~~Note 1 – Organization, Business Environment and Basis of Presentation~~

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,~~non-bank mortgage servicer and originator providing solutions through its primary operating subsidiaries, ~~originates~~PHH Mortgage Corporation (PMC) and ~~services loans.~~Liberty Home Equity Solutions, Inc. (Liberty). We are headquartered in West Palm Beach, Florida with offices ~~located throughout~~in 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 common stock of its ~~other primary~~ operating ~~subsidiaries: Ocwen Loan Servicing, LLC (OLS),~~subsidiaries, including PMC since its acquisition on October 4, 2018, Liberty, Ocwen Financial Solutions Private Limited (OFSPL)~~, Homeward Residential,~~ and Ocwen Mortgage Servicing, Inc. ~~(Homeward) and Liberty Home Equity Solutions, Inc. (Liberty)~~(OMS).

We perform servicing activities on behalf of 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 property tax and insurance premium payments, default and property maintenance payments and principal and interest payments on behalf of delinquent borrowers to mortgage loan investors before 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 generally 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, 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 ~~mortgages.~~mortgages, generally servicing retained. The GSEs or Ginnie Mae guarantee these mortgage securitizations. We originate ~~Home Equity Conversion Mortgages (HECM,~~HECM loans, or reverse ~~mortgages)~~mortgages, that are insured by the FHA and are an approved issuer of ~~Home Equity Conversion Mortgage-Backed Securities (HMBS)~~HMBS that are guaranteed by Ginnie Mae.

We had a total of approximately ~~6,400~~5,600 employees at September 30, ~~2018~~2019 of which approximately ~~4,300~~3,500 were located in India and approximately 500 were based in the Philippines. Our operations in India and the Philippines primarily provide internal support services, principally to our loan servicing business and our corporate functions. Of our foreign-based employees, ~~more than~~nearly 80% were engaged in supporting our loan servicing operations as of September 30, ~~2018.~~2019.

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 operate our business successfully.

Losses ~~in prior years~~ have significantly eroded stockholders’ equity and weakened our financial condition. ~~In order~~Our near-term priority is to return to profitability in the shortest timeframe possible within an appropriate risk and compliance environment. If we execute on our key business initiatives, we believe we will drive stronger financial ~~performance,~~performance.

First, we ~~are focusing~~have successfully executed the acquisition of PHH Corporation (PHH) and continue our operations on mortgage servicing, on forward lending, primarily servicing portfolio recapture, and on our reverse mortgage business. We have significantly strengthened our cash position during 2018 through the receiptplanned integration of ~~a lump-sum fee payment of $279.6 million from NRZ in January 2018 in connection~~PHH ’s business with ~~our rights to mortgage servicing rights agreements.~~ours. See Note ~~8 — Rights to MSRs~~ ~~for further information.~~

~~On October 4, 2018, we acquired PHH Corporation (PHH). We believe this acquisition will enable the following key strategic and financial benefits:~~

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

~~Reduce fixed costs, on a combined basis, through reductions in corporate overhead and other costs;~~

~~Improve economies of scale; and,~~

~~Provide a foundation to enable the combined servicing platform to resume new business and growth activities to offset portfolio runoff.~~

The approval of the New York Department of Financial Services (NY DFS) for the acquisition imposed certain post-closing requirements on Ocwen, including certain reporting obligations and certain record retention and other requirements relating to the planned transfer of New York loans onto the Black Knight MSP servicing platform as well as certain requirements with respect to the management of PHH Mortgage Corporation, a licensed subsidiary of PHH. In addition, the NY DFS modified its restriction on Ocwen’s ability to acquire MSRs to allow certain acquisitions of MSRs that are boarded onto the Black Knight MSP servicing platform subject to annual portfolio growth limitations until such time as the NY DFS determines that all loans have been successfully migrated to the Black Knight MSP servicing platform and that Ocwen has developed a satisfactory infrastructure to board sizeable portfolios of MSRs. See ~~Note 18 – Regulatory Requirements~~ ~~and~~ ~~Note 21 – Subsequent Events~~2 - Business Acquisition for additional information regarding the acquisition of PHH.

Now that we have consummated our acquisition of PHH, if we can execute on five key initiatives, we believe we will drive stronger financial performance. First, we must successfully execute on the integration of PHH’s business with ours, including a smooth transition onto the Black Knight MSP servicing platform. Second, we must re-engineer our cost structure to go beyond eliminating redundant costs through the integration process. Our cost re-engineering plans address organizational, process and control redesign and automation, human capital planning, off-shore utilization, strategic sourcing and facilities rationalization. Our initiatives are targeted at increasing the degree of automation of our processes, leveraging our single servicing platform and technology, and through innovation. We believe these steps are necessary in order to simplify our operations and drive stronger financial performance.

Third, we must manage the size of our servicing portfolio through expanding our lending business and permissible acquisitions of MSRs that are prudent and well-executed with appropriate financial return targets. During the first nine months of 2019, we closed MSR acquisitions with $11.9 billion unpaid principal balance (UPB).

Fourth, we must manage our balance sheet to ensure adequate liquidity and provide a solid platform for executing on our other key business initiatives. On July 1, 2019, we established a financing facility secured by MSRs that provides up to $300.0 million in committed borrowing capacity. We believe this facility will enable the funding of the majority of our near term MSR acquisition initiatives. We intend to extend, renew or replace our SSTL that matures in December 2020 and must evaluate capital structure options that we believe will most effectively allow us to execute on our business plan.

Finally, we must fulfill our regulatory commitments and resolve our remaining legal and regulatory matters on satisfactory terms. Fourth, we must replenish our servicing portfolio through expanding our lending business and permissible MSR acquisitions that are prudent and well-executed with appropriate financial return targets. Finally, we must ensure that we continue to manage our balance sheet to provide a solid platform for executing on our growth and other initiatives.

Our business, operating results and financial condition have been significantly impacted in recent periods by regulatory actions against us and by significant litigation 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 in existing regulatory and legal matters, our business, reputation, financial condition, liquidity and results of operations could be materially and adversely affected, even if we are successful in our ongoing efforts to drive stronger financial performance. See Note 1819 – Regulatory Requirements and Note 2021 – Contingencies for further information.

In recent periods, Ocwen has incurred significant losses as a result of declines in the fair value of our MSRs. Further interest rate decreases, prepayment speed increases and changes to other fair value inputs or assumptions could result in further fair value declines and hamper our ability to return to profitability. Starting in September 2019, we have implemented a hedging strategy to partially offset the changes in fair value of our net MSR portfolio. See Note 15 – Derivative Financial Instruments and Hedging Activities for further information.

Our ability to execute on these key initiatives is not certain and is dependent on the successful execution of several complex actions, including our ability to grow our lending business and acquire MSRs with appropriate financial return targets, and execute on further organizational redesign and headcount reductions, as well as the absence of significant unforeseen costs, including regulatory or legal costs, that could negatively impact our cost re-engineering efforts, and our ability to extend, renew or replace our debt agreements in the ordinary course, including our SSTL. There can be no assurances that the desired strategic and financial benefits of these actions will be realized.

Regarding the current maturities of our borrowings, as of September 30, ~~2018~~2019 we have approximately ~~$520.4~~$808.7 million of debt outstanding under facilities coming due in the next 12 months. Portions of our match funded advance 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. If a lender were to allege an event of default and we are unable to avoid, remedy or secure a waiver of such alleged default, we could be subject to adverse actions by our lenders that could have a material adverse impact on us. In addition, ~~OLS, Homeward~~PMC 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. To the extent 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. See Note 1113 – Borrowings, Note 1819 – Regulatory Requirements and Note 2021 – Contingencies for 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 months ended September 30, ~~2018~~2019 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, ~~2018.~~2019. The unaudited consolidated financial statements presented herein should be read in conjunction with the audited consolidated financial statements and related notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the

date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions include, but are not limited to, those that relate to fair value measurements, income taxes, the provision for ~~potential~~ losses that may arise from litigation proceedings, 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 nine months ended September 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, 2018 of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) 2016-18,~~ ~~Statement of Cash Flows (Topic 230) - Restricted Cash~~, debt service accounts and other restricted cash which are included in Other assets on the consolidated balance sheets have been classified as Cash and restricted cash in our consolidated statements of cash flows. Our revision of the unaudited consolidated statement of cash flows for the nine months ended September 30, 2017 to conform to the new standard resulted in an increase in net cash provided by operating activities of $4.2 million (Decrease in receivables and other assets, net line item is higher as revised).

Certain amounts in the unaudited consolidated statement of cash flows for the nine months ended September 30, ~~2017~~2018 have been reclassified to conform to the current year presentation as follows:

Within the Cash flows from operating activities section, we reclassified Amortization of ~~MSRs, Loss on valuation~~debt issuance costs of ~~MSRs, at fair value, and Impairment of MSRs to a new line item (MSR valuation adjustments, net). In addition, we reclassified Realized and unrealized gains on derivative financial instruments~~$2.3 million to Other, net.

Within the Cash flows from financing activities section, we reclassified ~~Payment~~repayments of ~~debt issuance costs~~the SSTL of $62.6 million from Repayment of mortgage loan warehouse facilities and other secured borrowings to ~~Other, net.~~a new separate line item (Repayment of SSTL borrowings).

These reclassifications had no impact on our consolidated cash flows from operating, investing or financing activities.

Recently Adopted Accounting Standards

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

~~This~~Leases (ASU 2016-02, ASU ~~clarifies the principles for recognizing revenue~~2018-10, ASU 2018-11 and ~~creates a common revenue standard. Under this~~ ASU an entity 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 will recognize revenue through a five-step process. The guidance in this standard does not apply to financial instruments and other contractual rights or obligations within the scope of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 860, ~~Transfers and Servicing, among other ASC topics~~. ~~As a result, our adoption of this standard 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 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)~~2019-01)

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 nine months ended September 30, 2017 to conform to the new standard.

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

This ASU 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 did 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 right-of-use (ROU) assets and lease liabilities ~~for leases with lease terms of more than 12 months,~~on the balance sheet, 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. In July 2018, the FASB amended this guidance by issuing ASU 2018-10, Codification Improvements to Topic 842, Leases and ASU 2018-11, Leases (Topic 842): Targeted Improvements which provides clarification and further guidance on areas identified as potential implementation issues, as well as providing for an additional optional transition method to allow initial application of

We adopted the new leasing guidance aton January 1, 2019, and we elected practical expedients permitted by the new standard which provided us transition relief when assessing leases that commenced prior to the adoption date, including determining whether existing contracts are or contain leases, the classification of such leases as operating or financing, and the accounting for initial direct costs.

The adoption resulted in the recognition of a cumulative-effect adjustment to the opening balance of ~~retained~~Retained earnings, ~~in the period of adoption.~~

These standards will be effective for us on January 1, 2019, with early application permitted. At adoption, we expect to apply the new transition method provided for in ASU 2018-11. While we are continuing to evaluate the effects that this guidance will have on our financial statements, we have determined it will result in the recognition of ~~certain~~a gross ROU asset and lease liability, and the reclassification of existing balances for our leases as follows:



	Balances as of December 31, 2018(1)			Recognition of Gross ROU Asset and Lease Liability			Reclassification of Existing Balances			Balances January 1, 2019 after Transition Adjustments (2)
Premises and Equipment:
Right-of-use assets	$	—		$	66,231		$	(21,438	)	$	44,793
Other Assets:
Prepaid expenses (rent)	977			—			(977		)	—
Other Liabilities:
Liability for lease abandonments and deferred rent	(5,498		)	—			5,498			—
Lease liability	—			(66,247		)	977			(65,270		)
Liabilities related to discontinued operations:
Liability for lease abandonments (3)	(15,940		)	—			15,940			—
Retained Earnings:
Cumulative effect of adopting ASU 2016-02	—			16			—			16


(1)	Represents amounts related to leases impacted by the adoption of this ASU that were included in our December 31, 2018 consolidated balance sheet.


(2)	ROU assets as of January 1, 2019 after transition adjustments includes $30.4 million related to premises located in the U.S., $13.6 million related to premises located in India and the Philippines, and $0.7 million related to equipment.


(3)	Represents lease impairments recognized by PHH prior to the acquisition.

Our leases include non-cancelable operating leases ~~as right-of-use~~for premises and equipment with maturities extending to 2025, exclusive of renewal option periods. At lease commencement date, we estimate the ROU assets and lease liability at present value using our estimated incremental borrowing rate of 7.5%. We elected to recognize ROU assets and lease liabilities that arise from short-term leases. A maturity analysis of our lease liability as of September 30, 2019 is summarized as follows:



Annual obligation for the twelve months ended September 30,
2020	$	17,534
2021	15,533
2022	14,215
2023	5,182
2024	1,089
Thereafter	829
	54,382
Less: Adjustment to present value	(6,136		)
Total lease payments, net	$	48,246

Restricted cash includes a $23.2 million deposit as collateral for an irrevocable standby letter of credit issued in connection with one of our leased facilities. This letter of credit requirement under the ~~consolidated balance sheet, but we do~~terms of the lease agreement is primarily the result of PHH not ~~anticipate that~~meeting certain credit rating criteria prior to the ~~impact~~acquisition. The required amount of the letter of credit will be ~~material.~~reduced each month beginning in January 2021 through the lease expiration on December 31, 2022.

We amortize the balance of the ROU assets and interest on the lease liability and report in Occupancy and equipment expense on our unaudited consolidated statements of operations. Our lease liability is reduced as we make cash payments on our lease obligations. Our ROU lease assets are evaluated for impairment, in accordance with ASC 360, Premises and Equipment, at each reporting date.

Subsequent to adoption, we made the decision to vacate four leased properties prior to the contractual maturity date of the lease agreements. As a result of our plan to vacate the office space, we accelerated the recognition of amortization on the ROU assets based on the shortened remaining useful life of the leases. We recorded total accelerated amortization of $5.4 million during the nine months ended September 30, 2019.

Accounting Standards Issued but Not Yet Adopted

Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU ~~2016-13)~~2016-13 and ASU 2019-04)

This ASU will require ~~timelier~~more timely 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.~~2020. We are currently evaluating the effect of ~~adopting~~ this standard.

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

This ASU 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. 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.

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

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 effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act (or portion thereof) is recorded. 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.

~~Codification Improvements (ASU 2018-09)~~

This ASU amends multiple codification Topics. The transition and effective date guidance is based on the facts and circumstances of each amendment. While some of the amendments in this ASU do not require transition guidance and were effective upon issuance of this ASU, many of the amendments in this ASU have transition guidance with an effective date of January 1, 2019. We do not anticipate that our adoption of this standard will have a material impact on our consolidated financial statements.

Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13)

This ASU modifies the disclosure requirements on fair value measurements in FASB ASC Topic 820, Fair Value Measurement. The main provisions in this update include removal of the following disclosure requirements from this ASC: 1) the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, 2) the policy for timing of transfers between levels and 3) the valuation processes for Level 3 fair value measurements. This standard adds disclosure requirements to report the changes in unrealized gains and losses for the period included in other comprehensive income for

recurring Level 3 fair value measurements held at the end of the reporting period, and for certain unobservable inputs an entity may disclose other quantitative information in lieu of the weighted average if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the distribution of unobservable inputs used to develop Level 3 fair value measurements.

This standard will be effective for us on January 1, ~~2020, with early application permitted~~2020. The amendments on ~~any removed or modified disclosures~~changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty will be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of ~~adoption, and~~adoption. All other amendments will be applied retrospectively to ~~allow a delayed adoption of the additional disclosures until the~~all periods presented upon their effective date. We ~~are currently evaluating the effect~~do not anticipate that our adoption of ~~adopting~~ this ~~standard.~~standard will have a material impact on our consolidated financial statements.

Intangibles - Goodwill and Other - Internal-Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15)

This ASU aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal use software license). The accounting for the service element of a hosting arrangement that is a service contract is not affected by the amendments in this ASU. The amendments in this ASU require an entity (customer) in a hosting arrangement that is a service contract to follow the guidance to determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense. The amendments in this ASU require the entity (customer) to expense the capitalized implementation costs of a hosting arrangement that is a service contract over the term of the hosting arrangement. The amendments in this ASU also require the entity to present the expense related to the capitalized implementation costs in the same line item in the statement of operations as the fees associated with the hosting element (service) of the arrangement and classify payments for capitalized implementation costs in the statement of cash flows in the same manner as payments made for fees associated with the hosting element.

This standard will be effective for us on January 1, ~~2020, with early~~2020. Upon adoption, ~~permitted, including adoption in any interim period. The~~we will elect to apply the amendments in this ASU ~~should be applied either retrospectively or~~ prospectively to all implementation costs incurred ~~after the date~~subsequent to that date. We do not anticipate that our adoption of ~~adoption. We are currently evaluating the effect of adopting~~ this ~~standard.~~

~~SEC Simplifies and Updates Disclosure Requirements (US 2018-21)~~

~~In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532,~~ ~~Disclosure Update and Simplification, to eliminate, modify, or integrate into other SEC requirements certain disclosure rules. The amendments eliminate the following:~~

~~Redundant and duplicative requirements, which require substantially similar disclosures as GAAP, IFRS, or other SEC disclosure requirements;~~

~~Overlapping requirements, which are related to, but not the same as GAAP, IFRS, or other SEC disclosure requirements - including the elimination of the ratio of earnings to fixed charges;~~

~~Outdated requirements, which~~standard will have ~~become obsolete as~~ a ~~result of the passage of time or changes in the regulatory, business, or technological environment; and~~

~~Superseded requirements, which are inconsistent with recent legislation, more recently updated SEC disclosure requirements, or more recently updated GAAP.~~

In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis should present a reconciliation of the beginning balance to the ending balance of each period for which a statement of comprehensive income is required to be filed. This final rule will become effective on November 5, 2018. We are currently evaluating thematerial impact on our consolidated financial statements.

Note 2 - Business Acquisition

On October 4, 2018, we completed our acquisition of PHH, a non-bank servicer with established servicing and origination recapture capabilities. As a result of the acquisition, PHH became a wholly owned subsidiary of Ocwen.

The acquisition has been accounted for under the acquisition method of accounting pursuant to ASC 805, Business Combinations. Assets acquired and liabilities assumed are recorded at their fair value as of the date of acquisition based on management’s estimates using currently available information. The results of PHH operations are included in Ocwen’s consolidated statements of operations from the date of acquisition. For U.S. income tax purposes, the acquisition of PHH is treated as a stock purchase.

Purchase Price Allocation

The purchase price allocation provided in the table below reflects the final determination of the fair value of assets acquired and liabilities assumed in the acquisition of PHH, with the excess of total identifiable net assets over total consideration paid recorded as a bargain purchase gain. Independent valuation specialists conducted analyses to assist management in determining the fair value of certain acquired assets and assumed liabilities. Management is responsible for these third-party valuations and appraisals. The methodologies that we use and key assumptions that we made to estimate the fair value of the acquired assets and assumed debt are described in Note 5 – Fair Value.



