UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q 
(Mark one)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2020March 31, 2021
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from: ____________________ to ____________________
Commission File No. 1-13219
OCWEN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
Florida65-0039856
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
1661 Worthington Road, Suite 10033409
West Palm Beach,Florida
(Address of principal executive office)(Zip Code)
(561) (561) 682-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 Par ValueOCNNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer☐Accelerated filer☒
Non-accelerated filer☐Smaller reporting company☒
Large accelerated filer☐Accelerated filer☒
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ☐ No x
Number of shares of common stock outstanding as of July 31, 2020: 130,013,696April 30, 2021: 8,708,271 shares





OCWEN FINANCIAL CORPORATION
FORM 10-Q
TABLE OF CONTENTS
 
PAGE
3
4
PAGE
PART I - FINANCIAL INFORMATION
Item 1.
Unaudited Consolidated Financial Statements
4
Consolidated Balance Sheets at June 30, 2020 and December 31, 2019
4
Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2020March 31, 2021 and 20192020
5
Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2020March 31, 2021 and 20192020
6
Consolidated Statements of Changes in Equity for the Three and Six Months Ended June 30, 2020March 31, 2021 and 20192020
7
Consolidated Statements of Cash Flows for the SixThree Months Ended June 30, 2020March 31, 2021 and 20192020
98
109
Management’s Discussion and Analysis of Financial Condition and Results of Operations
6350
10489
10793
10894
10894
10894
10994
11096


1

FORWARD-LOOKING STATEMENTS
This Quarterly Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this report, including statements regarding our financial position, business strategy and other plans and objectives for our future operations, are forward-looking statements.
Forward-looking statements may be identified by a reference to a future period or by the use of forward-looking terminology. Forward-looking statements are typically identified by words such as “expect”, “believe”, “foresee”, “anticipate”, “intend”, “estimate”, “goal”, “strategy”, “plan”, “target” and “project” or conditional verbs such as “will”, “may”, “should”, “could” or “would” or the negative of these terms, although not all forward-looking statements contain these words. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. As a result of the global Coronavirus Disease 2019 (COVID-19) pandemic we are in a period of capital markets volatility and rapidly evolving mortgage lending and servicing ecosystem which have magnified such uncertainties. Readers should bear these factors in mind when considering forward-looking statements and should not place undue reliance on such statements. Forward-looking statements involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially from those suggested by such statements. In the past, actual results have differed from those suggested by forward-looking statements and this may happen again. Important factors that could cause actual results to differ include, but are not limited to, the risks discussed or referenced under Part II, Item 1A, Risk Factors and the following:
•uncertainty relating to the continuing impacts of the COVID-19Coronavirus 2019 (COVID-19) pandemic, including with respect to the response of the U.S. government, state governments, Fannie Mae, Freddie Mac, Ginnie Maethe Federal National Mortgage Association (Fannie Mae), and Federal Home Loan Mortgage Corporation (Freddie Mac) (together, the GSEs), the Government National Mortgage Association (Ginnie Mae) and regulators;
•the potential for ongoing COVID-19 related disruption in the financial markets and in commercial activity generally, increased unemployment, and other financial difficulties facing our borrowers;
•the proportion of borrowers who enter into forbearance plans, the financial ability of borrowers to resume repayment and their timing for doing so;
impacts on•the extent to which our operations resulting from employee illness, social distancing measuresmortgage servicing right (MSR) joint venture with Oaktree Capital Management L.P. and its affiliates (Oaktree), other recent transactions and our shiftenterprise sales initiatives will generate additional subservicing volume;
•our ability to greater utilizationdeploy the proceeds of remote work arrangements;the senior secured notes in suitable investments at appropriate returns;
•our ability to close announced bulk acquisitions of MSRs, including the ability to obtain regulatory approvals, enter into definitive financing arrangements, and satisfy closing conditions, and the timing for doing so;
•our ability to enter into definitive agreements relating to MSR acquisitions and other transactions under negotiation or subject to letters of intent;
•the timing of our MSR joint venture’s receipt of Fannie Mae approval;
•the adequacy of our financial resources, including our sources of liquidity and ability to sell, fund and recover servicing advances, forward and reverse whole loans, and HECMHome Equity Conversion Mortgage (HECM) and forward loan buyouts and put backs,put-backs, as well as repay, renew and extend borrowings, borrow additional amounts as and when required, meet our MSR or other asset investment objectives and comply with our debt agreements, including the financial and other covenants contained in them;
uncertainty relating to the size and timing of a potential issuance of new term notes under our OMART advance financing facility;
•increased servicing costs based on rising borrower delinquency levels or other factors;
•reduced collection of servicing fees and ancillary income and delayed collection of servicing revenue as a result of forbearance plans and moratoria on evictions and foreclosure proceedings;
the impact of our planned reverse stock split on our stock price, market capitalization, and the trading market for our common stock;
•our ability to regain and maintain compliance with the continued listing standards of the New York Stock Exchange;
uncertainty relatedcontinue to improve our ability to execute on ourfinancial performance through cost re-engineering initiatives and take the other actions we believe are necessary for us to improve our financial performance;actions;
uncertainty related to •our ability to continue to grow our lending business and increase our lending volumes in a competitive market and uncertain interest rate environment;
•uncertainty related to our long-term relationship and remaining agreements with New Residential Investment Corp. (NRZ), our largest servicing client;
our ability to execute an orderly and timely transfer of responsibilities in connection with the termination by NRZ of our legacy PHH Mortgage Corporation (PMC) subservicing agreement, including our ability to respond to any concerns raised by regulators, lenders and other contractual counterparties in connection with such transfer;
•uncertainty related to claims, litigation, cease and desist orders and investigations brought by government agencies and private parties regarding our servicing, foreclosure, modification, origination and other practices, including uncertainty related to past, present or future investigations, litigation, cease and desist orders and settlements with state regulators, the Consumer Financial Protection Bureau (CFPB), State Attorneys General, the Securities and Exchange Commission (SEC), the Department of Justice or the Department of Housing and Urban Development (HUD) and actions brought under the False Claims Act regarding incentive and other payments made by governmental entities;;
•adverse effects on our business as a result of regulatory investigations, litigation, cease and desist orders or settlements;


settlements and the reactions to the announcement of such investigations, litigation, cease and desist orders or settlements by key counterparties, including lenders, the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac)GSEs and the Government National Mortgage Association (Ginnie Mae);Ginnie Mae;
•our ability to comply with the terms of our settlements with regulatory agencies and the costs of doing so;
increased regulatory scrutiny and media attention;
•any adverse developments in existing legal proceedings or the initiation of new legal proceedings;
•our ability to effectively manage our regulatory and contractual compliance obligations;
•uncertainty related to changes in legislation, regulations, government programs and policies, industry initiatives, best servicing and lending practices, and media scrutiny of our business and industry;
2

•the extent to which a recent judicial interpretation of the Fair Debt Collection Practices Act may require us to modify our business practices and expose us to increased expense and litigation risk;
•our ability to interpret correctly and comply with liquidity, net worth and other financial and other requirements of regulators, Fannie Mae, Freddie Macthe GSEs and Ginnie Mae, as well as those set forth in our debt and other agreements;
•our ability to comply with our servicing agreements, including our ability to comply with our agreements with, and the requirements of, Fannie Mae, Freddie Macthe GSEs and Ginnie Mae and maintain our seller/servicer and other statuses with them;
•our servicer and credit ratings as well as other actions from various rating agencies, including the impact of prior or future downgrades of our servicer and credit ratings;
•failure of our information technology or other security systems or breach of our privacy protections, including any failure to protect customers’ data;
•our reliance on our technology vendors to adequately maintain and support our systems, including our servicing systems, loan originations and financial reporting systems, and uncertainty relating to our ability to transition to alternative vendors, if necessary, without incurring significant cost or disruption to our operations;
•the loss of the services of our senior managers and key employees;
•uncertainty related to the actions of loan owners and guarantors, including mortgage-backed securities investors, Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the GSEs), Government National Mortgage Association (Ginnie Mae)GSEs, Ginnie Mae and trustees regarding loan put-backs, penalties and legal actions;
•uncertainty related to the GSEs substantially curtailing or ceasing to purchase our conforming loan originations or the Federal Housing Administration (FHA) of the HUD or Department of Veterans Affairs (VA) ceasing to provide insurance;
•uncertainty related to our ability to continue to collect certain expedited payment or convenience fees and potential liability for charging such fees;
•uncertainty related to our reserves, valuations, provisions and anticipated realization of assets;
•uncertainty related to the ability of third-party obligors and financing sources to fund servicing advances on a timely basis on loans serviced by us;
•the characteristics of our servicing portfolio, including prepayment speeds along with delinquency and advance rates;
•our ability to successfully modify delinquent loans, manage foreclosures and sell foreclosed properties;
•uncertainty related to the processes for judicial and non-judicial foreclosure proceedings, including potential additional costs or delays or moratoria in the future or claims pertaining to past practices;
•our ability to adequately manage and maintain real estate owned (REO) properties and vacant properties collateralizing loans that we service;
uncertainty related to legislation, regulations, regulatory agency actions, regulatory examinations, government programs and policies, industry initiatives and evolving best servicing practices;
•our ability to realize anticipated future gains from future draws on existing loans in our reverse mortgage portfolio;
•our ability to effectively manage our exposure to interest rate changes and foreign exchange fluctuations;
•our ability to effectively transform our operations in response to changing business needs, including our ability to do so without unanticipated adverse tax consequences;
•uncertainty related to the political or economic stability of the United States and of the foreign countries in which we have operations; and
•our ability to maintain positive relationships with our large shareholders and obtain their support for management proposals requiring shareholder approval.
Further information on the risks specific to our business is detailed within this report and our other reports and filings with the SEC including our Annual Report on Form 10-K for the year ended December 31, 20192020 and our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K since such date. Forward-looking statements speak only as of the date they were made and we disclaim any obligation to update or revise forward-looking statements whether because of new information, future events or otherwise.


3
PART I – FINANCIAL INFORMATION
ITEM 1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)

 March 31, 2021December 31, 2020
Assets  
Cash and cash equivalents$259,108 $284,802 
Restricted cash (amounts related to variable interest entities (VIEs) of $9,809 and $16,791)77,319 72,463 
Mortgage servicing rights (MSRs), at fair value1,400,217 1,294,817 
Advances, net (amounts related to VIEs of $623,570 and $651,576)786,678 828,239 
Loans held for sale ($500,814 and $366,364 carried at fair value)517,823 387,836 
Loans held for investment, at fair value (amounts related to VIEs of $8,820 and $9,770)7,053,194 7,006,897 
Receivables, net178,209 187,665 
Premises and equipment, net14,369 16,925 
Other assets ($17,307 and $25,476 carried at fair value) (amounts related to VIEs of $3,221 and $4,544)484,871 571,483 
Total assets$10,771,788 $10,651,127 
Liabilities and Equity  
Liabilities  
Home Equity Conversion Mortgage-Backed Securities (HMBS) related borrowings, at fair value$6,778,195 $6,772,711 
Advance match funded liabilities (related to VIEs)550,437 581,288 
Other financing liabilities, at fair value (amounts related to VIEs of $8,820 and $9,770)559,184 576,722 
Other secured borrowings, net1,066,022 1,069,161 
Senior notes, net542,927 311,898 
Other liabilities ($10,012 and $4,638 carried at fair value)835,013 923,975 
Total liabilities10,331,778 10,235,755 
Commitments and Contingencies (Notes 20 and 21)00
Stockholders’ Equity  
Common stock, $.01 par value; 13,333,333 shares authorized; 8,701,530 and 8,687,750 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively87 87 
Additional paid-in capital572,500 556,062 
Accumulated deficit(123,139)(131,682)
Accumulated other comprehensive loss, net of income taxes(9,438)(9,095)
Total stockholders’ equity440,010 415,372 
Total liabilities and stockholders’ equity$10,771,788 $10,651,127 

 June 30, 2020 December 31, 2019
Assets 
  
Cash and cash equivalents$313,736
 $428,339
Restricted cash (amounts related to variable interest entities (VIEs) of $17,373 and $20,434)63,813
 64,001
Mortgage servicing rights (MSRs), at fair value1,044,914
 1,486,395
Advances, net (amounts related to VIEs of $726,856 and $801,990)901,009
 1,056,523
Loans held for sale ($253,037 and $208,752 carried at fair value)278,517
 275,269
Loans held for investment, at fair value (amounts related to VIEs of $11,664 and $23,342)6,730,656
 6,292,938
Receivables, net247,616
 201,220
Premises and equipment, net29,695
 38,274
Other assets ($24,788 and $8,524 carried at fair value) (amounts related to VIEs of $8,301 and $4,078)700,482
 563,240
Total assets$10,310,438
 $10,406,199

