September 30,	Three Months								Nine Months
Periods ended September 30,	2017			2016			% Change		2017			2016			% Change
Periods ended June 30,																	Three Months								Six Months
Periods ended June 30,																	2018			2017			% Change		2018			2017			% Change
Revenue
Servicing and subservicing fees:
Servicing and subservicing fees
Residential	$	231,272		$	300,018		(23	)%	$	756,119		$	900,848		(16	)%	$	221,322		$	254,296		(13	)%	$	442,225		$	524,846		(16	)%
Commercial	2,314			2,310			—		6,209			6,520			(5	)	1,506			1,641			(8	)	3,251			3,896			(17	)
	233,586			302,328			(23	)	762,328			907,368			(16	)	222,828			255,937			(13	)	445,476			528,742			(16	)
Gain on loans held for sale, net	4,054			5,943			(32	)	8,767			11,906			(26	)	5,589			4,545			23		6,581			4,713			40
Other	8,905			10,809			(18	)	31,252			32,453			(4	)	2,092			11,302			(81	)	4,548			22,347			(80	)
Total revenue	246,545			319,080			(23	)	802,347			951,727			(16	)	230,509			271,784			(15	)	456,605			555,802			(18	)

Expenses
Compensation and benefits	40,312			44,156			(9	)	121,678			142,815			(15	)	34,058			40,244			(15	)	71,235			81,366			(12	)
Servicing and origination	66,962			57,498			16		187,536			229,377			(18	)	24,376			29,488			(17	)	52,420			63,966			(18	)
MSR valuation adjustments, net																	33,043			41,498			(20	)	50,018			81,879			(39	)
Professional services	14,148			22,977			(38	)	49,076			92,561			(47	)	7,367			15,045			(51	)	24,817			34,928			(29	)
Technology and communications	11,970			14,374			(17	)	35,779			43,243			(17	)	10,048			11,536			(13	)	20,988			23,809			(12	)
Occupancy and equipment	11,098			12,066			(8	)	35,431			47,532			(25	)	9,770			11,985			(18	)	19,860			24,333			(18	)
Amortization of mortgage servicing rights	13,081			(2,634		)	(597	)	38,351			18,360			109
Corporate overhead allocations																	46,462			52,328			(11	)	96,866			109,134			(11	)
Other	60,994			53,719			14		169,555			160,438			6		1,764			(196		)	n/m		1,780			(573		)	(411	)
Total expenses	218,565			202,156			8		637,406			734,326			(13	)	166,888			201,928			(17	)	337,984			418,842			(19	)

Other income (expense)
Interest income	144			59			144		406			(102		)	(498	)	1,466			174			743		1,894			261			626
Interest expense	(28,568		)	(101,138		)	(72	)	(159,822		)	(278,808		)	(43	)	(62,675		)	(63,903		)	(2	)	(97,193		)	(131,254		)	(26	)
Gain on sale of mortgage servicing rights, net	6,543			5,661			16		7,863			7,689			2		77			1,033			(93	)	1,036			1,320			(22	)
Other, net	(418		)	13,943			(103	)	4,642			11,406			(59	)	(403		)	2,058			(120	)	(1,790		)	5,060			(135	)
Total other expense, net	(22,299		)	(81,475		)	(73	)	(146,911		)	(259,815		)	(43	)	(61,535		)	(60,638		)	1		(96,053		)	(124,613		)	(23	)

Income (loss) before income taxes	$	5,681		$	35,449		(84	)%	$	18,030		$	(42,414	)	(143	)%
Income before income taxes																	$	2,086		$	9,218		(77	)%	$	22,568		$	12,347		83	%
n/m: not meaningful

The following tables provide selected operating statistics:


At September 30,	2017			2016				% Change
At June 30,										2018			2017			% Change
Residential Assets Serviced
Unpaid principal balance (UPB):
Performing loans (1)	$	169,840,643		$	192,260,993			(12	)%	$	153,223,657		$	176,157,476		(13	)%
Non-performing loans	14,230,148			20,213,008				(30	)	11,290,071			14,974,130			(25	)
Non-performing real estate	3,397,527			4,418,001				(23	)	2,613,286			3,666,818			(29	)
Total	$	187,468,318		$	216,892,002			(14	)%	$	167,127,014		$	194,798,424		(14	)%

Conventional loans (2)	$	53,202,003		$	63,898,483			(17	)%	$	45,194,057		$	55,970,874		(19	)%
Government-insured loans	21,727,342			23,722,156			��	(8	)	20,314,542			22,313,551			(9	)
Non-Agency loans	112,538,973			129,271,363				(13	)	101,618,415			116,513,999			(13	)
Total	$	187,468,318		$	216,892,002			(14	)%	$	167,127,014		$	194,798,424		(14	)%

Percent of total UPB:
Servicing portfolio	42		%	41		%		2	%	42		%	42		%	—	%
Subservicing portfolio	2			2				—		1			2			(50	)
NRZ (3)	56			57				(2	)	57			56			2
Non-performing assets	9			11				(18	)
Non-performing residential assets serviced										8			10			(20	)

Count:
Number:
Performing loans (1)	1,178,537			1,313,600				(10	)%	1,076,410			1,215,834			(11	)%
Non-performing loans	72,213			100,710				(28	)	56,569			75,421			(25	)
Non-performing real estate	16,803			23,357				(28	)	13,110			18,855			(30	)
Total	1,267,553			1,437,667				(12	)%	1,146,089			1,310,110			(13	)%

Conventional loans (2)	317,588			369,555				(14	)%	276,394			331,336			(17	)%
Government-insured loans	159,439			173,235				(8	)	148,723			163,509			(9	)
Non-Agency loans	790,526			894,877				(12	)	720,972			815,265			(12	)
Total	1,267,553			1,437,667				(12	)%	1,146,089			1,310,110			(13	)%

Percent of total count:
Percent of total number:
Servicing portfolio	40		%	39		%		3	%	40		%	40		%	—	%
Subservicing portfolio	2			2				—		1			2			(50	)
NRZ (3)	58			59				(2	)	59			58			2
Non-performing assets	7			9				(22	)
Non-performing residential assets serviced										6			7			(14	)

Periods ended September 30, Three Months Nine Months
2017 2016 % Change 2017 2016 % Change
Residential Assets Serviced
Average UPB:
Servicing portfolio $ 79,836,441
$ 90,753,811
(12 )% $ 82,257,200
$ 90,276,861
(9 )%
Subservicing portfolio 3,672,537
5,503,444
(33 ) 4,018,896
6,903,036
(42 )
NRZ (3) 107,589,331
125,494,406
(14 ) 112,279,580
123,468,047
(9 )
Total $ 191,098,309
$ 221,751,661
(14 )% $ 198,555,676
$ 220,647,944
(10 )%


Periods ended September 30,	Three Months								Nine Months
Periods ended September 30,	2017			2016			% Change		2017			2016			% Change
																	Three Months								Six Months
Periods ended June 30,																	2018			2017			% Change		2018			2017			% Change
Residential Assets Serviced
Average UPB:
Servicing portfolio																	$	72,028,123		$	82,678,931		(13	)%	$	73,234,657		$	83,467,579		(12	)%
Subservicing portfolio																	1,624,284			4,140,396			(61	)	1,738,018			4,192,076			(59	)
NRZ (3)																	96,553,022			111,981,031			(14	)	98,299,462			114,624,705			(14	)
Total																	$	170,205,429		$	198,800,358		(14	)%	$	173,272,137		$	202,284,360		(14	)%

Prepayment speed (average CPR)	15		%	15		%	—	%	15		%	14		%	7	%	14		%	15		%	(7	)%	14		%	14		%	—	%
% Voluntary	82			80			3		81			78			4		81			80			1		82			80			3
% Involuntary	18			20			(10	)	19			22			(14	)	19			20			(5	)	18			20			(10	)
% CPR due to principal modification	1			2			(50	)	1			2			(50	)	1			1			—		1			1			—

Average count:
Average number:
Servicing portfolio	510,455			572,274			(11	)%	524,337			567,184			(8	)%	464,130			526,279			(12	)%	471,639			531,279			(11	)%
Subservicing portfolio	27,994			38,291			(27	)	29,774			45,179			(34	)	16,508			30,600			(46	)	17,608			30,664			(43	)
NRZ (3)	750,078			854,607			(12	)	777,821			834,607			(7	)	684,802			775,836			(12	)	695,266			791,692			(12	)
	1,288,527			1,465,172			(12	)%	1,331,932			1,446,970			(8	)%	1,165,440			1,332,715			(13	)%	1,184,513			1,353,635			(12	)%

Residential Servicing and Subservicing Fees
Loan servicing and subservicing fees:
Servicing	$	62,465		$	73,019		(14	)%	$	195,683		$	226,310		(14	)%	$	55,468		$	65,362		(15	)%	$	114,159		$	133,216		(14	)%
Subservicing	1,760			2,989			(41	)	5,792			11,436			(49	)	872			1,964			(56	)	1,786			4,033			(56	)
NRZ(3)	129,228			159,919			(19	)	420,151			482,566			(13	)
NRZ																	126,712			143,612			(12	)	253,729			290,923			(13	)
	193,453			235,927			(18	)	621,626			720,312			(14	)	183,052			210,938			(13	)	369,674			428,172			(14	)
Late charges																	15,236			15,534			(2	)	29,744			32,243			(8	)
Custodial accounts (float earnings)																	8,575			5,868			46		15,806			10,647			48
Loan collection fees																	4,757			5,926			(20	)	9,759			12,235			(20	)
HAMP fees	6,202			32,021			(81	)	37,662			88,130			(57	)	4,153			10,489			(60	)	8,257			31,459			(74	)
Late charges	14,878			15,150			(2	)	47,120			51,055			(8	)
Loan collection fees	5,654			6,736			(16	)	17,889			20,828			(14	)
Other	11,085			10,184			9		31,822			20,523			55		5,549			5,541			—		8,985			10,090			(11	)
	$	231,272		$	300,018		(23	)%	$	756,119		$	900,848		(16	)%	$	221,322		$	254,296		(13	)%	$	442,225		$	524,846		(16	)%

Interest Expense on NRZ Financing Liability (4)
Servicing fees collected on behalf of NRZ	$	129,228		$	159,919		(19	)%	$	420,151		$	482,566		(13	)%
Less: Subservicing fee retained by Ocwen	68,536			87,506			(22	)	226,483			257,408			(12	)
Net servicing fees remitted to NRZ	60,692			72,413			(16	)	193,668			225,158			(14	)
Less: reduction (increase) in financing liability
Changes in fair value	27,024			(807		)	n/m		27,024			(1,555		)	n/m
Runoff, settlements and other	19,770			594			n/m		52,963			47,172			12
	$	13,898		$	72,626		(81	)%	$	113,681		$	179,541		(37	)%

Number of Completed Modifications
HAMP	620			13,354			(95	)%	12,249			31,994			(62	)%
Non-HAMP	5,924			7,716			(23	)	23,719			25,409			(7	)
Total	6,544			21,070			(69	)%	35,968			57,403			(37	)%


Periods ended September 30,	Three Months								Nine Months
Periods ended September 30,	2017			2016			% Change		2017			2016			% Change
																	Three Months								Six Months
Periods ended June 30,																	2018			2017			% Change		2018			2017			% Change
Interest Expense on NRZ Financing Liability (4)
Servicing fees collected on behalf of NRZ																	$	126,712		$	143,612		(12	)%	$	253,729		$	290,923		(13	)%
Less: Subservicing fee retained by Ocwen																	34,444			78,794			(56	)	68,661			157,947			(57	)
Net servicing fees remitted to NRZ																	92,268			64,818			42		185,068			132,976			39
Less: Reduction (increase) in financing liability
Changes in fair value
Original Rights to MSRs Agreements																	(8,897		)	—			n/m		(8,782		)	—			n/m
2017 Agreements and New RMSR Agreements																	828			—			n/m		17,424			—			n/m
Runoff, settlements and other																	48,847			16,194			202		101,887			33,193			207
																	$	51,490		$	48,624		6	%	$	74,539		$	99,783		(25	)%

Number of Completed Modifications
HAMP																	314			2,681			(88	)%	671			11,629			(94	)%
Non-HAMP																	10,438			8,348			25		21,679			17,795			22
Total																	10,752			11,029			(3	)%	22,350			29,424			(24	)%

Financing Costs
Average balance of advances and match funded advances	$	1,441,798		$	1,877,798		(23	)%	$	1,544,824		$	1,987,573		(22	)%	$	1,220,650		$	1,539,991		(21	)%	$	1,266,534		$	1,594,019		(21	)%
Average borrowings
Match funded liabilities	1,046,772			1,400,017			(25	)	1,146,096			1,485,655			(23	)	745,983			1,145,567			(35	)	779,792			1,194,100			(35	)
Financing liabilities	525,806			613,545			(14	)	546,324			651,305			(16	)	775,241			544,467			42		780,452			556,261			40
Other secured borrowings	17,711			362,196			(95	)	21,999			395,153			(94	)	—			23,508			(100	)	2,735			24,318			(89	)
Interest expense on borrowings
Match funded liabilities	11,196			17,349			(35	)	36,015			53,656			(33	)	7,714			12,092			(36	)	16,094			24,819			(35	)
Financing liabilities	15,317			73,096			(79	)	118,579			193,974			(39	)	53,084			50,363			5		77,365			103,262			(25	)
Other secured borrowings	513			9,765			(95	)	1,371			28,048			(95	)	422			441			(4	)	901			857			5
Effective average interest rate
Match funded liabilities	4.28		%	4.96		%	(14	)	4.19		%	4.82		%	(13	)	4.14		%	4.22		%	(2	)	4.13		%	4.16		%	(1	)
Financing liabilities (4)	11.65			47.65			(76	)	28.94			39.71			(27	)	27.39			37.00			(26	)	19.83			37.13			(47	)
Other secured borrowings	11.59			10.78			8		8.31			9.46			(12	)	—			7.50			(100	)	65.89			7.05			835
Facility costs included in interest expense	$	2,305		$	8,953		(74	)	$	5,724		$	26,519		(78	)	$	1,475		$	1,657		(11	)	$	3,002		$	3,419		(12	)
Discount amortization included in interest expense	—			240			(100	)	—			623			(100	)
Average 1-Month LIBOR	1.23		%	0.50		%	146		1.02		%	0.46		%	122
Average 1ML																	1.97		%	1.06		%	86		1.81		%	0.92		%	97

Average Employment
India and other	4,927			6,326			(22	)%	5,251			6,551			(20	)%
U.S.	1,173			1,382			(15	)	1,215			1,505			(19	)
Total	6,100			7,708			(21	)%	6,466			8,056			(20	)%

Collections on loans serviced for others	$	9,196,616		$	10,722,550		(14	)%	$	28,063,649		$	30,782,109		(9	)%
n/m: not meaningful



	Three Months						Six Months
Periods ended June 30,	2018		2017		% Change		2018		2017		% Change
Average Employment
India and other	4,189		5,237		(20	)%	4,297		5,412		(21	)%
U.S.	1,019		1,220		(16	)	1,041		1,236		(16	)
Total	5,208		6,457		(19	)%	5,338		6,648		(20	)%

Collections on loans serviced for others	$	8,119,361	$	9,586,497	(15	)%	$	15,915,562	$	18,867,034	(16	)%
n/m: not meaningful


(1)	Performing loans include those loans that are current (less than 90 days past due) and those loans for which borrowers are making scheduled payments under loan modification, forbearance or bankruptcy plans. We consider all other loans to be non-performing.