Purchase Price Allocation	October 4, 2018			Adjustments			Revised
Cash	$	423,088		$	—		$	423,088
Restricted cash	38,813			—			38,813
MSRs	518,127			—			518,127
Advances, net	96,163			—			96,163
Loans held for sale	42,324			358			42,682
Receivables, net	46,838			(96		)	46,742
Premises and equipment, net	15,203			—			15,203
REO	3,289			—			3,289
Other assets	6,293			—			6,293
Assets related to discontinued operations	2,017			—			2,017
Financing liabilities (MSRs pledged, at fair value)	(481,020		)	—			(481,020		)
Other secured borrowings, net	(27,594		)	—			(27,594		)
Senior notes, net (Senior unsecured notes)	(120,624		)	—			(120,624		)
Accrued legal fees and settlements	(9,960		)	—			(9,960		)
Other accrued expenses	(36,889		)	—			(36,889		)
Loan repurchase and indemnification liability	(27,736		)	—			(27,736		)
Unfunded pension liability	(9,815		)	—			(9,815		)
Other liabilities	(34,131		)	(643		)	(34,774		)
Liabilities related to discontinued operations	(21,954		)	—			(21,954		)
Total identifiable net assets	422,432			(381		)	422,051
Total consideration paid to seller	(358,396		)	—			(358,396		)
Bargain purchase gain	$	64,036		$	(381	)	$	63,655

We acquired tax attributes, including the estimated future tax benefit of U.S. federal net operating losses (NOLs) valued at $30.2 million, state NOLs valued at $50.3 million and state tax credits of $9.2 million on the acquisition date. All of the acquired tax attributes were fully offset by a valuation allowance. All of these attributes are subject to annual limitations with regard to future utilization under Sections 382 and 383 of the Internal Revenue Code or the comparable provisions of state law. Accordingly, as of December 31, 2018, Ocwen combined had U.S. federal NOLs valued at $58.2 million, USVI NOLs valued at $3.1 million, state NOLs valued at $50.3 million and state tax credits of $9.2 million, all of which were fully offset by a valuation allowance. All of these attributes are subject to the provisions of Sections 382 and 383 of the Internal Revenue Code or the comparable provisions of foreign and state law. All of the attributes are subject to further potential annual limitations in the event of additional ownership changes in the future.

Pro Forma Results of Operations

The pro forma consolidated results presented below are not indicative of what Ocwen’s consolidated results would have been had we completed the acquisition on the date indicated due to a number of factors, including but not limited to expected reductions in servicing, origination and overhead costs through the realization of targeted cost synergies and improved economies of scale, the impact of incremental costs to integrate the two companies and differences in servicing practices and cost structures between Ocwen and PHH. In addition, the pro forma consolidated results do not purport to project combined future operating results of Ocwen and PHH nor do they reflect the expected realization of any cost savings associated with the acquisition of PHH.

The table below presents supplemental pro forma information for Ocwen for the three and nine months ended September 30, 2018 as if the PHH acquisition occurred on January 1, 2017. Pro forma adjustments include the following:



Description	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
Increase in MSR valuation adjustments, net for acquired MSRs to conform the accounting for MSRs to the valuation policies of Ocwen	$	23,360		$	24,442
Adjust interest expense for a total net decline (1)	(18,382		)	(30,598		)
Report Ocwen and PHH acquisition-related charges for professional services as if they had been incurred in 2017 rather than 2018	(9,384		)	(18,548		)
Total net increase in revenue (2)	39,156			120,616
Adjust depreciation expense to amortize internally developed software acquired from PHH on a straight-line basis based on a useful life of three years	245			735
Income tax expense (benefit) based on management’s estimate of the blended applicable statutory tax rates and observing the continued need for a valuation allowance (3)	1,158			(300		)


(1)	Primarily pertains to fair value adjustments of $18.6 million and $31.4 million for the three and nine months ended September 30, 2018, respectively, related to the assumed MSR secured liability using valuation assumptions consistent with Ocwen’s methodology, excluding the gross-up of PHH MSRs sold and accounted for as a secured borrowing.


(2)	Primarily pertains to an increase to revenue of $40.3 million and $127.7 million for the three and nine months ended September 30, 2018, respectively, for the gross-up of PHH MSRs sold and accounted for as a secured borrowing. The offset of the remaining adjustments are expenses, interest income and interest expense, with no net effect on earnings.


(3)	The net income tax benefit recorded as a result of pro forma adjustments represents lower current federal tax under the new base erosion and anti-abuse tax (BEAT) provision of the 2017 Tax Cuts and Jobs Act (Tax Act) assuming Ocwen and PHH would file a consolidated federal tax return beginning January 1, 2017. The pro forma tax adjustments contemplate the effects of the Tax Act.



	Three Months Ended September 30, 2018			Nine Months Ended September 30, 2018
Revenues	$	314,675		$	995,043
Net loss from continuing operations	(65,168		)	(133,594		)

For purposes of determining pro forma results of operations for the three and nine months ended September 30, 2018, the bargain purchase gain is assumed to have been recorded in 2017 rather than 2018.

Note 3 - Cost Re-Engineering Plan

In February 2019, we announced our intention to execute cost re-engineering opportunities in order to drive stronger financial performance and, in the longer term, simplify our operations. Our cost re-engineering plans extend beyond eliminating redundant costs through the integration process and address organizational, process and control redesign and automation, human capital planning, off-shore utilization, strategic sourcing and facilities rationalization. Costs estimated for this plan include severance, retention and other incentive awards, facilities-related costs and other costs to execute the reorganization.

The following is a summary of expenses incurred to-date, including an estimate of remaining and total plan costs:



	Nine Months Ended September 30, 2019
	Employee-related		Facility-related		Other		Total
Total costs incurred (1)
First quarter	$	20,787	$	—	$	1,328	$	22,115
Second quarter	3,460		3,047		3,619		10,126
Third quarter	7,266		3,596		7,485		18,347
	31,513		6,643		12,432		50,588
Estimate of remaining costs (2)	2,887		2,557		8,968		14,412
Total plan costs	$	34,400	$	9,200	$	21,400	$	65,000


(1)	The above expenses were all incurred within the Corporate Items and Other segment. Employee-related costs and facility-related costs are reported in Compensation and benefits expense and Occupancy and equipment expense, respectively, in the unaudited consolidated statements of operations. Other costs are primarily reported in Professional services expense and Other expenses.


(2)	We expect to incur the remaining plan costs within the year ending December 31, 2019.

The following table provides a summary of the aggregate activity of the liability for the re-engineering plan costs:



	Nine Months Ended September 30, 2019
	Employee-related			Facility-related			Other			Total
Beginning balance	$	—		$	—		$	—		$	—
Charges	31,513			6,643			12,432			50,588
Payments / Other	(20,205		)	(5,324		)	(9,899		)	(35,428		)
Ending balance (1)	$	11,308		$	1,319		$	2,533		$	15,160


(1)	The liability for re-engineering plan costs is included in Other liabilities (Other accrued expenses).

~~Note 2 – Securitizations and Variable Interest Entities~~

Note 4 – 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 and (3) financings of ~~automotive dealer financing notes.~~MSRs.

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

From time to time, we may acquire beneficial interests issued in connection with mortgage-backed securitizations where we may also be the master ~~and~~ and/or primary servicer. These beneficial interests consist of subordinate and residual interests acquired from third-parties in market transactions. We consolidate the VIE when we conclude we are the primary beneficiary.

Securitizations of Residential Mortgage Loans

We ~~securitize forward and reverse residential mortgage loans involving the GSEs and loans insured by the FHA or VA through Ginnie Mae. To the extent we retain the right to service these loans, 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.

Transfers of Forward Loans

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

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


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Proceeds received from securitizations	$	282,507		$	687,502		$	998,204		$	2,711,651		$	235,175		$	282,507		$	674,108		$	998,204
Servicing fees collected	9,808			10,300			30,233			30,250			8,866			9,808			37,610			30,233
Purchases of previously transferred assets, net of claims reimbursed	(1,507		)	(1,234		)	(4,336		)	(3,958		)	(2,093		)	(1,507		)	(3,140		)	(4,336		)
	$	290,808		$	696,568		$	1,024,101		$	2,737,943		$	241,948		$	290,808		$	708,578		$	1,024,101

In connection with these transfers, we retained MSRs of $0.6 million and $2.2 million, and $1.4 million and $5.9 ~~million, and $3.6 million and $18.6~~ million, during the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, which are reported in Gain on loans held for sale, net in the unaudited consolidated statements of operations. See Note 46 – 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~~guarantor 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 an estimate of our maximum exposure to loss including the ~~unpaid principal balance (UPB)~~UPB of the transferred loans:


	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Carrying value of assets
MSRs, at fair value	$	111,586	$	227	$	93,533	$	132,774
MSRs, at amortized cost	—		97,832
Advances and match funded advances	61,500		57,636		143,083		138,679
UPB of loans transferred	11,118,533		12,077,635
UPB of loans transferred (1)					14,077,333		15,600,971
Maximum exposure to loss	$	11,291,619	$	12,233,330	$	14,313,949	$	15,872,424

~~Note 13 – Derivative Financial Instruments and Hedging Activities~~

Note 15 – Derivative Financial Instruments and Hedging Activities

The following table summarizes derivative activity, including the derivatives used in each of our identified hedging programs. The notional amount of our contracts does not represent our exposure to credit loss. None of the derivatives ~~was~~were designated as a hedge for accounting purposes atas of, or during the nine months ended September 30, 2019 and 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 927,700
386,311
154,583
Amortization —
—
(208,750 )
Maturities (746,615 ) (407,759 ) —
Terminations (164,978 ) —
—
Notional balance at September 30, 2018 $ 112,446
$ 219,375
$ 320,833

Maturity Oct. 2018 - Nov. 2018 Dec. 2018 May 2019 - May 2020

Fair value of derivative assets (liabilities) (1) at:

September 30, 2018 $ 2,816
$ (1,873 ) $ 1,211
December 31, 2017 3,283
(545 ) 2,056

Gains (losses) on derivatives during the nine months ended: Gain on Loans Held for Sale, Net Other, Net
September 30, 2018 $ 137
$ 2,082
$ (308 )
September 30, 2017 (1,605 ) (8,604 ) (207 )



	IRLCs		Interest Rate Risk
			MSR Hedging		IRLCs and Loans Held for Sale			Borrowings
			TBA / Forward MBS Trades		Forward Trades			Interest Rate Caps
Notional balance at September 30, 2019	$	173,616	$	700,000	$	9,763		$	57,083

Maturity	Oct. 2019 - Dec. 2019		Dec. 2019		Dec. 2019			Oct. 2019 - May 2020

Fair value of derivative assets (liabilities) at:
September 30, 2019	$	4,781	$	887	$	(3,126	)	$	—
December 31, 2018	3,871		—		(4,983		)	678

Gains (losses) on derivatives during the nine months ended:	Gain on loans held for sale, net		MSR valuation adjustments, net		Gain on loans held for sale, net			Other, net
September 30, 2019	$	401	$	322	$	(3,344	)	$	(358	)
September 30, 2018	137		$	—	2,082			(308		)


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

~~As loans~~We report derivatives at fair value in Other assets or in Other liabilities on our unaudited consolidated balance sheets. Derivative instruments are ~~originated and sold~~generally entered into as economic hedges against changes in the fair value of a recognized asset or ~~as loan commitments expire, our forward MBS trade positions mature~~liability and are ~~replaced by new positions based upon new loan originations and commitments and expected time to sell.~~

not designated as hedges for accounting purposes. We report the changes in fair value of such derivative instruments in the same line item in the unaudited consolidated statement of operations as the changes in fair value of the related asset or liability. For all other derivative instruments not designated as a hedging instrument, we report changes in fair value in Other, net.

Foreign Currency Exchange Rate Risk

Our operations in India and the Philippines expose us to foreign currency exchange rate risk to the extent that our foreign exchange positions remain unhedged. We have not entered into any forward exchange contracts during the reported periods to hedge against the effect of changes in the value of the India Rupee or Philippine Peso. Foreign currency remeasurement exchange ~~gains (losses)~~losses were ~~$(2.0)~~$0.1 million and ~~$(4.7)~~$0.1 million, and ~~$(0.7)~~2.0 million and ~~$0.7~~$4.7 million, during the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, respectively, and are reported in Other, net in the unaudited consolidated statements of operations. The losses in the 2018 periods are primarily attributed to depreciation of the India Rupee against the U.S. Dollar.

Interest Rate Risk

MSR Hedging

MSRs are carried at fair value with changes in fair value being recorded in earnings in the period in which the changes occur. The fair value of MSRs is subject to changes in market interest rates and prepayment speeds, among other factors. Beginning in September 2019, management implemented a hedging strategy to partially offset the changes in fair value of our net MSR portfolio to interest rate changes. We define our net MSR portfolio exposure as follows:

our more interest rate-sensitive Agency MSR portfolio,

less the Agency MSRs subject to our agreements with NRZ (See Note 10 — Rights to MSRs),

less the asset value for securitized HECM loans, net of the corresponding HMBS-related liability, and

less the net value of our held for sale loan portfolio and interest rate lock commitments (pipeline).

We determine and monitor daily a hedge coverage based on the duration and interest rate sensitivity measures of our net MSR portfolio exposure, considering market and liquidity conditions. At September 30, 2019, our hedging strategy provides for a partial coverage of our net MSR portfolio exposure.

We use forward trades of MBS or Agency TBAs with different banking counterparties as hedging instruments that are not designated as accounting hedges. TBAs, or To-Be-Announced securities are actively traded, forward contracts to purchase or sell Agency MBS on a specific future date. We report changes in fair value of these derivative instruments in MSR valuation adjustments, net in our unaudited consolidated statements of operations.

The TBAs are subject to margin requirements. Ocwen may be required to post or may be entitled to receive cash collateral with its counterparties, based on daily value changes of the instruments. Changes in market factors, including interest rates, and our credit rating could require us to post additional cash collateral and could have a material adverse impact on our financial condition and liquidity.

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 such, outstanding IRLCs are subject to interest rate risk and related price risk during the period from the date of the commitment through the loan funding date or expiration date. The borrower is not obligated 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 interest rate exposure on these derivative loan commitments ishad previously been economically hedged with freestanding derivatives such as forward contracts. ~~We enter into forward contracts with respect~~Beginning in September 2019, this exposure is not individually hedged, but rather used as an offset to ~~both fixed~~our MSR exposure and ~~variable rate loan commitments.~~managed as part of our MSR hedging strategy described above.

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~~had previously entered 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~~were primarily used to fix the forward sales price that ~~will~~would be realized upon the sale of mortgage loans into the secondary market. Beginning in September 2019, this exposure is not individually hedged, but rather used as an offset to our MSR exposure and managed as part of our MSR hedging strategy described above.

Match Funded Liabilities

As required by certain of our advance financing arrangements, we have purchased interest rate caps to minimize future interest rate exposure from increases in the interest on our 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~~fixed-rate debt.

~~Accumulated Other Comprehensive Loss (AOCL)~~

Included in AOCL at September 30, 2018 and 2017, were $1.1 million and $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.

~~Note 14 – Interest Expense~~

Note 16 – Interest Expense


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017		2019		2018		2019		2018
Financing liabilities
NRZ(1)	$	36,717	$	13,898	$	111,256	$	113,681	$	256,416	$	36,717	$	303,301	$	111,256
Other financing liabilities	1,305		1,419		3,849		4,898		414		1,305		2,306		3,849
	38,022		15,317		115,105		118,579		256,830		38,022		305,607		115,105
Senior notes									8,039		7,452		25,053		22,355
Other secured borrowings									12,504		6,958		29,627		23,190
Match funded liabilities	7,229		11,981		24,491		37,499		6,165		7,229		20,862		24,491
Other secured borrowings	6,958		10,990		23,190		30,174
Senior notes	7,452		7,452		22,355		22,355
Other	1,627		1,541		4,460		3,864		2,384		1,627		6,789		4,460
	$	61,288	$	47,281	$	189,601	$	212,471	$	285,922	$	61,288	$	387,938	$	189,601

~~Note 15 - Income Taxes~~

Our effective tax rate for the nine months ended September 30, 2018 and 2017 was (7.1)% and 15.7%, respectively. For the nine months ended September 30, 2018 and 2017, we recorded income tax expense (benefit) of $4.5 million and $(15.5) million on loss before income taxes of $63.7 million and $98.7 million, respectively. The change in the effective tax rate for the nine months ended September 30, 2018, compared with the same period in 2017, was primarily due to the $22.7 million


(1)	Amount includes the change in fair value of the Financing Liabilities - MSRs Pledged, at fair value. See Note 10 — Rights to MSRs.

income tax benefit recognized in the third quarter of 2017 related to the reversal of an uncertain tax position liability upon expiration of the statute of limitations. 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 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 expense of $2.8 million for the Base Erosion and Anti-Abuse Tax (BEAT) provision of the Tax Act in the nine months ended September 30, 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 as prepaid income taxes are no longer amortized to income tax expense over the life of the asset. Income tax expense related to uncertain tax positions increased in the nine months ended September 30, 2018 as compared to the same period of 2017, due to the $22.7 million reversal recognized in the third quarter of 2017 as disclosed above.

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 final determination of the precise impact on our future earnings, and our accounting for the Tax Act remains incomplete. Ocwen will continue to gather additional information and evaluate the impact within the measurement period allowed, which will be completed no later than the fourth quarter of calendar year 2018.

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 rate. We have not recorded any additional measurement-period adjustments related to the transition tax or the reduction in the U.S. federal tax rate during the nine months ended September 30, 2018. We are continuing to gather additional information and expect to complete our accounting for the transition tax within the prescribed measurement period.

At September 30, 2018 we were not yet able to reasonably estimate the effects of certain elements of the Tax Act, such as BEAT, GILTI and revised interest 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 selection of an accounting policy related to the new GILTI tax rules will depend, in part, on analyzing our global income to 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 financial statements and have not made a policy election regarding whether to record deferred taxes on GILTI or to apply the period cost method as of September 30, 2018. We have, however, included an estimate of the 2018 current GILTI impact in the calculation of our annualized effective tax 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 16 – Basic and Diluted Earnings (Loss) per Share~~

Note 17 – 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. For the three and nine months ended September 30, ~~2018~~2019 and ~~2017,~~2018, we have excluded the effect of all 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.

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Basic loss per share
Net loss attributable to Ocwen stockholders $ (41,147 ) $ (6,252 ) $ (68,430 ) $ (83,483 )

Weighted average shares of common stock 133,912,425
128,744,152
133,632,905
125,797,777

Basic loss per share $ (0.31 ) $ (0.05 ) $ (0.51 ) $ (0.66 )

Diluted loss per share
Net loss attributable to Ocwen stockholders $ (41,147 ) $ (6,252 ) $ (68,430 ) $ (83,483 )

Weighted average shares of common stock 133,912,425
128,744,152
133,632,905
125,797,777
Effect of dilutive elements
Stock option awards —
—
—
—
Common stock awards —
—
—
—
Dilutive weighted average shares of common stock 133,912,425
128,744,152
133,632,905
125,797,777

Diluted loss per share $ (0.31 ) $ (0.05 ) $ (0.51 ) $ (0.66 )

Stock options and common stock awards excluded from the computation of diluted earnings per share
Anti-dilutive (1) 4,057,937
6,600,164
5,684,663
5,121,844
Market-based (2) 645,984
862,446
645,984
862,446



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Basic and Diluted loss per share
Net loss attributable to Ocwen stockholders	$	(42,767	)	$	(41,147	)	$	(176,998	)	$	(68,430	)

Weighted average shares of common stock — basic and diluted	134,595,798			133,912,425			134,329,321			133,632,905

Basic and Diluted loss per share	$	(0.32	)	$	(0.31	)	$	(1.32	)	$	(0.51	)

Stock options and common stock awards excluded from the computation of diluted earnings per share
Anti-dilutive (1)	2,953,132			4,057,937			3,343,052			5,684,663
Market-based (2)	902,204			645,984			902,204			645,984


(1)	~~Stock~~Includes stock options ~~were~~that are anti-dilutive because their exercise price was greater than the average market price of Ocwen’s ~~stock.~~stock, and stock awards that are anti-dilutive based on the application of the treasury stock method.


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

~~Note 17 – Business Segment Reporting~~

Note 18 – 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. A brief description of our current business segments is as follows:

Servicing. This segment is primarily comprised of our core residential mortgage servicing ~~business.~~business and currently accounts for most of our total revenues. 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 purchases and originates conventional and government-insured residential forward and reverse mortgage loans. 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. We originate forward mortgage loans directly with customers (retail channel) ~~in forward lending~~ as well as through correspondent lending arrangements since the second quarter of 2019. We originate reverse mortgage loans in all three channels, through our correspondent lending arrangements, broker relationships (wholesale) and retail channels of reverse mortgage lending. In 2017, we closed our forward correspondent lending channel and exited the forward wholesale lending business due to higher liquidity and capital requirements which in turn resulted in these channels being less profitable.channels.