   
Liabilities and Equity 
  
Liabilities 
  
Home Equity Conversion Mortgage-Backed Securities (HMBS) related borrowings, at fair value$6,477,616
 $6,063,435
Advance match funded liabilities (related to VIEs)612,650
 679,109
Other financing liabilities, at fair value (amounts related to VIEs of $11,664 and $22,002)594,222
 972,595
Other secured borrowings, net (amounts related to VIEs $184,129 and $240,893)847,331
 1,025,791
Senior notes, net311,484
 311,085
Other liabilities ($1,033 and $100 carried at fair value) (amounts related to VIEs of $95 and $144)1,034,366
 942,173
Total liabilities9,877,669
 9,994,188

   
Commitments and Contingencies (Notes 20 and 21)


 



   
Stockholders’ Equity 
  
Common stock, $.01 par value; 200,000,000 shares authorized; 130,008,898 and 134,862,232 shares issued and outstanding at June 30, 2020 and December 31, 2019 respectively1,300
 1,349
Additional paid-in capital553,934
 556,798
Accumulated deficit(115,039) (138,542)
Accumulated other comprehensive loss, net of income taxes(7,426) (7,594)
Total stockholders’ equity432,769
 412,011
Total liabilities and stockholders’ equity$10,310,438
 $10,406,199


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

4

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)

For the Three Months Ended March 31,
20212020
Revenue
Servicing and subservicing fees$171,738 $211,483 
Reverse mortgage revenue, net21,826 22,797 
Gain on loans held for sale, net5,721 13,331 
Other revenue, net8,309 6,231 
Total revenue207,594 253,842 
MSR valuation adjustments, net21,208 (174,120)
Operating expenses
Compensation and benefits68,281 60,728 
Servicing and origination27,470 20,256 
Professional services17,322 25,637 
Technology and communications13,143 15,193 
Occupancy and equipment8,852 11,969 
Other expenses4,561 3,431 
Total operating expenses139,629 137,214 
Other income (expense)
Interest income3,936 5,395 
Interest expense(28,452)(29,982)
Pledged MSR liability expense(37,850)(6,594)
Loss on extinguishment of debt(15,458)0 
Other, net290 1,328 
Total other expense, net(77,534)(29,853)
Income (loss) before income taxes11,639 (87,345)
Income tax expense (benefit)3,096 (61,856)
Net income (loss)$8,543 $(25,489)
Earnings (loss) per share
Basic$0.98 $(2.84)
Diluted$0.96 $(2.84)
Weighted average common shares outstanding
Basic8,688,009 8,990,589 
Diluted8,877,492 8,990,589 

 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
Revenue       
Servicing and subservicing fees$175,240
 $239,960
 $386,723
 $496,576
Reverse mortgage revenue, net13,759
 20,493
 36,556
 52,616
Gain on loans held for sale, net33,547
 8,318
 46,878
 17,300
Other revenue, net4,478
 5,567
 10,709
 11,734
Total revenue227,024
 274,338
 480,866
 578,226

       
MSR valuation adjustments, net(23,434) (147,268) (197,554) (256,266)
        
Operating expenses     
  
Compensation and benefits65,017
 82,283
 125,745
 176,979
Servicing and origination17,361
 21,510
 37,617
 50,208
Professional services23,818
 37,136
 49,455
 40,577
Technology and communications16,111
 20,001
 31,304
 44,436
Occupancy and equipment16,136
 18,699
 28,105
 35,288
Other expenses6,366
 4,597
 9,797
 7,845
Total operating expenses144,809
 184,226
 282,023
 355,333

       
Other income (expense)       
Interest income3,566
 3,837
 8,961
 8,395
Interest expense(26,760) (28,641) (56,742) (55,130)
Pledged MSR liability expense(41,686) (2,930) (48,280) (46,886)
Other, net(57) 557
 1,271
 1,577
Total other expense, net(64,937) (27,177) (94,790) (92,044)

       
Loss before income taxes(6,156) (84,333) (93,501) (125,417)
Income tax (benefit) expense(8,110) 5,404
 (69,966) 8,814
Net income (loss)$1,954
 $(89,737) $(23,535) $(134,231)

       
Earnings (loss) per share       
Basic$0.02
 $(0.67) $(0.18) $(1.00)
Diluted$0.02
 $(0.67) $(0.18) $(1.00)

       
Weighted average common shares outstanding       
Basic129,769,092
 134,465,741
 132,313,964
 134,193,874
Diluted129,922,343
 134,465,741
 132,313,964
 134,193,874
        
Pro forma earnings (loss) per share assuming a one-for-15 reverse stock split (1)       
Basic$0.23
 $(10.01) $(2.67) $(15.00)
Diluted$0.23
 $(10.01) $(2.67) $(15.00)
(1)
SeeNote 17 – Basic and Diluted Earnings (Loss) per Share regarding the reverse stock split expected to be effective in August 2020.

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

5

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Dollars in thousands)

 For the Three Months Ended March 31,
 20212020
Net income (loss)$8,543 $(25,489)
Other comprehensive income, net of income taxes:  
Change in unfunded pension plan obligation liability(367)46 
Other24 36 
Comprehensive income (loss)$8,200 $(25,407)
 For the Three Months Ended June 30, For the Six Months Ended June 30,
 2020 2019 2020 2019
Net income (loss)$1,954
 $(89,737) $(23,535) $(134,231)
        
Other comprehensive income, net of income taxes: 
  
    
Reclassification adjustment for losses on cash flow hedges included in net income40
 36
 76
 70
Change in unfunded pension plan obligation liability46
 337
 92
 674
Other—
 7
 —
 13
Comprehensive income (loss)$2,040
 $(89,357) $(23,367) $(133,474)





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

6



OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED JUNE 30,MARCH 31, 2021 AND 2020 AND 2019
(Dollars in thousands, except per share data)thousands)


 Common StockAdditional Paid-in Capital(Accumulated Deficit) Retained EarningsAccumulated Other Comprehensive Income (Loss), Net of Income TaxesTotal
 SharesAmount
Balance at December 31, 20208,687,750 $87 $556,062 $(131,682)$(9,095)$415,372 
Net income— — — 8,543 — 8,543 
Issuance of common stock warrants, net of issuance costs— — 15,753 — — 15,753 
Equity-based compensation and other13,780 0 685 — — 685 
Other comprehensive loss, net of income taxes— — — — (343)(343)
Balance at March 31, 20218,701,530 $87 $572,500 $(123,139)$(9,438)$440,010 
Balance at December 31, 20198,990,816 $90��$558,057 $(138,542)$(7,594)$412,011 
Net loss— — — (25,489)— (25,489)
Cumulative effect of adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13— — — 47,038 — 47,038 
Repurchase of common stock(377,484)(4)(4,601)— — (4,605)
Equity-based compensation and other25,486 0 820 — — 820 
Other comprehensive income, net of income taxes— — — — 82 82 
Balance at March 31, 20208,638,818 $86 $554,276 $(116,993)$(7,512)$429,857 
 Common Stock Additional Paid-in Capital (Accumulated Deficit) Retained Earnings Accumulated Other Comprehensive Income (Loss), Net of Income Taxes Total
 Shares Amount    
Three Months Ended June 30, 2020 and 2019           
Balance at March 31, 2020129,582,259
 $1,296
 $553,066
 $(116,993) $(7,512) $429,857
Net income—
 —
 —
 1,954
 —
 1,954
Equity-based compensation and other426,639
 4
 868
 —
 —
 872
Other comprehensive income, net of income taxes—
 —
 —
 —
 86
 86
Balance at June 30, 2020130,008,898
 $1,300
 $553,934
 $(115,039) $(7,426) $432,769
            
Balance at March 31, 2019133,946,055
 $1,339
 $555,046
 $(40,911) $(3,880) $511,594
Net loss—
 —
 —
 (89,737) —
 (89,737)
Equity-based compensation and other649,743
 7
 650
 —
 —
 657
Other comprehensive income, net of income taxes—
 —
 —
 —
 380
 380
Balance at June 30, 2019134,595,798
 $1,346
 $555,696
 $(130,648) $(3,500) $422,894
















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

7


OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2020 AND 2019
(Dollars in thousands, except per share data)


 Common Stock Additional Paid-in Capital (Accumulated Deficit) Retained Earnings Accumulated Other Comprehensive Loss, Net of Income Taxes Total
 Shares Amount    
Six Months Ended June 30, 2020 and 2019           
Balance at December 31, 2019134,862,232
 $1,349
 $556,798
 $(138,542) $(7,594) $412,011
Net loss—
 —
 —
 (23,535) —
 (23,535)
Cumulative effect of adoption of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2016-13—
 —
 —
 47,038
 —
 47,038
Repurchase of common stock(5,662,257) (57) (4,548) —
 —
 (4,605)
Equity-based compensation and other808,923
 8
 1,684
 —
 —
 1,692
Other comprehensive income, net of income taxes—
 —
 —
 —
 168
 168
Balance at June 30, 2020130,008,898
 $1,300
 $553,934
 $(115,039) $(7,426) $432,769
            
Balance at December 31, 2018133,912,425
 $1,339
 $554,056
 $3,567
 $(4,257) $554,705
Net loss—
 —
 —
 (134,231) —
 (134,231)
Cumulative effect of adoption of FASB ASU No. 2016-02—
 —
 —
 16
 —
 16
Equity-based compensation and other683,373
 7
 1,640
 —
 —
 1,647
Other comprehensive income, net of income taxes—
 —
 —
 —
 757
 757
Balance at June 30, 2019134,595,798
 $1,346
 $555,696
 $(130,648) $(3,500) $422,894


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

8

OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)

For the Six Months Ended June 30,For the Three Months Ended March 31,
2020 201920212020
Cash flows from operating activities 
  
Cash flows from operating activities  
Net loss$(23,535) $(134,231)
Adjustments to reconcile net loss to net cash provided by operating activities: 
  
Net income (loss)Net income (loss)$8,543 $(25,489)
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:  
MSR valuation adjustments, net197,554
 256,266
MSR valuation adjustments, net(21,208)174,120 
Gain on sale of MSRs, net(161) (869)
Loss (gain) on sale of MSRs, netLoss (gain) on sale of MSRs, net25 (286)
Provision for bad debts11,939
 17,158
Provision for bad debts6,545 4,879 
Depreciation11,093
 19,563
Depreciation2,859 3,997 
Amortization of debt issuance costs3,538
 1,451
Amortization of debt issuance costs and discountAmortization of debt issuance costs and discount1,624 2,662 
Equity-based compensation expense1,523
 1,664
Equity-based compensation expense863 746 
Gain on valuation of financing liability(31,716) (76,981)
Loss on extinguishment of debtLoss on extinguishment of debt15,458 0 
Loss (gain) on valuation of Pledged MSR financing liabilityLoss (gain) on valuation of Pledged MSR financing liability1,551 (30,697)
Net gain on valuation of loans held for investment and HMBS-related borrowings(15,351) (37,201)Net gain on valuation of loans held for investment and HMBS-related borrowings(6,513)(17,910)
Gain on loans held for sale, net(46,878) (17,300)Gain on loans held for sale, net(5,721)(13,331)
Bargain purchase gain—
 381
Origination and purchase of loans held for sale(1,949,022) (501,696)Origination and purchase of loans held for sale(3,333,999)(831,474)
Proceeds from sale and collections of loans held for sale1,936,204
 513,706
Proceeds from sale and collections of loans held for sale3,179,487 843,178 
Changes in assets and liabilities: 
  
Changes in assets and liabilities:  
Decrease in advances, net144,020
 91,679
Decrease in advances, net38,704 29,428 
Decrease in receivables and other assets, net39,998
 79,931
Decrease in other liabilities(45,533) (79,753)
(Increase) decrease in receivables and other assets, net(Increase) decrease in receivables and other assets, net(2,447)13,642 
(Decrease) increase in other liabilities(Decrease) increase in other liabilities(13,245)18,033 
Other, net(8,854) (4,965)Other, net(2,833)(521)
Net cash provided by operating activities224,819
 128,803
Net cash (used in) provided by operating activitiesNet cash (used in) provided by operating activities(130,307)170,977 

   
Cash flows from investing activities 
  
Cash flows from investing activities  
Origination of loans held for investment(568,074) (427,021)Origination of loans held for investment(326,735)(294,932)
Principal payments received on loans held for investment370,114
 232,514
Principal payments received on loans held for investment315,105 175,095 
Purchase of MSRs(48,014) (99,382)Purchase of MSRs(41,556)(29,828)
Proceeds from sale of MSRs—
 1,401
Proceeds from sale of advances443
 2,132
Additions to premises and equipment(2,756) (1,133)
Proceeds from sale of real estate4,350
 3,166
Proceeds from sale of real estate2,306 2,814 
Proceeds from sale of premises and equipment674
 —
Other, net(122) 534
Other, net(1,952)(476)
Net cash used in investing activities(243,385) (287,789)Net cash used in investing activities(52,832)(147,327)