(2)	Conventional loans include ~~144,461~~125,824 and ~~174,299~~151,554 prime loans with a UPB of ~~$25.7~~$21.7 billion and ~~$32.7~~$27.3 billion at ~~September~~June 30, 2018 and June 30, 2017, ~~and September 30, 2016,~~ respectively, ~~that~~which we service or subservice.

(3)

Loans serviced by Ocwen for which the Rights to MSRs have been sold to NRZ, including loans that have been converted to fully-owned MSRs. Under our 2012 - 2013 Agreements with NRZ, we remit servicing fees collected on the underlying MSRs, except for the ancillary fees (other than float earnings). The servicing fees that we remit, net of the subservicing and performance fees that we receive, are accounted for as a reduction of the NRZ financing liability and as interest expense. Changes in the fair value of the related financing liability are also included in the amount reported as interest expense.

(4)

The effective average interest rate on the financing liability that we recognized in connection with the sales of Rights to MSRs to NRZ is ~~12.79%~~29.49% and ~~59.15%~~43.25% for the three months ended ~~September~~June 30, ~~2017~~2018 and ~~2016,~~2017, respectively, and ~~33.58%~~21.27% and ~~49.40%~~43.45% for the ~~nine~~six months ended ~~September~~June 30, 2018 and 2017, ~~and 2016,~~ respectively. Interest expense on financing liabilities for the nine months ended September 30, 2016 included $10.5 million of fees incurred in connection with our agreement to compensate NRZ through June 2016 for certain increased costs associated with its servicing advance financing facilities that were the direct result of a downgrade of our S&P servicer rating in 2015.

The following table provides information regarding the changes in our portfolio of residential assets serviced or subserviced:


	Amount of UPB						Count				Amount of UPB						Count
	2017			2016			2017		2016		2018			2017			2018		2017
Portfolio at January 1	$	209,092,130		$	250,966,112		1,393,766		1,624,762		$	179,352,554		$	209,092,130		1,221,695		1,393,766
Additions	1,403,213			1,531,715			6,675		7,969		546,619			1,403,213			2,694		6,675
Sales	(52,162		)	(34,643		)	(260	)	(126	)	(3,292		)	(52,162		)	(39	)	(260	)
Servicing transfers	(220,169		)	(6,745,819		)	(1,253	)	(34,506	)	(302,120		)	(220,169		)	(1,840	)	(1,253	)
Runoff	(7,853,998		)	(8,636,329		)	(44,972	)	(47,132	)	(6,204,885		)	(7,853,998		)	(36,598	)	(44,972	)
Portfolio at March 31	202,369,014			237,081,036			1,353,956		1,550,967		$	173,388,876		$	202,369,014		1,185,912		1,353,956
Additions	1,152,541			2,079,670			5,434		9,843		655,943			1,152,541			2,906		5,434
Sales	(82,571		)	(179,110		)	(410	)	(831	)	(6,459		)	(82,571		)	(43	)	(410	)
Servicing transfers	(484,530		)	(458,189		)	(2,015	)	(1,547	)	(218,871		)	(484,530		)	(2,467	)	(2,015	)
Runoff	(8,156,030		)	(9,247,406		)	(46,855	)	(51,942	)	(6,692,475		)	(8,156,030		)	(40,219	)	(46,855	)
Portfolio at June 30	$	194,798,424		$	229,276,001		1,310,110		1,506,490		$	167,127,014		$	194,798,424		1,146,089		1,310,110
Additions	731,276			1,912,894			3,171		8,815
Sales (1)	(28,825		)	(3,274,966		)	(221	)	(17,752	)
Servicing transfers	(212,908		)	(1,788,040		)	(1,332	)	(8,552	)
Runoff	(7,819,649		)	(9,233,887		)	(44,175	)	(51,334	)
Portfolio at September 30	$	187,468,318		$	216,892,002		1,267,553		1,437,667


~~(1)~~	On September 8, 2017, we completed the sale of non-Agency MSRs on portfolios consisting of 167 loans with a UPB of $46.6 million. We will continue to subservice these loans until the transfer is completed on November 1, 2017.

The key ~~driver~~drivers of our servicing segment operating results for the ~~third quarter of 2017,~~three and six months ended June 30, 2018, as compared to ~~2016, was a 23% decline in total revenue as a result~~the same periods of ~~the~~2017, are portfolio runoff and declines in completed modifications, coupled with an 8% increase in total expenses. The increase in expenses was primarily driven by increases in MSR amortization and fair value adjustments partially offset by reductions in headcount and legal expenses.expiration of the HAMP modification program.

Three Months Ended ~~September~~June 30, ~~2017~~2018 versus ~~2016~~2017

Servicing and subservicing fee revenue declined by ~~$68.7~~$33.1 million, or ~~23%~~13%, compared to the second quarter of 2017 as the average UPB and loan count in our residential portfolio declined by 14% and 13%, respectively, due to portfolio runoff. Other revenue declined $9.2 million, or 81%, due to a $9.1 million decline in REO referral commissions. Effective January 18, 2018, NRZ is entitled to receive certain REO-related income including REO referral commissions.

Completed loan modifications decreased 3%, including an 88% decline in HAMP modifications, as compared to the ~~third~~second quarter of ~~2016 driven by a 14% decline in the average UPB and a 12% decline in the average number of assets in our portfolio due to runoff.~~

Total completed modifications decreased 69% as compared to the third quarter of 2016. The portion of modifications completed under HAMP (including streamlined HAMP) as a percentage of total modifications decreased to 9% in the third quarter of 2017 as compared to 63% for the third quarter of 2016 as a result of the expiration of the HAMP program on December 31, 2016. Borrowers who had requested assistance or to whom an offer of assistance had been extended as of that date had until September 30, 2017 to finalize their modification.2017. Revenue recognized in connection with loan modifications, ~~totaled $14.5~~including both servicer incentives and contractual servicing fees, declined to $16.6 million ~~and $57.3~~for the second quarter of 2018 as compared to $25.1 million ~~during~~for the ~~third~~second quarter of 2017, ~~and 2016, respectively,~~ a decline of ~~75%.~~34%, largely due to lower incentives associated with the expiration of the HAMP program.

MSR valuation adjustments, net, decreased $8.5 million, or 20%, compared to the second quarter of 2017 primarily driven by a net $5.0 million favorable change in assumptions related to the valuation of our non-Agency MSRs.

Expenses, excluding MSR valuation adjustments, net, were ~~$16.4~~$26.6 million, or 8%17%, ~~higher~~lower as compared to the ~~third~~second quarter of ~~2016.~~

~~MSR amortization~~2017. Compensation and ~~valuation adjustments increased $33.4~~benefits, Occupancy and equipment, and Technology and communications expenses declined principally as a result of headcount reductions and other cost improvements achieved in aligning our servicing operations more appropriately to the size of our servicing portfolio. Total average headcount of the Servicing segment decreased 19% as compared to the second quarter of 2017. Professional services expense declined $7.7 million, ~~driven by an increase in both MSR fair value losses and amortization expense, offset in part by the reversal of impairment charges. The increase in fair value losses is~~or 51%, primarily due to a ~~$20.2~~$6.9 million ~~benefit recognized~~decline in the third quarter of 2016 related to collateral performance improvements that increased the value of the MSRs as the underlying loans are more likely to make contractual payments on time and are, generally, less costly to service. The increase in MSR amortization expense primarily resulted from an $18.1 million benefit recognized in the third quarter of 2016 related to the sale of non-performing loans conveyed to HUD as part of the ADPLS program. We recognized the reversal of impairment charges of $6.2 million and $1.9 million on our government-insured MSRs during the third quarter of 2017 and 2016, respectively, reflecting changes in interest rates or other inputs and assumptions used in the valuation of such assets.legal expenses.

Servicing and origination expense ~~excluding the $17.6 million net increase in MSR valuation adjustments,~~ declined ~~$8.2~~$5.1 million, or ~~15%~~17%, as compared to the ~~third~~second quarter of ~~2016~~2017 primarily due to a ~~decrease~~$3.9 million reduction in ~~the loss provision~~losses related to ~~Ginnie Mae claim receivables resulting from our participation in HUD’s ADPLS program.~~

Professional services expense declined $8.8 million, or 38%, largely due to a $7.6 million decline in legal expenses that was principally the result of expenses incurred in 2016 defending ourselves in proceedings alleging violations of federal, statenon-recoverable advances and local laws and regulations governing our servicing activities. Professional services expense includes $3.7 million of fees incurred in the third quarter of 2017 in connection with our progress converting NRZ’s Rights to MSRs to fully-owned MSRs.

A 15% reduction in average U.S.-based headcount and the migration of certain operations offshore, where we believe we realize cost efficiencies while maintaining operational effectiveness, enabled a reduction in Compensation and benefits expense of $3.8 million, or 9%.

Technology and communication expense declined by $2.4 million, or 17%. Excluding technology allocations, costs charged through corporate overhead allocations (which are included in Other expense) increased $10.5 million.receivables.

Interest expense declined by ~~$72.6~~$1.2 million, or ~~72%~~2%, ~~in the third quarter of 2017~~ compared to the ~~third~~second quarter of ~~2016 primarily due to~~2017. The $4.4 million decrease in interest on match funded liabilities, consistent with the decline in servicing advances, was offset by a ~~$58.7~~$2.9 million ~~decline~~increase in interest expense on the fair value elected NRZ financing ~~liabilities due to a favorable adjustment~~liabilities. Net unfavorable fair value adjustments of ~~$37.6~~$8.1 million which primarily related to the ~~fair value of~~Original Rights to MSRs Agreements and which increased the NRZ financing liability, ~~recognized in connection with~~and interest expense, were offset by the ~~transfer of MSRs, as well as the~~14% decline in the average UPB of the NRZ servicing portfolio due to runoff. The favorable fair value adjustment was primarily driven by the characteristics of Rights to MSRs with a UPB of $15.9 billion that were converted to fully-owned MSRs during the quarter, relative to the $54.6 million lump sum payment received from NRZ. For the Rights to MSRs that were converted during the quarter, the characteristics of the underlying MSRs did not correspond to the weighted average loan characteristics used to determine the lump sum payment, resulting in a decline in the fair value of the financing liability primarily due to the transferred MSRs having a contractual servicing fee rate of 33.4 bps as compared to the weighted average of 47.1 bps used in the lump sum contractual schedule. As additional Rights to MSRs may transfer in the future, the recognition may include the reversal of any gain associated solely with such characteristics.

The December 2016 transfer of the SSTL from Servicing to Corporate Items and Other when we entered into an amended and restated SSTL facility agreement and lower match funded liabilities and related commitment fees also contributed to the decline inrunoff which reduced interest expense. The transfer of the SSTL reduced interest expense by $8.7 million, and interest on match funded liabilities decreased by $6.2 million. The decline in match funded liabilities was consistent with the decline in servicing advances on a servicing portfolio that is smaller but better performing.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2018 versus ~~2016~~2017

Servicing and subservicing fee revenue declined ~~$145.0~~by $83.3 million, or 16%, as the average UPB and ~~the average number of assets~~loan count in our residential servicing and subservicing portfolio declined by ~~10%~~14% and 8%12%, respectively, due to portfolio runoff. Revenue recognized in connection with loan modifications declined to ~~$78.8~~$32.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 as compared to ~~$155.6~~$64.3 million for the same period in ~~2016 consistent~~2017 due primarily to the expiration of the HAMP program. Other revenue declined $17.8 million, or 80%, due to a $17.7 million decline in REO referral commissions retained by NRZ effective with the ~~37% decline~~New RMSR Agreements.

MSR valuation adjustments, net, decreased $31.9 million, or 39%, compared to the six months ended June 30, 2017 primarily driven by the favorable impact of an increase in ~~completed modifications.~~interest rates on the fair value of our Agency MSRs and the net favorable change in valuation assumptions related to our non-Agency MSRs.

Expenses, excluding MSR valuation adjustments, net, were ~~$96.9~~$49.0 million, or ~~13%~~15%, lower ~~for the nine months ended September 30, 2017~~ as compared to the ~~same period~~six months ended June 30, 2017. Declines in Compensation and benefits, Occupancy and equipment, and Technology and communications expenses reflect a 20% reduction in average headcount and the effects of ~~2016.~~

other cost improvements. The $10.1 million, or 29% decline in Professional services expense ~~declined $43.5 million, or 47%, largely~~is due to a ~~$41.9~~$12.2 million decline in legal expenses that was principally the result of expenses incurred in 2016 defending ourselves in proceedings alleging violations of federal, state and local laws and regulations governing our servicing activities, including the now-settled Fisher matter. Professional services expense includes $5.0offset by $2.1 million of fees incurred during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 in connection with ~~our progress converting~~the conversion of NRZ’s Rights to MSRs to fully-owned MSRs.

Servicing and origination expense ~~excluding the $23.9 million net reduction in MSR valuation adjustments, decreased by $18.0~~declined $11.5 million, or ~~14% for the nine months ended September 30, 2017~~18%, as compared to the ~~same period of 2016. This~~six months ended June 30, 2017 primarily due to a $7.5 million decrease ~~is primarily~~in government-insured claim loss provisions due to a decline in the volume of claims and a $1.4 million reduction in losses related to ~~Ginnie Mae claims. Ginnie Mae claim losses in the second~~non-recoverable advances and third quarters of 2016 included the accelerated recognition of expenses related to our participating in HUD’s ADPLS and HUD Note Sale programs, which were largely offset by a benefit in amortization expense as discussed below.

~~The 19% reduction in average U.S. based headcount and the migration of certain operations offshore enabled a reduction in Compensation and benefits expense of $21.1 million, or 15%.~~

Occupancy and equipment expense declined $12.1 million, or 25%, largely because of the effect of the decline in the average number of assets in our servicing portfolio and various cost improvement initiatives with respect to certain expenses, principally the cost of postage and other delivery services.

Technology and communication expense declined by $7.5 million, or 17%. However, this decline was partly offset by an increase of $1.8 million in technology allocations. Excluding technology allocations, costs charged through corporate overhead allocations increased by $9.4 million.

MSR amortization and valuation adjustments decreased $3.9 million because of the effects of portfolio runoff and a decrease in impairment charges related to our government insured MSRs. For the nine months ended September 30, 2017, we

reversed impairment charges of $1.6 million. This compares to the recognition of $37.2 million of impairment charges for the same period of 2016, reflecting that interest rates declined during the period (followed by a significant reversal in the fourth quarter of 2016). The decrease in impairment was largely offset by increases in MSR fair value losses and amortization expense. The increase in fair value losses is primarily due to a $20.2 million benefit recognized in the third quarter of 2016 related to collateral performance improvements that increased the value of the MSRs as the underlying loans are more likely to make contractual payments on time and are, generally, less costly to service. The increase in amortization expense resulted from a $24.8 million benefit recognized during the nine months ended September 30, 2016 related to the sale of non-performing loans conveyed to HUD as part of the ADPLS program.receivables.