Corporate Items and Other. Corporate Items and Other includes revenues and expenses of corporate support services, CR Limited (CRL), our wholly-owned captive reinsurance subsidiary, discontinued operations and ~~our other~~inactive entities, 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 and interest expense on corporate ~~debt~~debt. Corporate Items and ~~certain corporate expenses.~~Other also includes severance, retention, facility-related and other expenses incurred in 2019 related to our re-engineering plan. 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 business and have liquidated the majority of our portfolio of inventory-secured loans to independent used car 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. Interest expense on direct asset financings are recorded in the respective Servicing and Lending segments, while interest expense on the SSTL and Senior Notes is recorded in Corporate Items and Other and is not allocated.

Financial information for our segments is as follows:


	Three Months Ended September 30, 2018														Three Months Ended September 30, 2019
Results of Operations	Servicing			Lending			Corporate Items and Other			Corporate Eliminations		Business Segments Consolidated			Servicing			Lending			Corporate Items and Other			Business Segments Consolidated
Revenue	$	217,630		$	16,917		$	3,731		$	—	$	238,278		$	250,224		$	29,502		$	3,789		$	283,515

Expenses (1)	185,077			18,954			13,495			—		217,526
Expenses (1) (2)															890			20,665			23,169			44,724

Other income (expense):
Other (expense) income:
Interest income	2,242			1,255			466			—		3,963			2,105			1,688			336			4,129
Interest expense	(47,359		)	(1,437		)	(12,492		)	—		(61,288		)
Gain on sale of mortgage servicing rights, net	(733		)	—			—			—		(733		)
Interest expense (3)															(268,545		)	(2,133		)	(15,244		)	(285,922		)
Gain on repurchase of senior secured notes															—			—			5,099			5,099
Other	(602		)	154			(2,519		)	—		(2,967		)	3,917			498			(4,829		)	(414		)
Other expense, net	(46,452		)	(28		)	(14,545		)	—		(61,025		)
Other (expense) income, net															(262,523		)	53			(14,638		)	(277,108		)

(Loss) income before income taxes															$	(13,189	)	$	8,890		$	(34,018	)	$	(38,317	)

															Three Months Ended September 30, 2018
Results of Operations															Servicing			Lending			Corporate Items and Other			Business Segments Consolidated
Revenue															$	217,630		$	16,917		$	3,731		$	238,278

Expenses (1) (2)															185,077			18,954			13,495			217,526

Other (expense) income:
Interest income															2,242			1,255			466			3,963
Interest expense (3)															(47,359		)	(1,437		)	(12,492		)	(61,288		)
Other															(1,335		)	154			(2,519		)	(3,700		)
Other (expense) income, net															(46,452		)	(28		)	(14,545		)	(61,025		)

Loss before income taxes	$	(13,899	)	$	(2,065	)	$	(24,309	)	$	—	$	(40,273	)	$	(13,899	)	$	(2,065	)	$	(24,309	)	$	(40,273	)

	Three Months Ended September 30, 2017														Nine months ended September 30, 2019
Results of Operations	Servicing			Lending			Corporate Items and Other			Corporate Eliminations		Business Segments Consolidated			Servicing			Lending			Corporate Items and Other			Business Segments Consolidated
Revenue	$	246,545		$	31,935		$	6,162		$	—	$	284,642		$	752,010		$	99,386		$	10,345		$	861,741

Expenses	218,565			38,412			16,502			—		273,479
Expenses (1) (2) (4)															556,874			63,021			36,428			656,323

Other income (expense):
Other (expense) income:
Interest income	144			2,857			1,098			—		4,099			6,270			4,783			1,471			12,524
Interest expense	(28,568		)	(4,504		)	(14,209		)	—		(47,281		)
Gain on sale of mortgage servicing rights, net	6,543			—			—			—		6,543
Interest expense (3)															(337,435		)	(5,200		)	(45,303		)	(387,938		)
Gain on repurchase of senior secured notes															—			—			5,099			5,099
Bargain purchase gain															—			—			(381		)	(381		)
Other	(418		)	555			(1,214		)	—		(1,077		)	6,332			1,161			(5,949		)	1,544
Other expense, net	(22,299		)	(1,092		)	(14,325		)	—		(37,716		)
Other (expense) income, net															(324,833		)	744			(45,063		)	(369,152		)

(Loss) income before income taxes															$	(129,697	)	$	37,109		$	(71,146	)	$	(163,734	)

															Nine months ended September 30, 2018
Results of Operations															Servicing			Lending			Corporate Items and Other			Business Segments Consolidated
Revenue															$	674,233		$	65,116		$	12,767		$	752,116

Expenses (1) (2)															523,061			57,036			49,580			629,677

Other (expense) income:
Interest income															4,136			4,107			1,775			10,018
Interest expense (3)															(144,551		)	(4,855		)	(40,195		)	(189,601		)
Other															(2,089		)	774			(5,254		)	(6,569		)
Other (expense) income, net															(142,504		)	26			(43,674		)	(186,152		)

Income (loss) before income taxes	$	5,681		$	(7,569	)	$	(24,665	)	$	—	$	(26,553	)	$	8,668		$	8,106		$	(80,487	)	$	(63,713	)

Nine months ended September 30, 2018
Revenue $ 674,233
$ 65,116
$ 12,767
$ —
$ 752,116

Expenses (1) 523,061
57,036
49,580
—
629,677

Other income (expense):
Interest income 4,136
4,107
1,775
—
10,018
Interest expense (144,551 ) (4,855 ) (40,195 ) —
(189,601 )
Gain on sale of mortgage servicing rights, net 303
—
—
—
303
Other (2,392 ) 774
(5,254 ) —
(6,872 )
Other income (expense), net (142,504 ) 26
(43,674 ) —
(186,152 )

Income (loss) before income taxes $ 8,668
$ 8,106
$ (80,487 ) $ —
$ (63,713 )

Nine months ended September 30, 2017
Revenue $ 802,347
$ 95,457
$ 20,002
$ —
$ 917,806

Expenses 637,406
100,628
92,308
—
830,342

Other income (expense):
Interest income 406
8,612
3,083
—
12,101
Interest expense (159,822 ) (11,171 ) (41,478 ) —
(212,471 )
Gain on sale of mortgage servicing rights, net 7,863
—
—
—
7,863
Other 4,642
658
1,084
—
6,384
Other expense, net (146,911 ) (1,901 ) (37,311 ) —
(186,123 )

Income (loss) before income taxes $ 18,030
$ (7,072 ) $ (109,617 ) $ —
$ (98,659 )

Total Assets Servicing Lending Corporate Items and Other Corporate Eliminations Business Segments Consolidated
September 30, 2018 $ 2,726,905
$ 5,385,437
$ 348,695
$ —
$ 8,461,037

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

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

Depreciation and Amortization Expense Servicing Lending Corporate Items and Other Business Segments Consolidated
Three months ended September 30, 2018
Depreciation expense $ 1,035
$ 23
$ 4,500
$ 5,558
Amortization of debt discount —
—
235
235
Amortization of debt issuance costs —
—
599
599

Three months ended September 30, 2017
Depreciation expense $ 1,525
$ 57
$ 5,408
$ 6,990
Amortization of mortgage servicing rights 13,081
67
—
13,148
Amortization of debt discount —
—
258
258
Amortization of debt issuance costs —
—
644
644

Nine months ended September 30, 2018
Depreciation expense $ 3,647
$ 77
$ 14,475
$ 18,199
Amortization of debt discount —
—
941
941
Amortization of debt issuance costs —
—
2,261
2,261

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


(1)	Expenses in the Servicing segment includes MSR valuation adjustments, net.

(2)

Compensation and benefits expense in the Corporate Items and Other segment for the three and nine months ended September 30, 2019 and 2018includes $(0.1) million and $19.1 million, and $0.3 million, and $7.5 million, respectively, of severance expense attributable to PHH integration-related headcount reductions of primarily U.S.-based employees in 2019 and severance expense attributable to headcount reductions in connection with our strategic decisions to exit the automotive capital services business and the forward lending correspondent and wholesale channels in late 2017 and early 2018, as well as our overall efforts to reduce costs.


(3)	Interest expense in the Servicing segment includes changes in the fair value of the Financing liability - MSRs pledged (Rights to MSRs).

(4)

Included in the Corporate Items and Other segment for the nine months ended September 30, ~~2018 includes $7.5~~2019, we recorded in Professional services expense a recovery from a service provider of $30.7 million during the first quarter 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,~~2019 of amounts previously recognized as ~~well as our overall efforts to reduce costs.~~expense.



Total Assets	Servicing		Lending		Corporate Items and Other		Business Segments Consolidated
September 30, 2019	$	3,227,245	$	6,225,394	$	504,014	$	9,956,653

December 31, 2018	$	3,306,208	$	5,603,481	$	484,527	$	9,394,216

September 30, 2018	$	2,726,905	$	5,385,437	$	348,695	$	8,461,037



Depreciation and Amortization Expense	Servicing		Lending			Corporate Items and Other		Business Segments Consolidated
Three months ended September 30, 2019
Depreciation expense	$	105	$	(32	)	$	6,386	$	6,459
Amortization of debt discount	—		—			330		330
Amortization of debt issuance costs	—		—			816		816

Three months ended September 30, 2018
Depreciation expense	$	1,035	$	23		$	4,500	$	5,558
Amortization of debt discount	—		—			235		235
Amortization of debt issuance costs	—		—			599		599

Nine months ended September 30, 2019
Depreciation expense	$	1,674	$	49		$	24,297	$	26,020
Amortization of debt discount	—		—			1,031		1,031
Amortization of debt issuance costs	—		—			2,268		2,268

Nine months ended September 30, 2018
Depreciation expense	$	3,647	$	77		$	14,475	$	18,199
Amortization of debt discount	—		—			941		941
Amortization of debt issuance costs	—		—			2,261		2,261

~~Note 18 – Regulatory Requirements~~

Note 19 – Regulatory Requirements

Our business is subject to extensive regulation by federal, state and local governmental authorities, including the Consumer Financial Protection Bureau (CFPB), HUD, the SEC and various state agencies that license and conduct examinations of our servicing and lending activities. In addition, we operate under a number of regulatory settlements that subject us to ongoing reporting and other obligations. 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 evolving regulatory environment in which we operate and to meet its requirements. 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 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 (TCPA), the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act (FDCPA), 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, 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. Over the past decade, the general 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.

As further described below and in Note 2021 – Contingencies, in recent years Ocwen has entered into a number of significant settlements with federal and state regulators and state attorneys general that have imposed additional requirements on our business. For example, we ~~have~~ made various commitments relating to the process of ~~moving~~transferring loans off the ~~REALServicing®~~REALServicing servicing system and onto the Black Knight ~~MSP~~Financial Services, Inc. (Black Knight) LoanSphere MSP® servicing system (Black Knight MSP), we have engaged a third-party auditor to perform an analysis with respect to our compliance with certain federal and state laws relating to the escrow of mortgage loan payments, we have revised various aspects of our complaint handling processes and we have extensive review and reporting obligations to various regulatory bodies with respect to various matters, including our financial condition. We devote significant management time and resources to compliance with these additional requirements. These requirements are generally unique to Ocwen and, while certain of our competitors may have entered into regulatory-related settlements of their own, our competitors are generally not subject to either the same specific or the same breadth of additional requirements to which we are subject.

Ocwen has various subsidiaries 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 30, ~~2018.~~2019.

~~OLS, Homeward~~PMC 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 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 applicable net worth requirements at September 30, ~~2018.~~2019. 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.

The most restrictive of the various net worth requirements for licensing and seller/servicer obligations referenced above is based on the total UPB of assets ~~of OLS, and~~serviced by PMC. Under the applicable formula, the required minimum net worth was ~~$174.5~~$233.9 million and PMC’s net worth was $307.0 million at September 30, ~~2018.~~

2019.

In addition, a number of foreign laws and regulations apply to our operations outside of the U.S., including laws and regulations that govern licensing, privacy, 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 countries, (ii) fines, penalties or sanctions or (iii) reputational damage.

New York Department of Financial ~~Services~~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~~a consent order with the NY DFS (the 2017 NY Consent Order) that provided for the termination of the engagement of ~~the~~a monitor appointed pursuant to an earlier 2014 consent order and for us to address certain concerns raised by the ~~2014~~ NY ~~Consent Order and~~DFS that primarily relate to our servicing operations, as well as 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 2017 NY Consent Order provides that 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. However, as set forth below, the NY DFS has since modified its restriction on Ocwen’s ability to acquire MSRs In addition, in connection with ~~its conditional~~the NY DFS’ approval in September 2018, of ~~Ocwen’s~~our acquisition of ~~PHH.~~

~~The approval of the NY DFS for the acquisition imposed~~PHH, we agreed to satisfy certain post-closing requirements, ~~on Ocwen,~~ including reporting obligations and record retention and other requirements relating to the ~~planned~~ transfer of loans collateralized by New York property (New York loans) onto ~~the~~ Black Knight MSP and certain requirements with respect to the evaluation and supervision of management of both Ocwen Financial Corporation and PHH Mortgage Corporation. In addition, ~~the conditions under which the NY DFS approved the acquisition prohibit Ocwen~~we were prohibited from boarding any additional loans toonto the REALServicing^® ~~platform~~ system and ~~require that~~we were required to transfer all New York loans ~~be transferred from~~off the REALServicing^® ~~platform~~ system by April 30, 2020. ~~With respect to the pre-existing~~The conditional approval also modified a preexisting restriction on our ability to acquire MSRs such that the ~~conditional approval modifies this~~ restriction ~~to apply~~applies only to New York loans and, with respect to New York loans, provides that Ocwen may not increase its aggregate portfolio of New York loans serviced or subserviced by Ocwen by more than 2% per year (based on the unpaid principal balance of loans serviced at the prior calendar year-end). This restriction will remain in place until the NY DFS determines that all loans serviced on the REALServicing^® ~~platform~~ system have been successfully migrated to ~~the~~ Black Knight MSP and that Ocwen has developed a satisfactory infrastructure to board sizable portfolios of MSRs. As of September 30, 2019, we have transferred all loans onto Black Knight MSP and no longer service any loans on the REALServicing system.

We continue to work with the NY DFS to address matters they continue to raise with us as well as to fulfill our commitments under the 2017 NY Consent Order and PHH acquisition conditional approval. To the extent that we fail to address adequately any concerns raised by the NY DFS or fail to fulfill our commitments to the NY DFS, the NY DFS could take regulatory action against us, including imposing fines or penalties or otherwise further 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. Still outstanding, however, is confirmation of our completion of $198.0 million in debt forgiveness for California borrowers by June 30, 2019. We believe that we fulfilled this requirement during the first quarter of 2019. However, our completion of this requirement is subject to testing by the CA DBO’s third-party administrator who must confirm, among other things, that modified loans have remained current for specified time periods. If we are unable to satisfy this requirement or obtain an extension, the 2017 CA Consent Order obligates us to pay the remaining amount to the CA DBO in cash. Our debt forgiveness activities take place as we modify loans - our loan modifications are designed to be sustainable for homeowners while providing a net present value for mortgage loan investors that is superior to that of foreclosure. Debt forgiveness as part of a loan modification is determined on a case-by-case basis in accordance with the applicable servicing agreement. Debt forgiveness does not involve an expense to Ocwen other than the operating expense incurred in arranging the modification, which is part of Ocwen’s role as loan servicer. If the CA DBO were to allege that we failed to comply with ~~these or other~~our 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 also 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.

~~Note 19 — Commitments~~

Note 20 — Commitments

Unfunded Lending Commitments

We have originated floating-rate reverse mortgage loans under which the borrowers have additional borrowing capacity of $1.5 billion at September 30, ~~2018.~~2019. This additional borrowing capacity is available on a scheduled or unscheduled payment basis. We also had short-term commitments to lend ~~$91.1~~$140.6 million and ~~$21.3~~$33.0 million in connection with our forward and reverse mortgage loan IRLCs, respectively, outstanding at September 30, ~~2018.~~2019. We finance originated and purchased forward and reverse mortgage loans with repurchase and participation agreements, commonly referred to as warehouse lines.

~~Long Term~~

HMBS Issuer Obligations

As an HMBS issuer, we assume certain obligations related to each security issued. The most significant obligation is the requirement to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECM is equal to or greater than 98% of the maximum claim amount (MCA repurchases). Active repurchased loans are assigned to HUD and payment is received from HUD, typically within 60 days of repurchase. HUD reimburses us for the outstanding principal balance on the loan up to the maximum claim amount. We bear the risk of exposure if the amount of the outstanding principal balance on a loan exceeds the maximum claim amount. Inactive repurchased loans (the borrower is deceased, no longer occupies the property or is delinquent on tax and insurance payments) are generally liquidated through foreclosure and subsequent sale of REO, with a claim filed with HUD for recoverable remaining principal and advance balances. The recovery timeline for inactive repurchased loans depends on various factors, including foreclosure status at the time of repurchase, state-level foreclosure timelines, and the post-foreclosure REO liquidation timeline.

The timing and amount of our obligation with respect to MCA repurchases is uncertain as repurchase is dependent largely on circumstances outside of our control including the amount and timing of future draws and the status of the loan. MCA repurchases are expected to continue to increase due to the increased flow of HECMs and REO that are reaching 98% of their maximum claim amount. Activity with regard to HMBS repurchases, including MCA repurchases, follows:



	Nine Months Ended September 30, 2019
	Active					Inactive					Total
	Number		Amount			Number		Amount			Number		Amount
Beginning balance	10		$	2,047		252		$	14,833		262		$	16,880
Additions (1)	46		12,255			190		16,472			236		28,727
Recoveries, net (2)	(23	)	(8,826		)	(223	)	(8,875		)	(246	)	(17,701		)
Transfers	(3	)	(1,137		)	3		1,137			—		—
Changes in value	—		7			—		(1,686		)	—		(1,679		)
Ending balance	30		$	4,346		222		$	21,881		252		$	26,227


(1)	Total repurchases during the nine months ended September 30, 2019 includes 53 loans totaling $10.9 million related to MCA repurchases.


(2)	Includes amounts received upon assignment of loan to HUD, loan payoff, REO liquidation and claim proceeds less any amounts charged off as unrecoverable.

Active loan repurchases are classified as Receivables as reimbursement from HUD is generally received within 60 days and are initially recorded at fair value. Inactive loan repurchases are classified as Loans held for sale and are initially recorded at fair value. Loans are reclassified to REO in Other assets or Receivables as the loans move through the resolution process and permissible claims are submitted to HUD for reimbursement. Loans held for sale repurchased prior to October 1, 2018 are carried at the lower of cost or fair value. Receivables are valued at net realizable value. REO is valued at the estimated value of the underlying property less cost to sell.

Long-Term Contracts

Our business is currently ~~dependent~~reliant on ~~many of the~~certain services ~~and products~~ provided by Altisource S.à r.l, 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 long-term agreements with Altisource, including a Services Agreement and a Technology Products Services ~~Agreement, an Intellectual Property Agreement and a Data Center and Disaster Recovery Services Agreement with Altisource.~~Agreement. 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~~Agreement, including the ~~Data Center and Disaster Recovery Services Agreements.~~REALServicing loan servicing system. These agreements expire August 31, ~~2025.~~2025 and include renewal provisions. However, Ocwen anticipates that Altisource will cease providing technology products and support services under the Technology Products Services Agreement by the end of 2019 now that we have completed the transition to Black Knight MSP from REALServicing. Ocwen and Altisource have also entered into a Master Services Agreement pursuant to which Altisource currently provides title services to Liberty. Ocwen also has a General Referral Fee Agreement with Altisource pursuant to which Ocwen receives referral fees which are paid out of the commission that would otherwise be paid to Altisource as the selling broker in connection with real estate sales services provided by Altisource. 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~~could suffer. ~~In addition,~~

On February 22, 2019, Ocwen and Altisource signed a Binding Term Sheet, which among other things, contains provisions regarding assuring that data is accurately transferred to Ocwen in connection with the deboarding of loans from REALServicing, including Ocwen having the ability to verify data accuracy and having continued access to the REALServicing system for an acceptable period of time.