   
Cash flows from financing activities 
  
Cash flows from financing activities  
Repayment of advance match funded liabilities, net(66,459) (106,488)Repayment of advance match funded liabilities, net(30,851)(53,158)
Proceeds from mortgage loan warehouse facilities and other secured borrowings2,696,563
 1,137,418
Repayment of mortgage loan warehouse facilities and other secured borrowings(2,808,581) (1,222,471)
Proceeds from issuance of additional senior secured term loan (SSTL)—
 119,100
Repayment of SSTL borrowings(131,066) (12,716)
Repayment of other financing liabilitiesRepayment of other financing liabilities(18,566)(50,427)
Proceeds from (repayment of) mortgage loan warehouse facilities, netProceeds from (repayment of) mortgage loan warehouse facilities, net157,720 (43,103)
Proceeds from MSR financing facilitiesProceeds from MSR financing facilities64,098 61,028 
Repayment of MSR financing facilitiesRepayment of MSR financing facilities(44,661)(115,447)
Repayment of Senior notesRepayment of Senior notes(319,156)0 
Proceeds from issuance of Senior notes and warrantsProceeds from issuance of Senior notes and warrants572,944 0 
Repayment of senior secured term loan (SSTL) borrowingsRepayment of senior secured term loan (SSTL) borrowings(188,700)(126,066)
Payment of debt issuance costs(7,451) (1,284)Payment of debt issuance costs(6,795)(7,267)
Proceeds from sale of MSRs accounted for as a financing—
 876
Proceeds from sale of Home Equity Conversion Mortgages (HECM, or reverse mortgages) accounted for as a financing (HMBS-related borrowings)590,640
 425,106
Proceeds from sale of Home Equity Conversion Mortgages (HECM, or reverse mortgages) accounted for as a financing (HMBS-related borrowings)287,830 312,249 
Repayment of HMBS-related borrowings(365,233) (228,015)Repayment of HMBS-related borrowings(311,562)(172,429)
Repurchase of common stock(4,605) —
Repurchase of common stock0 (4,605)
Other, net(33) (1,118)Other, net0 (33)
Net cash provided by (used in) financing activities(96,225) 110,408
Net cash provided by (used in) financing activities162,301 (199,258)

   
Net decrease in cash, cash equivalents and restricted cash(114,791) (48,578)Net decrease in cash, cash equivalents and restricted cash(20,838)(175,608)
Cash, cash equivalents and restricted cash at beginning of year492,340
 397,010
Cash, cash equivalents and restricted cash at beginning of year357,265 492,340 
Cash, cash equivalents and restricted cash at end of period$377,549
 $348,432
Cash, cash equivalents and restricted cash at end of period$336,427 $316,732 
   
Supplemental non-cash investing and financing activities: 
  
Supplemental non-cash investing and financing activities:  
   
Deconsolidation of mortgage-backed securitization trusts (VIEs)   
Loans held for investment$(10,715) $—
Other financing liabilities(9,519) —
Recognition of gross right-of-use asset and lease liability:Recognition of gross right-of-use asset and lease liability:
Right-of-use assetRight-of-use asset$292 $2,695 
Lease liabilityLease liability292 2,695 
Transfers of loans held for sale to real estate owned (REO)Transfers of loans held for sale to real estate owned (REO)$2,052 $768 
Transfer from loans held for investment to loans held for saleTransfer from loans held for investment to loans held for sale901 578 
Derecognition of MSRs and financing liabilities:   Derecognition of MSRs and financing liabilities:
MSRs$(263,344) $—
MSRs$0 $(263,344)
Financing liability - MSRs pledged (Rights to MSRs)(263,344) —
Financing liability - MSRs pledged (Rights to MSRs)0 (263,344)
Recognition of future draw commitments for HECM loans at fair value upon adoption of FASB ASU No. 2016-13$47,038
 $—
Recognition of future draw commitments for HECM loans at fair value upon adoption of FASB ASU No. 2016-13$0 $47,038 
Recognition of gross right-of-use asset and lease liability:   
Right-of-use asset$2,608
 $66,231
Lease liability2,597
 66,247
Transfers of loans held for sale to real estate owned (REO)$841
 $3,153
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the unaudited consolidated balance sheets that sums to the total of the same such amounts reported inand the unaudited consolidated statements of cash flows:
March 31, 2021March 31, 2020
Cash and cash equivalents$259,108 $263,555 
Restricted cash and equivalents:
Debt service accounts15,930 15,868 
Other restricted cash61,389 37,309 
Total cash, cash equivalents and restricted cash reported in the statements of cash flows$336,427 $316,732 
 June 30, 2020 June 30, 2019
Cash and cash equivalents$313,736
 $287,724
Restricted cash and equivalents:   
Debt service accounts18,757
 19,588
Other restricted cash45,056
 41,120
Total cash, cash equivalents and restricted cash reported in the statements of cash flows$377,549
 $348,432



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

98



OCWEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2020MARCH 31, 2021
(Dollars in thousands, except per share data and unless otherwise indicated)
 
Note 1 - Organization and Basis of Presentation

Organization
Ocwen Financial Corporation (NYSE: OCN) (Ocwen, OFC, we, us and our) is a non-bank mortgage servicer and originator providing solutions to homeowners, investors and others through its primary operating subsidiaries,subsidiary, PHH Mortgage Corporation (PMC) and Liberty Home Equity Solutions, Inc. (Liberty). We are headquartered in West Palm Beach, Florida with offices and operations in the United States (U.S.) and, the United States Virgin Islands (USVI) and operations in, India and the Philippines. Ocwen is a Florida corporation organized in February 1988.
Ocwen directly or indirectly owns all of the outstanding common stock of its operating subsidiaries, including PMC since its acquisition on October 4, 2018, Liberty, Ocwen Financial Solutions Private Limited (OFSPL) and Ocwen USVI Services, LLC (OVIS). On March 13, 2020, as part of Ocwen's legal entity restructuring, Liberty and PMC entered into an amended asset purchase agreement pursuant to which Liberty transferred substantially all of its assets, liabilities, contracts and employees to PMC effective March 15, 2020. We continue to originate and service reverse mortgage loans under the brand name Liberty Reverse Mortgage.
We perform servicing activities related to our own MSR portfolio (primary) and 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 (PLS, or 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 source our servicing portfolio through multiple channels, including recapture, retail, wholesale, correspondent, flow MSR purchase agreements, the GSE Cash Window programs and bulk MSR purchases. We originate, sell and securitize conventional (conforming to the underwriting standards of Fannie Mae or Freddie Mac; collectively referred to as Agency loans)or GSE) loans and government-insured (Federal Housing Administration (FHA) or Department of Veterans Affairs (VA)) forward mortgages,mortgage loans, generally with servicing retained. The GSEs or Ginnie Mae guarantee these mortgage securitizations. We originate and purchase Home Equity Conversion Mortgage (HECM) loans, or reverse mortgages, that are mostly insured by the FHA and we are an approved issuer of Home Equity Conversion Mortgage-Backed Securities (HMBS) that are guaranteed by Ginnie Mae. In addition to our originated MSRs, we acquire MSRs through flow purchase agreements, the GSE Cash Window and Co-issue programs and bulk MSR purchases, and we acquire new subservicing through our enterprise sales.
We had a total of approximately 5,5004,900 employees at June 30, 2020March 31, 2021 of which approximately 3,5003,000 were located in India and approximately 500400 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 76%approximately 69% were engaged in supporting our loan servicing operations as of June 30, 2020.March 31, 2021.
We are facing certain challenges and uncertainties that could have significant adverse effects on our business, financial condition, liquidity and results of operations, and these challenges and uncertainties have been amplified by the Coronavirus Disease 2019 (COVID-19) pandemic. See Note 20 — Commitments relating to our advance obligations in the COVID-19 environment. Historical losses have significantly eroded stockholders’ equity and weakened our financial condition. Our near-term priority is to return to sustainable profitability in the shortest timeframe possible within an appropriate risk and compliance environment. If we are able to execute on our key business initiatives, we believe we will drive stronger financial performance.
First, we must continue to expand our originations business to replenish and grow our servicing portfolio and mitigate our client concentration risk with NRZ. Second, we must continue to re-engineer our cost structure to maintain an industry competitive cost position. Third, we must manage our balance sheet to ensure adequate liquidity, finance our ongoing business needs and provide a solid platform for executing on our growth initiatives. To this end, we have engaged bankers to assist us in


exploring all strategic options to leverage our proven operating capability in this environment as we seek to fully realize the value of our platform. Finally, we must fulfill our regulatory commitments and resolve our remaining legal and regulatory matters on satisfactory terms.
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 six months ended June 30, 2020March 31, 2021 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2020.2021. 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, 2019.2020.
In August 2020, Ocwen implemented a reverse stock split of its shares of common stock in a ratio of one-for-15. The number of shares, loss per share amounts, repurchase price per share amounts, and Common stock and Additional paid-in capital balances have been retroactively adjusted for all periods presented in this Quarterly Report on Form 10-Q to give effect
9

to the reverse stock split as if it occurred at the beginning of the first period presented. See Note 13 – Equity for additional information.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Such estimates and assumptions include, but are not limited to, those that relate to fair value measurements, income taxes and the provision for losses that may arise from contingencies including litigation proceedings, and our going concern evaluation.proceedings. In developing estimates and assumptions, management uses all available information; however, actual results could materially differ from those estimates and assumptions.
Reclassifications
Certain amounts in the unaudited consolidated balance sheet at December 31, 2019, the unaudited consolidated statement of operations for the three and six months ended June 30, 2019 and the unaudited consolidated statement of cash flows for the six months ended June 30, 2019 have been reclassified to conform to the current period presentation. The reclassifications had no impact on total assets or total liabilities in our unaudited consolidated balance sheets, no impact on net income (loss) or total revenue in our unaudited consolidated statements of operations and no impact on operating, investing and financing cash flows in our unaudited consolidated statements of cash flows.
We now present Reverse mortgage revenue, net as a separate revenue line item on the face of the unaudited consolidated statements of operations to provide a further breakdown of Other revenue, net and provide greater transparency on the performance associated with our portfolio of HECM loans, net of the HMBS-related borrowings that are both measured at fair value, as follows:
 Periods Ended June 30, 2019
Reclassification within the Statement of OperationsThree Months Six Months
 Revenue   
 FromGain on loans held for sale, net$6,757
 $15,370
 FromOther revenue, net14,514
 38,777
 FromServicing and subservicing fees(778) (1,531)
 ToReverse mortgage revenue, net (New line item)20,493
 52,616
 Total revenue—
 —

In addition to the above reclassifications, we have made the following presentation changes:
In the unaudited consolidated statements of operations, we now separately present MSR valuation adjustments, net from Total expenses, renamed “Operating expenses”. The purpose of this reclassification is to separately present fair value changes from operating expenses and provide additional insights on the nature of our performance.
Within Other income (expense), net on the unaudited consolidated statements of operations, we now present the expense related to the pledged MSR liability recorded at fair value separately from Interest expense. The purpose of this reclassification is to improve transparency between the interest expense associated with interest-bearing liabilities recorded on an accrual basis and expenses that are attributable to the pledged MSR liability recorded at fair value. The pledged MSR liability is the obligation to deliver to NRZ all contractual cash flows associated with the underlying