Interest expense declined by ~~$119.0~~$34.1 million, or ~~43%~~26%, compared to the six months ended June 30, 2017 primarily due to a ~~$65.9~~$25.2 million ~~reduction~~decline in interest expense ~~related to~~on the fair value elected NRZ financing liabilities. Net favorable fair value adjustments reduced the NRZ financing ~~liabilities because~~liability, and interest expense, by $8.6 million and were primarily driven by the initial fair value gain attributable to the $279.6 million lump-sum upfront payment received in the first quarter of 2018 in connection with the New RMSR Agreements. A decline in the average UPB of the NRZ servicing portfolio due to runoff ~~and because of~~also contributed to the ~~reduction~~decline in ~~fair value of the NRZ financing liability recognized in connection with the transfer of MSRs, as discussed above. In addition,~~ interest expense for the nine months ended September 30, 2016 included $10.5 million of the compensatory fees paid to NRZ as a result of the earlier downgrade to our S&P servicer rating. The transfer of the SSTL from Servicing to Corporate Items and Other reduced interest expense by $25.8 million, while interestexpense. Interest on match funded liabilities decreased by ~~$17.6 million. The decline in match funded liabilities was~~$8.7 million, consistent with the decline in servicing ~~advances on our smaller but better performing servicing portfolio.~~advances.

Lending

~~We have recently taken various~~Our lending business is focused on our retail forward lending channel, primarily through retail lending recapture, and on our reverse mortgage business.

Given the 2017 strategic ~~actions with respect to~~shift in our forward lending activities, our efforts are principally focused on targeting existing Ocwen customers by offering them competitive mortgage refinance opportunities (i.e., portfolio recapture), where permitted by the governing servicing and pooling agreement. In doing so, we generate revenues for our forward lending business ~~as we continue to evaluate~~and protect the overall mortgage lending business and marketplace. In the second quarter of 2017, we closed our forward lending correspondent channel due to low margins and began selling all of our forward lending wholesale channel originations on a servicing released basis to reduce capital consumption. In the third quarter of 2017, we entered into an agreement to sell certain assets of our forward lending wholesale business, and, upon closing of that transaction, we intend to exit the forward lending wholesale business. Consistent with our long-term strategy, we remain focused on increasing conversion rates (i.e., recapture) on our existing servicing portfolio ~~through our forward lending retail channel. While~~by retaining these ~~changes may limit our generation of new servicing assets in~~customers. Under the near term, we believe that they will, over time, improve our returns and improve cash flow relative to current operations. We are also evaluating our long-term strategy with respect to our reverse lending activities, which could include the potential sale of this business or certain assetsterms of the ~~business.~~2017 Agreements and New RMSR Agreements, to the extent we refinance a loan underlying the MSRs subject to these agreements, we are obligated to transfer such recaptured MSR to NRZ under the terms of a separate subservicing agreement.

We originate and purchase ~~conventional and government-insured forward mortgage loans through our forward lending operations. Reverse~~reverse mortgages ~~are originated and purchased through our reverse lending operations~~ under the guidelines of the HECM reverse mortgage insurance program of HUD. Loans originated under this program are guaranteed by the FHA, which provides investors with protection against risk of borrower default. We retain the servicing rights to reverse loans securitized through the Ginnie Mae HMBS program. We have originated HECM loans under which the borrowers have additional borrowing capacity of $1.4 billion at September 30, 2017. These draws are funded by the servicer and can be subsequently securitized or sold (Future Value). We do not incur any substantive underwriting, marketing or compensation costs in connection with any future draws, although we must maintain sufficient capital resources and available borrowing capacity to ensure that we are able to fund these Future Value draws. We recognize this Future Value over time as future draws are securitized or sold. At September 30, 2017, unrecognized Future Value is estimated to be $68.4 million. We use a third-party valuation expert to determine Future Value based on the net present value of the estimated future cash flows of the loans, utilizing a discount rate of 12% and projected performance assumptions in line with historical experience and industry benchmarks.

Historically, loans have been acquired through three primary channels: correspondent lender relationships, broker relationships (wholesale) and directly with mortgage customers (retail). Per-loan margins vary by channel, with correspondent typically being the lowest margin and retail the highest margin. We have exited the forward lending correspondent channel and intend to exit the forward lending wholesale channel upon the closing of our agreement to sell certain assets associated with this business.

After origination, we package and sell the loans in the secondary mortgage market, through GSE securitizations on a servicing retained basis and through whole loan transactions on a servicing released basis. Lending revenues include interest income earned for the period the loans are held by us, gain on sale revenue, which represents the difference between the origination value and the sale value of the loan, and fee income earned at origination.

We provide customary origination representations and warranties to investors in connection with our loan sales and securitization activities. We receive customary origination representations and warranties from our network of approved originators in connection with loans we purchase through our correspondent lending channel. We recognize the fair value of the liability for our representations and warranties at the time of sale. In the event we cannot remedy a breach of a representation or warranty, we may be required to repurchase the loan or provide an indemnification payment to the mortgage loan investor. To the extent that we have recourse against a third-party originator, we may recover part or all of any loss we incur.

The following table presents the results of operations of ~~the~~our Lending segment. The amounts presented are before the elimination of balances and transactions with our other segments:


Periods ended September 30,	Three Months								Nine Months
Periods ended September 30,	2017			2016			% Change		2017			2016			% Change
Periods ended June 30,																	Three Months								Six Months
Periods ended June 30,																	2018			2017			% Change		2018			2017			% Change
Revenue
Gain on loans held for sale, net
Forward loans	$	10,268		$	11,306		(9	)%	$	30,889		$	33,971		(9	)%	$	5,914		$	9,261		(36	)%	$	13,847		$	20,621		(33	)%
Reverse loans	11,454			7,582			51		37,182			22,498			65		12,890			14,430			(11	)	23,765			25,728			(8	)
	21,722			18,888			15		68,071			56,469			21		18,804			23,691			(21	)	37,612			46,349			(19	)
Other	10,213			11,808			(14	)	27,386			32,786			(16	)	198			9,085			(98	)	10,585			17,173			(38	)
Total revenue	31,935			30,696			4		95,457			89,255			7		19,002			32,776			(42	)	48,197			63,522			(24	)

Expenses
Compensation and benefits	18,666			19,578			(5	)	57,657			54,655			5		10,225			20,027			(49	)	22,180			38,992			(43	)
Servicing and origination	4,583			4,434			3		13,669			11,655			17		3,650			4,825			(24	)	7,695			9,086			(15	)
Occupancy and equipment																	1,607			1,548			4		2,412			2,697			(11	)
Technology and communications																	439			569			(23	)	836			1,349			(38	)
Professional services	1,124			402			180		2,107			1,042			102		330			641			(49	)	695			983			(29	)
Technology and communications	652			788			(17	)	2,001			2,897			(31	)
Occupancy and equipment	1,120			1,127			(1	)	3,817			4,201			(9	)
Amortization of mortgage servicing rights	67			76			(12	)	209			235			(11	)
MSR valuation adjustments, net																	75			70			7		229			141			62
Corporate overhead allocations																	605			918			(34	)	1,619			1,901			(15	)
Other	12,200			3,608			238		21,168			10,786			96		854			4,288			(80	)	2,415			7,068			(66	)
Total expenses	38,412			30,013			28		100,628			85,471			18		17,785			32,886			(46	)	38,081			62,217			(39	)

Other income (expense)
Interest income	2,857			3,990			(28	)	8,612			11,805			(27	)	1,360			3,007			(55	)	2,852			5,754			(50	)
Interest expense	(4,504		)	(3,684		)	22		(11,171		)	(10,829		)	3		(1,472		)	(3,383		)	(56	)	(3,417		)	(6,667		)	(49	)
Other, net	555			322			72		658			982			(33	)	294			(128		)	(330	)	620			103			502
Total other income (expense), net	(1,092		)	628			(274	)	(1,901		)	1,958			(197	)	182			(504		)	(136	)	55			(810		)	(107	)

Income (loss) before income taxes	$	(7,569	)	$	1,311		(677	)%	$	(7,072	)	$	5,742		(223	)%	$	1,399		$	(614	)	(328	)%	$	10,171		$	495		n/m
n/m: not meaningful

The following table provides selected operating ~~statistics:~~statistics for our Lending segment:

Periods ended September 30, Three Months Nine Months
2017 2016 % Change 2017 2016 % Change
Loan Production by Channel
Forward loans
Correspondent $ 16,086
$ 441,968
(96 )% $ 472,890
$ 1,334,059
(65 )%
Wholesale 296,869
661,360
(55 ) 1,014,318
1,496,539
(32 )
Retail 228,246
113,111
102
594,022
286,914
107
$ 541,201
$ 1,216,439
(56 )% $ 2,081,230
$ 3,117,512
(33 )%

% HARP production 9 % 2 % 350 % 7 % 4 % 75 %
% Purchase production 32
34
(6 ) 36
36
—
% Refinance production 68
66
3
64
64
—

Reverse loans
Correspondent $ 86,133
$ 109,141
(21 )% $ 395,372
$ 294,844
34 %
Wholesale 101,728
71,988
41
267,681
212,836
26
Retail 39,947
31,896
25
113,279
103,455
9
$ 227,808
$ 213,025
7 % $ 776,332
$ 611,135
27 %



	June 30,
	2018		2017		% Change
Short-term loan funding commitments
Forward loans	$	85,191	$	207,336	(59	)%
Reverse loans	21,227		38,212		(44	)

Future draw commitment (UPB) (1)	1,458,689		1,320,422		10	%

Future Value (2)	75,314		66,669		13	%

~~The key drivers~~



Periods ended June 30,	Three Months								Six Months
Periods ended June 30,	2018			2017			% Change		2018			2017			% Change
Loan Production by Channel
Forward loans
Correspondent	$	—		$	159,560		(100	)%	$	408		$	456,804		(100	)%
Wholesale	—			355,560			(100	)	1,750			717,449			(100	)
Retail	216,432			184,376			17		430,037			365,776			18
	$	216,432		$	699,496		(69	)%	$	432,195		$	1,540,029		(72	)%

% HARP production	7		%	6		%	17	%	9		%	6		%	50	%
% Purchase production	—			41			(100	)	—			37			(100	)
% Refinance production	100			59			69		100			63			59

Reverse loans
Correspondent	$	92,195		$	145,691		(37	)%	$	184,050		$	309,239		(40	)%
Wholesale	44,620			86,400			(48	)	97,672			165,953			(41	)
Retail	16,737			43,357			(61	)	35,683			73,332			(51	)
	$	153,552		$	275,448		(44	)%	$	317,405		$	548,524		(42	)%

Average Employment
U.S.	371			772			(52	)%	401			763			(47	)%
India and other	123			278			(56	)	130			260			(50	)
Total	494			1,050			(53	)%	531			1,023			(48	)%


(1)	We do not incur any substantive underwriting, marketing or compensation costs in connection with any future draws. We recognize this Future Value over time as future draws are securitized or sold.


(2)	Future Value represents the net present value of estimated future cash flows of the loans and projected performance assumptions based on historical experience and industry benchmarks discounted at 12%.

Our Lending segment results ~~of our lending segment~~ for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, as compared to ~~2016,~~the same periods of 2017, were primarily driven by our strategic decisions to exit the forward lending correspondent and wholesale channels and the related impacts on loan production, revenue and expenses. Average headcount decreased in line with lower production and the focus on our retail channel, resulting in lower Compensation and benefits expense. Changes to ~~sell certain assets~~the HECM program principal limit factors for originations after October 1, 2017 continue to negatively impact industry, and Liberty, originations. According to the HUD HECM Endorsement Summary Report, industry endorsements for the three and six months ended June 30, 2018 and 2017 totaled 9,539 and 39,377, and 14,723 and 41,553, declining 35% and 5%, respectively.

Three Months Ended June 30, 2018 versus 2017

Total revenue decreased by $13.8 million, or 42%, in the second quarter of ~~our~~2018 primarily due to the $605.0 million, or 62%, decrease in total loan production. Our exit from the forward lending correspondent and wholesale ~~origination business. Increases~~channels, while

resulting in ~~reverse loan originations were more than offset by substantial declines~~a 69% decline in forward loan ~~originations principally~~production as compared to the second quarter of 2017, resulted in a ~~result of a strategic decision to focus on the retail channel that is expected to produce stronger economic returns. Gains~~36% reduction in gain on loans held for sale ~~increased principally because of increased origination~~as volume ~~and higher margins~~ in reverse lending. The declines in other revenues are principally the result of changes in fair value of reverse loans and the related financing liabilities. Average headcount increased for both the third quarter and year to date periods as we expandedour higher-margin retail channel increased. In our reverse ~~originations and brought certain functions~~lending business, gain on loans held for sale declined on lower production across all channels driven in ~~house. A headcount reduction has been undertaken in forward lending to align capacity with volume levels.~~

~~Three Months Ended September 30, 2017 versus 2016~~

~~Total revenue increased~~part by ~~$1.2 million or 4% in third quarter of 2017 while total loan production decreased~~the HECM program changes offset by ~~$660.5 million, or 46%.~~improved margins. Other revenue decreased ~~$1.6 million, or 14%, in the third quarter~~primarily because of ~~2017 primarily as~~ a ~~result of a $0.6 million~~ decrease in the excess of changes in the fair value of our HECM loans held for investment over changes in the fair value of the HMBS financing liability due to higher interest rates reducing portfolio life, as a well as a decline in origination fees due to lower lending segment volumes.

Total expenses decreased $15.1 million, or 46%, as compared to the second quarter of 2017. Compensation and benefits expense decreased $9.8 million, or 49%, due to a reduction in headcount and a decline in ~~fees~~commissions on lower forward lending origination volume driven by our exit of the correspondent and wholesale channels. Total average headcount of the Lending segment decreased 53% as compared to the second quarter of 2017, reflecting the strategic shift in our forward lending activities and lower origination volume in the reverse lending channels. Other expenses declined $3.4 million primarily due to a $2.5 million decrease in advertising expense.

Interest income and expense both declined in the second quarter of 2018, consistent with lower ~~forward loan originations. The $2.8~~origination volume.

Six Months Ended June 30, 2018 versus 2017

Total revenue for the six months ended June 30, 2018 decreased $15.3 million, or ~~15% increase~~24%, as total loan production dropped $1.3 billion, or 64%, driven primarily by our exit from the forward lending correspondent and wholesale channels. The resulting decline in ~~Gains~~forward lending gain on loans held for sale ~~net is due to~~was offset in part by higher ~~margin rates~~production and ~~origination volume~~margins in our ~~reverse~~retail channel. Reverse lending business which includes the impact of a shift in mix from the correspondent channel to the higher yielding wholesale channel. Gains in the forward lending business decreased due to lower volume and margin rates in the correspondent and wholesale channels, which was substantially offset by higher volume and higher margin rates in the retail channel.