The Binding Term Sheet also amends certain provisions in the Services Agreements. After certain conditions have been met and where Ocwen has the right to select the services provider, Ocwen will use Altisource to provide the types of services that Altisource currently provides under the Services Agreements for at least 90% of services for all portfolios for which Ocwen is the servicer or subservicer, except that Altisource will be the provider for all such services for the portfolios: (i) acquired by Ocwen pursuant to loan servicing under agreements from Homeward (acquired in 2012) or assigned and assumed by Ocwen from Residential Capital, LLC, et al (assets acquired in 2013); and (ii) acquired from Ocwen, excluding certain portfolios in which PHH has an interest, by NRZ or its affiliates prior to the date of the Binding Term Sheet. Notwithstanding the foregoing, Altisource will be the provider of mortgage charge-off collections services under the Services Agreements. On July 1, 2019, Altisource sold its mortgage charge-off collections business to Transworld Systems Inc. The Binding Term Sheet also sets forth a framework for negotiating additional service level changes in the future. As specified in the Binding Term Sheet, if Altisource fails certain performance standards for specified periods of time, then Ocwen may terminate Altisource as a provider for the applicable service(s), subject to ~~develop and maintain its technology so as~~Altisource’s right to ~~provide us with a competitive platform, our business could suffer. We are currently~~cure. For certain claims arising from referrals received by Altisource after the effective date of the Binding Term Sheet, the provisions include reciprocal indemnification obligations in the ~~process~~event of ~~transitioning to~~negligence by either party and Altisource’s indemnification of Ocwen in the event of any breach by Altisource of its obligations under the Services Agreements. The limitations of liability provisions include an exception for losses either party suffers as a ~~new servicing system and have entered into agreements with certain subsidiaries~~result of Black Knight, pursuant to which we plan to transition to the Black Knight MSP. We originally anticipated an 18 to 24-month timeline to complete our transition onto the new servicing system; however, the PHH merger will likely accelerate that timeline because PHH utilizes the Black Knight MSP as its servicing system. Based on substantive discussions with Altisource prior to entering into our agreements with Black Knight, Ocwen expects to enter into mutually acceptable agreements that provide for Ocwen’s transition to the Black Knight MSP and the termination of the statement of work for the use of the REALServicing^® ~~system. Our discussions with Altisource regarding finalizing such agreements are ongoing.~~third-party claims.

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. Under certain circumstances, we would have recourse under our contractual agreements with Altisource if we were to experience adverse consequences as a result of Altisource’s non-compliance with applicable servicing criteria.

~~Note 20 – Contingencies~~

Note 21 – 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.~~others and those brought by commercial counterparties, including claims by parties to whom we have sold MSRs or other assets or those on whose behalf we service mortgage loans.

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),~~FDCPA, the ~~Real Estate Settlement Procedures Act,~~RESPA, the ~~Truth in Lending Act,~~TILA, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Homeowners Protection Act, the Federal Trade Commission Act, the ~~Telephone Consumer Protection Act (TCPA),~~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 and mortgage reinsurance

arrangements, claims relating to our property preservation activities, claims related to REO management, claims relating to our written and telephonic communications with our borrowers such as claims under the 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 currently a defendant in various ~~class action~~ matters alleging that (1) certain fees imposed on borrowers relating to payment processing, payment facilitation, or payment convenience violate the FDCPA, (2) we violated the TCPA by using an automated telephone dialing system to call class members’ cell phones without their consent, (3) we committed securities fraud in connection with certain of our public disclosures, (4) certain fees we assess on borrowers are marked up improperly in violation of applicable state and federal ~~law; and (2)~~law, (5) the solicitation and marketing to borrowers of certain ancillary products was unfair and ~~deceptive.~~deceptive, (6) we breached fiduciary duties we purportedly owe to benefit plans due to the discretion we exercise in servicing certain securitized mortgage loans and (7) certain legacy mortgage reinsurance arrangements violated RESPA. In the future, we are likely to become subject to other private legal proceedings alleging failures to comply with applicable laws and regulations, including putative class actions, in the ordinary course of our business.

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, including punitive 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, liquidity 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. We have accrued 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 ~~$53.4~~$39.0 million at September 30, ~~2018.~~2019. We cannot currently estimate the amount, if any, of reasonably possible losses above amounts that have been recorded at September 30, ~~2018.~~2019.

In 2014, plaintiffs filed a putative class action against Ocwen in the United States District Court for the Northern District of Alabama, alleging that Ocwen violated the FDCPA by charging borrowers a convenience fee for making certain loan payments. See McWhorter et al. v. Ocwen Loan Servicing, LLC ~~2:15-cv-01831~~ (N.D. Ala.). The plaintiffs ~~are seeking~~sought statutory damages under the FDCPA, compensatory damages and injunctive relief. ~~The presiding court previously ruled on Ocwen’s motions to dismiss, and Ocwen answered the operative complaint. Ocwen~~We subsequently entered into an agreement in principle to resolve this matter, and in August 2019, the ~~presiding~~ court ~~is considering motions to approve~~granted final approval of the class settlement. While ~~Ocwen believes that it has~~we believe we had sound legal and factual defenses, ~~Ocwen has~~we 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~~our senior management that such litigation would involve. There can be no assurance that the 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. Our accrual with respect to this matter is included in the ~~$53.4~~$39.0 million legal and regulatory accrual referenced above. ~~We cannot currently estimate the amount, if any, of reasonably possible loss above the amount accrued.~~

Ocwen has been named in putative class actions and individual actions related to its compliance with the TCPA. Generally, plaintiffs in these actions allege that Ocwen knowingly and willfully violated the TCPA by using an automated telephone dialing system to call ~~class members’~~individuals’ cell phones without their consent. OnIn 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~~In October 2017, the court preliminarily approved the settlement and, thereafter, we paid a settlement amount into an escrow account held by the settlement administrator. However, in September 2018, the Court denied the motion for final approval. In November 2018, the parties engaged in mediation to address the issues raised by the Court in its denial order. The parties thereafter reached agreement on a revised settlement. In June 2019, the court entered an order approving the settlement, ~~will include~~and Ocwen is taking steps to satisfy its settlement obligations. The settlement provides for the establishment of a settlement fund to be distributed to ~~impacted borrowers~~class members that submit claims for settlement benefits pursuant to a claims administration process.

While Ocwen believes that it has sound legal and factual defenses, Ocwen agreed to ~~this~~the 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. ~~In October 2017,~~

Ocwen is also involved in a related TCPA class action that involves claims against trustees of RMBS trusts based on vicarious liability for Ocwen’s alleged non-compliance with the ~~court preliminarily approved~~TCPA. The trustees have indicated they may seek indemnification from Ocwen based on the settlement and, thereafter, we paid the settlement amount into an escrow account held by the settlement administrator. However, on September 28, 2018, the Court denied the motion for final approval. On October 9, 2018, the parties advised the Court of their intention to further mediate the dispute, in an effort to address certain issues raised by the Court. There can be no assurance that the Court will finally approve the settlement or any revisions to it to which the parties may agree. In the event the settlement or any agreed upon revisions are not finally approved, the litigation would continue, and we would vigorously defend the allegations made against Ocwen.vicarious liability claims. Additional lawsuits have been and may be filed against us in relation to ~~these matters.~~our TCPA compliance. Our accrual with respect to TCPA matters is included in the $39.0 million legal and

regulatory accrual referenced above. 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~~above the ~~resolution of such lawsuits~~amount accrued 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, reputation, financial condition, liquidity and results of operations could be materially and adversely affected.

We have ~~previously disclosed the settlement of the consolidated~~settled two “opt-out” securities fraud ~~class action lawsuit that contained~~actions brought on behalf of certain putative shareholders of Ocwen based on allegations in connection with the restatements of our 2013 and first quarter 2014 financial statements, among other ~~matters, 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 in the Securities Class Action.matters. SeeBrahman 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~~Both of these cases were dismissed with ~~respect to these matters is included~~prejudice in the $53.4 million legal and regulatory accrual referenced above. We cannot currently estimate the amount, if any, of reasonably possible loss above the amount accrued. Ocwen and the 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 operations could be materially and adversely affected.February 2019.

We have previously disclosed that as a result of the ~~April 2017~~ federal and state regulatory actions taken in April 2017 and shortly thereafter, which are 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 District Court for the 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.). OnIn April ~~27,~~ 2018, the court in Carvelli granted our motion to dismiss, and dismissed the consolidated case with prejudice. Plaintiffs thereafter filed a notice of appeal with the Court of Appeals for the Eleventh Circuit, and ~~that~~a hearing took place in June 2019. In August 2019, the Court of

Appeals affirmed the district court’s ruling dismissing the consolidated case with prejudice. Plaintiffs have until November 13,

2019 to appeal ~~remains pending.~~to the United States Supreme Court. Ocwen and the other defendants intend to defend themselves vigorously. Additional lawsuits may be filed against us in 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, reputation, financial condition, liquidity and results of operations could be materially and adversely affected.

InOver the past 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 actionsyears, lawsuits have been filed ~~against certain~~by RMBS ~~trustees~~trust investors alleging that the trustees and master servicers breached their contractual and statutory duties by ~~among other things,~~(i) failing to require ~~the~~ loan servicers to abide by ~~the servicers’ obligations and~~their contractual obligations; (ii) failing to declare that certain alleged servicing events of default under the applicable contracts ~~occurred.~~occurred; and (iii) failing to demand that loan sellers repurchase allegedly defective loans, among other things. Ocwen has received several letters from trustees and master servicers purporting to put Ocwen on notice that the trustees and master servicers may ultimately seek indemnification from Ocwen in connection with the litigations. Ocwen has not yet been impleaded into any of these cases, but it has produced and continues to produce documents to the parties in response to third-party subpoenas.

Ocwen has, however, been impleaded as a third-party defendant into five consolidated loan repurchase cases first filed against Nomura Credit & Capital, Inc. in 2012 and 2013. Ocwen is ~~a party~~vigorously defending itself in ~~certain of these actions, is~~those cases against allegations by the ~~servicer for certain securitizations involved in other such actions and is the servicer for other securitizations as~~mortgage loan seller-defendant that Ocwen failed to ~~which actions have been threatened by certificate holders. We intend to vigorously defend ourselves~~inform its contractual counterparties that it had discovered defective loans 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 wecourse of servicing them and had otherwise failed to service the 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~~accepted standards. Ocwen is unable at this time ~~we are unable~~ to predict the ultimate outcome of these ~~lawsuits,~~matters, the possible loss or range of loss, if any, associated with the resolution of these ~~lawsuits~~matters 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,~~reputation, financial condition, liquidity and results of operations could be adversely affected.

In addition, ~~a number of~~several 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. 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 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, and that appeal remains pending. Ocwen 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,~~reputation, financial condition, liquidity 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.

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

OnIn 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. In September 2019, the court issued a ruling on our motion to dismiss, granting it in part and denying it in part. The court granted our motion dismissing the entire complaint without prejudice because the court found that the CFPB engaged in impermissible “shotgun pleading,” holding that the CFPB must amend its complaint to specifically allege and distinguish the facts between all claims. The CFPB filed an amended complaint in October 2019, and we filed our answer and affirmative defenses on November 1, 2019

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 ~~$53.4~~$39.0 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 potentially involve monetary fines or penalties or additional restrictions on our business and 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.

In 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 Ocwen Business Solutions, Inc. (OBS).

We ~~have~~ entered into agreements with all 3029 states plus the District of Columbia to resolve these regulatory actions. These agreements generally ~~contain~~contained the following key terms (the Multi-State Common Settlement Terms):

Ocwen would not acquire any new residential ~~mortgage servicing rights~~MSRs 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~~would develop a plan of action and milestones regarding its transition from the REALServicing servicing system to an alternate servicing system and, with certain exceptions, would not board any new loans onto the REALServicing system.

In the event that Ocwen chose to merge with or acquire an unaffiliated company or its assets in order to effectuate a transfer of loans from the REALServicing system, Ocwen was required to comply with regulatory notice and waiting period requirements.

Ocwen would 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~~would develop corrective action plans for any errors ~~that are~~ identified by the third-party auditor.

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

Ocwen ~~will~~would 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 restrictions, certain review, reporting and remediation obligations, and the following additional terms:

Ocwen agreed with the Connecticut ~~regulatory agency~~Department of Banking 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,~~Office of the Commissioner of Financial Regulation, 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~~Division of Banks 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.~~system. 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~~system transition. The first phase of this audit, which was required to be completed prior to transitioning any Massachusetts loans to a new servicing system, has already been completed.

Ocwen agreed with the Nebraska Department of Banking and Finance until April 30, 2019, to limit its growth through acquisition from correspondent relationships to no more than ten percent per year for Nebraska loans (based on the total number of loans held at the prior calendar year-end).

Accordingly, we have now resolved all of the administrative actions (but not all of the legal actions, which are described below) taken by state regulators onin April ~~20, 2017 and shortly thereafter.~~2017.

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

In April 2017 and shortly thereafter, 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. In September 2019, the court issued its ruling on our motion to dismiss, granting it in part and denying it in part. The court granted our motion dismissing the entire complaint without prejudice because the court found that the plaintiffs engaged in impermissible “shotgun pleading,” holding that the plaintiffs must amend their complaint to specifically allege and distinguish the facts between all claims. The plaintiffs filed an amended complaint on November 1, 2019. We are reviewing and planning our response to the amended complaint. We believe we have factual and legal defenses to the allegations raised in this lawsuit and are vigorously defending ourselves. The outcome of this lawsuit, whether through a negotiated settlement, 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. Our accrual with respect to this matter is included in the $39.0 million litigation and regulatory matters accrual referenced above. We cannot currently estimate the amount, if any, of reasonably possible loss above the amount currently accrued.

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~~In April 2019, we agreed to resolve this matter without admitting liability. The resolution includes 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~~payment to the ~~claims made~~Commonwealth of Massachusetts of $675,000, a loan modification program for certain eligible Massachusetts borrowers, and certain already-completed relief. The settlement amount of $675,000 was paid 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.April 2019.

Our accrual with respect to the administrative and legal actions initiated onin April ~~20,~~ 2017 ~~and shortly thereafter~~ is included in the ~~$53.4~~$39.0 million litigation and regulatory matters accrual referenced above. We have also incurred, and will ~~also~~continue to incur costs ~~complying~~to comply with the terms of the settlements we have entered into, including ~~in connection with~~ the costs of conducting an escrow review, Maryland organizational assessments and Massachusetts data integrity audits, and costs relating to the transition to ~~a new servicing system. For example, with~~Black Knight MSP. With respect to the escrow review, ~~which~~although the initial testing phase is ~~currently underway, we will incur remediation costs to~~now complete, the third-party auditor continues its work, including drafting its final report. To the extent that errors ~~are~~that have been identified require remediation, we will incur costs in connection with remediating those errors. In addition, it is possible that legal or other actions could be taken against us with respect to such errors, which ~~require remediation.~~could result in additional costs or other adverse impacts. If we fail to comply with the terms of our settlements, additional ~~administrative~~legal or ~~legal regulatory~~other 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~~referenced 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. There were no monetary or other penalties imposed under the MOU. However, the MOU prohibited us from repurchasing stock during the development of a going forward plan and, thereafter, except as permitted by the plan. We prepared and submitted a plan that contained no stock repurchase restrictions and, therefore, we do not believe we are currently restricted from repurchasing stock. However, the MMC may not agree with our interpretation. For this reason, and on the basis of our progress to date responding to our obligations under the MOU, we have requested that the MOU be terminated. To the extent that we cannot terminate the MOU, we may remain subject to a share repurchase restriction and continued reporting obligations.

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. We continue to provide information to the Department of Justice and we are engaged in ongoing discussions with the Department of Justice relating to this inquiry. 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 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 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.~~HAMP. We have been providing documents and information in response to these subpoenas.

In ~~July 2017, we~~April 2019, PMC received a ~~letter~~subpoena 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~~VA Office of the ~~Ginnie Mae MBS Guide, and that Ginnie Mae had accordingly declared an event~~Inspector General requesting the production 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. In a letter dated August 1, 2018, Ginnie Mae informed us that, based on Ocwen’s progress resolving its state regulatory matters, Ginnie Mae considered the matter satisfied, subject to our compliance with ongoing reporting requirements relating to our state regulatory settlements and transition

documentation related to the ~~Black Knight MSP.~~

~~Adverse actions~~origination and underwriting of loans guaranteed 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 indicatingthe Veterans Benefits Administration. We understand 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.~~servicers in the industry have received similar subpoenas.

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.

We received origination representations and warranties from our network of approved originators in connection with loans we 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,~~historical actions by investors, 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. In our servicing business, claims alleging that we did not comply with our servicing obligations may require us to repurchase mortgage loans, make whole or otherwise indemnify investors or other parties. 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~~relating to our lending, sales and securitization ~~activities and in connection with our servicing practices.~~activities. 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 loan sale or collateral liquidation ~~of a repurchased loan~~ as well as current market conditions. We have exposure to servicing representation, warranty and indemnification obligations relating to our servicing practices. We record an accrual for a loss contingency if the loss contingency is probable and the amount can be reasonably estimated. We monitor the adequacy of the overall liability and make adjustments, as necessary, after consideration of our historical losses and other qualitative factors including ongoing dialogue and experience with our counterparties.

At September 30, ~~2018~~2019 and September 30, ~~2017,~~2018, we had outstanding representation and warranty repurchase demands of $49.9 million UPB (289 loans) and $26.5 million UPB (160 ~~loans) and $40.2 million UPB (213~~ 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 and compensatory fees for foreclosures that may ultimately exceed investor timelines and similar indemnification obligations:


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
Beginning balance(1)	$	19,229		$	24,285		$	49,267		$	19,229
Provision for representation and warranty obligations	4,443			(3,285		)
Provision (reversal) for representation and warranty obligations							(10,367		)	4,443
New production reserves	259			554			186			259
Charge-offs and other (1)	(6,824		)	(3,036		)
Charge-offs and other (2) (3)							14,887			(6,824		)
Ending balance(1)	$	17,107		$	18,518		$	53,973		$	17,107


(1)	The liability for representation and warranty obligations and compensatory fees for foreclosures is reported in Other liabilities (a component of Liability for indemnification obligations) on our unaudited consolidated balance sheets.


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


(3)	Includes $18.0 million liability for representation and warranty obligations as of September 30, 2019 related to sold advances previously presented as allowance for losses. See Note 7 – Advances.

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 30, ~~2018~~2019.

Other

~~OLS,~~Ocwen, on its own behalf and on behalf of various mortgage loan investors, ~~has been~~is 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. In some cases, Ocwen has entered into tolling agreements, initiated arbitration or litigation, engaged in settlement discussions, or taken other similar actions. To date, Ocwen has settled with ~~three~~four mortgage insurers, and expects the ultimate outcome to result in recovery of additional unpaid claims, although we cannot quantify the likely amount at this time.

We may, from time to time, have affirmative indemnification and other claims against parties from whom we acquired MSRs or other assets. Although we pursue these claims, we cannot currently estimate the amount, if any, of further recoveries.

~~Note 21 – Subsequent Events~~

~~PHH Acquisition~~

On October 4, 2018, Ocwen completed its acquisition of PHH, a non-bank servicer with established servicing and origination recapture capabilities. We believe this acquisition will enable us to obtain the following key strategic and financial benefits: (i) accelerate Ocwen’s transition to the Black Knight MSP servicing platform; (ii) reduce fixed costs, on a combined basis, through reductions in corporate overhead and other costs and improved economies of scale; and (iii) provide a foundation to enable the combined servicing platform to resume new business and growth activities to offset portfolio runoff. The results of PHH operations will be included in Ocwen’s consolidated statement of operations from the date of acquisition. Assets acquired and liabilities assumed will be recorded at their fair value as of the date of acquisition based on management’s estimates using currently available information. The acquisition will be accounted for under the acquisition method of accounting pursuant to ASC 805, ~~Business Combinations~~.