MSR that did not meet the requirements for sale accounting treatment. The Pledged MSR liability expense reflects net servicing fee remittance and fair value changes.
Within the Total assets section of our consolidated balance sheet at December 31, 2019, we reclassified Match funded advances to Advances to present all servicing-related advances as a single line item.
Within the Cash flows from operating activities section, we reclassified Amortization of debt issuance costs of $1.5 million from Other, net to a new separate line item.
Within the Cash flows from operating activities section, we reclassified Gain on loans held for sale, net of $2.6 million related to reverse mortgages to Other, net.
Within the Cash flows from investing activities section, we reclassified Proceeds from sale of real estate of $3.2 million from Other, net to a new separate line.
Recently Adopted Accounting Standards
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (ASU 2016-13 and ASU 2019-04)
This ASU requires the measurement and recording of expected lifetime credit losses on loans and other financial instruments measured at amortized cost and replaces the existing incurred loss model for credit losses. The new guidance requires an organization to measure all current expected credit losses (CECL) for financial assets held and certain off-balance sheet credit exposures 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.
We adopted this standard on January 1, 2020 by applying the guidance at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings. We used the modified retrospective method for all financial assets in scope of the standard. Our statements of operations for reporting periods beginning after January 1, 2020 are presented under the new guidance, while prior period amounts continue to be reported in accordance with previously applicable GAAP. As permitted by this standard, we made an irrevocable fair value election for certain financial instruments within the scope of the standard. We elected the fair value option for future draw commitments for HECM loans purchased or originated before January 1, 2019. For the HECM loan future draw commitments, we recorded a $47.0 million cumulative-effect transition gain adjustment (before income taxes) to retained earnings as of January 1, 2020 to recognize the fair value as of that date. We did not record any significant net tax effect related to this adjustment as the increase in the deferred tax liability was offset by a corresponding decrease to the valuation allowance. The transition adjustment related to financial instruments for which we are not electing the fair value option did not result in any significant adjustment to the opening balance of retained earnings. Our measurement of lifetime expected credit losses is based on relevant qualitative and quantitative information about past events, including historical loss experience, current conditions, and reasonable and supportable forecasts that affect collectability.
Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13)
This ASU modifies the disclosure requirements for fair value measurements in FASB ASCIncome Taxes (ASC Topic 820, Fair Value Measurement. The main provisions in this ASU include removal of the following disclosure requirements: 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.
Our adoption of this standard on January 1, 2020 did not have a material impact on our unaudited 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.
Upon adoption of this standard on January 1, 2020, we elected to apply the amendments in this ASU prospectively to all implementation costs incurred subsequent to that date. Our adoption of this standard did not have a material impact on our unaudited consolidated financial statements.
Accounting Standards Issued but Not Yet Adopted
Income Taxes:740): Simplifying the Accounting for Income Taxes (ASU 2019-12)
On December 18, 2019, theThe FASB issued this ASU to ASC Topic 740, Income Taxes, as part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements. Amendments include the removal of certain exceptions to the general principles of ASC Topic 740 in such areas as intraperiod tax allocation, year to date losses in interim periods and deferred tax liabilities related to outside basis differences. Amendments also include simplification in other areas such as interim recognition of enactment of tax laws or rate changes and accounting for a franchise tax (or similar tax) that is partially based on income.
ThisOur adoption of this standard will beon January 1, 2021 did not have a material impact on our consolidated financial statements.
Debt—Debt with Conversion and Other Options and Derivatives and Hedging—Contracts in Entity's Own Equity—Accounting for Convertible Instruments and Contracts in an Entity's Own Equity (ASU 2020-06)
The amendments in this ASU simplify the accounting for certain financial instruments with characteristics of liabilities and equity by reducing the number of accounting models for convertible debt and convertible preferred stock instruments. In addition, this ASU amended the derivative guidance for the “own stock” scope exception and certain aspects when calculating earnings per share. The amendments in this ASU affect entities that issue convertible instruments and/or contracts in an entity’s own equity.
The amendments in this ASU are effective for uson January 1, 2022, with early adoption permitted on January 1, 2021. EarlyOur early adoption is permittedof this standard on January 1, 2021 did not have a material impact on our consolidated financial statements.
Investments—Equity Securities (ASC Topic 321), Investments—Equity Method and Joint Ventures (ASC Topic 323), and Derivatives and Hedging (ASC Topic 815) (ASU 2020-01)
The amendments in any interimthis ASU affect all entities that apply the guidance in ASC Topics 321, 323, and 815 and (1) elect to apply the measurement alternative or annual period, with any adjustments reflected as(2) enter into a forward contract or purchase an option to purchase securities that, upon settlement of the beginningforward contract or exercise of the fiscal yearpurchased option, would be accounted for under the equity method of adoption.accounting. The amendments clarify that forward or option contracts to purchase investments that will be accounted for using the equity method that do not meet the definition of a derivative under ASC Topic 815 are in the scope of ASC Topic 321. Therefore, when the purchase contract is considered a forward or option contract in the scope of this guidance, the investor would account for changes in the contract’s fair value prior to closing through earnings, unless the contract qualifies for the measurement alternative and it is elected. If an entity chooses to early adopt, it must adopt all changes as a resultthe measurement alternative is elected, the change in the fair value of the ASU. Wecontract would be reflected in earnings upon closing. In addition, if there are currently evaluatingobservable transactions or impairments before closing, the effectguidance would require remeasurement of the contract to fair value.
The guidance in this ASU also specifies that when applying the measurement alternative in ASC Topic 321, observable
transactions include those transactions by the investor that result in the application or discontinuation of the equity method
of accounting.
The amendments under this ASU are effective prospectively. Our adoption of this standard.standard on January 1, 2021 did not have a material impact on our consolidated financial statements.
Note 2 - Cost Re-Engineering Plan

In February 2020, we announced our intention to implement certain cost re-engineering initiatives in 2020 to generate further cost savings. During the second quarter of 2020, we executed some of these cost re-engineering initiatives with the partial abandonment of one of our leased properties and additional severance costs. As a result of these initiatives, we accelerated the depreciation of the related facility lease right of use (ROU) asset and leasehold improvements by $2.9 million in the second quarter of 2020, recorded a $3.2 million facility exit cost liability and recorded a $1.0 million employee severance cost liability.
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 plan extended beyond eliminating redundant costs through the integration process and addressed organizational, process and control redesign and automation, human capital planning, off-shore utilization, strategic sourcing and facilities rationalization. Costs for this plan included severance, retention and other incentive awards, facilities-related costs and other costs to execute the reorganization. While we continue to pursue additional cost re-engineering initiatives, this $65.0 million cost re-engineering plan announced in February 2019 was completed by December 31, 2019. Our remaining liability at June 30, 2020 is $3.3 million and is included in Other accrued expenses, a component of Other liabilities.
The following table provides a summary of plan costs incurred in 2019:
 Employee-related Facility-related Other Total
First quarter$20,787
 $—
 $1,328
 $22,115
Second quarter3,460
 3,047
 3,619
 10,126
Third quarter7,266
 3,596
 7,485
 18,347
Fourth quarter4,191
 3,490
 6,700
 14,381
Total costs incurred$35,704
 $10,133
 $19,132
 $64,969

The above 2019 and 2020 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.
Note 3 – 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 securitizationstransfers of financial assets and asset-backed financing arrangements using special purpose entities (SPEs) or VIEsvariable interest entities (VIEs) into three groups: (1)
10

securitizations of residential mortgage loans, (2) financings of advances and (3) MSR financings. Financing transactions that do not use SPEs or VIEs are disclosed in Note 11 – Borrowings.Borrowings.
We have determined that the SPEs created in connection with our match funded advance financing facilities are 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/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
Transfers of Forward Loans
We sell or securitize forward loans that we originate or purchase from third parties, generally in the form of mortgage-backed securities guaranteed by the GSEs or Ginnie Mae. Securitization typically occurs within 30 days of loan closing or purchase. We act only as a fiduciary and do not have a variable interest in the securitization trusts. As a result, we account for these transactions as sales upon transfer.
The following table presents a summary of cash flows received from and paid to securitization trusts related to transfers of loans accounted for as sales that were outstanding:
 Three Months Ended March 31,
20212020
Proceeds received from securitizations$3,248,918 $820,001 
Servicing fees collected (1)13,178 12,252 
Purchases of previously transferred assets, net of claims reimbursed(3,239)(2,607)
$3,258,857 $829,646 
 Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Proceeds received from securitizations$1,071,252
 $195,973
 $1,891,253
 $438,933
Servicing fees collected (1)10,391
 12,826
 22,643
 28,744
Purchases of previously transferred assets, net of claims reimbursed(1,669) (143) (4,277) (1,047)
 $1,079,974
 $208,656
 $1,909,619
 $466,630

(1)We receive servicing fees based upon the securitized loan balances and certain ancillary fees, all of which are reported in Servicing and subservicing fees in the unaudited consolidated statements of operations.
(1)We receive servicing fees based upon the securitized loan balances and certain ancillary fees, all of which are reported in Servicing and subservicing fees in the unaudited consolidated statements of operations.
In connection with these transfers, we retained MSRs of $9.1$34.3 million and $15.7 million, and $0.8 million and $1.6$6.6 million during the three and six months ended June 30,March 31, 2021 and 2020, and 2019, respectively. We securitize forward and reverse residential mortgage loans involving the GSEs and loans insured by the FHA or VA through Ginnie Mae.
Certain obligations arise from the agreements associated with our transfers of loans. Under these agreements, we may be obligated to repurchase the loans, or otherwise indemnify or reimburse the investor or insurer for losses incurred due to material breach of contractual representations and warranties.
The following table presents the carrying amounts of our assets that relate to our continuing involvement with forward loans that we have transferred with servicing rights retained as well as an estimate of our maximum exposure to loss including the UPB of the transferred loans:
 June 30, 2020 December 31, 2019
Carrying value of assets   
MSRs, at fair value$104,967
 $109,581
Advances167,262
 141,829
UPB of loans transferred17,531,932
 14,490,984
Maximum exposure to loss$17,804,161
 $14,742,394

March 31, 2021December 31, 2020
Carrying value of assets
MSRs, at fair value$194,600 $137,029 
Advances140,720 143,361 
UPB of loans transferred (1)20,175,148 18,062,856 
Maximum exposure to loss$20,510,468 $18,343,246 
At June 30, 2020(1)Includes $4.0 billion and $4.1 billion of loans delivered to Ginnie Mae as of March 31, 2021 and December 31, 2019, 9.3%2020, respectively, and 7.7%includes loan modifications delivered through the Ginnie Mae Early Buyout Program (EBO).
At March 31, 2021 and December 31, 2020, 5.5% and 6.8%, respectively, of the transferred residential loans that we service were 60 days or more past due, including 60 days or more past due loans under forbearance. This includes 15.2% and 17.1%, respectively, of loans delivered to Ginnie Mae that are 60 days or more past due.


Transfers of Reverse Mortgages
We pool HECM loans into HMBS that we sell into the secondary market with servicing rights retained or we sell the loans to third parties with servicing rights released. We have determined that loan transfers in the HMBS program do not meet the definition of a participating interest because of the servicing requirements in the product that require the issuer/servicer to absorb some level of interest rate risk, cash flow timing risk and incidental credit risk. As a result, the transfers of the HECM loans do not qualify for sale accounting, and therefore, we account for these transfers as financings. Under this accounting treatment, the HECM loans are classified as Loans held for investment, at fair value, on our unaudited consolidated balance sheets. Holders of participating interests in the HMBS have no recourse against the assets of Ocwen, except with respect to standard representations and warranties and our contractual obligation to service the HECM loans and the HMBS. The changes in fair value of the HECM loans and HMBS-related borrowings are included in Reverse mortgage revenue, net in our unaudited consolidated statements of operations.
11

Financings of Advances using SPEs
Match funded advances, i.e., advances that are pledged as collateral to our advance facilities, result from our transfers of residential loan servicing advances to SPEs in exchange for cash. We consolidate these SPEs because we have determined that Ocwen is the primary beneficiary of the SPEs. These SPEs issue debt supported by collections on the transferred advances, and we refer to this debt as Advance match funded liabilities.
We make transfers to these SPEs in accordance with the terms of our advance financing facility agreements. Debt service accounts require us to remit collections on pledged advances to the trustee within two days of receipt. Collected funds that are not applied to reduce the related Advance match funded debt until the payment dates specified in the indenture are classified as debt service accounts within Restricted cash in our unaudited consolidated balance sheets. The balances also include amounts that have been set aside from the proceeds of our match funded advance facilities to provide for possible shortfalls in the funds available to pay certain expenses and interest, as well as amounts set aside as required by our warehouse facilities as security for our obligations under the related agreements. The funds are held in interest earning accounts and those amounts related to match funded advance facilities are held in the name of the SPE created in connection with the facility.
We classify the transferred advances on our unaudited consolidated balance sheets as a component of Advances, net and the related liabilities as Advance match funded liabilities. The SPEs use collections of the pledged advances to repay principal and interest and to pay the expenses of the SPE. Holders of the debt issued by these entitiesthe SPEs have recourse only to the assets of the SPE for satisfaction of the debt.
The table below presents the carrying value and classification of the assets and liabilities of the advance financing SPEs are comprised solely of Advances, Restricted cash (Debt service accounts), Advance match funded liabilities and amounts due to affiliates. Amounts due to affiliates are eliminated in consolidation in our unaudited consolidated balance sheets.facilities:
March 31, 2021December 31, 2020
Match funded advances (Advances, net)$623,570 $651,576 
Debt service accounts (Restricted cash)7,186 14,195 
Unamortized deferred lender fees (Other assets)2,957 4,253 
Prepaid interest (Other assets)263 291 
Advance match funded liabilities550,437 581,288 
MSR Financings using SPEs
On July 1,In 2019, we entered into a $300.0 million financing facility with a third-party secured by certain Fannie Mae and Freddie Mac MSRs (Agency MSRs). Two SPEs (trusts) were established in connection with this facility. On July 1, 2019, we entered into an MSR Excess Spread Participation Agreement under which we created a 100% participation interest in the portfolio excess servicing fees, pursuant to which the holder of the participation interest is entitled to receive certain funds collected on the related portfolio of mortgage loans (other than ancillary income and advance reimbursement amounts) with respect to such Portfolio Excess Servicing Fees. This participation interest has been contributed to the trusts. On May 7, 2020 we renewed the facility through June 30, 2021 and reduced the borrowing capacity from $300.0 million to $250.0 million. We pledged the membership interest of the depositor for our OMART advance financing facility as additional collateral to this facility.
In connection with this facility, we entered into repurchase agreements with a third-party pursuant to which we sold trust certificates of the trusts representing certain indirect economic interests in the Agency MSRs and agreed to repurchase such certificates at a future date at the repurchase price set forth in the repurchase agreements. Our obligations under the facility are secured by a lien on the related Agency MSRs. In addition, Ocwen guarantees the obligations under the facility.
We determined that the trusts are VIEs for which we are the primary beneficiary. Therefore, we have included the trusts in our consolidated financial statements effective July 1, 2019.statements. We have the power to direct the activities of the VIEs that most significantly impact the VIE’s economic performance given that we are the servicer of the Agency MSRs that result in cash flows to the trusts. In addition, we have designed the trusts at inception to facilitate the third-party funding facility under which we have the obligation to absorb the losses of the VIEs that could be potentially significant to the VIEs.