Total expenses increased $8.4 million, or 28%, in the third quarter of 2017. Other expense, which increased by $8.6 million, or 238%, includes a charge of $6.8 million to write-off the carrying value of internally-developed Loan Operating System (LOS) software ~~used in our wholesale forward lending business. In addition, advertising expense~~ increased by $1.4 million. Professional services expense increased by $0.7 million, or 180%, largely due to higher legal and consulting fees. Total average headcount increased 7% over the third quarter of 2016 due to increased offshore hiring in the forward lending business. In spite of this increase, Compensation and benefits expense decreased $0.9 million, or 5%, as commissions declined on lower forward lending origination volume. Direct acquisition costs, a component of Gaingain on loans held for sale ~~net, are offset by origination fee income that is included in Other revenue.~~

~~Interest income, which consists primarily of interest earned on newly originated and purchased loans prior to sale to investors, has~~ declined consistent with lower origination volume in our forward lending business. Interest income is offset by interest expense incurred to finance the mortgage loans. We finance originated and purchased forward and reverse mortgage loans with repurchase and participation agreements, commonly referred to as warehouse lines. Interest expense increased $0.8

~~million, or 22%, in the third quarter of 2017 due primarily to accelerated fee amortization on warehouse lines no longer utilized.~~

~~Nine Months Ended September 30, 2017 versus 2016~~

Total revenue increased by $6.2 million or 7% in spite of the $871.1 million, or 23%, decline in total loan production. Gains on loans held for sale, net increased $11.6 million, or 21%, largely due to higher origination volume and improved margin rates in our reverse lending business. This improvement in reverse lending was partially offset by a decline in the forward channel gains due to lower ~~margin rates in~~production for all channels, ~~and lower volume~~offset in large part by higher margins. Other revenue declined due to a reduction in the correspondent and wholesale channels, which was partially offset by an increase in retail volume. Other revenue decreased $5.4 million, or 16%, primarily as a result of a $3.7 million decrease in the excess of changesnet change in the fair value of ~~our HECM~~reverse loans ~~held for investment over changes in~~and the ~~fair value of the HMBS~~related financing ~~liability~~liabilities and a decline in origination fees due to lower ~~forward loan originations and lower fees in the reverse channel due to market conditions.~~lending segment volumes.

Total expenses ~~increased $15.2~~for the six months ended June 30, 2018 decreased $24.1 million, or ~~18%~~39%. The $16.8 million, or 43% decrease in Compensation and benefits expense ~~increased $3.0~~is due to a 48% decrease in headcount and a decline in commissions resulting from the reduction in lending segment production. The $4.7 million ~~or 5%, as average headcount increased by 23%~~decline in Other expenses is primarily attributed to a $2.9 million decline in advertising expense and a $1.2 million decline in the provision for indemnification.

The decline in interest income and expense as compared to the ~~prior year. Offshore hiring accounted for 68%~~six months ended June 30, 2017 is primarily the result of the ~~increase~~overall decline in ~~average headcount. The $10.4 million, or 96%, increase in Other expenses was driven primarily by the $6.8 million write-off of the LOS software~~ ~~used in our wholesale forward lending business, as disclosed above, and~~ ~~a $3.5 million increase in the provision for indemnification obligations due to a reversal of the liability in 2016.~~loan production.

Corporate Items and Other

Corporate Items and Other includes revenues and expenses of CRL, ACS ~~CRL~~ and our other business activities that are currently individually insignificant, revenues and expenses that are not directly related to other reportable segments, interest income on short-term investments of cash, interest expense on corporate debt and certain corporate expenses. Our cash balances are included in Corporate Items and Other.

ACS provides short-term inventory-secured loans to independent used car dealers to finance their inventory. In addition, Ocwen formed CRL, our wholly-owned captive reinsurance subsidiary, and entered into a quota share re-insurance agreement effective in 2016 with a third-party insurer related to coverage on foreclosed real estate properties owned or serviced by us. As noted in “Overview” above, we are considering the potential benefits of monetizing our investment in the ACS business in the near term.

~~Expenses~~Certain expenses incurred by corporate support services are allocated to the Servicing and Lending segments.

The following table presents ~~the~~selected results of operations of Corporate Items and Other. The amounts presented are before the elimination of balances and transactions with our other segments:


Periods ended September 30,	Three Months								Nine Months
Periods ended September 30,	2017			2016			% Change		2017			2016			% Change
Periods ended June 30,																	Three Months								Six Months
Periods ended June 30,																	2018			2017			% Change		2018			2017			% Change
Revenue	$	6,162		$	9,672		(36	)%	$	20,002		$	22,277		(10	)%
Premiums (CRL)																	$	4,307		$	5,969		(28	)%	$	8,911		$	12,372		(28	)%
Other																	(237		)	771			(131	)	125			1,468			(91	)
Total revenue																	4,070			6,740			(40	)	9,036			13,840			(35	)

Expenses
Compensation and benefits	31,560			29,208			8		93,415			90,143			4		25,555			30,140			(15	)	54,498			61,854			(12	)
Servicing and origination	979			1,619			(40	)	3,742			8,198			(54	)
Professional services	23,145			42,110			(45	)	94,468			164,192			(42	)	24,692			49,719			(50	)	44,647			71,323			(37	)
Technology and communications	15,307			10,779			42		41,750			39,379			6		13,419			12,149			10		24,885			26,443			(6	)
Occupancy and equipment	3,122			3,567			(12	)	10,321			10,480			(2	)	1,482			2,947			(50	)	3,201			7,199			(56	)
Servicing and origination																	250			1,332			(81	)	(421		)	2,763			(115	)
Other	2,560			2,405			6		19,818			13,737			44		2,646			2,625			1		7,761			17,257			(55	)
Total expenses before corporate overhead allocations	76,673			89,688			(15	)	263,514			326,129			(19	)	68,044			98,912			(31	)	134,571			186,839			(28	)
Corporate overhead allocations
Servicing segment	(59,211		)	(49,086		)	21		(168,345		)	(157,207		)	7		(46,462		)	(52,328		)	(11	)	(96,866		)	(109,134		)	(11	)
Lending segment	(960		)	(1,093		)	(12	)	(2,861		)	(3,366		)	(15	)	(605		)	(918		)	(34	)	(1,619		)	(1,901		)	(15	)
Total expenses	16,502			39,509			(58	)	92,308			165,556			(44	)	20,977			45,666			(54	)	36,086			75,804			(52	)

Other income (expense), net
Interest income	1,098			1,109			(1	)	3,083			2,785			11		529			1,058			(50	)	1,309			1,987			(34	)
Interest expense	(14,209		)	(6,139		)	131		(41,478		)	(18,446		)	125		(13,356		)	(13,842		)	(4	)	(27,703		)	(27,269		)	2
Other	(1,214		)	471			(358	)	1,084			(547		)	(298	)	(2,156		)	1,498			(244	)	(2,735		)	2,298			(219	)
Total other expense, net	(14,325		)	(4,559		)	214		(37,311		)	(16,208		)	130		(14,983		)	(11,286		)	33		(29,129		)	(22,984		)	27

Loss before income taxes	$	(24,665	)	$	(34,396	)	(28	)%	$	(109,617	)	$	(159,487	)	(31	)%	$	(31,890	)	$	(50,212	)	(36	)%	$	(56,179	)	$	(84,948	)	(34	)%

Three Months Ended June 30, 2018 versus 2017

The ~~key driver of the results of our corporate items and other segment for both the three and nine months ended September 30, 2017,~~28% decrease in CRL premium revenue as compared to ~~2016, were declines~~the three months ended June 30, 2017 is primarily driven by a 30% decline in ~~total expenses~~the average number of foreclosed real estate properties in our servicing portfolio.

Expenses before allocations ~~principally because~~declined $30.9 million, or 31%, as compared to the second quarter of ~~decreases~~2017.

The $25.0 million, or 50%, decline in ~~regulatory monitoring costs and~~Professional services primarily reflects a $23.5 million decrease in legal fees and settlements, ~~expense. Offsetting these items was~~offset by $2.0 million of costs related to the PHH Merger Agreement. Legal expenses for the second quarter of 2017 included an increase in ~~interest expense as a result of~~ the transfer of the SSTL from the servicing segment at the beginning of 2017 after we entered into an amended and restated SSTL facility agreement in December 2016. We also exchanged $346.9 million of 6.625% Senior Unsecured Notes due 2019accrual for a ~~like amount of 8.375% Senior Second Lien Notes due 2022,~~securities class action matter, which ~~also occurred in December 2016.~~

~~Three Months Ended September 30, 2017 versus 2016~~

~~Revenue is primarily comprised of premiums generated by CRL of $5.5 million and $8.4 million for the third quarter of 2017 and 2016, respectively.~~

we subsequently settled. The ~~$13.0~~$4.6 million, or 15%, reduction in Compensation and benefits expense primarily resulted from a 26% decline in average headcount offset in part by the recognition of certain one-time costs related to the departure of senior executives. Servicing and origination expense declined $1.1 million due to a decrease in ~~expenses~~reinsurance commissions incurred by CRL that was due to the decline in foreclosed real estate properties.

Six Months Ended June 30, 2018 versus 2017

CRL premium revenue decreased 28% as compared to the six months ended June 30, 2017 due to a 29% decline in the average number of foreclosed real estate properties in our servicing portfolio.

Expenses before allocations isdeclined $52.3 million, or 28%, as compared to the six months ended June 30, 2017.

Professional services expense declined $26.7 million, or 37%, as compared to the six months ended June 30, 2017 primarily due to a $19.0 million, or 45%, decline in Professional services expense offset in part by a $4.5 million, or 42%, increase in Technology and communications expense. The decrease in Professional services expense resulted from a $13.5 million decrease in regulatory monitoring costs and a $2.1$24.0 million decrease in legal fees and settlements. ~~The~~A $4.9 million decrease in ~~regulatory monitoring costs reflects~~monitor expenses, due to the termination of the CA Auditor and NY Operations Monitor engagements in ~~2017. Legal expenses for~~2017, was offset by $4.9 million of costs incurred during the third quarter of 2016 included $10.0 million recorded in connection with our discussions with the CA DBO that resulted in the termination of the 2015 CA Consent Order. The increase in Technology and communications expense is primarily duesix months ended June 30, 2018 related to the ~~write-off of capitalized~~PHH Merger Agreement.

Declines in Compensation and benefits and Occupancy and equipment are primarily attributable to headcount reductions and other actions we have taken to reduce our costs, ~~related to two projects, costs incurred~~including closing and consolidating certain facilities, and our exit from the ACS business. A 22% decline in ~~connection with a telecommunication migration and expanded use of a servicing billing automation platform.~~

~~Interest expense in~~average headcount drove the ~~third quarter of 2017 increased by $8.1~~$7.4 million, or ~~131%, primarily~~12% reduction, in Compensation and benefits expense as ~~a result of our transfer of the SSTL from the Servicing segment~~compared to the ~~Corporate Items~~six months ended June 30, 2017. Lower salaries and ~~Other segment when we entered into an amended and restated SSTL facility agreement~~benefits attributed to the reduction in ~~December 2016. In December 2016, we also exchanged $346.9~~headcount was offset in part by the recognition of $7.3 million of ~~6.625% Senior Unsecured Notes due 2019 for a like amount of 8.375% Senior Second Lien Notes due 2022.~~

~~During~~related severance expense during the ~~three~~six months ended ~~September~~June 30, ~~2017, CRL recognized $1.0 million in additional reserves in connection with estimated losses due to weather events in Texas and Florida.~~

~~Nine Months Ended September 30, 2017 versus 2016~~

2018. The ~~$62.6 million, or 19%, decrease in expenses before allocations is primarily due to a $69.7 million, or 42%, decline in Professional services expense, which resulted from a $66.8~~$3.2 million decrease in ~~regulatory monitoring costs. The regulatory monitoring costs decrease reflects the termination of the CA Auditor and NY Operations Monitor engagements in 2017.~~

~~Additionally,~~ Servicing and origination expense ~~declined by $4.5 million, or 54%, primarily due to a decrease in~~is the result of lower reinsurance commissions incurred by CRL ~~which were $3.5 million and $8.1 million for~~during the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016, respectively.~~ 2018.

Other expense for the ~~nine~~six months ended ~~September~~June 30, 2017 ~~increased by $6.1~~includes a $5.2 million ~~or 44%, primarily due to a $4.0 million increase in the~~ provision for losses on ACS automotive dealer financing notes principally as a result of the deterioration in credit quality of notes due from certain dealers. Due to the increase in the age of these notes, as of March 31, 2017 we have assumed that the notes due from these dealers are fully collateral-dependent, with no recoveries beyond estimated liquidation value of the remaining unsold inventory.

Interest expense increased by $23.0 million, or 125%, primarily as a result of our transfer of the SSTL from the servicing segment to the corporate items and other segment and the exchange of our Senior Unsecured Notes for our Senior Secured Notes, both of which occurred in December 2016 as discussed above.notes.

LIQUIDITY AND CAPITAL RESOURCES

Overview

At ~~September~~June 30, ~~2017,~~2018, our cash position was ~~$299.9~~$228.4 million compared to ~~$256.5~~$259.7 million at December 31, ~~2016.~~2017. We invest cash ~~that is~~ in excess of our immediate operating needs primarily in money market deposit accounts. Our main priorities for deployment of excess cash are: (1) supporting our core servicing and lending businesses and investing in these core assets, (2) reducing revolving lines of credit in order to reduce interest expense, (3) reducing corporate leverage and (4) expanding into similar or complementary businesses that meet our return on capital requirements.

Sources of Funds

Our primary sources of funds for near-term liquidity are:

Collections of servicing fees and ancillary revenues;

Proceeds from match funded advance financing facilities;

Proceeds from other borrowings, including warehouse facilities; and

Proceeds from sales and securitizations of originated loans and repurchased loans.

~~We also expect~~On September 1, 2017, pursuant to ~~receive substantial amounts from NRZ as~~the 2017 Agreements, we successfully transferred MSRs ~~transfer~~with UPB of $15.9 billion to NRZ ~~under our July 2017 agreements~~and received a lump-sum payment of $54.6 million. On January 18, 2018, we received a lump-sum payment of $279.6 million in accordance with ~~NRZ.~~the terms of the New RMSR Agreements.

Servicing advances are an important component of our business and represent amounts that we, as servicer, are required to advance to, or on behalf of, our servicing clients if we do not receive such amounts from borrowers. Our ability to finance servicing advances is a significant factor that affects our liquidity. Our use of advance financing facilities is integral to our servicing advance financing strategy. Revolving variable funding notes issued by our advance financing facilities to large global financial institutions generally have a 364-day revolving period. Term notes are generally issued to institutional investors with one-, two- or three-year maturities. ~~The revolving periods for our variable funding notes with a total borrowing capacity of $75.0 million end in 2017.~~

Borrowings under our advance financing facilities are incurred by special purpose entities (SPEs) that we consolidate because we have determined that Ocwen is the primary beneficiary of the SPE. We transfer the financed advances to the SPEs, and the SPEs issue debt supported by collections on the transferred advances. Holders of the debt issued by the SPEs have recourse only to the assets of the SPEs for satisfaction of the debt. In connection with our sale of servicing advances to these advance financing SPEs and to NRZ ~~in connection with~~relating to the Rights to MSRs, we make certain representations, warranties and covenants primarily related to the nature of the transferred advance receivables, our financial condition and our servicing practices.

Advances and match funded advances comprised ~~17%~~14% of total assets at ~~September~~June 30, ~~2017.~~2018. Our borrowings under our advance financing facilities are secured by pledges of servicing advances that are sold to the related SPE and by cash held in debt service accounts.