The aggregate consideration paid to the former holders of PHH common stock was $358.4 million in cash, with $325.0 million from PHH and $33.4 million from Ocwen. We expect to recognize a bargain purchase gain, net of tax, in connection with the acquisition. The anticipated bargain purchase gain results from the losses we expect PHH to incur in the future that were contemplated as part of the purchase price. To the extent those losses are realized, they will be included in our consolidated statements of operations. Due to the timing of the acquisition, the initial accounting for the acquisition is incomplete as of the filing date and therefore the amount of the actual bargain purchase gain has not yet been determined.

As part of the acquisition Ocwen assumed certain contingent liabilities, including contingent liabilities relating to pending and threatened legal and regulatory proceedings. Similar to Ocwen and other mortgage loan servicers and lenders, PHH and its subsidiaries are routinely, and currently, defendants in various legal proceedings that arise in the ordinary course of PHH's business, including class action proceedings. These proceedings are generally based on alleged violations of federal, state and local laws and regulations governing mortgage servicing and lending activities, and contractual obligations. Similar to Ocwen and other mortgage loan servicers and lenders, PHH and its subsidiaries are also routinely, and currently, subject to government and regulatory examinations, investigations and inquiries or other requests for information. The resolution of these various legal and regulatory matters may result in adverse judgments, fines, penalties, injunctions and other relief against PHH as well as monetary payments or other agreements and obligations. In particular, legal proceedings brought under RESPA or other federal or state consumer protection laws that are ongoing, or may arise Similarly, from time to time, ~~may include the award of treble~~indemnification and other ~~damages substantially in excess of actual losses, attorneys' fees and expenses, injunctive relief and remediation~~claims are made against us by parties to whom we sold MSRs or other ~~consumer relief. These proceedings and matters are at varying procedural stages and PHH may engage in settlement discussions on certain matters in order to avoid~~assets. We cannot currently estimate the ~~additional costs~~amount, if any, of engaging in litigation. The outcome of any legal or regulatory matter is inherently difficult to predict or estimate and the ultimate time to resolve any such matter may be protracted. In addition, the outcome in one or more legal or regulatory matters may affect the outcome of other pending or threatened legal or regulatory matters. The ultimate resolution of any particular legal or regulatory matter, whether through negotiated settlement, court rulings or otherwise, could be material to Ocwen’s business, reputation, financial condition, liquidity and results of operations.reasonably possible loss above amounts recorded.

Costs incurred in connection with the transaction are expensed as incurred and are reported in Professional services in the unaudited consolidated statements of operations. Such costs were $1.7 million and $6.6 million during the three and nine months ended September 30, 2018, respectively.

Due to the timing of the acquisition occurring subsequent to the end of the third quarter of 2018, the initial accounting for the business combination is incomplete as of the filing date as disclosed above, and certain disclosures, including the supplemental pro forma financial information, have been omitted from these unaudited consolidated financial statements. We will include the disclosures required by ASC 805, ~~Business Combinations, in our 2018 Annual Report on Form 10-K. We are currently evaluating the impact of this acquisition on our reportable segments.~~


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. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “intend,” “consider,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict” or “continue” or the negative of such terms or other comparable terminology. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Our business has been undergoing substantial change, which has magnified such risks and uncertainties. You should bear these factors in mind when considering forward-looking statements and should not place undue reliance on such statements. Forward-looking statements involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those suggested by such statements. In the past, actual results have differed from

those suggested by forward-looking statements, and this may happen again. You should consider all uncertainties and risks discussed or referenced in this report, including those under “Forward-Looking Statements” and Part II, Item ~~1A,~~1A. Risk Factors, as well as those discussed in our other reports and filings with the SEC, including those in our Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018 and any subsequent SEC filings.

OVERVIEW

General

We are a financial services company that services and originates loans.

The majority of our revenues are generated from our residential mortgage servicing business. ~~Regulatory restrictions on acquisitions~~At September 30, 2019, our residential mortgage servicing portfolio consisted of ~~MSRs~~1,451,653 loans with a UPB of $216.8 billion. In our lending business, we originate, purchase, sell and ~~portfolio runoff continue to negatively impact the size of,~~securitize conventional and revenues from, our servicing portfolio. While we have made progress, we have not been able to reduce our overall expenses by a comparative amount, in part because of the relatively fixed nature of certain aspects of our corporate overhead. In addition, continuing regulatorygovernment-insured forward and ~~legal matters have negatively impacted our results. We have incurred a net loss in each of the last four fiscal years and for~~reverse mortgage loans. During the nine months ended September 30, ~~2018, which has significantly eroded stockholders’ equity~~2019, our lending business originated or purchased forward and ~~weakened our financial condition.~~

Earlier this year, we entered into an agreement to acquire PHH because we believed that we would need to grow our revenues in order to drive stronger financial performance. On October 4, 2018, we completed our acquisition of PHH, which became a wholly owned subsidiary of Ocwen. On a combined basis as of September 30, 2018, Ocwen and PHH serviced 1.7 millionreverse mortgage loans with a UPB of ~~$287.0 billion. In 2017, on a combined basis Ocwen~~$586.0 million and ~~PHH originated more than $3.0 billion UPB in residential mortgage loans, including reverse mortgages and excluding forward lending correspondent and wholesale channels which Ocwen exited during 2017.~~$470.6 million, respectively.

We ~~believe this acquisition will enable us~~have established a set of key business initiatives to ~~obtain the following key strategic and financial benefits:~~achieve our objective of returning to profitability.

~~Accelerate Ocwen’s transition to the Black Knight MSP servicing platform;~~

~~Reduce fixed costs, on a combined basis, through reductions in corporate overhead and other costs;~~

~~Improve economies of scale; and,~~

~~Provide a foundation to enable the combined servicing platform to resume new business and growth activities to offset portfolio runoff.~~

~~We expect to recognize a bargain purchase gain, net of tax, in connection with~~First, we have successfully executed the acquisition of ~~PHH. The anticipated bargain purchase gain results from the fair value~~PHH Corporation and continue our planned integration of PHH’s net assets exceeding the purchase price we paid. The purchase price we negotiated contemplated that PHH may incur losses after the acquisition date. To the extent those losses are realized, they will be included inbusiness with ours. We have fully transitioned our ~~consolidated statements of operations. In addition, there can be no assurances that the desired strategic and financial benefits of the acquisition will be realized.~~

The approval of NY DFS for the acquisition imposed certain post-closing requirements on Ocwen, including certain reporting obligations and certain record retention and other requirements relating to the planned transfer of New York loansservicing onto the Black Knight MSP servicing ~~platform as well as certain requirements~~system which includes loan boarding, payment processing, escrow administration, and default management, among other functions. We have reduced total staffing levels significantly. We have successfully vacated five U.S. facilities and expect to close the last U.S. facility scheduled for closure by the end of 2019. We have completed the mergers of two of our primary licensed operating entities, Homeward and OLS into PMC, with ~~respect to~~PMC being the management of PHH Mortgage Corporation (PMC), a licensed subsidiary of PHH. In addition, the NY DFS modified its restriction on Ocwen’s ability to acquire MSRs to allow certain acquisitions of MSRs that are boarded onto the Black Knight MSP servicing platform subject to annual portfolio growth limitations until such time as the NY DFS determines that all loans have been successfully migrated to the Black Knight MSP servicing platform and that Ocwen has developed a satisfactory infrastructure to board sizeable portfolios of MSRs.

~~Now that we have consummated~~surviving corporation. We believe our acquisition of PHH ~~if we can~~provided us with the opportunity to transform into a stronger, more efficient company better able to serve our customers and clients and positioned us to execute on ~~five key initiatives, we believe we will drive stronger financial performance. First, we must successfully execute on the integration of PHH’s business with ours, including~~strategies to enable a ~~smooth transition onto the Black Knight MSP servicing platform.~~ return to profitability.

Second, we must re-engineer our cost structure to go beyond eliminating redundant costs through the integration process. Our cost re-engineering plan addresses organizational, process and control redesign and automation, human capital planning, off-shore utilization, strategic sourcing and facilities rationalization. Our initiatives are targeted at increasing the degree of automation of our processes, leveraging our single servicing platform and technology, and through innovation. We believe these steps are necessary in order to simplify our operations and drive stronger financial performance.

Third, we must ~~fulfill our regulatory commitments and resolve our remaining legal and regulatory matters on satisfactory terms. Fourth, we must replenish~~manage the size of our servicing portfolio through expanding our lending business and permissible MSR acquisitions that are prudent and well-executed with appropriate financial return targets. ~~Finally,~~During the nine months ended September 30, 2019, we ~~must ensure~~closed MSR acquisitions with $11.9 billion UPB. We expect to continue to focus on acquiring Agency and government-insured MSR portfolios that meet or exceed our minimum targeted investment returns. We also executed on our plans to re-enter the forward lending correspondent channel in the second quarter of 2019 and we continue to pursue a number of other MSR acquisition options, including driving improved recapture rates within our existing servicing portfolio. In addition to our organic growth initiatives in lending, we have been actively engaged in evaluating opportunities to acquire complimentary lending businesses that can generate significant volume through mortgage lending cycles and provide a sustainable MSR source.

Fourth, we must manage our balance sheet to ensure adequate liquidity and provide a solid platform for executing on our ~~growth and~~ other key business initiatives.

~~We have significantly strengthened our cash position through the receipt of aggregate lump-sum payments of $334.2~~ On July 1, 2019, we established a financing facility secured by MSRs that provides up to $300.0 million in ~~connection with our 2017 Agreements and~~committed borrowing capacity. We believe this facility will enable the ~~New RMSR Agreements with NRZ. However, these upfront payments generally represent the net present value~~funding of the ~~difference between the future revenue stream Ocwen would have received under the Original Rights~~majority of our near term MSR acquisition initiatives. We intend to ~~MSRs Agreements~~extend, renew or replace our SSTL Facility Agreement that matures in December 2020 and ~~the future revenue stream Ocwen expects to receive under the 2017 Agreements. Accordingly, the new agreements provide for a larger portion of future servicing compensation to be retained by NRZ.~~

~~We continue to invest cash amounts~~must evaluate capital structure options that ~~are excess to our immediate business needs to achieve targeted investment returns within our risk appetite and~~ we ~~have also deployed excess cash to reduce secured borrowings. We continue to evaluate options to grow our revenues through select investments. There can be no assurances we~~believe will ~~be able~~most effectively allow us to execute on our ~~plans or that the returns~~business plan.

Finally, we must fulfill our regulatory commitments and resolve our remaining legal and regulatory matters on ~~such investments will ultimately meet our targets.~~

satisfactory terms. Our business, operating results and financial condition have been significantly impacted in recent periods by regulatory actions against us and by significant litigation 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 in existing regulatory and legal matters, our business, reputation, financial condition, liquidity and results of operations could be materially and adversely affected, even if we are ~~otherwise~~ successful in our ongoing efforts to drive stronger financial performance.

In recent periods, Ocwen has incurred significant losses as a result of declines in the fair value of our MSRs. Further interest rate decreases, prepayment speed increases or changes to other fair value inputs or assumptions could result in further fair value declines and hamper our ability to return to profitability. Starting in September 2019, we have implemented a hedging strategy to partially offset the changes in fair value of our net MSR portfolio. See Item 3 - Quantitative and Qualitative Disclosures about Market Risk for further information.

Our ability to execute on these key business initiatives is not certain and is dependent on the successful execution of several complex actions, including our ability to grow our lending business and acquire MSRs with appropriate financial return targets and execute on further organizational redesign and headcount reductions, as well as the absence of significant unforeseen costs, including regulatory or legal costs, that could negatively impact our cost re-engineering efforts, and our ability to renew, replace or extend our debt agreements in the ordinary course, including our SSTL. There can be no assurances that the desired strategic and financial benefits of these actions will be realized.

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 operations appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2017.~~2018.

Financial Overview

The table below presents an overview of our financial results and selected data.



In millions (except for headcount data and unless otherwise noted)	Three Months Ended September 30,								Nine Months Ended September 30,
	2019			2018			% Change		2019			2018			% Change
Total revenue	$	283.5		$	238.3		19	%	$	861.7		$	752.1		15	%
MSR valuation adjustments, net	134.6			(41.4		)	(425	)	(121.7		)	(91.7		)	33
Operating expenses	(179.3		)	(176.1		)	2		(534.6		)	(538.0		)	(1	)
Interest expense	(285.9		)	(61.3		)	366		(387.9		)	(189.6		)	105
Loss before income taxes	(38.3		)	(40.3		)	(5	)	(163.7		)	(63.7		)	157
Net loss	(42.8		)	(41.1		)	4		(177.0		)	(68.3		)	159

Average UPB serviced (in billions)	$	221.1		$	164.1		35		$	238.4		$	170.2		40
Total loan production	$	412.2		$	319.8		29		$	1,056.6		$	1,069.4		(1	)
Average employment	5,988			6,557			(9	)	6,594			6,964			(5	)

Ocwen reported a net loss of $42.8 million in the third quarter of 2019.

Total revenue was $283.5 million for the third quarter of 2019, an increase of $45.2 million or 19% compared to the same period in 2018. The increase in total revenue is mostly driven by a higher average UPB serviced and the related mix of servicing versus subservicing, partially offset by fewer borrower loan modifications. The 35% increase in our average servicing portfolio UPB from $164.1 billion in the third quarter of 2018 to $221.1 billion in the third quarter of 2019 is mainly due to the acquisition of PHH in October 2018 and, to a lesser extent our bulk MSR acquisitions, partially offset by the runoff of the portfolio.

Operating expenses, representing our Total expenses less MSR valuation adjustments, net, were mostly flat compared with the 2018 periods prior to the acquisition of PHH, with $179.3 million recognized for the third quarter of 2019 compared to $176.1 million for the third quarter of 2018. Operating expenses in the third quarter of 2019 included re-engineering costs of $18.3 million. In addition, operating expenses in the third quarter of 2018 did not include the operating expenses of PHH as we closed the acquisition in October 2018. Accordingly, while the operating expenses for the third quarter in 2019 remain mostly flat compared with 2018, the incremental operating expenses of the integrated PHH business and the re-engineering costs were

mostly offset by significant expense reductions across the business. Similarly, the reduction of our workforce by 9% compared with the third quarter 2018 is net of the increase in employment associated with the acquisition of PHH.

Results of Operations Summary Three Months Ended September 30, % Change Nine Months Ended September 30, % Change
2018 2017 2018 2017
Revenue
Servicing and subservicing fees $ 213,730
$ 233,220
(8 )% $ 658,095
$ 761,523
(14 )%
Gain on loans held for sale, net 16,942
25,777
(34 ) 61,135
76,976
(21 )
Other 7,606
25,645
(70 ) 32,886
79,307
(59 )
Total revenue 238,278
284,642
(16 ) 752,116
917,806
(18 )

Expenses
Compensation and benefits 63,307
90,538
(30 ) 211,220
272,750
(23 )
Professional services 40,662
38,417
6
110,821
145,651
(24 )
MSR valuation adjustments, net 41,448
33,426
24
91,695
115,446
(21 )
Servicing and origination 31,758
52,246
(39 ) 91,452
128,061
(29 )
Technology and communications 20,597
27,929
(26 ) 67,306
79,530
(15 )
Occupancy and equipment 11,896
15,340
(22 ) 37,369
49,569
(25 )
Other 7,858
15,583
(50 ) 19,814
39,335
(50 )
Total expenses 217,526
273,479
(20 ) 629,677
830,342
(24 )

Other income (expense)

Interest income 3,963
4,099
(3 ) 10,018
12,101
(17 )
Interest expense (61,288 ) (47,281 ) 30
(189,601 ) (212,471 ) (11 )
Gain (loss) on sale of mortgage servicing rights, net (733 ) 6,543
(111 ) 303
7,863
(96 )
Other, net (2,967 ) (1,077 ) 175
(6,872 ) 6,384
(208 )
Total other expense, net (61,025 ) (37,716 ) 61
(186,152 ) (186,123 ) (1 )

Loss before income taxes (40,273 ) (26,553 ) 51
(63,713 ) (98,659 ) (38 )
Income tax expense (benefit) 845
(20,418 ) (104 ) 4,541
(15,465 ) (129 )
Net loss (41,118 ) (6,135 ) 568
(68,254 ) (83,194 ) (20 )
Net income attributable to non-controlling interests (29 ) (117 ) (75 ) (176 ) (289 ) (39 )
Net loss attributable to Ocwen stockholders $ (41,147 ) $ (6,252 ) 556 % $ (68,430 ) $ (83,483 ) (21 )%

Segment income (loss) before income taxes
Servicing $ (13,899 ) $ 5,681
(345 )% $ 8,668
$ 18,030
(52 )%
Lending (2,065 ) (7,569 ) (73 ) 8,106
(7,072 ) (215 )
Corporate Items and Other (24,309 ) (24,665 ) (1 ) (80,487 ) (109,617 ) (27 )
$ (40,273 ) $ (26,553 ) 52 % $ (63,713 ) $ (98,659 ) (35 )%
n/m: not meaningful
Ocwen reported a net $134.6 million gain in MSR valuation adjustments, net in the third quarter of 2019. The gain is mostly driven by $256.9 million favorable assumption updates by our third party valuation experts partially offset by $67.6 million valuation loss due to the decline in interest rates and $54.7 million of portfolio runoff. The assumption fair value gains related mostly to our non-Agency MSR portfolio due to continued improved collateral performance confirmed by recent market trade activity. $925.5 million of our MSRs at September 30, 2019 have been sold under different agreements that did not qualify for sale accounting treatment and, therefore are reported as MSR assets, pledged at fair value together with an associated liability for the MSR secured borrowing at fair value. Because both pledged MSRs and the associated MSR secured borrowing liability are measured at fair value, changes in fair value largely offset each other, although they are separately presented in our statement of operations, as MSR valuation adjustments, net and interest expense, respectively. The following table summarizes the fair value change impact on our statement of operations of our total MSRs and Financing liability-MSRs pledged during the third quarter of 2019:



In millions	Total Change in Fair Value			Runoff			Interest Rate Change			Assumption Updates
MSR valuation adjustments, net	$	134.6		$	(54.7	)	$	(67.6	)	$	256.9
Interest expense (Financing liability-MSRs pledged) (1)	(171.4		)	27.1			36.5			(235.0		)
Total	$	(36.8	)	$	(27.6	)	$	(31.1	)	$	21.9


(1)	Includes changes in fair value, including runoff and settlement, of the NRZ related MSR secured borrowing under the Original Rights to MSRs Agreements and PMC MSR Agreements. See Note 10 — Rights to MSRs for further information.

The total change in fair value of both the MSR and the associated MSR secured borrowing was a $36.8 million loss for the third quarter of 2019, explained by $27.6 million of portfolio runoff, a $31.1 million loss related to the impact of interest rate declines partially offset by a $21.9 million gain due to valuation assumption updates. The net $21.9 million impact of the favorable valuation assumption updates mostly related to our non-Agency MSR portfolio and resulted from an average price increase of 47% in the quarter ended September 30, 2019, with the following non-Agency assumption changes made by our valuation experts (see Note 5 – Fair Value for additional information):



	September 30, 2019			June 30, 2019
Weighted average prepayment speed	12.2		%	15.5		%
Weighted average delinquency rate	26.3		%	27.2		%
Advance financing cost	5-year swap plus 2.00%			5-yr swap plus 2.75%
Interest rate for computing float earnings	5-year swap minus 0.50%			5-yr swap minus 0.50%
Weighted average discount rate	11.3		%	12.6		%
Weighted average cost to service (in dollars)	$	277		$	295

Interest expense was $285.9 million for the third quarter of 2019. Interest expense included $171.4 million related to changes in fair value of our MSR secured financing, which was comprised of a $235.0 million loss due to assumption updates, mostly related to non-Agency MSRs, partially offset by a favorable valuation change due to $36.5 million interest rate decline and $27.1 million gain due to runoff. As described above, because we record both our MSRs and the associated MSR secured financing liabilities at fair value, the changes in fair value of the MSR secured financing liabilities, presented in Interest expense, were largely offset by the changes in fair value of the associated MSRs pledged, presented in MSR valuation adjustments, net.