The table below presents the carrying value and classification of the assets and liabilities of the Agency MSR financing facility:
 June 30, 2020 December 31, 2019
MSRs pledged (MSRs, at fair value)$192,904
 $245,533
Unamortized debt issuance costs (Other assets)2,270
 946
Debt service account (Restricted cash)101
 100
Outstanding borrowings (Other secured borrowings, net)105,070
 147,706

March 31, 2021December 31, 2020
MSRs pledged (MSRs, at fair value)$584,872 $476,371 
Unamortized deferred lender fees (Other assets)606 1,183 
Debt service account (Restricted cash)213 211 
Outstanding borrowings (Other secured borrowings, net)250,000 210,755 
On November 26,In 2019, we issued $100.0 million Ocwen Excess Spread-Collateralized Notes, Series 2019-PLS1 Class A (PLS Notes) secured by certain of PMC’s private label MSRs (PLS MSRs). An SPE, PMC PLS ESR Issuer LLC (PLS Issuer), was established in this connection as a wholly owned subsidiary of PMC. PMC entered into an MSR Excess Spread Participation Agreement with PLS Issuer. PMC created a participation interest in the excess servicing fees, related float and REO fees pursuant to which the holder of the participation interest will be entitled to receive such Excess Servicing Fees, related float and REO fees. PMC holds the MSRs and services the loans which create the related excess cash flows pledged under the MSR Excess Spread Participation Agreement. PLS Issuer’s obligations under the facility are secured by a lien on the related PLS MSRs. PMC sold a participation certificate representing certain economic interests in the PLS MSRs and in order to secure its obligations under the participation certificate, it granted a security interest to PLS Issuer in the PLS MSRs. The PLS Issuer assigned the security interest in the PLS MSRs to the collateral agent for the noteholders. Ocwen guarantees the obligations of PLS Issuer under the facility.
We determined that PLS Issuer is a VIE for which we are the primary beneficiary. Therefore, we have included PLS Issuer in our consolidated financial statements effective November 26, 2019.statements. We have the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance given that we are the servicer of the MSRs that result in cash flows to PLS Issuer. In addition, PMC has designed PLS Issuer at inception to facilitate the funding for general corporate purposes. Separately, in return for the participation interests, PMC received the proceeds from issuance of the PLS Notes. PMC is the sole member of PLS Issuer, thus PMC has the obligation to absorb the losses of the VIE that could be potentially significant to the VIE.
The table below presents the carrying value and classification of the assets and liabilities of the PLS Notes facility:
March 31, 2021December 31, 2020
MSRs pledged (MSRs, at fair value)$123,422 $129,204 
Debt service account (Restricted cash)2,410 2,385 
Outstanding borrowings (Other secured borrowings, net)62,297 68,313 
Unamortized debt issuance costs (Other secured borrowings, net)764 894 
 June 30, 2020 December 31, 2019
MSRs pledged (MSRs, at fair value)$135,672
 $146,215
Debt service account (Restricted cash)2,529
 3,002
Outstanding borrowings (Other secured borrowings, net)80,138
 94,395
Unamortized debt issuance costs (Other secured borrowings, net)(1,080) (1,208)
12

Mortgage-Backed Securitizations
The table below presents the carrying value and classification of the assets and liabilities of consolidated mortgage-backed securitization trusts included in our unaudited consolidated balance sheets as a result of residual securities we acquired which were issued by the trusts.
 June 30, 2020 December 31, 2019
Loans held for investment, at fair value - Restricted for securitization investors$11,664
 $23,342
Financing liability - Owed to securitization investors, at fair value11,664
 22,002

We concluded we are the primary beneficiary of certain residential mortgage-backed securitizations as a result of beneficial interests consisting of residual securities, which expose us to the expected losses and residual returns of the trust, and our role as master servicer, where we have the ability to direct the activities that most significantly impact the performance of the trust.
Upon consolidation of the securitization trusts, we elected to apply the measurement alternative to ASC Topic 820, Fair Value Measurement for collateralized financing entities. The measurement alternative requires a reporting entity to use the more observable of the fair value of the financial assets or the financial liabilities to measure both the financial assets and the financial liabilities of the entity. We determined that the fair value of the loans held by the trusts is more observable than the


fair value of the debt certificates issued by the trusts. Through the application of the measurement alternative, the fair value of the financial liabilities of the trusts are measured as the difference between the fair value of the financial assets and the fair value of our investment in the residual securities of the trusts.
Holders of the debt issued by the consolidated securitization trust entities have recourse only to the assets of the SPE for satisfaction of the debt and have no recourse against the assets of Ocwen. Similarly, the general creditors of Ocwen have no claim on the assets of the trusts. Our exposure to loss as a result of our continuing involvement is limited to the carrying values of our investments in the residual securities of the trusts, our MSRs and related advances. 
In June 2020, we sold beneficial interests consisting of residual securities with a fair value of $1.2 million that we held in one of two consolidated securitization trusts. Effective with the sale, Ocwen deconsolidated the trust as it is no longer the primary beneficiary and recognized a gain of $26 thousand.

Note 43 – Fair Value
Fair value is estimated based on a hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are inputs that reflect the assumptions that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The fair value hierarchy prioritizes the inputs to valuation techniques into three broad levels whereby the highest priority is given to Level 1 inputs and the lowest to Level 3 inputs.
Level 1:Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.
Level 2:Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3:Unobservable inputs for the asset or liability.
We classify assets in their entirety based on the lowest level of input that is significant to the fair value measurement.
The carrying amounts and the estimated fair values of our financial instruments and certain of our nonfinancial assets measured at fair value on a recurring or non-recurring basis or disclosed, but not measured, at fair value are as follows:
  March 31, 2021December 31, 2020
 LevelCarrying ValueFair ValueCarrying ValueFair Value
Financial assets     
Loans held for sale
Loans held for sale, at fair value (a) (e)3, 2$500,814 $500,814 $366,364 $366,364 
Loans held for sale, at lower of cost or fair value (b)317,009 17,009 21,472 21,472 
Total Loans held for sale$517,823 $517,823 $387,836 $387,836 
Loans held for investment
Loans held for investment - Reverse mortgages (a)3$7,044,374 $7,044,374 $6,997,127 $6,997,127 
Loans held for investment - Restricted for securitization investors (a)38,820 8,820 9,770 9,770 
Total loans held for investment$7,053,194 $7,053,194 $7,006,897 $7,006,897 
Advances, net (c)3$786,678 $786,678 $828,239 $828,239 
Receivables, net (c)3178,209 178,209 187,665 187,665 
Mortgage-backed securities (a)31,613 1,613 2,019 2,019 
Corporate bonds (a)2211 211 211 211 
Financial liabilities:     
Advance match funded liabilities (c)3$550,437 $550,862 $581,288 $581,997 
Financing liabilities:
HMBS-related borrowings (a)3$6,778,195 $6,778,195 $6,772,711 $6,772,711 
Financing liability - MSRs pledged (Rights to MSRs) (a)3550,364 550,364 566,952 566,952 
Financing liability - Owed to securitization investors (a)38,820 8,820 9,770 9,770 
Total Financing liabilities$7,337,379 $7,337,379 $7,349,433 $7,349,433 
Other secured borrowings:
Senior secured term loan (c) (d)2$0 $0 $179,776 $184,639 
Mortgage warehouse and MSR financing (c) (d)31,066,022 1,037,199 889,385 858,573 
Total Other secured borrowings$1,066,022 $1,037,199 $1,069,161 $1,043,212 
   June 30, 2020 December 31, 2019
 Level Carrying Value Fair Value Carrying Value Fair Value
Financial assets   
  
  
  
Loans held for sale         
Loans held for sale, at fair value (a) (f)3, 2 $253,037
 $253,037
 $208,752
 $208,752
Loans held for sale, at lower of cost or fair value (b)3 25,480
 25,480
 66,517
 66,517
Total Loans held for sale  $278,517
 $278,517
 $275,269
 $275,269
          
Loans held for investment         
Loans held for investment - Reverse mortgages (a)3 $6,718,992
 $6,718,992
 $6,269,596
 $6,269,596
Loans held for investment - Restricted for securitization investors (a)3 11,664
 11,664
 23,342
 23,342
Total loans held for investment  $6,730,656
 $6,730,656
 $6,292,938
 $6,292,938
          
Advances, net (c)3 $901,009
 $901,009
 $1,056,523
 $1,056,523
Receivables, net (c)3 247,616
 247,616
 201,220
 201,220
Mortgage-backed securities (a)3 1,726
 1,726
 2,075
 2,075
Corporate bonds (a)2 211
 211
 441
 441
          
Financial liabilities:   
  
  
  
Advance match funded liabilities (c)3 $612,650
 $617,950
 $679,109
 $679,507
Financing liabilities:         
HMBS-related borrowings (a)3 $6,477,616
 $6,477,616
 $6,063,435
 $6,063,435
Financing liability - MSRs pledged (Rights to MSRs) (a) (e)3 582,558
 582,558
 950,593
 950,593
Financing liability - Owed to securitization investors (a)3 11,664
 11,664
 22,002
 22,002
Total Financing liabilities  $7,071,838
 $7,071,838
 $7,036,030
 $7,036,030
Other secured borrowings:         
Senior secured term loan (c) (d)2 $187,986
 $172,121
 $322,758
 $324,643
Other (c)3 659,345
 629,305
 703,033
 686,146
Total Other secured borrowings  $847,331
 $801,426
 $1,025,791
 $1,010,789
          
Senior notes:         
Senior unsecured notes (c) (d)2 $21,205
 $12,765
 $21,046
 $13,821
Senior secured notes (c) (d)2 290,279
 222,276
 290,039
 256,201
Total Senior notes  $311,484
 $235,041
 $311,085
 $270,022
          
Derivative financial instrument assets (liabilities)   
  
  
  
Interest rate lock commitments (a) (g)3, 2 $17,818
 $17,818
 $4,878
 $4,878
Forward trades - Loans held for sale (a)1 (1,017) (1,017) (92) (92)
TBA / Forward mortgage-backed securities (MBS) trades and futures - MSR hedging (a)1 5,019
 5,019
 1,121
 1,121
          
MSRs (a) (e)3 $1,044,914
 $1,044,914
 $1,486,395
 $1,486,395
13



  March 31, 2021December 31, 2020
 LevelCarrying ValueFair ValueCarrying ValueFair Value
Senior notes:
Senior notes (c) (d) (f)2391,377 399,537 311,898 320,879 
OFC Senior notes due 2027 (c) (d) (f)3151,550 180,318 0 0 
Total Senior notes$542,927 $579,855 $311,898 $320,879 
Derivative financial instrument assets (liabilities)     
Interest rate lock commitments (a)3$14,589 $14,589 $22,706 $22,706 
Forward trades - Loans held for sale (a)2(52)(52)(50)(50)
TBA / Forward mortgage-backed securities (MBS) trades (a)1480 480 (4,554)(4,554)
Interest rate swap futures (a)1(9,532)(9,532)504 504 
Other3(14)(14)0 0 
MSRs (a)3$1,400,217 $1,400,217 $1,294,817 $1,294,817 

(a)(a)Measured at fair value on a recurring basis.
(b)Measured at fair value on a non-recurring basis.
(c)Disclosed, but not measured, at fair value. 
(d)
The carrying values are net of unamortized debt issuance costs and discount. See Note 11 – Borrowings for additional information.
(e)
A rollforward of the beginning and ending balances of MSRs and Financing liability - MSRs pledged that we measure at fair value on a recurring basis is provided in Note 7 – Mortgage Servicing and Note 8 — Rights to MSRs, respectively.
(f)Loans repurchased from Ginnie Mae securitizations with a fair value of $26.0 million at June 30, 2020 are classified as Level 3. The remaining balance of loans held for sale at fair value at June 30, 2020 is classified as Level 2. The entire balance of Loans held for sale at fair value at December 31, 2019 was classified as Level 2.
(g)Level 3 at June 30, 2020 and Level 2 at December 31, 2019.


(b)Measured at fair value on a non-recurring basis.
(c)Disclosed, but not measured, at fair value. 
(d)The carrying values are net of unamortized debt issuance costs and discount. See Note 11 – Borrowings for additional information.
(e)Loans repurchased from Ginnie Mae securitizations with a fair value of $71.4 million and $51.1 million at March 31, 2021 and December 31, 2020, respectively, are classified as Level 3. The remaining balance of loans held for sale at fair value is classified as Level 2.
(f)On March 4, 2021, PMC completed the issuance and sale of $400.0 million aggregate principal amount of senior secured notes. Fair value is based on valuation data obtained from a pricing service. Therefore, these notes are classified as Level 2. Additionally on March 4, 2021, Ocwen completed the private placement of $199.5 million aggregate principal amount of senior secured second lien notes. These notes are classified as Level 3 as we determine fair value based on valuations provided by third parties involved in the issuance and placement of the notes. These methodologies are consistent with our current fair value policies. See Note 11 – Borrowings for additional information.