The available borrowing capacity under our advance financing facilities ~~since December 31, 2016~~ has ~~decreased~~increased by ~~$130.9~~$108.3 million ~~from $274.0~~to $259.3 million at ~~December 31, 2016 to $143.1 million at September~~June 30, ~~2017 because~~2018. While we reduced ~~the~~our maximum borrowing capacity by ~~$410.0~~$115.0 million ~~based on~~to better align with our anticipated future ~~usage.~~usage, the $223.3 million decline in outstanding borrowings drove the net increase in available capacity. Our ability to continue to pledge collateral under

our advance financing facilities depends on the performance of the advances, among other factors. At ~~September~~June 30, ~~2017, $41.9~~2018, $97.4 million of the available borrowing capacity could be used based on the amount of eligible collateral that had been pledged.

We use mortgage loan warehouse facilities to fund newly originated loans on a short-term basis until they are sold to secondary market investors, including GSEs or other third-party investors. These warehouse facilities are structured as

repurchase or participation agreements under which ownership of the loans is temporarily transferred to the lender. The loans are transferred at a discount, or haircut, which serves as the primary credit enhancement for the lender. Currently, our master repurchase and participation agreements generally have maximum terms of 364-days. The funds are typically repaid using the proceeds from the sale of the loans to the secondary market investors, usually within 30 days. At ~~September~~June 30, ~~2017,~~2018, we had ~~total~~maximum borrowing capacity under our warehouse facilities of ~~$497.5~~$687.5 million. Of the borrowing capacity extended on a committed basis, ~~$45.5~~$171.8 million was available at ~~September~~June 30, ~~2017,~~2018, and ~~$29.3~~$57.8 million of the available borrowing capacity could be used based on the amount of eligible collateral that had been pledged. ~~Uncommitted~~$409.1 million of available uncommitted amounts ~~($220.7 million available~~ at ~~September~~June 30, ~~2017) are~~2018 can be advanced solely at the discretion of the lender, and there can be no assurance that any uncommitted amounts will be available to us at any particular time.

We also rely on the secondary mortgage market as a source of long-term capital to support our lending operations. Substantially all of the mortgage loans that we originate or purchase are sold or securitized in the secondary mortgage market in the form of residential mortgage backed securities guaranteed by Fannie Mae or Freddie Mac and, in the case of mortgage backed securities guaranteed by Ginnie Mae, are mortgage loans insured or guaranteed by the FHA or VA.

Our debt agreements contain various qualitative and quantitative covenants including financial covenants, covenants to operate in material compliance with applicable laws, monitoring and reporting obligations and restrictions on our ability to engage in various activities, including but not limited to incurring additional debt, paying dividends, repurchasing or redeeming capital stock, transferring assets or making loans, investments or acquisitions. ~~As a result~~Because of the covenants to which we are subject, we may be limited in the manner in which we conduct our business and may be limited in our ability to engage in favorable business activities or raise additional capital to finance future operations or satisfy future liquidity needs. In addition, breaches or events that may result in a default under our debt agreements include, among other things, nonpayment of principal or interest, noncompliance with our covenants, breach of representations, the occurrence of a material adverse change, insolvency, bankruptcy, certain material judgments and litigation and changes of control.

Covenants and default provisions of this type are commonly found in debt agreements such as ours. Certain of these covenants and default provisions are open to subjective interpretation and, if our interpretation were contested by a lender, a court may ultimately be required to determine compliance or lack thereof. In addition, our debt agreements generally include cross default provisions such that a default under one agreement could trigger defaults under other agreements. If we fail to comply with our debt agreements and are unable to avoid, remedy or secure a waiver of any resulting default, we may be subject to adverse action by our lenders, including termination of further funding, acceleration of outstanding obligations, enforcement of liens against the assets securing or otherwise supporting our obligations, and other legal remedies, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations. We believe that we are in compliance with the qualitative and quantitative covenants in our debt agreements as of the date this Quarterly Report on Form 10-Q is filed with the SEC.

Use of Funds

Our primary uses of funds are:

Payments for advances in excess of collections on existing servicing portfolios;

Payment of interest and operating costs;

Funding of originated and repurchased loans;

Repayments of borrowings, including match funded liabilities and warehouse facilities; and

Working capital and other general corporate purposes.

Under the terms of our SSTL facility agreement, subject to certain exceptions, we are required to prepay the SSTL with 100% of the net cash proceeds from certain permitted asset sales, subject to our ability to reinvest such proceeds in our business within 270 days of receipt. During the second quarter of 2018, we voluntarily prepaid $50.0 million of the SSTL balance for the purpose of reducing interest costs.

We have begun investing cash amounts not currently utilized in our servicing and lending businesses to achieve targeted investment returns within our risk appetite and we have also deployed excess cash to reduce secured borrowings. We continue to evaluate the best uses for such cash, which could involve investments in new assets or businesses and reductions in debt, among other options.

Outlook

We closely monitor our liquidity position and ongoing funding requirements, and we regularly monitor and project cash flow by period to mitigate liquidity risk.

In assessing our liquidity outlook, our primary focus is on six measures:

Business financial projections for revenues, costs and net income;

Requirements for maturing liabilities compared to amounts generated from maturing assets and operating cash flow;

Any projected future sales of MSRs, interests in MSRs or other assets and any reimbursement of servicing advances that may be related to any such sales;

The change in advances and match funded advances compared to the change in match funded liabilities and available borrowing capacity;

Projected future originations and purchases of forward and reverse mortgage ~~loans and automobile dealer floor plan~~ loans; and

Projected funding requirements of new investment and business ~~initiatives.~~initiatives, including our pending acquisition of PHH.

We have considered the impact of financial projections on our liquidity analysis and have evaluated the appropriateness of the key assumptions in our forecast such as revenues, expenses, our assessment of the likely impact of recent regulatory actions, recurring and nonrecurring costs and sales of MSRs and other assets. We have analyzed our cash requirements and financial obligations. Based upon these evaluations and ~~analyses,~~analysis, we believe that we have sufficient liquidity to meet our obligations and fund our operations for the next twelve months.

We are required to maintain certain minimum levels of cash under our debt agreements ~~and in the ordinary course of business,~~ and portions of our cash balances are held in our non-U.S. subsidiaries. We would have to repatriate the cash held by our non-U.S. subsidiaries, potentially with tax consequences and in compliance with applicable laws, should we wish to utilize that cash in the U.S.

~~The~~As of June 30, 2018, the revolving periods of our advance financing facilities ~~end during 2017~~ for variable funding notes with a total borrowing capacity of ~~$75.0~~$195.0 million ~~and $51.9~~were scheduled to end during 2018, subject to renewal, replacement or extension. Borrowings of $0.6 million ofare outstanding ~~borrowings~~on these notes at ~~September~~June 30, ~~2017.~~2018. In the event we are unable to renew, replace or extend the revolving period of one or more of these advance financing facilities, monthly amortization of the outstanding balance must generally begin at the end of the respective ~~364-day~~ revolving period. Changes to our advance financing facilities subsequent to June 30, 2018 are disclosed below.

~~Similarly, our~~Our master repurchase and participation agreements for financing new loan originations generally have 364-day terms. At ~~September~~June 30, ~~2017,~~2018, we had ~~$47.5~~$75.8 million outstanding under these financing arrangements that mature in ~~2017.~~2018.

Despite the heightened regulatory and public scrutiny we have faced, including regulatory actions and settlements, we continue to access both the private and public debt markets to fund our business ~~operations and~~operations. We believe that we will be able to renew, replace or extend our debt agreements to the extent necessary to finance our business before or as they become due, consistent with our historical experience.

We are actively engaged with our lenders and as a result, have successfully completed the following with respect to our current and anticipated financing needs:

~~On February 24, 2017,~~Effective January 1, 2018, we ~~executed a $200.0 million warehouse facility to replace an existing facility~~reduced the borrowing capacity of the ~~same size~~Series 2015-VF5 variable rate notes from $105.0 million to $70.0 million. Additionally, effective January 1, 2018, we converted the Series 2014-VF4 variable notes into a single class Series 2014-VF4 Note and ~~with the same lender maturing in February 2018.~~

On February 24, 2017 and on March 17, 2017, we executed two match funded lending agreements under which we can borrow up to $50.0 million each to finance the automotive dealer loans made by our ACS business. ~~We may from time to time request increases in~~reduced the maximum borrowing capacity ~~under these agreements~~from $105.0 million to ~~a maximum~~$70.0 million. The prior senior and subordinate margins by class have been replaced by an all-in margin of ~~$100.0 million each.~~

3.00%.

On ~~April 25, 2017,~~January 23, 2018, we voluntarily terminated the Loan Series 2017-1 automotive dealer floor plan loan agreement pursuant to our exit of the ACS line of business.

On May 31, 2018, we extended to April 30, ~~2018~~2019 and May 31, 2019 the maturity of two warehouse facilities with a combined uncommitted borrowing capacity of $250.0 million.

~~On May 18, 2017,~~Effective June 7, 2018, we ~~negotiated a reduction in~~reduced the borrowing capacity of ~~two lending warehouse facilities~~the Series 2015-VF1 variable rate notes from ~~a combined~~ $110.0 million to ~~$75.0 million.~~ $65.0 million with interest computed based on the lender’s cost of funds plus a margin of 180 to 450 bps.

On ~~August 23, 2017,~~July 13, 2018, we ~~negotiated an increase in the combined borrowing capacity back to $110.0 million.~~

~~On May 29, 2017, we negotiated a change in~~increased the borrowing capacity of ~~two lending warehouse facilities~~the Series 2015-VF5 variable notes from ~~$200.0 million available on a committed basis to $100.0 million available on a committed basis and the remainder of the borrowing capacity available at the discretion of the lender.~~ ~~On August 1, 2017, we voluntarily terminated these facilities.~~

~~On June 8, 2017, we negotiated a renewal through June 7, 2018 of an advance financing facility. As part of the renewal, we decreased the maximum borrowing capacity of the facility from $160.0~~$70.0 million to ~~$110.0~~$225.0 million ~~to reflect lower expected utilization in the future~~.

~~Effective June 30, 2017, we negotiated a reduction in the combined borrowing capacity under the revolving variable funding notes of an advance financing facility from $420.0 million to $210.0 million~~ ~~to reflect lower expected utilization in the future~~.

On August 10, 2017, we extended to August 10, 2018 the maturity of two revolving variable funding notes of an advance financing facility with combined borrowing capacity of $210.0 million. In addition, we elected to voluntarily terminate one variable funding note.

~~On August 16, 2017, we~~ and extended the ~~term~~amortization date to December 15, 2019, with interest computed based on the lender’s cost of ~~one~~funds plus a margin of ~~our reverse lending warehouse facilities~~105 to ~~November 18, 2017.~~

~~On August 18, 2017, we elected~~250 bps. The increased capacity was used on July 16, 2018 to ~~voluntarily terminate a $100.0 million reverse lending master repurchase agreement.~~

~~On August 21, 2017, we negotiated an increase in combined committed borrowing capacity under a warehouse facility from $50.0 million to $87.5 million.~~

~~On September 15, 2017, we issued a $250.0 million new series of~~redeem the Series 2016-T1 fixed-rate term notes with an outstanding balance of $265.0 million and an amortization date of August 15, 2018. We also voluntarily terminated the Series 2014-VF4 variable note on such date, due to ~~institutional investors to replace an existing $400.0 million term note with a higher interest rate that was scheduled to begin amortizing~~reductions in ~~November 2017,~~ ~~to reflect lower expected utilization in the future~~.

On October 27, 2017, we renewed a reverse lending warehouse facility through October 12, 2018. As part of the renewal, we increased the maximum borrowing capacity of the facility from $50.0 million to $100.0 million.outstanding advances.

Our liquidity forecast requires management to use judgment and estimates and includes factors that may be beyond our control. Additionally, our business has been undergoing substantial change, which has magnified the uncertainties that are inherent in the forecasting process. Our actual results could differ materially from our estimates. If we were to default under any of our debt agreements, it could become very difficult for us to renew, replace or extend some or all of our debt agreements. Challenges to our liquidity position could have a material adverse effect on our operating results and financial condition and could cause us to take actions that would be outside the normal course of our operations to generate additional liquidity.

Pending Acquisition of PHH

As discussed above, on February 27, 2018, we entered into the Merger Agreement, pursuant to which PHH will become a wholly owned subsidiary of Ocwen. We expect our operations, financial position and cash flows to be significantly impacted following the closing of this transaction, which we are currently targeting to close in the third quarter of 2018. The merger

consideration to be paid in the acquisition will be approximately $360.0 million and is expected to be funded by a combination of PHH’s cash on hand and Ocwen’s cash on hand. The portion to be funded by Ocwen’s cash on hand is currently estimated to be approximately $74.0 million, including payment of certain transaction expenses at closing, based on financial information provided by PHH and internal analysis. We also expect cash payments for integration costs and other transaction-related costs following the closing of the transaction.

Upon the closing of the transaction, Ocwen will also assume debt (at the subsidiary level) in the form of PHH’s outstanding senior unsecured notes. The aggregate principal amount of these notes is approximately $119.0 million, representing approximately $97.0 million of PHH’s 7.375% Senior Notes Due 2019 and approximately $22.0 million of PHH’s 6.375% Senior Notes Due 2021.

We have not recognized certain expenses that are contingent on completion of the acquisition. These expenses include financial advisory fees, certain legal fees and compensation expense related to PHH comprised of certain options, restricted stock units, restricted cash units and restricted shares issued by PHH for which vesting will accelerate. Most of these contingent expenses will be recognized in our consolidated financial statements in the period in which the acquisition occurs, with the remainder recognized thereafter. The final amount of compensation expense to be recognized is partially dependent upon personnel decisions that will be made as part of integration planning. These amounts may be material.

Credit Ratings

Credit ratings are intended to be an indicator of the creditworthiness of a ~~particular~~ company, security or obligation. Lower ratings generally result in higher borrowing costs and reduced access to capital markets. The following table summarizes our current ratings and outlook by the respective nationally recognized rating agencies. A securities rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.



Rating Agency	Long-term Corporate Rating	Review Status / Outlook	Date of last action
Moody’s	Caa1	Negative	June ~~16, 2017~~19, 2018
S&P	B –	Negative	~~July 25, 2017~~June 18, 2018
Fitch	B –	Negative	June ~~15, 2017~~
~~Kroll Bond Rating Agency~~	~~CCC~~	~~Negative~~	~~July 26, 2017~~8, 2018

On ~~July 25, 2017,~~June 18, 2018, S&P affirmed our long-term corporate rating of “B-” and ~~removed our ratings from CreditWatch with~~a Negative ~~implications. On July 26, 2017, Kroll Bond Rating Agency affirmed our corporate ratings at “CCC” and removed our ratings from Watch Downgrade status.~~Outlook. On June ~~16, 2017,~~19, 2018, Moody’s ~~downgraded~~affirmed our long-term corporate rating toat “Caa1” ~~from “B3.”~~and a Negative Outlook. On June ~~15, 2017,~~8, 2018, Fitch ~~placed~~affirmed the long-term issuer default rating of “B-” and the Negative Outlook. On June 25, 2018, Ocwen announced its decision not to renew its corporate rating by Fitch as part of our ~~ratings on Negative.~~ongoing efforts to reduce costs. It is possible that additional actions by credit rating agencies could have a material adverse impact on our liquidity and funding position, including materially changing the terms on which we may be able to borrow money.