The following discussion addresses each component of our statement of operations, and further detail related to our servicing, lending and corporate segments is provided in the discussion by segment.



Results of Operations Summary	Three Months Ended September 30,						% Change		Nine Months Ended September 30,						% Change
Results of Operations Summary	2019			2018			% Change		2019			2018			% Change
Revenue
Servicing and subservicing fees	$	247,714		$	213,730		16	%	$	742,759		$	658,095		13	%
Gain on loans held for sale, net	16,013			16,942			(5	)	48,683			61,135			(20	)
Other revenue, net	19,788			7,606			160		70,299			32,886			114
Total revenue	283,515			238,278			19		861,741			752,116			15

Expenses
MSR valuation adjustments, net	(134,561		)	41,448			(425	)	121,705			91,695			33
Compensation and benefits	73,414			63,307			16		250,393			211,220			19
Servicing and origination	36,619			31,758			15		86,827			91,452			(5	)
Professional services	36,628			40,662			(10	)	77,205			110,821			(30	)
Technology and communications	16,644			20,597			(19	)	61,080			67,306			(9	)
Occupancy and equipment	17,262			11,896			45		52,550			37,369			41
Other expenses	(1,282		)	7,858			(116	)	6,563			19,814			(67	)
Total expenses	44,724			217,526			(79	)	656,323			629,677			4

Other income (expense)
Interest income	4,129			3,963			4		12,524			10,018			25
Interest expense	(285,922		)	(61,288		)	367		(387,938		)	(189,601		)	105
Gain on repurchase of senior secured notes	5,099			—			n/m		5,099			—			n/m
Bargain purchase gain	—			—			n/m		(381		)	—			n/m
Other, net	(414		)	(3,700		)	(89	)	1,544			(6,569		)	(124	)
Total other expense, net	(277,108		)	(61,025		)	354		(369,152		)	(186,152		)	98

Loss before income taxes	(38,317		)	(40,273		)	(5	)	(163,734		)	(63,713		)	157
Income tax expense	4,450			845			427		13,264			4,541			192
Net loss	(42,767		)	(41,118		)	4		(176,998		)	(68,254		)	159
Net income attributable to non-controlling interests	—			(29		)	(100	)	—			(176		)	(100	)
Net loss attributable to Ocwen stockholders	$	(42,767	)	$	(41,147	)	4	%	$	(176,998	)	$	(68,430	)	159	%

Segment income (loss) before income taxes
Servicing	$	(13,189	)	$	(13,899	)	(5	)%	$	(129,697	)	$	8,668		n/m
Lending	8,890			(2,065		)	(531	)	37,109			8,106			358
Corporate Items and Other	(34,018		)	(24,309		)	40		(71,146		)	(80,487		)	(12	)
	$	(38,317	)	$	(40,273	)	(5	)%	$	(163,734	)	$	(63,713	)	157	%
n/m: not meaningful

Three Months Ended September 30, ~~2018~~2019 versus ~~2017~~2018

Servicing and subservicing ~~fees were $19.5~~fee revenue increased $34.0 million, or 8%16%, lower than the third quarter of 2017, primarily due to portfolio runoff, consistent with the 14% and 13% decline in our residential portfolio average UPB and loan count, respectively. The number of completed modifications increased for the three months ended September 30, 2018as compared to the three months ended September 30, 2017 as our non-HAMP modification programs replace the HAMP program which expired on December 31, 2016. Revenue recognized in connection with loan modifications was $14.4 million and $14.5 million for the third quarter of 2018, primarily due to the increase in the portfolio resulting from the acquisition of PHH on October 4, 2018 and ~~2017, respectively.~~the acquisition of MSRs during the first nine months of 2019, partially offset by portfolio runoff and a decline in completed modifications.

~~The $8.8 million, or 34%, decline in Gains~~Gain on loans held for sale, net indeclined $0.9 million, or 5%, as compared to the third quarter of 2018 ~~is primarily~~ due to margin deterioration offset by a ~~decrease~~29% increase in ~~total~~ loan ~~production offset~~production. The reduction in ~~part~~margin was largely attributable to lower gain on sales margins driven by ~~higher margins. Forward lending originations declined~~increased price competition in the wholesale and correspondent channels as ~~a result of our exit from the forward lending correspondent and wholesale channels and rising interest rates which reduced refinance volume. Changes~~compared to the ~~FHA HECM program for originations after October 1, 2017 have negatively impacted reverse lending origination volume.~~same period in 2018.

Other revenue, ~~for~~net increased $12.2 million, or 160%, as compared to the third quarter of 2018, ~~declined $18.0 million, or 70%,~~ largely due to a ~~$7.0~~$12.9 million ~~decline in REO referral commissions in connection with the transfer of the rights to such commissions to NRZ effective with the New RMSR Agreements, and a $7.1 million unfavorable~~favorable net change in the fair values of our HECM reverse mortgage loans and the related HMBS financing liability. ~~Rising interest rates reduce~~This increase is mostly due to the ~~average life of our~~fair value election for future draw commitments on HECM reverse mortgage loans ~~as Adjustable Rate Mortgage (ARM) borrowers reach their maximum loan amount faster, reducing projected service fees,~~purchased or originated after December 31, 2018 and lower interest rates.

We reported a net gain of ~~subservicing fees, and available future draws, and accelerating loan resolutions. CRL premium revenue declined $1.6~~134.6 million ~~consistent with the decline~~in MSR valuation adjustments, net in the ~~number~~third quarter of ~~foreclosed real estate properties~~2019, compared to a net loss of $41.4 million in the ~~servicing~~third quarter of 2018. The $176.0 million change is primarily due to $252.3 million related to fair value assumption updates based on continued improved collateral performance of our non-Agency MSR portfolio ~~and loan origination fees were lower on lower lending segment production volumes.~~confirmed by recent market trade activity, partially offset by the $67.6 million impact of a decrease in interest rates. The 10-year swap rate declined 40 basis points in the third quarter of 2019 compared to an increase of 10 basis points in the third quarter of 2018. The fair value gain related to assumption updates was further offset by $8.5 million of net unfavorable impacts from higher portfolio runoff.

Operating expenses, representing Total expenses excluding MSR valuation adjustments, net, increased ~~$8.0~~$3.2 million, or ~~24%~~2%, as compared to the third quarter of 2017, primarily due to higher interest rates in the third quarter of 2018 and a resulting increase in advance funding costs related to our non-Agency MSRs, with no offsetting favorable impact to our Agency MSRs based on our third quarter benchmarking review. MSR valuation adjustments for the third quarter of 2017 include the impact of a favorable benchmarking update to modeled losses on certain financed FHA and VA MSRs.

~~Excluding MSR valuation adjustments, net, expenses were $64.0 million, or 27%, lower as compared to the third quarter of 2017.~~2018.

Compensation and benefits expense ~~for the third quarter of 2018 declined $27.2~~increased $10.1 million, or 30%, as average headcount declined by 24%, including a 31% reduction in U.S.-based headcount, consistent with our efforts to reduce servicing operations costs and corporate overhead in line with the runoff of our servicing portfolio and consistent with our strategic decisions to exit the ACS business and the forward lending correspondent and wholesale channels.

~~Servicing and origination expense decreased $20.5 million, or 39%~~16%, as compared to the third quarter of ~~2017~~2018, primarily due to ~~a $15.0 million reduction in government-insured claim loss provisions~~PHH compensation and ~~a $5.4 million reduction in~~ l~~osses related to non-recoverable advances~~benefits expense and ~~receivables. We recorded additional reserves in the prior year on reinstated or modified government-insured claims.~~

~~Declines of~~ $7.3 million of severance and $3.4 million in Technology and communication and Occupancy and equipment expenses, respectively, as compared to the third quarter of 2017, are largely a result of our cost reduction efforts that include bringing technology services in-house and closing and consolidating certain facilities.

Other expenses were $7.7 million, or 50%, lower in the third quarter of 2018 as the three months ended September 30, 2017 includes a $6.8 million charge to write-off the carrying value of internally-developed software ~~used in our wholesale forward lending business~~retention costs recognized in connection with our ~~decision to exit~~integration-related headcount reductions of primarily U.S.-based employees, partially offset by a decrease in expenses that ~~channel and sell~~reflects the ~~furniture, fixtures and equipment located at our Westborough, Massachusetts facility~~. ~~Advertising expense declined $1.9 million as a result~~ results of our ~~exit~~efforts to re-engineer our cost structure, align headcount in our servicing operations and corporate segment with the size of our servicing portfolio. However, the average of higher-cost U.S. headcount increased to 31% of the total from ~~the forward lending correspondent and wholesale channels.~~

~~Interest expense~~25% for the third quarter of ~~2018~~2018.

Servicing and origination expense increased ~~$14.0~~$4.9 million, or ~~30%~~15%, as compared to the third quarter of ~~2017,~~2018, primarily due to a $3.6 million increase in government-insured claim loss provisions on reinstated or modified loans and an increase in other servicing-related expenses associated with a larger portfolio, offset in part by a $2.3 million decrease in provisions for non-recoverable servicing advances and receivables. Government-insured claim loss provisions are generally offset by changes in the ~~$22.8~~fair value of the corresponding MSRs, which are recorded in MSR valuation adjustments, net.

Professional services expense decreased $4.0 million, or 10%, as compared to the third quarter of 2018, primarily due to a decline in legal fees and settlements offset in part by expenses attributable to PHH.

Technology and communication expense declined $4.0 million, or 19%, as compared to the third quarter of 2018 primarily due to our cost reduction efforts, which include bringing technology services in-house, offset by an increase in expenses as a result of the PHH acquisition.

Occupancy and equipment expense increased $5.4 million, or 45%, as compared to the third quarter of 2018 primarily due to expenses attributable to PHH and the recognition of accelerated amortization of ROU assets in connection with our decision to vacate leased properties prior to the contractual maturity date of the lease agreements, offset in part by the results of our cost reduction efforts which include consolidating vendors and closing and consolidating certain facilities.

Other expenses decreased $9.1 million as compared to the third quarter of 2018 primarily as a result of a $8.4 million decline in the provision for indemnification obligations due to updated default, defect and severity assumptions relative to historical performance.

Interest expense increased $224.6 million, or 367%, as compared to the third quarter of 2018, primarily because of the $219.7 million increase in interest expense on the NRZ financing liabilities, which we account for at fair value, ~~offset by a $4.8~~$2.2 million decrease in interest on match funded liabilities, consistent with the decline in servicing advances, and a $3.1 million decrease in interest on borrowings under our mortgage loan warehouse facilities due to lower forward lending production volumes.

~~The increase in~~of interest expense on the $300.0 million MSR financing facility entered into on July 1, 2019 and $1.5 million of interest expense incurred on the PHH senior unsecured notes. As discussed above, changes in the fair value of the NRZ financing liabilities ~~is primarily~~are offset, to a large extent, by changes in the ~~result of the $37.6 million favorable~~ fair value ~~adjustment~~of our associated pledged MSRs which are recorded in the third quarter of 2017 in connection with the $54.6 million lump sum payment we received from NRZ on execution of the 2017 Agreements on July 23, 2017, offset in part by runoff of the NRZ servicing portfolio.MSR valuation adjustments, net.

Nine Months Ended September 30, ~~2018~~2019 versus ~~2017~~2018

Servicing and subservicing ~~fees declined $103.4~~fee revenue increased $84.7 million, or 14%, in the nine months ended September 30, 2018 as compared to the same period in 2017, primarily due to portfolio runoff and a reduction in completed modifications. The average UPB and loan count in our residential portfolio declined 14% and 13%~~, respectively, as compared to the nine months ended September 30, 2017.~~

~~Gains on loans held for sale, net declined $15.8 million, or 21%~~, as compared to the nine months ended September 30, ~~2017~~2018, primarily due to ~~lower forward~~the increase in the portfolio resulting from the acquisition of PHH and ~~reverse loan production volumes~~the acquisition of MSRs during the first nine months of 2019, partially offset by ~~higher margins.~~portfolio runoff and a decline in completed loan modifications.

~~The $46.4~~Gain on loans held for sale, net declined $12.5 million, or 59% decline in Other revenue as compared to the nine months ended September 30, 2017 is primarily due to a $24.7 million decline in REO referral commissions, a $5.0 million decline in CRL premiums and a $10.6 million unfavorable net change in the fair values of our HECM loans and the related HMBS financing liability. Loan origination fees also declined on significantly lower correspondent loan production as a result of our exit from this channel in 2017.

~~MSR valuation adjustments, net, decreased $23.8 million, or 21%~~20%, as compared to the nine months ended September 30, ~~2017,~~2018 primarily driven by margin compression. Our lending volume remained mostly stable between the nine months ended

September 30, 2019 and the same period in 2018 despite a net favorable impact of higher interest rates, with the favorable impact of slower projected Agency prepayment speeds more than offsetting the unfavorable impact of higher non-Agency advance funding costs, and a favorable impact of slower actual runoffdecline in industry endorsements. The reduction in margin was largely attributable to lower gain on sales margins driven by increased price competition in the ~~non-Agency MSRs~~wholesale and correspondent channels as compared to the same period in 2018.

~~Excluding MSR valuation adjustments,~~Other revenue, net ~~expenses were $176.9~~increased $37.4 million, or ~~25%~~114%, ~~lower~~ as compared to the nine months ended September 30, ~~2017.~~2018, largely due to a $42.2 million favorable net change in the fair values of our HECM reverse mortgage loans and the related HMBS financing liability. This increase is due to the fair value election for future draw commitments on HECM reverse mortgage loans purchased or originated after December 31, 2018, lower interest rates and an update in the first quarter of 2019 of the financing assumption for active HECM reverse mortgage loan repurchases in connection with our HMBS Issuer obligations.

We reported a net loss of $121.7 million in MSR valuation adjustments, net for the first nine months ended September 30, 2019, an increase of $30.0 million, or 33%, as compared to the nine months ended September 30, 2018. The greater decline in fair value is primarily due to portfolio runoff on a larger portfolio due to MSRs added from the PHH acquisition and other Agency MSR purchases and the impact of changes in interest rates, partially offset by the increase in fair value of the non-Agency MSR portfolio recorded in the third quarter of 2019 as discussed above. The 10-year swap rate declined 115 basis points in the nine months ended September 30, 2019, as compared to the 65 basis-point increase in the nine months ended September 30, 2018. The $30.0 million increase in MSR valuation adjustments, net, includes $12.0 million due to runoff and $25.5 million from interest rate changes on MSRs acquired subsequent to the third quarter of 2018, and $249.7 million from interest rate changes on the remainder of the portfolio. This is offset by the $252.3 million net favorable valuation adjustment to our non-Agency MSRs, and $4.6 million from runoff and other assumption updates unrelated to interest rates on existing MSRs.

Operating expenses, representing Total expenses excluding MSR valuation adjustments, net, decreased $3.4 million, or 1%, as compared to the nine months ended September 30, 2018.

Compensation and benefits expense ~~for~~increased $39.2 million, or 19%, as compared to the nine months ended September 30, 2018, ~~declined $61.5~~primarily due to PHH compensation and benefits expense and $31.5 million ~~or 23%, as average~~of severance and retention costs recognized in connection with our integration-related headcount ~~declined~~reductions of primarily U.S.-based employees, partially offset by ~~23%, including~~ a ~~29% reduction~~decline in ~~U.S.-based headcount. These declines are the result of~~expenses resulting from our efforts to ~~reduce costs of~~re-engineer our cost structure, align headcount in our servicing operations and corporate ~~overhead,~~segment with the size of our servicing portfolio as well as ~~our~~the strategic decisions executed in late 2017 and early 2018 to exit the ~~ACS~~automotive capital services business and the forward lending correspondent and wholesale channels. ~~The reduction in Compensation and benefits expense resulting from~~Despite the ~~decline~~increase in headcount ~~was offset in part by a $4.6 million increase in related severance expense~~attributable to the PHH acquisition, average total headcount declined 5% as compared to the nine months ended September 30, 2018. However, the average of higher-cost U.S. headcount increased to 34% of the total from 25% for the nine months ended September 30, 2018.

Servicing and origination expense decreased ~~$36.6~~$4.6 million, or ~~29%~~5%, as compared to the nine months ended September 30, ~~2017~~2018, primarily due to a ~~$22.6~~$5.2 million ~~decrease~~reduction in government-insured claim loss provisions ~~recorded in the prior year~~ on reinstated or modified loans ~~along~~in line with a decline in claims an $8.1 million reduction in losses related to non-recoverable advances and receivables, a $2.9 million reduction in CRL reinsurance commissions due to the decline in foreclosed real estate properties, and a ~~general decline in other expenses resulting from the declines in our servicing portfolio and loan production volume.~~

Professional services expense was $34.8 million, or 24%, lower for the nine months ended September 30, 2018 as compared to same period of 2017 primarily due to a $29.3 million decline in legal expenses, a $6.4$7.7 million decrease in ~~monitor expenses~~provisions for non-recoverable servicing advances and ~~a $1.7 million reduction~~ in ~~fees incurred in connection with our conversion of NRZ’s Rights to MSRs to fully-owned MSRs,~~receivables. These declines were offset in part by ~~$6.6 million~~an increase in other servicing-related expenses associated with a larger portfolio as a result of ~~fees related to~~ the PHH Merger Agreement incurred during the nine months ended September 30, 2018. The CA Auditor appointment and the NY Operations Monitor appointment were terminated in 2017. We are not currently incurring any expenses related to regulatory monitors.acquisition.

~~As disclosed above, cost reduction efforts and the decline in the size of our servicing portfolio drove declines in Occupancy and equipment expense ($12.2 million) and~~ Technology and communication expense ~~($12.2 million)~~decreased $6.2 million, or 9%, as compared to the nine months ended September 30, ~~2017.~~2018, primarily due to our cost reduction efforts, which include bringing technology services in-house, offset by an increase in expenses as a result of the PHH acquisition.

~~The $19.5~~Professional services expense decreased $33.6 million, or ~~50%~~30%, ~~decrease in Other expenses~~ as compared to the nine months ended September 30, ~~2017 is~~2018, primarily due ~~in large part~~ 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,~~recovery from a ~~$4.9 million reduction in advertising expenses, a $4.5 million decline in the provision for losses on ACS automotive dealer financing notes as we exited the ACS business~~service provider in the first quarter of ~~2018~~2019 of $30.7 million of amounts previously recognized as expense and a ~~$2.4 million~~ ~~decline in bank charges.~~

Interest expense for the nine months ended September 30, 2018 declined $22.9 million, or 11%, as compared to the same period of 2017 primarily because of a $13.0 million decrease in interest on match funded liabilities, a $6.3 million decrease in interest on borrowings under our mortgage loan warehouse facilities and a $2.4$10.0 million decline in ~~interest expense on the NRZ financing liabilities.~~

~~The decline~~provisions for probable losses in ~~interest expense on the NRZ financing liabilities was due to runoff of the NRZ servicing portfolio~~connection with litigation, partially offset by ~~a $15.7~~professional services expense attributable to PHH.

Occupancy and equipment expense increased $15.2 million, ~~reduction in net favorable fair value adjustments~~or 41%, as compared to the nine months ended September 30, ~~2017.~~ 2018, due to PHH expenses and the recognition of accelerated amortization of ROU assets in connection with our decision to vacate leased properties in 2019 prior to the contractual maturity date of the lease agreements, offset in part by a decline resulting from our cost reduction efforts which include consolidating vendors and closing and consolidating certain facilities.

Other expenses decreased $13.3 million, or 67%, as compared to the nine months ended September 30, 2018, due in large part to a $13.2 million decline in the provision for indemnification obligations due to favorable updates to default, defect and severity assumptions relative to historical performance.