14

The following tables present a rollforwardreconciliation of the beginning and ending balanceschanges in fair value of Level 3 assets and liabilities that we measure at fair value on a recurring basis:
Loans Held for Investment - Restricted for Securitization InvestorsFinancing Liability - Owed to Securitization InvestorsLoans Held for Sale - Fair ValueMortgage-Backed SecuritiesIRLCs
Three months ended March 31, 2021
Beginning balance$9,770 $(9,770)$51,072 $2,019 $22,706 
Purchases, issuances, sales and settlements 
Purchases0 0 58,916 0 0 
Issuances0 0 0 0 134,370 
Sales0 0 (32,889)0 0 
Settlements(950)950 0 0 0 
Transfers (to) from:
Loans held for sale, at fair value0 0 0 0 (128,564)
Other assets0 0 (96)0 0 
 (950)950 25,931 0 5,806 
Change in fair value included in earnings0 0 (5,640)(406)(13,923)
Calls and other0 0 4 0 0 
 0 0 (5,636)(406)(13,923)
Ending balance$8,820 $(8,820)$71,367 $1,613 $14,589 
 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
 Loans Held for Sale - Fair Value Mortgage-Backed Securities IRLCs
Three months ended June 30, 2020
Beginning balance$6,568,821
 $(6,323,091) $22,561
 $(21,365) $25,582
 $1,670
 $10,478
Purchases, issuances, sales and settlements             
Purchases—
 —
 —
 —
 58,510
 —
 —
Issuances273,142
 (278,391) —
 —
 —
 —
 69,504
Deconsolidation of mortgage-backed securitization trusts—
 —
 (10,715) 9,519
 —
 —
 —
Sales—
 —
 —
 —
 (58,550) —
 —
Settlements(195,019) 192,804
 (182) 326
 (426) —
 (62,323)
Transfers (to) from:             
Loans held for sale, at fair value(541) —
 —
 —
 —
 —
 —
Other assets(100) —
 —
 —
 —
 —
 —
Receivables, net(157) —
 —
 —
 (270) —
 —
 77,325
 (85,587) (10,897) 9,845
 (736) —
 7,181
Total realized and unrealized gains (losses)             
Included in earnings:             
Change in fair value72,846
 (68,938) —
 (144) 1,104
 56
 159
Calls and other—
 —
 —
 —
 —
 —
 —
Included in Other comprehensive income—
 —
 —
 —
 —
 —
 —
 72,846
 (68,938) —
 (144) 1,104
 56
 159
Transfers in and / or out of Level 3—
 —
 —
 —
 —
 —
 —
Ending balance$6,718,992
 $(6,477,616) $11,664
 $(11,664) $25,950
 $1,726
 $17,818
Loans Held for Investment - Restricted for Securitization InvestorsFinancing Liability - Owed to Securitization InvestorsLoans Held for Sale - Fair ValueMortgage-Backed SecuritiesIRLCs
Three months ended March 31, 2020
Beginning balance$23,342 $(22,002)$0 $2,075 $0 
Settlements(781)637 — 0 — 
Change in fair value included in earnings0 0 (405)— 
Transfers in and / or out of Level 30 0 25,582 — 10,478 
Ending balance$22,561 $(21,365)$25,582 $1,670 $10,478 


 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 Derivatives - Interest Rate Caps
Three months ended June 30, 2019
Beginning balance$5,726,917
 $(5,614,688) $26,237
 $(24,562) $1,786
 $276
Purchases, issuances, sales and settlements           
Purchases—
 —
 —
 —
 —
 —
Issuances217,757
 (214,543) —
 —
 —
 —
Sales—
 —
 —
 —
 —
 —
Settlements(127,884) 125,626
 (913) 865
 —
 —
Transfers (to) from:           
Loans held for sale, at fair value(488) —
 —
 —
 —
 —
Other assets(36) —
 —
 —
 —
 —
Receivables, net(45) —
 —
 —
 —
 —
 89,304
 (88,917) (913) 865
 —
 —
Total realized and unrealized gains (losses)           
Included in earnings:           
Change in fair value56,186
 (41,778) —
 —
 228
 (229)
Calls and other—
 —
 —
 —
 —
 —
Included in Other comprehensive income—
 —
 —
 —
 —
 —
 56,186
 (41,778) —
 —
 228
 (229)
Transfers in and / or out of Level 3—
 —
 —
 —
 —
 —
Ending balance$5,872,407
 $(5,745,383) $25,324
 $(23,697) $2,014
 $47

A rollforward of the beginning and ending balances of Loans Held for Investment and HMBS-related borrowings, MSRs and Financing liability - MSRs pledged that we measure at fair value on a recurring and non-recurring basis is provided in Note 5 – Reverse Mortgages, Note 7 – Mortgage Servicing and Note 8 — Rights to MSRs, respectively.


 Loans Held for Investment - Reverse Mortgages HMBS-Related Borrowings Loans Held for Inv. - Restricted for Securitiza-
tion Investors		 Financing Liability - Owed to Securiti-
zation Investors		 Loans Held for Sale - Fair Value Mortgage-backed Securities IRLCs
Six Months Ended June 30, 2020
Beginning balance$6,269,596
 $(6,063,434) $23,342
 $(22,002) $—
 $2,075
 $—
Cumulative effect of fair value election47,038
 —
 —
 —
 —
 —
 —
Purchases, issuances, sales and settlements             
Purchases—
 —
 —
 —
 58,510
 —
 —
Issuances568,074
 (590,640) —
 —
 —
 —
 69,504
Deconsolidation of mortgage-backed securitization trusts—
 —
 (10,715) 9,519
   —
 —
Sales—
 —
 —
 —
 (58,550) —
 —
Settlements(370,114) 365,233
 (963) 963
 (426) —
 (62,323)
Transfers (to) from:             
Loans held for sale, at fair value(1,119) —
 —
 —
 —
 —
 —
Other assets(365) —
 —
 —
 —
 —
 —
Receivables, net(286) —
 —
 —
 (270) —
 —
 243,228
 (225,407) (11,678) 10,482
 (736) —
 7,181
Total realized and unrealized gains (losses) included in earnings             
Included in earnings:             
Change in fair value206,168
 (188,775) —
 (144) 1,104
 (349) 159
Calls and other—
 —
 —
 —
 —
 —
 —
 206,168
 (188,775) —
 (144) 1,104
 (349) 159
Transfers in and / or out of Level 3—
 —
 —
 —
 25,582
 —
 10,478
Ending balance$6,718,992
 $(6,477,616) $11,664
 $(11,664) $25,950
 $1,726
 $17,818



 Loans Held for Investment - Reverse Mortgages HMBS-Related Borrowings Loans Held for Inv. - Restricted for Securitiza-
tion Investors		 Financing Liability - Owed to Securiti-
zation Investors		 Mortgage-backed Securities Derivatives
Six Months Ended June 30, 2019
Beginning balance$5,472,199
 $(5,380,448) $26,520
 $(24,815) $1,502
 $678
Purchases, issuances, sales and settlements           
Purchases—
 —
 —
 —
 —
 —
Issuances427,021
 (425,106) —
 —
 —
 —
Sales—
 —
 —
 —
 —
 —
Settlements(232,514) 228,015
 (1,196) 1,118
 —
 —
Transfers (to) from:           
Loans held for sale, at fair value(884) —
 —
 —
 —
 —
Other assets(155) —
 —
 —
 —
 —
Receivables, net(113) —
 —
 —
 —
 —
 193,355
 (197,091) (1,196) 1,118
 —
 —
Total realized and unrealized gains (losses) included in earnings           
Included in earnings:           
Change in fair value206,853
 (167,844) —
 —
 512
 (631)
Calls and other—
 —
 —
 —
 —
 —
 206,853
 (167,844) —
 —
 512
 (631)
Transfers in and / or out of Level 3—
 —
     —
 —
Ending balance$5,872,407
 $(5,745,383) $25,324
 $(23,697) $2,014
 $47

TheDuring the three months ended March 31, 2021, there have been no changes to the methodologies that we use and keyin estimating fair values or classifications under the valuation hierarchy as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020. The significant unobservable assumptions that we make to estimate the fair value of financial instruments and othersignificant assets and liabilities classified as Level 3 and measured at fair value on a recurring or non-recurring basis and those disclosed, but not carried, at fair value are describedprovided below.
Loans Held for Sale
Residential forward and reverse mortgage loans that we intend to sell are carried atThe fair value as a result of a fair value election. Such loans are subject to changes in fair value due to fluctuations in interest rates from the closing date through the date of the sale of the loan into the secondary market. These loans are generally classified within Level 2 of the valuation hierarchy because the primary component of the price is obtained from observable values of mortgage forwards for loans of similar terms and characteristics. We have the ability to access this market, and it is the market into which conventional and government-insured mortgage loans are typically sold.
We purchase certain loanswe purchased from Ginnie Mae guaranteed securitizations in connection with loan modifications, strategic early buyouts (EBO) and loan resolution activity as part of our contractual obligations as the servicer of the loans. On January 1, 2020, we elected to classify any repurchased loans on or after January 1, 2020 as loans held for sale at fair value. Modified and EBO loans purchased before January 1, 2020 are classified as loans held for sale at the lower of cost or fair value. We expect to redeliver (sell) the loans into new Ginnie Mae guaranteed securitizations (in the case of modified loans) or sell the loans to a private investor (in the case of EBO loans). The fair value of these loans wasis estimated using both observable and unobservable inputs, includingpublished forward Ginnie Mae prices or existing sale contracts, at December 31, 2019. At March 31, 2020as well as estimated default, prepayment, and June 30, 2020, as a result of the volatility of capital markets due to the COVID-19 pandemic, loans with adiscount rates. The significant unobservable input in estimating fair value of $26.0 million requiredis the use of significant unobservable inputs, including the assumptions of the embedded MSR, margin and yield, and wereestimated default rate. Accordingly, these repurchased Ginnie Mae loans are classified as Level 3.
Loans repurchased in connection with loan resolution activities are classified as receivables. Because these loans are insured or guaranteed by3 within the FHA or VA, the fair value of these loans represents the net recovery value taking into consideration the insured or guaranteed claim.valuation hierarchy.


When we enter into an agreement to sell a loan or pool of loans to an investor at a set price, we value the loan or loans at the commitment price, unless facts and circumstances exist that could impact deal economics, at which point we use judgment to determine appropriate adjustments to recorded fair value, if any. We determine the fair value of loans for which we have no agreement to sell on the expected future cash flows discounted at a rate commensurate with the risk of the estimated cash flows.
Loans Held for Investment
Loans Held for Investment - Reverse Mortgages
We measure theseReverse mortgage loans held for investment are carried at fair value based onand classified as Level 3 within the expected future cash flows discounted over the expected life of the loans at a rate commensurate with the risk of the estimated cash flows, including all future draw commitments for HECM loans. On January 1, 2019, we made an irrevocable fair value election on all future draw commitments for HECM loans that were purchased or originated on or after January 1, 2019. In connection with our adoption of ASU 2016-13 on January 1, 2020, we made an irrevocable fair value election on all future draw commitments for HECM loans that were purchased or originated before January 1, 2019.valuation hierarchy. Significant unobservable assumptions include expected future drawsvoluntary prepayment speeds, defaults and discount rate. The
15

conditional prepayment speed assumption displayed in the table below is inclusive of voluntary (repayment or payoff) and delinquency ratesinvoluntary (inactive/delinquent status and cumulative loss curves.default) prepayments. The discount rate assumption for these assets is primarily based on an assessment of current market yields on newly originated reverse mortgage loans,loan and tail securitizations, expected duration of the asset and current market interest rates.
Significant valuation assumptionsJune 30,
2020		 December 31,
2019
Life in years   
Range0.6 to 8.4
 2.4 to 7.8
Weighted average6.5
 6.0
Conditional repayment rate   
Range8.2% to 29.3%
 7.8% to 28.3%
Weighted average13.3% 14.6%
Discount rate1.8% 2.8%

Significant unobservable assumptionsMarch 31,
2021		December 31,
2020
Life in years
Range0.9 to 7.90.9 to 8.0
Weighted average5.55.9 
Conditional prepayment rate, including voluntary and involuntary prepayments
Range10.7% to 37.6%10.6% to 28.8%
Weighted average16.5 %15.4 %
Discount rate2.4 %1.9 %
Significant increases or decreases in any of these assumptions in isolation could result in a significantly lower or higher fair value, respectively. The effects of changes in the assumptions used to value the loans held for investment, excluding future draw commitments, are largelypartially offset by the effects of changes in the assumptions used to value the HMBS-related borrowings that are associated with these loans.
Loans Held for Investment – Restricted for securitization investors
We have elected to measure loans held by consolidated mortgage-backed securitization trusts at fair value. The loans are secured by first liens on single family residential properties. Fair value is based on proprietary cash flow modeling processes from a third-party broker/dealer and a third-party valuation expert. Significant assumptions used in the valuation include projected monthly payments, projected prepayments and defaults, property liquidation values and discount rates.
MSRs
We determine the fair value of MSRs primarily using discounted cash flow methodologies. The significant components of the estimated future cash inflows for MSRs include servicing fees, late fees, float earnings and other ancillary fees. Significant cash outflows include the cost of servicing, the cost of financing servicing advances and compensating interest payments.
We engage third-party valuation experts who generally utilize: (a) transactions involving instruments with similar collateral and risk profiles, adjusted as necessary based on specific characteristics of the asset or liability being valued; and/or (b) industry-standard modeling, such as a discounted cash flow model and prepayment model, in arriving at their estimate of fair value. The prices provided by the valuation experts reflect their observations and assumptions related to market activity, incorporating available industry survey results and client feedback, and including risk premiums and liquidity adjustments. While the models and related assumptions used by the valuation experts are proprietary to them, we understand the methodologies and assumptions used to develop the prices based on our ongoing due diligence, which includes regular discussions with the valuation experts. We believe that the procedures executed by the valuation experts, supported by our verification and analytical procedures, provide reasonable assurance that the prices used in our unaudited consolidated financial statements comply with the accounting guidance for fair value measurements and disclosures and reflect the assumptions that a market participant would use.