Cash Flows

Our operating cash flow is primarily impacted by operating results, changes in our servicing advance balances, the level of mortgage loan production and the timing of sales and securitizations of mortgage loans. We classify proceeds from the sale of servicing advances, including advances sold in connection with the sale of MSRs, as investing activity. We classify changes in HECM loans held for investment as investing activity and changes in the related HMBS secured financing as financing activity.

Cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018

Our operating activities provided ~~$401.2~~$196.6 million of cash largely due to ~~$285.1~~$182.5 million of net collections of servicing advances. Net cash paid on loans held for sale was ~~$7.2~~$37.6 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2018.

Our investing activities used ~~$659.3~~$266.2 million of cash. The primary uses of cash in our investing activities were net cash outflows in connection with our HECM reverse mortgages of $301.3 million. Cash inflows include net proceeds of $32.9 million in connection with the ACS business and the receipt of $5.0 million of net proceeds from sale of MSRs and related advances.

Our financing activities provided $23.2 million of cash. Cash inflows include $499.6 million received in connection with our reverse mortgage securitizations, which are accounted for as secured financings, less repayments on the related financing liability of $181.5 million. In January 2018, Ocwen received a lump-sum payment of $279.6 million in accordance with the terms of the New RMSR Agreements. Cash outflows include $247.9 million of net repayments on match funded liabilities as a result of advance recoveries, and $58.4 million of repayments on the SSTL. In addition, we reduced borrowings under our mortgage loan warehouse facilities by $149.2 million.

Cash flows for the six months ended June 30, 2017

Our operating activities provided $282.6 million of cash largely due to $226.7 million of net collections of servicing advances. Net cash paid on loans held for sale during the six months ended June 30, 2017 was $26.2 million.

Our investing activities used $516.2 million of cash. The primary uses of cash in our investing activities include net cash outflows in connection with our HECM reverse mortgages of ~~$650.1~~$505.9 million, net cash outflows of ~~$10.1~~$8.8 million in connection with ~~our~~the ACS business and additions to premises and equipment of ~~$7.4 million. Cash inflows include the receipt of $8.4 million of net proceeds from the sale of MSRs and related advances.~~

Our financing activities provided $301.5 million of cash. Cash inflows include $981.7 million received in connection with our reverse mortgage securitizations, which are accounted for as secured financings, less repayments on the related financing liability of $287.9 million. In September 2017, we received a $54.6 million lump sum payment from NRZ following receipt of the required third-party consents and transfer of legal title to the MSRs underlying certain Rights to MSRs as compensation for foregoing certain payments under the 2012 - 2013 Agreements. Also, Ocwen sold to NRZ 6,075,510 shares of newly-issued Ocwen common stock in July 2017 for $13.9 million of proceeds. Cash outflows include $253.0 million of net repayments on match funded liabilities as a result of advance recoveries, and $12.6 million of repayments on the SSTL. In addition, we reduced borrowings under our mortgage warehouse facilities used to fund loan originations by $123.8 million.

~~Cash flows for the nine months ended September 30, 2016~~

Our operating activities provided $350.4 million of cash largely due to $343.1 million of net collections of servicing advances. Net cash paid on loans held for sale during the nine months ended September 30, 2016 was $81.4 million.

Our investing activities used $572.2 million of cash. The primary uses of cash in our investing activities include net cash outflows in connection with our HECM reverse mortgages of $657.3 million and additions to premises and equipment of $28.6$7.2 million. Cash inflows for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2017 include the receipt of ~~$120.2~~$5.2 million of net proceeds from the sale of MSRs and related advances.

Our financing activities provided ~~$228.0~~$230.3 million of cash. Cash inflows include ~~$820.4~~$664.5 million received in connection with our reverse mortgage securitizations, less ~~repayment of~~repayments on the related financing liability of ~~$162.0~~$176.2 million. Cash outflows ~~are primarily comprised of $218.5~~include $172.6 million of net repayments on match funded liabilities as a result of advance recoveries and ~~$74.7~~$8.4 million of repayments on the SSTL. ~~Cash outflows for the nine months ended September 30, 2016 also include the repurchase of 991,985 shares of common stock~~In addition, we reduced borrowings under our ~~share repurchase program for $5.9 million prior to its expiration on July 31, 2016.~~mortgage loan warehouse facilities by $27.9 million.

CONTRACTUAL OBLIGATIONS AND ~~OFF BALANCE~~OFF-BALANCE SHEET ARRANGEMENTS

Contractual Obligations

We have analyzed our unfunded commitments and other contractual obligations and have evaluated the appropriateness of the key assumptions in forecasting our ability to satisfy these obligations. Based upon these evaluations and analyses, we believe that we have adequate resources to fund all unfunded commitments to the extent required and meet all contractual obligations as they come due. At ~~September~~June 30, ~~2017,~~2018, such contractual obligations were primarily comprised of secured and unsecured borrowings, interest payments, operating leases and commitments to originate or purchase loans, including equity draws on reverse mortgages. ~~During~~There were no material changes to the ~~nine~~table of specified contractual obligations contained in our Annual Report on Form 10-K during the six months ended ~~September~~June 30, ~~2017,~~2018, except that we ~~executed two new~~terminated our match funded lending ~~agreements~~agreement to finance automotive dealer loans made by ~~our~~the ACS ~~business. We also executed renewals~~business and ~~reductions in~~we reduced the borrowing capacity of certain ~~mortgage loan warehouse and~~ match funded advance financing facilities. Our short-term commitments to lend in connection with our forward mortgage loan interest rate lock commitments outstanding at September 30, 2017 have declined since December 31, 2016, primarily as a result of our decision to exit the forward lending correspondent channel and volume reductions in the forward lending wholesale channel. There were no other significant changes to our contractual obligations during the nine months ended September 30, 2017. See Note 11 – Borrowings to the Unaudited Consolidated Financial Statements for additional information.

Our forecasting with respect to our ability to satisfy our contractual obligations requires management to use judgment and estimates and includes factors that may be beyond our control. Additionally, our business has been undergoing substantial change, which has magnified the uncertainties that are inherent in the forecasting process. Our actual results could differ materially from our estimates, and if this were to occur, it could have a material adverse effect on our business, financial condition, liquidity and results of operations.

Off-Balance Sheet Arrangements

In the normal course of business, we engage in transactions with a variety of financial institutions and other companies that are not reflected on our balance sheet. We are subject to potential financial loss if the counterparties to our off-balance sheet transactions are unable to complete an agreed upon transaction. We manage counterparty credit risk by entering into financial instrument transactions through national exchanges, primary dealers or approved counterparties and through the use of mutual margining agreements whenever possible to limit potential exposure. We regularly evaluate the financial position and creditworthiness of our counterparties. Our off-balance sheet arrangements include mortgage loan repurchase and indemnification obligations, unconsolidated SPEs (a type of VIE) and notional amounts of our derivatives. We have also entered into non-cancelable operating leases principally for our office facilities.

Mortgage Loan Repurchase and Indemnification Liabilities. We have exposure to representation, warranty and indemnification obligations in our capacity as a loan originator and servicer. We recognize the fair value of representation and warranty obligations in connection with originations upon sale of the loan or upon completion of an acquisition. Thereafter, the estimation of the liability considers probable future obligations based on industry data of loans of similar type segregated by year of origination and estimated loss severity based on current loss rates for similar loans. Our historical loss severity considers the historical loss experience that we incur upon sale or liquidation of a repurchased loan as well as current market conditions.

The underlying trends for loan repurchases and indemnifications are volatile, and there is significant uncertainty regarding our expectations of future loan repurchases and indemnifications and related loss severities. Due to the significant uncertainties surrounding estimates related to future repurchase and indemnification requests by investors and insurers as well as uncertainties surrounding home prices, it is possible that our exposure could exceed our recorded mortgage loan repurchase and

indemnification liability. Our estimate of the mortgage loan repurchase and indemnification liability considers the current macro-economic environment and recent repurchase trends; however, if we experience a prolonged period of higher repurchase and indemnification activity or a decline in home values, then our realized losses from loan repurchases and indemnifications may ultimately be in excess of our recorded liability. Given the levels of realized losses in recent periods, there is a reasonable possibility that future losses may be in excess of our recorded liability. See Note 2 – Securitizations and Variable Interest Entities, Note 12 – Other Liabilities and Note 2120 – Contingencies to the Unaudited Consolidated Financial Statements for additional information.

Involvement with ~~SPEs~~VIEs. We use SPEs and VIEs for a variety of purposes but principally in the financing of our servicing advances and in the securitization of mortgage loans. We ~~consolidate~~include VIEs in our unaudited consolidated financial statements if we determine we are the ~~servicing advance financing SPEs.~~primary beneficiary. See Note 2 – Securitizations and Variable Interest Entities to the Unaudited Consolidated Financial Statements for additional information.

We generally use match funded securitization facilities to finance our servicing advances. The SPEs to which the receivables for servicing advances are transferred in the securitization transaction are included in our consolidated financial statements either because we have the majority equity interest in the SPE or because we are the primary beneficiary where the SPE is a VIE. Holders of the debt issued by the SPEs have recourse only to the assets of the SPEs for satisfaction of the debt.

~~VIEs~~. If we determine that we are the primary beneficiary of a VIE, we include the VIE in our consolidated financial statements. We have interests in VIEs that we do not consolidate because we have determined that we are not the primary beneficiary of the VIEs. In addition, we have transferred forward and reverse mortgage loans in transactions accounted for as sales or as secured borrowings for which we retained the obligation for servicing and for standard representations and warranties on the loans. See ~~Note 2 – Securitizations and Variable Interest Entities~~ ~~to the Unaudited Consolidated Financial Statements for additional information.~~

Derivatives. We record all derivatives at fair value on our consolidated balance sheets. We use these derivatives primarily to manage our interest rate risk. The notional amounts of our derivative contracts do not reflect our exposure to credit loss. See Note 1413 – Derivative Financial Instruments and Hedging Activities to the Unaudited Consolidated Financial Statements for additional information.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our ability to measure and report our financial position and operating results is influenced by the need to estimate the impact or outcome of future events based on ~~the basis of~~ information available at the date of the financial statements. An accounting estimate is considered critical if it requires that management make assumptions about matters that were highly uncertain at the time the accounting estimate was made. If actual results differ from our judgments and assumptions, then it may have an adverse impact on the results of operations and cash flows. We have processes in place to monitor these judgments and assumptions, and management is required to review critical accounting policies and estimates with the Audit Committee of the Board of Directors. Our significant accounting policies and critical accounting estimates are disclosed in ~~Amendment No. 1 to~~ our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2017 in Note 1 to the Consolidated Financial Statements and in Management’s Discussion and Analysis of Financial Condition and Results of Operations under “Critical Accounting Policies and Estimates.”

Fair Value Measurements

We use fair value measurements to record fair value adjustments to certain instruments and to determine fair value disclosures. Refer to Note 3 – Fair Value to the Unaudited Consolidated Financial Statements for the fair value hierarchy, descriptions of valuation methodologies used to measure significant assets and liabilities at fair value and details of the valuation models, key inputs to those models, and significant assumptions utilized. We follow the fair value hierarchy ~~in order~~ to prioritize the inputs utilized to measure fair value. We review and modify, as necessary, our fair value hierarchy classifications on a quarterly basis. As such, there may be reclassifications between hierarchy levels.

The following table summarizes assets and liabilities measured at fair value on a recurring and nonrecurring basis and the amounts measured using Level 3 ~~inputs at the dates indicated:~~inputs:


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Loans held for sale	$	223,662		$	314,006		$	209,453		$	238,358
Loans held for investment - Reverse mortgages	4,459,760			3,565,716
Loans held for investment							5,143,758			4,715,831
MSRs - recurring basis	598,147			679,256			1,043,995			671,962
MSRs - nonrecurring basis, net (1)	136,856			144,783			—			133,227
Derivative assets	7,852			9,279			4,998			5,429
Mortgage-backed securities	9,327			8,342			1,732			1,592
U.S. Treasury notes	1,575			2,078			1,560			1,567
Assets at fair value	$	5,437,179		$	4,723,460		$	6,405,496		$	5,767,966
As a percentage of total assets	67		%	62		%	76		%	69		%
Financing liabilities
HMBS-related borrowings	4,358,277			3,433,781			5,040,983			4,601,556
Financing liability - MSRs pledged	447,843			477,707			672,619			508,291
Total financing liabilities	4,806,120			3,911,488			5,713,602			5,109,847
Derivative liabilities	71			1,550			2,448			635
Liabilities at fair value	$	4,806,191		$	3,913,038		$	5,716,050		$	5,110,482
As a percentage of total liabilities	64		%	56		%	73		%	65		%
Assets at fair value using Level 3 inputs	$	5,229,153		$	4,429,307		$	6,246,689		$	5,548,764
As a percentage of assets at fair value	96		%	94		%	98		%	96		%
Liabilities at fair value using Level 3 inputs	$	4,806,120		$	3,911,488		$	5,713,602		$	5,109,847
As a percentage of liabilities at fair value	100		%	100		%	100		%	100		%


(1)	The balance represents our impaired government-insured stratum of MSRs previously accounted for using the amortization method, ~~MSRs,~~ which iswere measured at fair value on a nonrecurring basis. The carrying value of this stratum is net of a valuation allowance of ~~$26.6 million and $28.2~~$24.8 million at ~~September 30, 2017 and~~ December 31, ~~2016, respectively.~~2017.

Assets at fair value using Level 3 inputs increased during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 primarily due to reverse mortgage ~~originations.~~originations and the fair value election on our remaining portfolio of amortization method MSRs. Liabilities at fair

value using Level 3 inputs increased primarily in connection with reverse mortgage securitizations, which we account for as secured financings. Our net economic exposure to Loans held for investment - Reverse mortgages and the related Financing liabilities (HMBS-related borrowings) is limited to the residual value we retain. Changes in inputs used to value the loans held for investment are largely offset by changes in the value of the related secured financing.

We have various internal controls in place to ensure the appropriateness of fair value measurements. Significant fair value measures are subject to analysis and management review and approval. Additionally, we utilize a number of operational controls to ensure the results are reasonable, including comparison, or “back testing,” of model results against actual performance and monitoring the market for recent trades, including our own price discovery in connection with potential and completed sales, and other market information that can be used to benchmark inputs or outputs. Considerable judgment is used in forming conclusions about Level 3 inputs such as interest rate movements, prepayment speeds, delinquencies, credit losses and discount rates. Changes to these inputs could have a significant effect on fair value measurements.

Valuation and Amortization of MSRs

MSRs are assets that represent the right to service a portfolio of mortgage loans. We originate MSRs from our lending activities and obtain MSRs through asset acquisitions or business combinations. For initial measurement, acquired and originated MSRs are initially measured at fair value. Subsequent to acquisition or origination, we elect to account for MSRs using either the amortization method or the fair value measurement method. For MSRs accounted for using the amortization measurement method, we assess servicing assets or liabilities for impairment or increased obligation based on fair value on a quarterly basis. We group our MSRs by stratum for impairment testing based on the predominant risk characteristics of the underlying mortgage loans. Historically, our strata had been defined as conventional loans (i.e. conforming to the underwriting standards of Fannie Mae or Freddie Mac), government-insured loans (insured by FHA or VA) and non-Agency loans (i.e. all private label primary and master serviced).