Interest expense ~~for~~increased $198.3 million, or 105%, as compared to the ~~third quarter~~nine months ended September 30, 2018, primarily because of ~~2017 included a $37.6~~the $192.0 million ~~favorable fair value adjustment~~increase in interest expense on the NRZ financing ~~liability~~liabilities, $4.4 million of interest expense on the PHH senior unsecured notes and $2.2 million of interest expense on the new $300.0 million MSR financing facility, offset in ~~connection with the transfer of MSRs, as~~part by a $3.6 million decrease in interest on match funded liabilities.As discussed above, ~~while the first quarter of 2018 included a $16.6 million favorable~~changes in fair value ~~adjustment related to the $279.6 million lump-sum upfront payment we received in January 2018 in accordance with the terms~~ of the ~~New RMSR Agreements.~~NRZ

financing liability are offset, to a large extent, by changes in fair value of the associated pledged MSRs which are recorded in MSR valuation adjustments, net.

Although we incurred a pre-tax loss ~~of $63.7 million~~ for the nine months ended September 30, ~~2018,~~2019 of $163.7 million, we recorded income tax expense of ~~$4.5~~$13.3 million due to the mix of earnings among different tax jurisdictions with different statutory tax rates. Our overall effective tax rates for the nine months ended September 30, 2019 and 2018 were (8.1)% and (7.1)%, respectively. Under our transfer pricing agreements, our operations in India and Philippines are compensated on a cost-plus basis for the services they provide, such that even when we have a consolidated pre-tax loss from continuing operations these foreign operations have taxable income, which ~~impacts~~is subject to statutory tax rates in these jurisdictions that are significantly higher than the ~~amount~~U.S. statutory rate of ~~the tax benefit or expense recorded. Income~~21%. The change in income tax expense for the nine months ended September 30, 2019, compared with the same period in 2018, ~~includes additional~~was primarily due to tax expense on the gain recognized in the USVI on the merger of OLS into PMC, the effects of the Base Erosion and Anti-Abuse Tax (BEAT) provision of the Tax Act and the increase in the BEAT tax rate from 5% in 2018 to 10% in 2019 as well as increased income tax expense as a result of recognizing income previously deferred for tax purposes related to our NRZ agreements. In addition, income tax 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 are no longer recognized effective with our adoption of ASU 2016-16 on January 1, 2018. We recognized a $22.7 million income tax benefit in the third quarter of 2017 related to the reversal of an uncertain tax ~~position~~

~~liability upon expiration of the statute of limitations. The overall effective tax rate for~~positions increased by $3.3 million in the nine months ended September 30, ~~2018 and 2017 is (7.1)% and 15.7%, respectively.~~2019 as compared to the same period of 2018.


Financial Condition Summary	September 30, 2018		December 31, 2017		% Change		September 30, 2019		December 31, 2018		% Change
Cash	$	254,843	$	259,655	(2	)%	$	345,084	$	329,132	5	%
Mortgage servicing rights	999,282		1,008,844		(1	)
Advances and match funded assets	1,101,104		1,389,150		(21	)
Loans held for sale	217,436		238,358		(9	)
Loans held for investment, at fair value	5,307,560		4,715,831		13
Other	580,812		791,326		(27	)
Restricted cash (amounts related to VIEs of $13,725 and $20,968)							58,661		67,878		(14	)
MSRs, at fair value							1,455,553		1,457,149		—
Advances and match funded advances (amounts related to VIES of $825,760 and $937,294)							1,038,444		1,186,676		(12	)
Loans held for sale ($207,645 and $176,525 carried at fair value)							275,579		242,622		14
Loans held for investment, at fair value (amounts related to VIEs of $24,445 and $26,520)							6,073,687		5,498,719		10
Other assets ($8,339 and $7,568 carried at fair value)(amounts related to VIEs of $4,422 and $2,874)							709,645		612,040		16
Total assets	$	8,461,037	$	8,403,164	1	%	$	9,956,653	$	9,394,216	6	%

Total Assets by Segment
Servicing	$	2,726,905	$	3,033,243	(10	)%	$	3,227,245	$	3,306,208	(2	)%
Lending	5,385,437		4,945,456		9		6,225,394		5,603,481		11
Corporate Items and Other	348,695		424,465		(18	)	504,014		484,527		4
	$	8,461,037	$	8,403,164	1	%	$	9,956,653	$	9,394,216	6	%

HMBS-related borrowings, at fair value	$	5,184,227	$	4,601,556	13	%	$	5,903,965	$	5,380,448	10	%
Other financing liabilities	719,319		593,518		21
Match funded liabilities	714,246		998,618		(28	)
SSTL and other secured borrowings, net	345,425		545,850		(37	)
Match funded liabilities (related to VIEs)							687,497		778,284		(12	)
Other financing liabilities ($1,009,779 and $1,057,671 carried at fair value) (amounts related to VIEs of $22,827 and $24,815)							1,069,594		1,127,613		(5	)
SSTL and other secured borrowings, net (amounts related to VIEs of $137,612 and $0)							708,929		382,538		85
Senior notes, net	347,749		347,338		—		310,788		448,727		(31	)
Other	589,327		769,410		(23	)
Other liabilities ($3,319 and $4,986 carried at fair value)							894,695		721,901		24
Total liabilities	$	7,900,293	$	7,856,290	1	%	9,575,468		8,839,511		8	%

Total Ocwen stockholders’ equity	559,556		545,040		3
Non-controlling interest in subsidiaries	1,188		1,834		(35	)
Total equity	560,744		546,874		3
Total stockholders’ equity							381,185		554,705		(31	)

Total liabilities and equity	$	8,461,037	$	8,403,164	1	%	$	9,956,653	$	9,394,216	6	%

Total Liabilities by Segment
Servicing	$	1,912,480	$	2,233,431	(14	)%	$	2,648,234	$	2,437,383	9	%
Lending	5,314,692		4,861,928		9		6,118,867		5,532,069		11
Corporate Items and Other	673,121		760,931		(12	)	808,367		870,059		(7	)
	$	7,900,293	$	7,856,290	1	%	$	9,575,468	$	8,839,511	8	%

Changes in the composition and balance of our assets and liabilities during the nine months ended September 30, ~~2018~~2019 are principally attributable to the impact of our ongoing HMBS activity, which is accounted for as secured financings, increasing Loans held for investment and ~~Financing liabilities, which increased because of our reverse mortgage securitizations which are accounted for as secured financings.~~HMBS-related borrowings. Match funded liabilities declined ~~consistent with~~during the nine months ended September 30, 2019 as a result of lower advances and match funded advances, ~~on a declining~~consistent with the decline in our servicing portfolio. Other secured borrowings increased due to the new $300.0 million MSR financing facility entered into on July 1, 2019, under which $137.6 million was outstanding at September 30, 2019. Borrowings under our SSTL increased due to the $120.0 million term loan upsize executed during the first quarter of 2019. Senior notes declined due to our repayment at the maturity of the $97.5 million 7.375% notes and our repurchases of $39.4 million of our 8.375% notes. Total equity ~~increased~~decreased 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 recognized for the nine months ended September 30, 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.2019.

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.

~~Servicing~~

SERVICING

We earn contractual monthly servicing fees pursuant to servicing agreements, ~~(which~~which are typically payable as a percentage of ~~UPB)~~UPB, as well as ancillary fees, including late ~~fees, HAMP~~charges, modification incentive fees, REO referral commissions, float earnings and Speedpay^® ~~fees relating to owned MSRs.~~ fees. We also earn fees under both subservicing and special servicing arrangements with banks and other institutions that own the MSRs. ~~We typically earn these~~Subservicing and special servicing fees are earned either as a percentage of UPB or on a ~~per loan~~per-loan basis. Per loan fees typically vary based on delinquency status. As of September 30, ~~2018,~~2019, we serviced ~~1.1~~1.5 million loans with an aggregate UPB of ~~$161.0~~$216.8 billion.

~~Prior~~The average UPB of loans serviced during the third quarter of 2019 increased by 35% or $57.0 billion compared to ~~January 18,~~the third quarter of 2018, mostly due to the acquisition of PHH in October 2018. We are actively pursuing actions to manage the size of our servicing portfolio through expanding our lending business and making permissible MSR acquisitions that are prudent and well-executed with appropriate financial return targets. We closed MSR acquisitions with $11.9 billion UPB through the nine months ended September 30, 2019. We expect to continue to focus on acquiring Agency and government-insured MSR portfolios that meet or exceed our minimum targeted investment returns. We re-entered the forward lending correspondent channel in the second quarter of 2019 and we continue to pursue a number of other MSR acquisition options, including driving improved recapture rates within our existing servicing portfolio.

NRZ is our largest servicing client, accounting for 54% and 60% of the UPB and loans ~~underlying Rights to MSRs,~~in our servicing portfolio as of September 30, 2019, respectively. NRZ subservicing fees retained by Ocwen represented 26% and 27% of the total servicing and subservicing fees earned by Ocwen, net of servicing fees ~~were apportioned between~~remitted to NRZ, for the three and ~~us such that~~nine months ended September 30, 2019, respectively, and 26% for both the three and nine months ended September 30, 2018.

In 2017 and early 2018, we renegotiated the Ocwen agreements with NRZ ~~retained~~to more closely align with 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 as well as ancillary fees (other than float earnings). From January 18, 2018 going forward, in addition totypical subservicing arrangement whereby we receive a base servicing fee ~~Ocwen will continue to receive~~and certain ancillary fees, primarily late fees, loan modification fees and ~~Speedpay® fees, while NRZ will receive all float earnings, servicing fees in excess of the base fee paid to OLS and certain REO-related income including REO referral commissions. OLS~~Speedpay fees. We may also receive certain incentive fees or pay penalties tied to various contractual performance metrics. We received upfront cash payments in 2018 and 2017 of $279.6 million and $54.6 million, respectively, from NRZ in connection with the resulting 2017 and New RMSR Agreements. These upfront payments generally represent the net present value of the difference between the future revenue stream Ocwen would have received under the original agreements and the future revenue Ocwen will receive under the renegotiated agreements. These upfront payments amortize through the remaining term of the original agreements (April 2020). Accordingly, the aggregate economics of these agreements will be similar through the end of April 2020, although cash receipts will be lower in future periods as a result of the upfront payments.

~~Effective January 1, 2018, our entire~~The following table presents subservicing fees retained by Ocwen under the NRZ agreements and the amortization (including fair value change) of the lump-sum payments received in connection with the 2017 and New RMSR Agreements:



	Three Months						Nine Months
	2019			2018			2019			2018
Retained subservicing fees on NRZ agreements	$	35,462		$	33,335		$	108,774		$	101,997
Reduction in interest expense in connection with the amortization of the lump-sum cash payments received (including fair value change)	24,489			31,561			71,525			118,651
Total retained subservicing fees and amortization of lump-sum payments (including fair value change)	$	59,951		$	64,896		$	180,299		$	220,648

Average NRZ UPB	$	119,403,543		$	93,097,665		$	123,870,685		$	96,575,894
Average annualized retained subservicing fees as a % of NRZ UPB	0.12		%	0.14		%	0.12		%	0.14		%

Our MSR portfolio ~~of MSRs~~ is carried at fair value. Prior to that date, conforming and 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~~decrease, the value of the servicing portfolio typically ~~rises~~decreases as a result of ~~lower~~higher anticipated prepayment speeds. The sensitivity of MSR fair value to interest rates is typically higher for higher credit quality loans. 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~~Changes in ~~the fair value of our MSRs, changes in~~

fair value of any fair value elected MSR financing liabilities, which are recorded in interest expense in our unaudited consolidated statements of operations, will partially offset the changes in fair value of the related MSRs.

~~We recognize~~ In addition, beginning in September 2019 we implemented a hedging strategy to partially offset the proceeds received in connection with Rights to MSRs transactions as a financing liability that we elected to 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 we have elected fair value for our portfolio of non-Agency MSRs, future fair value changes in ~~the Financing Liability - MSRs Pledged will offset changes in the~~ fair value of ~~the related MSRs. See~~ ~~Note 8 — Rights to MSRs~~ ~~for additional information.~~our net MSR exposure.

Third-Party Servicer Ratings

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

businesses.

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



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

Date of last action		~~April 24, 2017~~August 29, 2019		~~February 26, 2018~~July 3, 2019		~~April 25, 2017~~November 1, 2018


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

Following the merger of OLS into PMC on June 1, 2019, Ocwen submitted requests to withdraw the servicer ratings for OLS. S&P and Moody’s have transferred the Master Servicer rating for OLS to PMC, and Fitch is currently addressing a similar transfer.

In addition to servicer ratings, each of the 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.” There have been no new outlooks released for PMC regarding our servicer ratings.

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 if we fall below their desired servicer ratings.

The following table presents 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								Three Months								Nine Months
Periods ended September 30,	2018			2017			% Change		2018			2017			% Change		2019			2018			% Change		2019			2018			% Change
Revenue
Servicing and subservicing fees
Residential	$	213,377		$	231,272		(8	)%	$	655,602		$	756,119		(13	)%	$	247,075		$	213,377		16	%	$	740,824		$	655,602		13	%
Commercial	1,050			2,314			(55	)	4,301			6,209			(31	)	1,114			1,050			6		2,956			4,301			(31	)
	214,427			233,586			(8	)	659,903			762,328			(13	)	248,189			214,427			16		743,780			659,903			13
Gain on loans held for sale, net	1,334			4,054			(67	)	7,914			8,767			(10	)	1,128			1,334			(15	)	4,068			7,914			(49	)
Other	1,869			8,905			(79	)	6,416			31,252			(79	)
Other revenue, net																	907			1,869			(51	)	4,162			6,416			(35	)
Total revenue	217,630			246,545			(12	)	674,233			802,347			(16	)	250,224			217,630			15		752,010			674,233			12

Expenses
MSR valuation adjustments, net																	(134,617		)	41,289			(426	)	121,497			91,307			33
Compensation and benefits	32,130			40,312			(20	)	103,365			121,678			(15	)	35,107			32,130			9		116,344			103,365			13
MSR valuation adjustments, net	41,289			33,359			24		91,307			115,237			(21	)
Servicing and origination	27,883			46,684			(40	)	80,303			110,650			(27	)	31,644			27,883			13		73,687			80,303			(8	)
Occupancy and equipment																	10,650			8,475			26		35,125			28,335			24
Professional services	13,605			14,148			(4	)	38,422			49,076			(22	)	12,847			13,605			(6	)	35,307			38,422			(8	)
Technology and communications	9,850			11,970			(18	)	30,838			35,779			(14	)	6,485			9,850			(34	)	23,634			30,838			(23	)
Occupancy and equipment	8,475			11,098			(24	)	28,335			35,431			(20	)
Corporate overhead allocations	48,845			59,211			(18	)	145,710			168,345			(13	)	45,615			48,845			(7	)	156,930			145,710			8
Other	3,000			1,783			68		4,781			1,210			295
Other expenses																	(6,841		)	3,000			(328	)	(5,650		)	4,781			(218	)
Total expenses	185,077			218,565			(15	)	523,061			637,406			(18	)	890			185,077			(100	)	556,874			523,061			6

Other income (expense)
Interest income	2,242			144			n/m		4,136			406			919		2,105			2,242			(6	)	6,270			4,136			52
Interest expense	(47,359		)	(28,568		)	66		(144,551		)	(159,822		)	(10	)	(268,545		)	(47,359		)	467		(337,435		)	(144,551		)	133
Gain (loss) on sale of mortgage servicing rights, net	(733		)	6,543			(111	)	303			7,863			(96	)	—			—			n/m		—			—			n/m
Other, net	(602		)	(418		)	44		(2,392		)	4,642			(152	)	3,917			(1,335		)	(393	)	6,332			(2,089		)	(403	)
Total other expense, net	(46,452		)	(22,299		)	108		(142,504		)	(146,911		)	(3	)	(262,523		)	(46,452		)	465		(324,833		)	(142,504		)	128

Income before income taxes	$	(13,899	)	$	5,681		(345	)%	$	8,668		$	18,030		(52	)%
(Loss) income before income taxes																	$	(13,189	)	$	(13,899	)	(5	)%	$	(129,697	)	$	8,668		n/m
n/m: not meaningful



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)



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



Large ~~Accelerated~~accelerated filer	o	Accelerated filer	x
Non-accelerated filer	o	Smaller reporting company	o
		Emerging growth company	o



		PAGE
PART I - FINANCIAL INFORMATION

Item 1.	Unaudited Consolidated Financial Statements	3

	Consolidated Balance Sheets at September 30, ~~2018~~2019 and December 31, ~~2017~~2018	4

	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2018~~2019 and ~~2017~~2018	5

	Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended September 30, ~~2018~~2019 and ~~2017~~2018	6

	Consolidated Statements of Changes in Equity for the Three and Nine Months Ended September 30, ~~2018~~2019 and ~~2017~~2018	7

	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2018~~2019 and ~~2017~~2018	89

	Notes to Unaudited Consolidated Financial Statements	910

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	5864

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	8699

Item 4.	Controls and Procedures	88103

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	90104

Item 1A.	Risk Factors	90

~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~	90104

Item 6.	Exhibits	91104

Signatures		93105


	For the Nine Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2019			2018
Cash flows from operating activities
Net loss	$	(68,254	)	$	(83,194	)	$	(176,998	)	$	(68,254	)
Adjustments to reconcile net loss to net cash provided by operating activities:
MSR valuation adjustments, net	91,695			115,446			121,705			91,695
Gain on sale of mortgage servicing rights, net	(303		)	(7,863		)
Gain on sale of MSRs, net							(571		)	(303		)
Provision for bad debts	40,269			57,274			26,971			40,269
Depreciation	18,199			20,430			26,020			18,199
Loss on write-off of fixed assets	—			6,834
Amortization of debt issuance costs	2,261			1,979
Gain on repurchase of senior secured notes							(5,099		)	—
Equity-based compensation expense	1,244			4,489			1,890			1,244
Gain on valuation of financing liability	(11,323		)	(27,024		)
Loss (gain) on valuation of financing liability							123,721			(11,323		)
Net gain on valuation of mortgage loans held for investment and HMBS-related borrowings	(8,057		)	(18,637		)	(50,221		)	(8,057		)
Gain on loans held for sale, net	(24,265		)	(39,542		)	(29,820		)	(24,265		)
Bargain purchase gain							381			—
Origination and purchase of loans held for sale	(1,234,830		)	(3,074,725		)	(872,914		)	(1,234,830		)
Proceeds from sale and collections of loans held for sale	1,154,526			3,067,522			787,683			1,154,526
Changes in assets and liabilities:
Decrease in advances and match funded assets	243,831			285,066			189,876			243,831
Decrease in receivables and other assets, net	126,829			160,169			123,283			126,829
Decrease in other liabilities	(46,767		)	(66,321		)	(82,942		)	(46,767		)
Other, net	6,478			3,466			1,105			8,739
Net cash provided by operating activities	291,533			405,369			184,070			291,533

Cash flows from investing activities
Origination of loans held for investment	(711,035		)	(961,642		)	(675,898		)	(711,035		)
Principal payments received on loans held for investment	296,800			311,560			383,806			296,800
Purchase of mortgage servicing rights	(2,729		)	(1,658		)
Proceeds from sale of mortgage servicing rights	6,138			2,263
Purchase of MSRs							(112,417		)	(2,729		)
Proceeds from sale of MSRs							1,159			6,138
Acquisition of advances in connection with the purchase of MSRs							(1,457		)	—
Proceeds from sale of advances	7,882			6,119			2,876			7,882
Issuance of automotive dealer financing notes	(19,642		)	(129,471		)	—			(19,642		)
Collections of automotive dealer financing notes	52,598			119,389			—			52,598
Additions to premises and equipment	(7,326		)	(7,365		)	(1,342		)	(7,326		)
Other, net	5,446			1,480			5,992			5,446
Net cash used in investing activities	(371,868		)	(659,325		)	(397,281		)	(371,868		)