We evaluate the reasonableness of our third-party experts’ assumptions using historical experience adjusted for prevailing market conditions. Assumptions used in the valuation of MSRs include:
•Mortgage prepayment speeds•Delinquency rates
•Cost of servicing•Interest rate used for computing float earnings
•Discount rate•Compensating interest expense
•Interest rate used for computing the cost of financing servicing advances•Collection rate of other ancillary fees
•Curtailment on advances

MSRs are carried at fair value and classified within Level 3 of the valuation hierarchy. The fair value is determined using the mid-point of the range of prices provided by third-party valuation experts, without adjustment, except in the event we have a potential or completed sale, including transactions where we have executed letters of intent, in which case the fair value of the MSRs is recorded at the estimated sale price. Fair value reflects actual Ocwen sale prices for orderly transactions where available in lieu of independent third-party valuations. Our valuation process includes discussions of bid pricing with the third-party valuation experts and are contemplated along with other market-based transactions in their model validation.
A change in the valuation inputs or assumptions mightmay result in a significantly higher or lower fair value measurement. Changes in market interest rates predominantly impact the fair value for Agency MSRs via prepayment speeds by altering the borrower refinance incentive and the non-Agency MSRs due to the impact on advance costs. Other keyThe significant unobservable assumptions used in the valuation of these MSRs include prepayment speeds, delinquency rates, cost to service and discount rates.
Significant valuation assumptionsJune 30, 2020 December 31, 2019
Agency Non-Agency Agency Non-Agency
Weighted average prepayment speed15.7% 11.8% 11.7% 12.2%
Weighted average delinquency rate5.1% 28.1% 3.2% 27.3%
Advance financing cost5-year swap
 5-yr swap plus 2.00%
 5-year swap
 5-yr swap plus 2.00%
Interest rate for computing float earnings5-year swap
 5-yr swap minus 0.50%
 5-year swap
 5-yr swap minus 0.50%
Weighted average discount rate9.5% 11.4% 9.3% 11.3%
Weighted average cost to service (in dollars)$100
 $273
 $85
 $277

Significant unobservable assumptionsMarch 31, 2021December 31, 2020
AgencyNon-AgencyAgencyNon-Agency
Weighted average prepayment speed10.0 %11.4 %11.8 %11.5 %
Weighted average lifetime delinquency rate2.6 %27.8 %3.0 %28.0 %
Weighted average discount rate9.2 %11.5 %9.2 %11.4 %
Weighted average cost to service (in dollars)$76 $270 $79 $270 
Because the mortgages underlying these MSRs permit the borrowers to prepay the loans, the value of the MSRs generally tends to diminish in periods of declining interest rates, an improving housing market or expanded product availability (as prepayments increase) and increase in periods of rising interest rates, a deteriorating housing market or reduced product availability (as prepayments decrease). The following table summarizes the estimated change in the value of the MSRs as of June 30, 2020March 31, 2021 given hypothetical shifts in lifetime prepayments and yield assumptions:
Adverse change in fair value10% 20%
Weighted average prepayment speeds$(86,826) $(165,611)
Weighted average discount rate(33,066) (64,206)

Adverse change in fair value10%20%
Weighted average prepayment speeds$(42,029)$(82,863)
Weighted average discount rate(30,387)(58,785)
The sensitivity analysis measures the potential impact on fair values based on hypothetical changes, which in the case of our portfolio at June 30, 2020March 31, 2021 are increased prepayment speeds and an increase in the yield assumption.
Advances
We value advances at their net realizable value, which generally approximates fair value. Servicing advances have no stated maturity and do not bear interest. Principal and interest advances are generally realized within a relatively short period of time. The timing of recovery of taxes, insurance and other corporate advances depends on the underlying loan attributes, performance, and in many cases, foreclosure or liquidation timeline. The fair value adjustment to servicing advances associated with the estimated time to recover such advances is separately measured and reported as a component of the fair value of the associated MSR, consistent with actual market transactions. Refer to MSRs above for a description of the valuation methodology and assumptions related to the cost of financing servicing advances and discount rate, among other factors.

16

Receivables
The carrying value of receivables generally approximates fair value because of the relatively short period of time between their origination and realization.
Mortgage-Backed Securities (MBS)
Our subordinate and residual securities are not actively traded, and therefore, we estimate the fair value of these securities using a process based upon the use of an independent third-party valuation expert. Where possible, we consider observable trading activity in the valuation of our securities. Key inputs include expected prepayment rates, delinquency and cumulative loss curves and discount rates commensurate with the risks. Where possible, we use observable inputs in the valuation of our securities. However, the subordinate and residual securities in which we have invested trade infrequently and therefore have few or no observable inputs and little price transparency. Additionally, during periods of market dislocation, the observability of inputs is further reduced. We classify subordinate and residual securities as trading securities and account for them at fair value on a recurring basis. Changes in the fair value of our investment in subordinate and residual securities are recognized in Other, net in the unaudited consolidated statements of operations.
Advance Match Funded Liabilities
For advance match funded liabilities that bear interest at a rate that is adjusted regularly based on a market index, the carrying value approximates fair value. For advance match funded liabilities that bear interest at a fixed rate, we determine fair value by discounting the future principal and interest repayments at a market rate commensurate with the risk of the estimated cash flows. We assume the notes are refinanced at the end of their revolving periods, consistent with how we manage our advance facilities.
Financing Liabilities
HMBS-Related Borrowings
We have elected to measure theseHMBS-related borrowings are carried at fair value.value and classified as Level 3 within the valuation hierarchy. These borrowings are not actively traded, and therefore, quoted market prices are not available. We determine fair value by discounting the projected recovery of principal, interest and advances over the estimated life of the borrowing at a market rate commensurate with the risk of the estimated cash flows.
Significant unobservable assumptions include prepayments,yield spread and discount raterate. The yield spread and borrower mortality rates. The discount rate assumption for these liabilities isare primarily based on an assessment of current market yields for newly issued HMBS, expected duration and current market interest rates.
Significant valuation assumptionsJune 30,
2020		 December 31,
2019
Life in years   
Range0.6 to 8.4
 2.4 to 7.8
Weighted average6.5
 6.0
Conditional repayment rate   
Range8.2% to 29.3%
 7.8% to 28.3%
Weighted average13.3% 14.6%
Discount rate1.7% 2.7%

Significant unobservable assumptionsMarch 31,
2021		December 31,
2020
Life in years
Range0.9 to 8.00.9 to 8.0
Weighted average5.95.9 
Conditional prepayment rate
Range10.7% to 37.6%10.6% to 28.8%
Weighted average16.5 %15.4 %
Discount rate2.3 %1.7 %
Significant increases or decreases in any of these assumptions in isolation would have resultedcould result in a significantly higher or lower fair value.value, respectively. The effects of changes in the assumptions used to value the HMBS-related borrowings are partially offset by the effects of changes in the assumptions used to value the associated pledged loans held for investment, excluding future draw commitments.
MSRs Pledged (Rights to MSRs)
We have elected to measure and record these borrowingsThese liabilities carried at fair value. We recognizevalue and classified as Level 3 within the proceeds received in connection with Rights to MSRs transactions as a secured borrowing that we account for at fair value.valuation hierarchy. We determine the fair value of the pledged MSR liability following a similar approach as for the associated pledged MSRs. 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.


Significant valuation assumptionsJune 30,
2020		 December 31,
2019
Weighted average prepayment speed11.9% 11.9%
Weighted average delinquency rate29.7% 20.3%
Advance financing cost5-year swap plus 0% to 2.00%
 5-year swap plus 0% to 2.00%
Interest rate for computing float earnings5-year swap minus 0% to 0.50%
 5-year swap minus 0% to 0.50%
Weighted average discount rate11.5% 10.7%
Weighted average cost to service (in dollars)$288
 $223

Significant unobservable assumptionsMarch 31,
2021		December 31,
2020
Weighted average prepayment speed11.4 %11.5 %
Weighted average delinquency rate29.5 %29.8 %
Weighted average discount rate11.5 %11.4 %
Weighted average cost to service (in dollars)$286 $287 
Significant increases or decreases in these assumptions in isolation would have resultedresult in a significantly higher or lower fair value.
Financing Liability – Owed to Securitization Investors
Consists of securitization debt certificates due to third parties that represent beneficial ownership interests in mortgage-backed securitization trusts that we include in our consolidated financial statements. We determine fair value using the measurement alternative to ASC Topic 820, Fair Value Measurement as disclosed in Note 3 – Securitizations and Variable Interest Entities. In accordance with the measurement alternative, the fair value of the consolidated securitization debt certificates is measured as the fair value of the loans held by the trust less the fair value of the beneficial interests held by us in the form of residual securities.
Other Secured Borrowings
The carrying value of secured borrowings that bear interest at a rate that is adjusted regularly based on a market index approximates fair value. For other secured borrowings that bear interest at a fixed rate, we determine fair value by discounting the future principal and interest repayments at a market rate commensurate with the risk of the estimated cash flows. For the SSTL, we base the fair value on valuation data obtained from a pricing service.
Secured Notes
In 2014, we issued Ocwen Asset Servicing Income Series (OASIS), Series 2014-1 Notes secured by Ocwen-owned MSRs relating to Freddie Mac mortgages. In 2019, we issued Ocwen Excess Spread-Collateralized Notes, Series 2019-PLS1 notes secured by certain of PMC’s private label MSRs. We determine the fair value of these notes based on bid prices provided by third parties involved in the issuance and placement of the notes.
Senior Notes
We base the fair value on quoted prices in a market with limited trading activity, or on valuation data obtained from a pricing service in the absence of trading data.
Derivative Financial Instruments
Interest rate lock commitments (IRLCs) represent an agreement to purchase loans from a third-party originator or an agreement to extend credit to a mortgage applicant (locked pipeline), whereby the interest rate is set prior to funding. As of December 31, 2019, IRLCs were classified within Level 2 of the valuation hierarchy as the primary component of the price was obtained from observable values of mortgage forwards for loans of similar terms and characteristics. Fair value amounts of IRLCs are adjusted for expected “fallout” (locked pipeline loans not expected to close) using models that consider cumulative historical fallout rates and other factors. As of June 30, 2020, IRLCs are classified as Level 3 assets as historical fallout rates requiredwere determined to be significant unobservable adjustments to account for the COVID-19 uncertainties.assumptions.
We use derivative instruments, including forward trades of MBS or Agency TBAs and exchange-traded interest rate swap futures, as economic hedging instruments. TBAs and interest rate swap futures are actively traded in the market and we obtain unadjusted market quotes for these derivatives; thus, they are classified within Level 1 of the valuation hierarchy.
17
In addition, we may use interest rate caps to minimize future interest rate exposure on variable rate debt issued on servicing advance financing facilities from increases in one-month or three-month Eurodollar rate (1ML or 3ML, respectively) interest rates. The fair value for interest rate caps is based on counterparty market prices and adjusted for counterparty credit risk.

Note 54 – Loans Held for Sale
Loans Held for Sale - Fair ValueThree Months Ended March 31,
20212020
Beginning balance$366,364 $208,752 
Originations and purchases3,333,901 831,474 
Proceeds from sales(3,169,015)(805,202)
Principal collections(5,418)(6,833)
Transfers from (to):
Loans held for investment, at fair value901 578 
Receivables, net(8,633)(31,302)
REO (Other assets)(2,052)(768)
Gain (loss) on sale of loans(13,732)6,418 
Decrease in fair value of loans(5,256)(1,642)
Other3,754 2,117 
Ending balance (1)
$500,814 $203,592 
(1)At March 31, 2021 and 2020, the balances include $(12.0) million and $(9.4) million, respectively, of fair value adjustments.