Effective January 1, 2018, we elected fair value accounting for our MSRs previously accounted for using the amortization method, which included Agency MSRs and government-insured MSRs. Effective with this election, our entire portfolio of MSRs is accounted for using the fair measurement method. This irrevocable election applies to all subsequently acquired or originated servicing assets and liabilities that have characteristics consistent with each of these classes. We ~~recognized~~recorded a cumulative-effect adjustment of $82.0 million to retained earnings as of January 1, 2018 to reflect the ~~reversal~~excess of ~~$1.6 million of impairment charges on our government-insured MSRs during the nine months ended September 30, 2017 (including a $6.2 million reversal during the third quarter), as~~ the fair value ~~for this stratum increased relative to its~~of the Agency MSRs over their carrying amount. The government-insured MSRs were impaired by $24.8 million at December 31, 2017; therefore, these MSRs are already effectively carried at fair value. ~~This reversal of impairment was primarily due to a favorable assumption update in~~At December 31, 2017, the ~~third quarter of 2017 relating to the recoverability of certain advances on various privately-held government-insured loans. The~~

UPB and net carrying value of ~~this stratum at September 30,~~Agency MSRs for which the fair value election was made was $40.9 billion and $336.9 million, respectively. At December 31, 2017, the UPB and net carrying value of government-insured MSRs for which the fair value election was ~~$136.9~~made was $16.9 billion and $133.2 million, ~~net of the valuation allowance of $26.6 million. We recognize MSR impairment charges and reversals in Servicing and origination expense in the consolidated statements of operations.~~respectively.

The determination of the fair value of MSRs requires management judgment due to the number of assumptions that underlie the valuation. We estimate the fair value of our MSRs using a process based upon the use of independent third-party valuation experts and supported by commercially available discounted cash flow models and analysis of current market data. The key assumptions used in the valuation of these MSRs include prepayment speeds, loan delinquency, cost to service and discount rates.

Income Taxes

In December 2017, the Securities and Exchange Commission Staff issued Staff Accounting Bulletin (SAB) 118, which provides guidance on accounting for the income tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740, Income Taxes. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Tax Act for which the accounting under ASC 740 is complete. To the extent that a company's accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements and should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act. We adopted the guidance of SAB 118 as of December 31, 2017. See Note 15 - Income Taxes for additional information on the Tax Act and the impact on our consolidated financial statements.

We record a tax provision for the anticipated tax consequences of the reported results of operations. We compute the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. We measure deferred tax assets and liabilities using the currently enacted tax rates in each jurisdiction that applies to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.

We conduct periodic evaluations of positive and negative evidence to determine whether it is more likely than not that the deferred tax asset can be realized in future periods. In these evaluations, we gave more significant weight to objective evidence, such as our actual financial condition and historical results of operations, as compared to subjective evidence, such as projections of future taxable income or losses.

For the three-year periods ended December 31, 2017 and 2016, the USVI filing jurisdiction was in a material cumulative loss position. The U.S. jurisdiction was also in a three-year cumulative loss position as of December 31, 2017 and 2016. We recognize that cumulative losses in recent years is an objective form of negative evidence in assessing the need for a valuation allowance and that such negative evidence is difficult to overcome. Other factors considered in these evaluations are estimates of future taxable income, future reversals of temporary differences, tax character and the impact of tax planning strategies that may be implemented, if warranted.

As a result of these evaluations, ~~as of December 31, 2016,~~ we recognized a full valuation allowance ~~for the $95.5~~of $62.9 million ofon our U.S. deferred tax assets and ~~for the $36.2~~$43.9 million on our USVI deferred tax ~~assets as the~~assets. The U.S. and USVI jurisdictional deferred tax assets are not considered to be more likely than not realizable based on all available positive and negative evidence. We intend to continue maintaining a full valuation allowance on our deferred tax assets in both the U.S. and USVI until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period in which the release is recorded. However, the exact timing and amount of the valuation allowance release ~~are~~is subject to change based on the profitability that we achieve.

Net operating loss (NOL) carryforwards may be subject to annual limitations under Internal Revenue Code Section 382 (Section 382) (or comparable provisions of foreign or state law) in the event that certain changes in ownership were to occur. We periodically evaluate our NOL carryforwards and whether certain changes in ownership have occurred as measured under Section 382 that would limit our ability to utilize a portion of our NOL carryforwards. If it is determined that an ownership change(s) has occurred, there may be annual limitations on the use of these NOL carryforwards under Section 382 (or comparable provisions of foreign or state law).

We are currently in the process of evaluating whether we experienced an ownership change as ~~defined~~measured under Section 382, and ~~have~~during 2017 identified risk that an ownership change may have occurred in the U.S. jurisdiction, ~~during 2015.~~which would also result in an ownership change under Section 382 in the USVI jurisdiction. As part of this evaluation, Ocwen is seeking additional information pertaining to certain identified 5% shareholders, and their economic ownership for Section 382 purposes. To the extent ~~this~~an ownership change is ultimately determined to have occurred, the annual utilization of our NOLs may be subject to certain limitations under Section 382 and other limitations under state tax laws.

Any reduction to our NOL deferred tax asset due to an annual Section 382 limitation and the NOL carryforward period ~~would~~is expected to result in an offsetting reduction in valuation allowance related to the NOL deferred tax asset. ~~Therefore,~~In addition, any limitation on the utilization of our NOL carryforwards could result in Ocwen incurring a current tax liability. At this time, we ~~would~~ anticipate that any limitation would not have a material impact on our consolidated statements of operations.

~~Indemnification Obligations~~

~~We have exposure to representation, warranty~~ However, as we are still in the process of evaluating whether and ~~indemnification obligations because~~when we experienced an ownership change and are seeking additional information from shareholders, the final impact of our lending, sales and securitization activities, our acquisitions to the extent we assume one or more of these obligations, and in connection with our servicing practices. We initially recognize these obligations at fair value. Thereafter, the estimation of the liability considers probable future obligations based on industry data of loans of similar type segregated by year of origination, to the extent applicable, and estimated loss severity based on current loss rates for similar loans, our historical rescission rates and the current pipeline of unresolved demands. Our historical loss severity considers the historical loss experience that we incur upon sale or liquidation of a repurchased loan as well as current market conditions. We monitor the adequacy of the overall liability

~~and make adjustments, as necessary, after consideration of other qualitative factors including ongoing dialogue and experience with our counterparties.~~Section 382 limitations has not been determined.

Litigation

We monitor our litigation matters, including advice from external legal counsel, and regularly perform assessments of these matters for potential loss accrual and disclosure. We establish liabilities for settlements, judgments on appeal and filed and/or threatened claims for which we believe it is probable that a loss has been or will be incurred and the amount can be reasonably estimated.

Going Concern

In accordance with ASC 205-40, Presentation of Financial Statements - Going Concern, we evaluate whether there are conditions that are known or reasonably knowable that raise substantial doubt about our ability to continue as a going concern within one year after the date that our financial statements are issued. We perform a detailed review and analysis of relevant quantitative and qualitative information from across our organization in connection with this evaluation. To support this effort, senior management from key business units reviews and assesses the following information:

our current financial condition, including liquidity sources at the date that the financial statements are issued (e.g., available liquid funds and available access to credit, including covenant compliance);

our conditional and unconditional obligations due or anticipated within one year after the date that the financial statements are issued (regardless of whether those obligations are recognized in our financial statements);

funds necessary to maintain operations considering our current financial condition, obligations and other expected cash flows within one year after the date that the financial statements are issued (i.e., financial forecasting); and

other conditions and events, when considered in conjunction with the above items, that may adversely affect our ability to meet obligations within one year after the date that the financial statements are issued (e.g., negative financial trends, indications of possible financial difficulties, internal matters such as a need to significantly revise operations and external matters such as adverse regulatory/legal proceedings or rating agency decisions).

If such conditions exist, management evaluates its plans that when implemented would mitigate the condition(s) and alleviate the substantial doubt about our ability to continue as a going concern. Such plans are considered only if information available as of the date that the financial statements are issued indicates both of the following are true:

it is probable management’s plans will be implemented within the evaluation period; and

it is probable management’s plans, when implemented individually or in the aggregate, will mitigate the condition(s) that raise substantial doubt about our ability to continue as a going concern in the evaluation period.

Our evaluation of whether it is probable that management’s plans will be effectively implemented within the evaluation period is based on the feasibility of implementation of management’s plans in light of our specific facts and circumstances.

Our evaluation of whether it is probable that our plans, individually or in the aggregate, will be implemented in the evaluation period involves a degree of judgment, including about matters that are, to different degrees, uncertain.

RECENT ACCOUNTING DEVELOPMENTS

Recent Accounting Pronouncements

~~We adopted each~~Listed below are recent Accounting Standards Update (ASU) ~~listed below~~that we adopted on January 1, ~~2017.~~2018. We adopted ASU 2016-16 on a modified retrospective basis by recording a cumulative-effect reduction of $5.6 million to retained earnings. Our adoption of ~~these~~the other standards listed below did not have a material impact on our ~~Unaudited Consolidated~~unaudited consolidated financial statements.

ASU 2014-09: Revenue from Contracts with Customers

ASU 2016-01: Financial ~~Statements.~~Instruments: Recognition and Measurement of Financial Assets and Financial Liabilities

~~Income Taxes: Balance Sheet~~ASU 2016-15: Statement of Cash Flows: Classification of ~~Deferred Taxes (ASU 2015-17)~~Certain Cash Receipts and Cash Payments

~~Derivatives and Hedging: Effect~~ASU 2016-18: Statement of ~~Derivative Contract Novations on Existing Hedge Accounting Relationships (ASU 2016-05)~~Cash Flows: Restricted Cash

~~Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments (ASU 2016-06)~~ASU 2017-01: Business Combinations: Clarifying the Definition of a Business

~~Investments - Equity Method and Joint Ventures: Simplifying the Transition to the Equity Method of Accounting (ASU 2016-07)~~ASU 2017-09: Compensation: Stock Compensation

~~Compensation - Stock Compensation: Improvements to Employee Shared-Based Payment Accounting (ASU 2016-09)~~

~~Consolidation: Interests Held through Related Parties That Are under Common Control (ASU 2016-17)~~

~~Technical Corrections and Improvements (ASU 2016-19)~~

We are also evaluating the impact of recently issued ASUs not yet adopted that are not effective for us until on or after January 1, ~~2018.~~2019. While we do not anticipate that our adoption of most of these ASUs will have a material impact on our consolidated financial statements, we are currently evaluating the effect of adopting certain ASUs. See Note 1 – Organization, Business Environment and Basis of Presentation to the Unaudited Consolidated Financial Statements for additional information.


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in thousands unless otherwise indicated)

Our principal market exposure is to interest rate risk due to the impact on our mortgage-related assets and commitments, including mortgage loans held for sale, IRLCs and MSRs. Changes in interest rates could materially and adversely affect our volume of mortgage loan originations or reduce the value of our MSRs. We also have exposure to the effects of changes in interest rates on our borrowings, including advance financing facilities.

Interest rate risk is a function of (i) the timing of re-pricing and (ii) the dollar amount of assets and liabilities that re-price at various times. We are exposed to interest rate risk to the extent that our interest rate sensitive liabilities mature or re-price at different speeds, or on different bases, than interest-earning assets.

Our management-level Credit and Market Risk Committee establishes and maintains policies that govern our hedging program, including such factors as our target hedge ratio, the hedge instruments that we are permitted to use in our hedging activities and the counterparties with whom we are permitted to enter into hedging transactions. See Note 1413 – Derivative Financial Instruments and Hedging Activities to the Unaudited Consolidated Financial Statements for additional information regarding our use of derivatives.

Match Funded Liabilities

We monitor the effect of increases in interest rates on the interest paid on our variable rate advance financing debt. Earnings on cash and float balances are a partial offset to our exposure to changes in interest expense. ToBased on the extent to

which the projected excess of our interest expense on variable rate debt ~~over~~exceeds interest income on our cash and float balances, ~~require,~~ we would consider hedging this exposure with interest rate swaps or other derivative instruments. We may purchase interest rate caps as economic hedges (not designated as a hedge for accounting purposes) as required by certain of our advance financing arrangements.

IRLCs and Loans Held for Sale

IRLCs represent an agreement to purchase loans from a third-party originator or an agreement to extend credit to a mortgage loan applicant, whereby the interest rate on the loan is set prior to funding. In our lending business, mortgage loans held for sale and IRLCs are subject to the effects of changes in mortgage interest rates from the date of the commitment through the sale of the loan into the secondary market. As a result, we are exposed to interest rate risk and related price risk during the period from the date of the lock commitment through (i) the lock commitment cancellation or expiration date or (ii) through the date of sale of the resulting loan into the secondary mortgage market. Loan commitments for forward loans range from 5 to 90 days, but the majority of our commitments are for ~~15 days (in the correspondent and broker channels) or~~ 60 ~~days (for the retail channel).~~days. Our holding period for forward mortgage loans from funding to sale is typically less than 30 days. Loan commitments for reverse loans range from 10 to 30 days. The majority of our reverse loans are variable rate loan commitments. Our interest rate exposure on these derivative loan commitments is hedged with freestanding derivatives such as forward contracts. We enter into forward contracts with respect to both fixed and variable rate loan commitments.

For loans held for sale that we have elected to carry at fair value, we manage the associated interest rate risk through an active hedging program overseen by our ~~Investment~~management’s Credit and Market Risk Committee. Our hedging policy determines the hedging instruments to be used in the mortgage loan hedging program, which include forward sales of agency “to be announced” securities (TBAs), whole loan forward sales, Eurodollar futures and interest rate options. Forward ~~mortgage-backed securities (MBS)~~MBS trades are primarily used to fix the forward sales price that will be realized upon the sale of mortgage loans into the secondary market. Our hedging policy also stipulates the hedge ratio we must maintain in managing this interest rate risk, which is also monitored by ~~our Investment~~management’s Credit and Market Risk Committee.

Fair Value MSRs

We have elected to account for two classes of MSRs at fair value. The first is a class of acquired Agency MSRs, principally originated during 2012, for which we hedged the interest rate risk because the mortgage notes underlying the MSRs permit the borrowers to prepay the loans. Effective April 1, 2013, we modified our strategy for managing the risks of the portfolio of loans underlying this class of fair value MSRs and closed out the remaining economic hedge positions associated with this class. We terminated these hedges because we determined that they were ineffective for large movements in interest rates and only assured losses in substantial increasing-rate environments. The second class of MSRs accounted for at fair value was designated on January 1, ~~2015, when~~2018, we elected fair value accounting for ~~a newly created class of non-Agency~~our MSRs ~~that we~~ previously accounted for using the amortization method, which included Agency MSRs and government-insured MSRs. Effective with this election, our entire portfolio of MSRs is accounted for using the fair measurement method.