Cash flows from financing activities
Repayment of match funded liabilities, net	(284,372		)	(252,981		)	(90,787		)	(284,372		)
Proceeds from mortgage loan warehouse facilities and other secured borrowings	2,211,606			5,810,591			1,875,926			2,211,606
Repayments of mortgage loan warehouse facilities and other secured borrowings	(2,585,286		)	(6,016,169		)
Proceeds from sale of mortgage servicing rights accounted for as a financing	279,586			54,601
Proceeds from sale of reverse mortgages (HECM loans) accounted for as a financing (HMBS-related borrowings)	728,745			981,730
Repayment of mortgage loan warehouse facilities and other secured borrowings							(1,819,728		)	(2,522,723		)
Repayment and repurchases of Senior notes							(131,791		)	—
Proceeds from issuance of additional senior secured term loan (SSTL)							119,100			—
Repayment of SSTL borrowings							(19,074		)	(62,563		)
Payment of debt issuance costs related to SSTL							(1,284		)	—
Proceeds from sale of MSRs accounted for as a financing							1,221			279,586
Proceeds from sale of Home Equity Conversion Mortgages (HECM, or reverse mortgages) accounted for as a financing (HMBS-related borrowings)							665,820			728,745
Repayment of HMBS-related borrowings	(290,338		)	(287,908		)	(377,094		)	(290,338		)
Issuance of common stock	—			13,913
Capital distribution to non-controlling interest	(822		)	—			—			(822		)
Other, net	(991		)	(2,321		)	(2,363		)	(991		)
Net cash provided by financing activities	58,128			301,456			219,946			58,128

Net increase (decrease) in cash and restricted cash	(22,207		)	47,500
Cash and restricted cash at beginning of year	302,560			302,398
Cash and restricted cash at end of period	$	280,353		$	349,898
Net increase (decrease) in cash, cash equivalents and restricted cash							6,735			(22,207		)
Cash, cash equivalents and restricted cash at beginning of year							397,010			302,560
Cash, cash equivalents and restricted cash at end of period							$	403,745		$	280,353

Supplemental non-cash investing and financing activities
Initial consolidation of mortgage-backed securitization trusts (VIEs):
Loans held for investment	$	28,373		$	—		$	—		$	28,373
Other financing liabilities	26,643			—			—			26,643
Issuance of common stock in connection with litigation settlement	$	5,719		$	—		$	—		$	5,719
Recognition of gross right-of-use asset and lease liability upon adoption of FASB ASU No. 2016-02:
Right-of-use asset							$	66,231		$	—
Lease liability							66,247			—
Transfers of loans held for sale to real estate owned (REO)							$	4,240		$	3,921



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, ~~2018~~2019



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



	September 30, 2018			December 31, 2017
Assets
Cash	$	254,843		$	259,655
Mortgage servicing rights ($999,282 and $671,962 carried at fair value)	999,282			1,008,844
Advances, net	166,024			211,793
Match funded assets (related to variable interest entities (VIEs))	935,080			1,177,357
Loans held for sale ($145,417 and $214,262 carried at fair value)	217,436			238,358
Loans held for investment, at fair value (amounts related to VIEs of $28,373 and $0)	5,307,560			4,715,831
Receivables, net	155,937			199,529
Premises and equipment, net	25,873			37,006
Other assets ($7,826 and $8,900 carried at fair value)(amounts related to VIEs of $19,954 and $27,359)	399,002			554,791
Total assets	$	8,461,037		$	8,403,164

Liabilities and Equity
Liabilities
HMBS-related borrowings, at fair value	$	5,184,227		$	4,601,556
Match funded liabilities (related to VIEs)	714,246			998,618
Other financing liabilities ($646,842 and $508,291 carried at fair value)(amounts related to VIEs of $26,643 and $0)	719,319			593,518
Other secured borrowings, net	345,425			545,850
Senior notes, net	347,749			347,338
Other liabilities ($2,567 and $635 carried at fair value)	589,327			769,410
Total liabilities	7,900,293			7,856,290

Commitments and Contingencies (Notes 19 and 20)

Equity
Ocwen Financial Corporation (Ocwen) stockholders’ equity
Common stock, $.01 par value; 200,000,000 shares authorized; 133,912,425 and 131,484,058 shares issued and outstanding at September 30, 2018 and December 31, 2017, respectively	1,339			1,315
Additional paid-in capital	553,443			547,057
Retained earnings (accumulated deficit)	5,909			(2,083		)
Accumulated other comprehensive loss, net of income taxes	(1,135		)	(1,249		)
Total Ocwen stockholders’ equity	559,556			545,040
Non-controlling interest in subsidiaries	1,188			1,834
Total equity	560,744			546,874
Total liabilities and equity	$	8,461,037		$	8,403,164


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,						For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenue
Servicing and subservicing fees	$	213,730		$	233,220		$	658,095		$	761,523		$	247,714		$	213,730		$	742,759		$	658,095
Gain on loans held for sale, net	16,942			25,777			61,135			76,976			16,013			16,942			48,683			61,135
Other	7,606			25,645			32,886			79,307
Other revenue, net													19,788			7,606			70,299			32,886
Total revenue	238,278			284,642			752,116			917,806			283,515			238,278			861,741			752,116

Expenses
Compensation and benefits	63,307			90,538			211,220			272,750			73,414			63,307			250,393			211,220
Professional services	40,662			38,417			110,821			145,651
MSR valuation adjustments, net	41,448			33,426			91,695			115,446			(134,561		)	41,448			121,705			91,695
Servicing and origination	31,758			52,246			91,452			128,061			36,619			31,758			86,827			91,452
Professional services													36,628			40,662			77,205			110,821
Technology and communications	20,597			27,929			67,306			79,530			16,644			20,597			61,080			67,306
Occupancy and equipment	11,896			15,340			37,369			49,569			17,262			11,896			52,550			37,369
Other	7,858			15,583			19,814			39,335
Other expenses													(1,282		)	7,858			6,563			19,814
Total expenses	217,526			273,479			629,677			830,342			44,724			217,526			656,323			629,677

Other income (expense)
Interest income	3,963			4,099			10,018			12,101			4,129			3,963			12,524			10,018
Interest expense	(61,288		)	(47,281		)	(189,601		)	(212,471		)	(285,922		)	(61,288		)	(387,938		)	(189,601		)
Gain (loss) on sale of mortgage servicing rights, net	(733		)	6,543			303			7,863
Gain on repurchase of senior secured notes													5,099			—			5,099			—
Bargain purchase gain													—			—			(381		)	—
Other, net	(2,967		)	(1,077		)	(6,872		)	6,384			(414		)	(3,700		)	1,544			(6,569		)
Total other expense, net	(61,025		)	(37,716		)	(186,152		)	(186,123		)	(277,108		)	(61,025		)	(369,152		)	(186,152		)

Loss before income taxes	(40,273		)	(26,553		)	(63,713		)	(98,659		)	(38,317		)	(40,273		)	(163,734		)	(63,713		)
Income tax expense (benefit)	845			(20,418		)	4,541			(15,465		)
Income tax expense													4,450			845			13,264			4,541
Net loss	(41,118		)	(6,135		)	(68,254		)	(83,194		)	(42,767		)	(41,118		)	(176,998		)	(68,254		)
Net income attributable to non-controlling interests	(29		)	(117		)	(176		)	(289		)	—			(29		)	—			(176		)
Net loss attributable to Ocwen stockholders	$	(41,147	)	$	(6,252	)	$	(68,430	)	$	(83,483	)	$	(42,767	)	$	(41,147	)	$	(176,998	)	$	(68,430	)

Loss per share attributable to Ocwen stockholders
Basic	$	(0.31	)	$	(0.05	)	$	(0.51	)	$	(0.66	)
Diluted	$	(0.31	)	$	(0.05	)	$	(0.51	)	$	(0.66	)
Basic and Diluted													$	(0.32	)	$	(0.31	)	$	(1.32	)	$	(0.51	)

Weighted average common shares outstanding
Basic	133,912,425			128,744,152			133,632,905			125,797,777
Diluted	133,912,425			128,744,152			133,632,905			125,797,777
Basic and Diluted													134,595,798			133,912,425			134,329,321			133,632,905


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



	Ocwen Stockholders
	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		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)	—	—		—		(68,430		)	—			176			(68,254		)
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		686		—			—			—			691
Other comprehensive income, net of income taxes	—	—		—		—			114			—			114
Balance at September 30, 2018	133,912,425	$	1,339	$	553,443	$	5,909		$	(1,135	)	$	1,188		$	560,744

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



	September 30, 2018		September 30, 2017
Cash	$	254,843	$	299,888
Restricted cash and equivalents included in Other assets:
Debt service accounts	22,454		38,753
Other restricted cash	3,056		11,257
Total cash and restricted cash reported in the statements of cash flows	$	280,353	$	349,898



	September 30, 2019		September 30, 2018
Cash and cash equivalents	$	345,084	$	254,843
Restricted cash and equivalents:
Debt service accounts	17,026		22,454
Other restricted cash	41,635		3,056
Total cash, cash equivalents and restricted cash reported in the statements of cash flows	$	403,745	$	280,353


(1)	Represents UPB of loans we transferred for which we continue to act as servicer or subservicer. Our estimate of maximum exposure to loss does not include loans that we do not service for which we have provided representations and warranties because we cannot estimate such amounts. Maximum exposure to loss does not consider any collateral liquidation proceeds.



Loans held for investment, at fair value - Restricted for securitization investors	$	28,373
Financing liability - Owed to securitization investors, at fair value	26,643


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.



		September 30, 2018						December 31, 2017
	Level	Carrying Value			Fair Value			Carrying Value			Fair Value
Loans held for investment, at fair value
Loans held for investment - Reverse mortgages (a)	3	5,279,187			5,279,187			4,715,831			4,715,831
Loans held for investment - Restricted for securitization investors (a)	3	28,373			28,373			—			—
Total loans held for investment		5,307,560			5,307,560			4,715,831			4,715,831

Advances (including match funded) (c)	3	1,101,104			1,101,104			1,356,393			1,356,393
Automotive dealer financing notes (including match funded) (c)	3	—			—			32,757			32,590
Receivables, net (c)	3	155,937			155,937			199,529			199,529
Mortgage-backed securities, at fair value (a)	3	1,670			1,670			1,592			1,592
U.S. Treasury notes (a)	1	1,059			1,059			1,567			1,567

Financial liabilities:
Match funded liabilities (c)	3	$	714,246		$	710,303		$	998,618		$	992,698
Financing liabilities:
HMBS-related borrowings, at fair value (a)	3	5,184,227			5,184,227			4,601,556			4,601,556
Financing liability - MSRs pledged, at fair value (a)	3	620,199			620,199			508,291			508,291
Financing liability - Owed to securitization investors, at fair value (a)	3	26,643			26,643			—			—
Other (c)	3	72,477			57,984			85,227			65,202
Total Financing liabilities		$	5,903,546		$	5,889,053		$	5,195,074		$	5,175,049
Other secured borrowings:
Senior secured term loan (c) (d)	2	230,295			236,866			290,068			299,741
Other (c)	3	115,130			115,130			255,782			255,782
Total Other secured borrowings		345,425			351,996			545,850			555,523

Senior notes:
Senior unsecured notes (c) (d)	2	3,122			3,090			3,122			2,872
Senior secured notes (c) (d)	2	344,627			352,071			344,216			355,550
Total Senior notes		347,749			355,161			347,338			358,422

Derivative financial instrument assets (liabilities), at fair value (a)
Interest rate lock commitments	2	2,816			2,816			3,283			3,283
Forward mortgage-backed securities	1	(1,873		)	(1,873		)	(545		)	(545		)
Interest rate caps	3	1,211			1,211			2,056			2,056

Mortgage servicing rights
Mortgage servicing rights, at fair value (a)	3	$	999,282		$	999,282		$	671,962		$	671,962
Mortgage servicing rights, at amortized cost (c) (e)	3	—			—			336,882			418,745
Total Mortgage servicing rights		$	999,282		$	999,282		$	1,008,844		$	1,090,707


(d)	The carrying values are net of unamortized debt issuance costs and discount. See Note 1113 – Borrowings for additional information.


~~(e)~~	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-


	Loans Held for Investment - Reverse Mortgages			HMBS-Related Borrowings			Loans Held for Inv. - Restricted for Securitiza- tion Investors		Financing Liability - Owed to Securit - ization Investors			Mortgage-Backed Securities			Financing Liability - MSRs Pledged			Derivatives			MSRs			Loans Held for Investment - Reverse Mortgages			HMBS-Related Borrowings			Loans Held for Inv. - Restricted for Securitiza- tion Investors			Financing Liability - Owed to Securit - ization Investors			Mortgage-Backed Securities		Financing Liability - MSRs Pledged			Derivatives			MSRs
Three months ended September 30, 2018
Three months ended September 30, 2019																								Three months ended September 30, 2019
Beginning balance	$	5,143,758		$	(5,040,983	)	$	—	$	—		$	1,732		$	(672,619	)	$	1,657		$	1,043,995		$	5,872,407		$	(5,745,383	)	$	25,324		$	(23,697	)	$	2,014	$	(844,913	)	$	47		$	1,312,633
Purchases, issuances, sales and settlements
Purchases	—			—			—		—			—			—			—			2,924			—			—			—			—			—		(345		)	—			11,801
Issuances	223,563			(229,169		)	—		—			—			—			—			1,930			248,877			(240,714		)	—			—			—		—			—			—
Consolidation of mortgage-backed securitization trusts	—			—			28,373		(26,643		)	—			—			—			—
Sales	—			—			—		—			—			—			—			(8,119		)	—			—			—			—			—		(11		)	—			(15		)
Settlements	(110,584		)	108,790			—		—			—			49,620			—			—			(151,292		)	149,079			(879		)	870			—		53,756			—			(3,105		)
Transfers (to) from:
Loans held for sale, at fair value	(253		)	—			—		—			—			—			—			—			(521		)	—			—			—			—		—			—			—
Other assets	(170		)	—			—		—			—			—			—			—			(211		)	—			—			—			—		—			—			—
Receivables, net	(20		)	—			—		—			—			—			—			—			(89		)	—			—			—			—		—			—			—
	112,536			(120,379		)	28,373		(26,643		)	—			49,620			—			(3,265		)	96,764			(91,635		)	(879		)	870			—		53,400			—			8,681
Total realized and unrealized gains (losses) included in earnings
Total realized and unrealized gains (losses)
Included in earnings:
Change in fair value(1)	22,893			(22,865		)	—		—			(62		)	2,681			(446		)	(41,448		)	80,071			(66,947		)	—			—			22		(200,703		)	(47		)	134,239
Calls and other	—			—			—		—			—			119			—			—			—			—			—			—			—		5,264			—			—
	22,893			(22,865		)	—		—			(62		)	2,800			(446		)	(41,448		)	80,071			(66,947		)	—			—			22		(195,439		)	(47		)	134,239
Transfers in and / or out of Level 3	—			—			—		—			—			—			—			—			—			—			—			—			—		—			—			—
Ending balance	$	5,279,187		$	(5,184,227	)	$	28,373	$	(26,643	)	$	1,670		$	(620,199	)	$	1,211		$	999,282		$	6,049,242		$	(5,903,965	)	$	24,445		$	(22,827	)	$	2,036	$	(986,952	)	$	—		$	1,455,553


(1)	The Change in fair value adjustments on Loans held for investment for the three and nine months ended September 30, 2019 include $3.6 million and $9.2 million, respectively, in connection with the fair value election for future draw commitments on HECM reverse mortgage loans purchased or originated after December 31, 2018.


Significant valuation assumptions	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
Life in years
Range	2.8 to 7.6		4.4 to 8.1		2.2 to 8.1		3.0 to 7.6
Weighted average	5.8		6.4		6.3		5.9
Conditional repayment rate
Range	6.3% to 41.3%		5.4% to 51.9%		6.9% to 29.3%		6.8% to 38.4%
Weighted average	14.7	%	13.1	%	13.6	%	14.7	%
Discount rate	3.7	%	3.2	%	2.6	%	3.4	%



•	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
•	Curtailment on advances


~~(1)~~	Valuation assumptions for Agency MSRs at September 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.



Adverse change in fair value	10%			20%
Weighted average prepayment speeds	$	(123,564	)	$	(235,153	)
Weighted average discount rate	(47,473		)	(92,074		)


Loans Held for Sale - Fair Value	Nine Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2019			2018
Beginning balance	$	214,262		$	284,632		$	176,525		$	214,262
Originations and purchases	671,503			2,204,028			615,303			671,503
Proceeds from sales	(728,531		)	(2,310,294		)	(581,678		)	(728,531		)
Principal collections	(14,201		)	(3,684		)	(17,155		)	(14,201		)
Transfers from (to):
Loans held for investment, at fair value	694			—			1,405			694
Loans held for sale - Lower of cost or fair value	(11,564		)	—			(1		)	(11,564		)
Receivables, net	(1,165		)	—			(2,248		)	(1,165		)
Real estate owned (Other assets)	(2,240		)	—
REO (Other assets)							(1,501		)	(2,240		)
Gain on sale of loans	25,525			22,131			24,005			25,525
Increase (decrease) in fair value of loans	(12,791		)	1,836
Decrease in fair value of loans							(197		)	(12,791		)
Other	3,925			1,789			(6,813		)	3,925
Ending balance (1)	$	145,417		$	200,438		$	207,645		$	145,417


(1)	At September 30, 2019 and 2018, ~~and 2017,~~ the ending balances ~~include $(6.5) million and $6.7 million, respectively,~~are net of fair value ~~adjustments.~~adjustments of $7.4 million and $6.5 million, respectively.


Valuation Allowance - Loans Held for Sale at Lower of Cost or Fair Value	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Beginning balance	$	7,535		$	6,491		$	7,318		$	10,064		$	10,057		$	7,535		$	11,569		$	7,318
Provision	2,755			906			3,036			1,761			769			2,755			1,805			3,036
Transfer from Liability for indemnification obligations (Other liabilities)	554			1,529			1,551			2,416			266			554			340			1,551
Sales of loans	(382		)	(426		)	(1,464		)	(6,071		)	(3,996		)	(382		)	(6,618		)	(1,464		)
Other	—			(2		)	21			328			—			—			—			21
Ending balance	$	10,462		$	8,498		$	10,462		$	8,498		$	7,096		$	10,462		$	7,096		$	10,462



Allowance for Losses	Three Months Ended September 30,					Nine Months Ended September 30,
	2018			2017		2018			2017
Beginning balance	$	16,485		$	20,328	$	16,465		$	37,952
Provision	2,696			13,756		6,197			17,054
Net (charge-offs) recoveries and other	(3,428		)	78		(6,909		)	(20,844		)
Ending balance	$	15,753		$	34,162	$	15,753		$	34,162



	September 30, 2018		December 31, 2017
Advances
Principal and interest	$	424,520	$	523,248
Taxes and insurance	352,376		439,857
Foreclosures, bankruptcy, real estate and other	158,184		181,495
	935,080		1,144,600

Automotive dealer financing notes (1)	—		35,392
Allowance for losses	—		(2,635		)
	—		32,757

	$	935,080	$	1,177,357


(1)	~~In January 2018, we terminated our automotive dealer loan financing facility. Automotive dealer financing notes not pledged~~Includes $18.0 million allowance related to ~~our automotive dealer loan financing facility are reported~~sold advances presented in Other liabilities (Liability for indemnification obligations), as ~~Other assets.~~of September 30, 2019.


(1)	The remaining allowance was charged off in connection with the exit from the ~~ACS~~automotive capital services business. In January 2018, we terminated the automotive dealer loan financing facility.



Mortgage Servicing Rights – Amortization Method	Nine Months Ended September 30,
Mortgage Servicing Rights – Amortization Method	2018			2017
Beginning balance	$	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
Additions recognized on the sale of mortgage loans	—			18,604
Sales and other transfers	—			(814		)
	(24,788		)	383,170
Amortization (1)	—			(38,560		)
Decrease in impairment valuation allowance (1) (2)	24,788			1,551
Ending balance	$	—		$	346,161

Estimated fair value at end of period	$	—		$	424,208



MSRs – Amortization Method	Nine Months Ended September 30, 2018
Beginning balance	$	336,882
Fair value election - transfer of MSRs carried at fair value (1)	(361,670		)
Decrease in impairment valuation allowance (1) (2)	24,788
Ending balance	$	—