Interest Rate Sensitive Financial Instruments

The tables below present the notional amounts of our financial instruments that are sensitive to changes in interest rates and the related fair value of these instruments at the dates indicated. We use certain assumptions to estimate the fair value of these instruments. See Note 3 – Fair Value to the Unaudited Consolidated Financial Statements for additional information regarding fair value of financial instruments.


	September 30, 2017				December 31, 2016				June 30, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value		Carrying Value		Fair Value
Rate-Sensitive Assets:
Interest-earning cash	$	93,817	$	93,817	$	146,698	$	146,698	$	104,857	$	104,857	$	99,627	$	99,627
Loans held for sale, at fair value	200,438		200,438		284,632		284,632		153,906		153,906		214,262		214,262
Loans held for sale, at lower of cost or fair value (1)	23,224		23,224		29,374		29,374		55,547		55,547		24,096		24,096
Loans held for investment, at fair value	4,459,760		4,459,760		3,565,716		3,565,716		5,143,758		5,143,758		4,715,831		4,715,831
Automotive dealer financing notes (including match funded)	36,036		38,578		33,224		33,147		22		22		32,757		32,590
U.S. Treasury notes	1,575		1,575		2,078		2,078		1,560		1,560		1,567		1,567
Debt service accounts and interest-earning time deposits	44,133		44,133		49,276		49,276		25,972		25,972		38,465		38,465
Total rate-sensitive assets	$	4,858,983	$	4,861,525	$	4,110,998	$	4,110,921	$	5,485,622	$	5,485,622	$	5,126,605	$	5,126,438

Rate-Sensitive Liabilities:
Match funded liabilities	$	1,028,016	$	1,023,241	$	1,280,997	$	1,275,059
HMBS-related borrowings	4,358,277		4,358,277		3,433,781		3,433,781
Other secured borrowings (2)	544,589		553,511		678,543		682,703
Senior notes (2)	347,201		343,805		346,789		355,303
Total rate-sensitive liabilities	$	6,278,083	$	6,278,834	$	5,740,110	$	5,746,846

September 30, 2017 December 31, 2016

Notional
Balance

Fair
Value

Notional
Balance

Fair
Value
Rate-Sensitive Derivative Financial Instruments:
Derivative assets (liabilities):
Interest rate caps $ 448,333
$ 1,839
$ 955,000
$ 1,836
IRLCs 206,791
4,969
360,450
6,507
Forward MBS trades 369,700
973
609,177
(614 )
Derivatives, net

$ 7,781

$ 7,729



	June 30, 2018				December 31, 2017
	Carrying Value		Fair Value		Carrying Value		Fair Value
Rate-Sensitive Liabilities:
Match funded liabilities	$	750,694	$	745,539	$	998,618	$	992,698
HMBS-related borrowings	5,040,983		5,040,983		4,601,556		4,601,556
Other secured borrowings (2)	340,418		347,107		545,850		555,523
Senior notes (2)	347,612		360,125		347,338		358,422
Total rate-sensitive liabilities	$	6,479,707	$	6,493,754	$	6,493,362	$	6,508,199



	June 30, 2018					December 31, 2017
	Notional Balance		Fair Value			Notional Balance		Fair Value
Rate-Sensitive Derivative Financial Instruments:
Derivative assets (liabilities):
Interest rate caps	$	375,000	$	1,657		$	375,000	$	2,056
IRLCs	106,418		3,315			96,339		3,283
Forward MBS trades	198,433		(2,422		)	240,823		(545		)
Derivatives, net			$	2,550				$	4,794


(1)	Net of market valuation allowances and including non-performing loans.


(2)	Carrying values are net of unamortized debt issuance costs and discount.

Sensitivity Analysis

Fair Value MSRs, Loans Held for Sale and Related Derivatives

The following table summarizes the estimated change in the fair value of our MSRs and loans held for sale that we have elected to carry at fair value as well as any related derivatives at ~~September~~June 30, ~~2017,~~2018, given hypothetical instantaneous parallel shifts in the yield curve. We used ~~September~~June 30, ~~2017~~2018 market rates to perform the sensitivity analysis. The estimates are based on the market risk sensitive portfolios described in the preceding paragraphs and assume instantaneous, parallel shifts in interest rate yield curves. These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship to the change in fair value may not be linear.


	Change in Fair Value						Change in Fair Value
	Down 25 bps			Up 25 bps			Down 25 bps			Up 25 bps
Loans held for sale	$	2,322		$	(2,629	)	$	1,274		$	(1,496	)
Forward MBS trades	(3,188		)	3,305			(1,323		)	1,502
Total loans held for sale and related derivatives	(866		)	676			(49		)	6

Fair value MSRs (1)	(757		)	772			(11,638		)	(510		)
MSRs, embedded in pipeline	(16		)	23			(34		)	64
Total fair value MSRs	(773		)	795			(11,672		)	(446		)

Total, net	$	(1,639	)	$	1,471		$	(11,721	)	$	(440	)

(1)

~~This change in fair value~~Primarily reflects the impact of market rate changes on projected prepayments on the Agency MSR portfolio ~~carried at fair value. Additionally, non-Agency MSRs carried at fair value can exhibit cash flow sensitivity for~~and on advance ~~financing~~funding costs ~~and / or float earnings indexed to a market rate. However, we believe the pricing levels~~ on aged non-Agency MSRs should remain stable despite the recent rise in LIBOR rates, given the lack of market transactions supporting any pricing change, and the general industry approach to conservatively valuing such assets. As such, we have assumed zero sensitivity to a 25 bps change in market rates for the non-Agency MSR portfolio.

Borrowings

The debt used to finance much of our operations is exposed to interest rate fluctuations. We may purchase interest rate swaps and interest rate caps to minimize future interest rate exposure from increases in ~~1-Month LIBOR~~1ML interest rates.

Based on ~~September~~June 30, ~~2017~~2018 balances, if interest rates were to increase by 1% on our variable rate debt and interest earning cash and float balances, we estimate a net positive impact of approximately ~~$8.5~~$10.7 million resulting from an increase of ~~$23.1~~ $19.5

million in annual interest income and an increase of ~~$14.6~~$8.9 million in annual interest expense. The increase in interest expense reflects the effect of our hedging activities, which would offset ~~$3.1~~$2.6 million of the increase in interest on our variable rate debt.


ITEM 4.	CONTROLS AND PROCEDURES

Our management, under the supervision of and with the participation of our ~~Chief Executive Officer~~principal executive officer and ~~our Chief Financial Officer,~~principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), as of ~~September~~June 30, ~~2017.~~2018.

Based on such evaluation, and solely because of the previously disclosed material weakness in internal control over financial reporting (see our Annual Report on Form 10-K/A for the year ended December 31, 2016) related to ineffective controls regarding the review and disclosure of regulatory matters, management concluded that our disclosure controls and procedures ~~were not effective~~ as of ~~September~~June 30, ~~2017. Our controls related to the review~~2018 were (1) designed and ~~disclosure of regulatory matters were not operating~~functioning effectively to ensure ~~such matters were adequately disclosed. A~~that material ~~weakness~~information relating to Ocwen, including its consolidated subsidiaries, is ~~a deficiency,~~made known to our principal executive officer and principal financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) operating effectively in that they provided reasonable assurance that information required to be disclosed by Ocwen in the reports that it files or ~~a combination~~submits under the Securities Exchange Act of ~~deficiencies,~~1934 (i) is recorded, processed, summarized and reported within the time periods specified in ~~internal control over~~the SEC’s rules and forms and (ii) accumulated and communicated to management, including our principal executive officer or principal financial ~~reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a~~officer, as appropriate, to allow timely ~~basis.~~decisions regarding required disclosure.

Management strengthened controls to improve the communication and evaluation of regulatory matters and related disclosures to and by Ocwen’s Disclosure Review Committee (DRC) by creating a working group comprised of representatives from accounting, financial reporting, legal and compliance who are charged with reviewing regulatory matters and disclosures. The DRC will also include a discussion of regulatory matters on its agenda. Management believes these changes will remediate the material weakness in internal control over financial reporting described above. We will test the ongoing operating effectiveness of the new controls in future periods. The material weakness cannot be considered remediated until the applicable

~~remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively.~~

~~Other than the controls related to the review and disclosure of regulatory matters as noted above (which have been implemented), there~~There have not been any changes in our internal control over financial reporting that occurred during the fiscal quarter ended ~~September~~June 30, ~~2017~~2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

See Note 2118 – Regulatory Requirements and Note 20 – Contingencies to the Unaudited Consolidated Financial Statements. That information is incorporated into this item by reference.


ITEM 1A.	RISK FACTORS

An investment in our common stock involves significant risk. We describe the most significant risks that management believes affect or could affect us under Part I of ~~Amendment No. 1 to~~ our Annual Report on Form 10-K for the year ended December ~~31, 2016, and we added additional risk factors in our Quarterly Report on Form 10-Q for the quarter ended March~~ 31, 2017. Understanding these risks is important to understanding any statement in such Annual Report and in our subsequent SEC filings (including this Form 10-Q) and to evaluating an investment in our common stock. You should carefully read and consider the risks and uncertainties described therein together with all of the other information included or incorporated by reference in such Annual Report and in our subsequent SEC filings before you make any decision regarding an investment in our common stock. You should also consider the information set forth above under “Forward-Looking Statements.” If any of the risks actually occur, our business, financial condition, liquidity and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could significantly decline, and you could lose some or all of your investment.


ITEM 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~All unregistered sales of equity securities have been previously reported.~~Not applicable.


ITEM 6.	EXHIBITS



		3.1		Amended and Restated Articles of Incorporation, as amended (1)
		3.2		Amended and Restated Bylaws of Ocwen Financial Corporation (2)
		10.1*		~~Master Agreement~~Offer Letter, dated ~~as of July 23, 2017 by~~April 17, 2018, between Ocwen Financial Corporation and ~~among Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, HLSS MSR - EBO Acquisition LLC, and New Residential Mortgage LLC (filed herewith)~~Glen Messina (3)
		~~10.2~~10.2*		~~Amendment No. 1, dated October 12, 2017, to Master~~Release and Restrictive Covenant Agreement, dated ~~as of July 23, 2017 by~~April 17, 2018, between Ocwen Financial Corporation and ~~among Ocwen Loan Servicing, LLC, HLSS Holdings, LLC, HLSS MSR - EBO Acquisition LLC, and New Residential Mortgage LLC (filed herewith)~~Ronald M. Faris (3)
		10.3*		~~Transfer~~Separation Agreement and Full Release, dated ~~as of July 23, 2017 by and~~May 29, 2018, between ~~Ocwen Loan Servicing, LLC, New Residential Mortgage LLC,~~ Ocwen Financial Corporation and ~~New Residential Investment Corp. (filed herewith)~~Michael R. Bourque, Jr. (4)
		10.4*		~~Subservicing Agreement dated as of July 23, 2017 by and between New Residential Mortgage LLC and~~ Ocwen ~~Loan Servicing, LLC (filed herewith)~~Financial Corporation United States Basic Severance Plan (5)
		~~10.5~~10.5*		~~Transaction Agreement for share purchase dated as of July 23, 2017 by and between New Residential Investment Corp. and~~ Ocwen Financial Corporation ~~(filed herewith)~~United States Change in Control Severance Plan (5)
		31.1		Certification of the ~~Chief Executive Officer~~principal executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
		31.2		Certification of the ~~Chief Financial Officer~~principal financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)
		32.1		Certification of the ~~Chief Executive Officer~~principal executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
		32.2		Certification of the ~~Chief Financial Officer~~principal financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)
		101.INS		XBRL Instance Document (filed herewith)
		101.SCH		XBRL Taxonomy Extension Schema Document (filed herewith)
		101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document (filed herewith)
		101.DEF		XBRL Taxonomy Extension Definition Linkbase Document (filed herewith)
		101.LAB		XBRL Taxonomy Extension Label Linkbase Document (filed herewith)
		101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document (filed herewith)

* ~~Portions of this exhibit have been omitted pursuant to a request for confidential treatment.~~Management contract or compensatory plan or agreement.


(1)	Incorporated by reference to the similarly described exhibit included with the Registrant’s Form 10-Q for the quarterly period ended June 30, 2017 filed with the SEC on August 3, 2017.


(2)	Incorporated by reference to the similarly described exhibit included with the Registrant’s Form 8-K filed with the SEC on February 19, 2016.


(3)	Incorporated by reference to the similarly described exhibit included with the Registrant’s Form 8-K filed with the SEC on April 19, 2018.


(4)	Incorporated by reference to the similarly described exhibit included with the Registrant’s Form 8-K filed with the SEC on May 29, 2018.


(5)	Incorporated by reference to the similarly described exhibit included with the Registrant’s Form 8-K filed with the SEC on July 2, 2018.

Signatures

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



	Ocwen Financial Corporation

	By:	/s/ ~~Michael R. Bourque, Jr.~~Catherine M. Dondzila
		~~Michael R. Bourque, Jr.~~
		~~Executive~~Senior Vice President and Chief ~~Financial~~Accounting Officer (On behalf of the Registrant and as its principal financial officer)
Date: ~~November 1, 2017~~July 26, 2018

8885



	September 30, 2017		December 31, 2016
Weighted average life in months	2.2		2.7
Average note rate	8.3	%	8.3	%
Discount rate	10.0	%	10.0	%
Loan loss rate	19.2	%	11.3	%



Nine months ended September 30, 2017	2017 Agreements						2012 - 2013 Agreements
	MSR						MSR
	UPB			Carrying Value			UPB			Carrying Value			Financing Liability (1) (2)
Beginning balance	$	—		$	—		$	118,712,748		$	477,707		$	(477,707	)
Transfers upon receipt of consents	15,872,374			31,253			(15,872,374		)	(31,253		)	—
Receipt of lump sum payment in connection with transfer of MSRs to NRZ (3)	—			—			—			—			(54,601		)
Calls (4)	(134,705		)	(322		)	(1,132,497		)	(4,156		)	4,478
Sales and other transfers	—			—			(57,793		)	—			—
Changes in fair value (3):
Changes in valuation inputs or other assumptions	—			(2,444		)	—			(1,471		)	27,024
Realization of expected future cash flows and other changes	—			(1,459		)	—			(52,266		)	—
Decrease in impairment valuation allowance	—			—			—			13,769			—
Runoff, settlements and other	(217,048		)	—			(11,613,047		)	1,529			52,963
Ending balance	$	15,520,621		$	27,028		$	90,037,037		$	403,859		$	(447,843	)

Advances				N/A						$	2,727,107



	September 30, 2017			December 31, 2016
Servicing:
Government-insured loan claims, net (1)	$	118,113		$	133,063
Due from custodial accounts	34,423			44,761
Reimbursable expenses	31,565			29,358
Due from NRZ	11,548			21,837
Other	13,551			27,086
	209,200			256,105
Income taxes receivable	38,666			61,932
Other receivables (2)	46,519			21,125
	294,385			339,162
Allowance for losses (1)	(62,871		)	(73,442		)
	$	231,514		$	265,720



	September 30, 2017			December 31, 2016
6.625% Senior unsecured notes due May 15, 2019	$	3,122		$	3,122
8.375% Senior secured notes due November 15, 2022	346,878			346,878
	350,000			$	350,000
Unamortized debt issuance costs	(2,799		)	(3,211		)
	$	347,201		$	346,789