Loans Held for Sale - Lower of Cost or Fair ValueThree Months Ended March 31,
20212020
Beginning balance - before Valuation Allowance$27,652 $73,160 
Purchases98 0 
Proceeds from sales(4,840)(30,492)
Principal collections(214)(651)
Transfers from (to):
Receivables, net0 266 
Gain on sale of loans389 1,842 
Other(614)5,079 
Ending balance - before Valuation Allowance22,471 49,204 
Beginning balance - Valuation Allowance$(6,180)$(6,643)
Provision703 (570)
Transfer to (from) Liability for indemnification obligations (Other liabilities)15 (25)
Sales of loans0 457 
Ending balance - Valuation Allowance(5,462)(6,781)
Ending balance, net$17,009 $42,423 
Loans Held for Sale - Fair ValueSix Months Ended June 30,
2020 2019
Beginning balance$208,752
 $176,525
Originations and purchases (1)1,949,022
 370,207
Proceeds from sales(1,872,776) (405,999)
Principal collections(15,758) (11,046)
Transfers from (to):   
Loans held for investment, at fair value1,119
 884
Loans held for sale - Lower of cost or fair value—
 (2,866)
Receivables, net(48,226) (746)
REO (Other assets)(841) (866)
Gain on sale of loans28,253
 18,148
Decrease in fair value of loans(2,295) (292)
Other5,787
 (8,258)
Ending balance (1) (2) (3)$253,037
 $135,691
18

Gain on Loans Held for Sale, NetThree Months Ended March 31,
20212020
Gain on sales of loans, net
MSRs retained on transfers of forward mortgage loans$34,260 $6,561 
Gain (loss) on sale of forward mortgage loans(18,567)6,418 
Gain on sale of repurchased Ginnie Mae loans4,900 1,842 
 20,593 14,821 
Change in fair value of IRLCs(8,618)5,714 
Change in fair value of loans held for sale(4,981)159 
Gain (loss) on economic hedge instruments (1)0 (7,192)
Other(1,273)(171)
$5,721 $13,331 
(1)Excludes $35.4 million gain on inter-segment economic hedge derivative presented within MSR valuation adjustments, net for the three months ended March 31, 2021. Third-party derivatives are hedging the net exposure of MSR and pipeline, and the change in fair value of derivatives are reported within MSR valuation adjustments, net. Inter-segment derivatives are established to transfer risk and allocate hedging gains/losses to the pipeline separately from the MSR portfolio. Refer to Note 18 – Business Segment Reporting.
Note 5 – Reverse Mortgages
Three Months Ended March 31,
20212020
Loans Held for Investment - Reverse MortgagesHMBS - Related BorrowingsLoans Held for Investment - Reverse MortgagesHMBS - Related Borrowings
Beginning balance$6,997,127 $(6,772,711)$6,269,596 $(6,063,434)
Cumulative effect of fair value election (1)— — 47,038 — 
Originations326,735 — 294,932 — 
Securitization of HECM loans accounted for as a financing— (287,830)— (312,249)
Additional proceeds from securitization of HECM loans and tails— (12,565)— (8,414)
Repayments (principal payments received)(314,153)311,562 (175,095)172,429 
Transfers to:
Loans held for sale, at fair value(901)— (578)— 
Receivables, net(116)— (129)— 
Other assets(111)— (265)— 
Change in fair value included in earnings35,793 (16,651)133,322 (111,423)
Ending Balance$7,044,374 $(6,778,195)$6,568,821 $(6,323,091)
Securitized loans (pledged to HMBS-Related Borrowings)$6,874,880 $(6,778,195)$6,438,810 $(6,323,091)
Unsecuritized loans169,494 130,011 
Total$7,044,374 $6,568,821 
(1)We elected the fair value option for all newly repurchased loans after December 31, 2019, consistent with our fair value election of originated loans.
(2)At June 30, 2020 and 2019, the balances include $(10.1) million and $(7.5) million, respectively, of fair value adjustments.
(3)At June 30, 2020 and 2019, the balances include $26.0 million and 0, respectively, of loans that we repurchased from Ginnie Mae guaranteed securitizations pursuant to Ginnie Mae servicing guidelines. We may repurchase loans that have been modified, to facilitate loss reduction strategies, or as otherwise obligated as a Ginnie Mae servicer. Repurchased loans may be modified or otherwise remediated through loss mitigation activities, may be sold to a third party, or are reclassified to Receivables.
Loans Held for Sale - Lower of Cost or Fair ValueSix Months Ended June 30,
2020 2019
Beginning balance$66,517
 $66,097
Purchases—
 131,489
Proceeds from sales(46,865) (92,478)
Principal collections(805) (4,183)
Transfers from (to):   
Receivables, net61
 (53,657)
REO (Other assets)—
 (2,287)
Loans held for sale - Fair value—
 2,866
Gain on sale of loans1,615
 1,815
Decrease in valuation allowance243
 1,512
Other4,714
 9,206
Ending balance (1)$25,480
 $60,380
(1)At June 30, 2020 and 2019, the balances include $15.4 million and $34.9 million, respectively, of loans that we repurchased from Ginnie Mae guaranteed securitizations pursuant to Ginnie Mae servicing guidelines. Loans repurchased after December 31, 2019 are classified as Loans Held for Sale - Fair Value since we elected the fair value option, consistent with our fair value election for originated or purchased loans.


(1)In conjunction with the adoption of ASU 2016-13, we elected the fair value option for future draw commitments (tails) on HECM reverse mortgage loans purchased or originated before December 31, 2018, which resulted in the recognition of the fair value of such tails through stockholders’ equity on January 1, 2020.
Valuation Allowance - Loans Held for Sale at Lower of Cost or Fair ValueThree Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Beginning balance$6,781
 $10,863
 $6,643
 $11,569
Provision559
 394
 1,129
 1,036
Transfer from Liability for indemnification obligations (Other liabilities)50
 7
 75
 74
Sales of loans(990) (1,207) (1,447) (2,622)
Ending balance$6,400
 $10,057
 $6,400
 $10,057


Gain on Loans Held for Sale, NetThree Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Gain on sales of loans, net       
MSRs retained on transfers of forward mortgage loans$9,128
 $816
 $15,689
 $1,644
Gain on sale of repurchased Ginnie Mae loans4,531
 1,252
 6,373
 1,790
Gain on sale of forward mortgage loans16,886
 6,762
 23,304
 17,206
 30,545
 8,830
 45,366
 20,640
Change in fair value of IRLCs6,334
 45
 12,048
 (296)
Change in fair value of loans held for sale147
 468
 306
 326
Loss on economic hedge instruments(3,128) (968) (10,320) (3,238)
Other(351) (57) (522) (132)
 $33,547
 $8,318
 $46,878
 $17,300
19

Reverse Mortgage Revenue, netThree Months Ended March 31,
20212020
Gain on new originations (1)$17,107 $16,784 
Change in fair value of securitized loans held for investment and HMBS-related borrowings, net2,035 5,115 
Change in fair value included in earnings, net19,142 21,899 
Loan fees and other2,684 898 
$21,826 $22,797 
(1)Includes the changes in fair value of newly originated loans held for investment in the period through securitization date.
Note 6 – Advances
 June 30, 2020 December 31, 2019
Principal and interest$336,783
 $414,846
Taxes and insurance356,092
 422,383
Foreclosures, bankruptcy, REO and other215,954
 229,219
 908,829
 1,066,448
Allowance for losses(7,820) (9,925)
Advances, net$901,009
 $1,056,523

 March 31, 2021December 31, 2020
Principal and interest$258,428 $277,132 
Taxes and insurance348,659 364,593 
Foreclosures, bankruptcy, REO and other185,750 192,787 
 792,837 834,512 
Allowance for losses(6,159)(6,273)
Advances, net$786,678 $828,239 
The following table summarizes the activity in net advances:
Three Months Ended March 31,
 20212020
Beginning balance$828,239 $1,056,523 
New advances203,400 243,545 
Sales of advances(133)(228)
Collections of advances and other(244,942)(277,585)
Net decrease in allowance for losses114 2,552 
Ending balance$786,678 $1,024,807 
 Six Months Ended June 30,
 2020 2019
Beginning balance$1,056,523
 $1,186,676
Asset acquisitions—
 688
New advances469,028
 254,000
Sales of advances(454) (707)
Collections of advances and other(626,193) (331,764)
Net decrease (increase) in allowance for losses (1)2,105
 (4,394)
Ending balance$901,009
 $1,104,499
Allowance for LossesThree Months Ended March 31,
20212020
Beginning balance$6,273 $9,925 
Provision1,502 (761)
Net charge-offs and other(1,616)(1,791)
Ending balance$6,159 $7,373 
20

(1)As disclosed in Note 1, there was no significant adjustment as of January 1, 2020 as a result of the adoption of ASU 2016-13. Servicing advances are generally expected to be fully reimbursed under the terms of the servicing agreements. The estimate for the allowance for


losses is based on relevant qualitative and quantitative information about past events, including historical collection and loss experience, current conditions, and reasonable and supportable forecasts that affect collectability. The allowance for losses includes an estimate for claimable (with investors) but nonrecoverable expenses, for example due to servicer error, such as lack of reasonable documentation as to the type and amount of advances.
Allowance for LossesThree Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
Beginning balance$7,373
 $23,135
 $9,925
 $23,259
Provision4,532
 2,041
 3,771
 3,803
Net charge-offs and other(4,085) 2,477
 (5,876) 591
Ending balance (1)$7,820
 $27,653
 $7,820
 $27,653
(1)$18.0 million allowance related to sold advances was reclassified in the third quarter of 2019 and presented as Other liabilities (Liability for indemnification obligations).
Note 7 – Mortgage Servicing


During each period, we remeasure our MSR at fair value, which contemplates the receipt or nonreceipt of the servicing income for that period. The servicing income, including expectations of future servicing cash flows, are inputs for the measurement of the MSR fair value. The net result on the statement of operations is that we record the contractual cash received in each period as revenue within Servicing and subservicing fees, partially offset by the remeasurement of the MSR fair value within MSR valuation adjustments, net.
MSRs – Fair Value Measurement MethodThree Months Ended June 30,
2020 2019
 Agency Non-Agency Total Agency Non-Agency Total
Beginning balance$294,227
 $756,001
 $1,050,228
 $825,692
 $574,499
 $1,400,191
Sales and other transfers—
 (51) (51) 406
 (409) (3)
Additions:           
Recognized on the sale of residential mortgage loans9,128
 —
 9,128
 1,188
 —
 1,188
Purchase of MSRs15,255
 —
 15,255
 59,892
 87
 59,979
Servicing transfers and adjustments (1)11
 1,296
 1,307
 —
 (1,454) (1,454)
Changes in fair value (2):           
Changes in valuation inputs or other assumptions3,711
 (3,462) 249
 (107,559) 12,739
 (94,820)
Realization of expected future cash flows and other changes(17,247) (13,955) (31,202) (33,884) (18,564) (52,448)
Ending balance$305,085
 $739,829
 $1,044,914
 $745,735
 $566,898
 $1,312,633
            
MSRs – Fair Value Measurement MethodSix months ended June 30,
2020 2019
 Agency Non-Agency Total Agency Non-Agency Total
Beginning balance$714,006
 $772,389
 $1,486,395
 $865,587
 $591,562
 $1,457,149
Sales and other transfers—
 (107) (107) (29) (541) (570)
Additions:    
     
Recognized on the sale of residential mortgage loans15,689
 —
 15,689
 2,698
 —
 2,698
Purchase of MSRs46,745
 —
 46,745
 114,302
 87
 114,389
Servicing transfers and adjustments (1)(263,846) 403
 (263,443) —
 (4,767) (4,767)
Changes in fair value (2):    
     
Changes in valuation inputs or other assumptions(163,425) 6,930
 (156,495) (171,676) 12,583
 (159,093)
Realization of expected future cash flows and other changes(44,084) (39,786) (83,870) (65,147) (32,026) (97,173)
Ending balance$305,085
 $739,829
 $1,044,914
 $745,735
 $566,898
 $1,312,633
MSRs – Fair Value Measurement MethodThree Months Ended March 31,
20212020
AgencyNon-AgencyTotalAgencyNon-AgencyTotal
Beginning balance$578,957 $715,860 $1,294,817 $714,006 $772,389 $1,486,395 
Sales and other transfers0 0 0 0 (56)(56)
Additions:
Recognized on the sale of residential mortgage loans34,260 0 34,260 5,930 0 5,930 
Purchase of MSRs36,778 0 36,778 31,490 0 31,490 
Servicing transfers and adjustments (1)29 (557)(528)(263,630)(893)(264,523)
Changes in fair value:
Changes in valuation inputs or assumptions (2)82,486 1,529 84,015 (166,532)5,871 (160,661)
Realization of expected cash flows (2)(23,847)(25,278)(49,125)(27,037)(21,310)(48,347)
Ending balance$708,663 $691,554 $1,400,217 $294,227 $756,001 $1,050,228 
(1)
Servicing transfers and adjustments include a $263.7 million derecognition of MSRs/Rights to MSRs effective with the February 20, 2020 notice of termination of the subservicing agreement between NRZ and PMC. See Note 8 — Rights to MSRs for further information.
(2)Changes in fair value are recognized in MSR valuation adjustments, net in the unaudited consolidated statements of operations.

Portfolio(1)Servicing transfers and adjustments include a $263.7 million derecognition of Assets ServicedMSRs effective with the February 20, 2020 notice of termination of the subservicing agreement between NRZ and PMC. See Note 8 — Rights to MSRs for further information.
The following table presents(2)Effective January 1, 2021, changes in fair value due to actual vs. model variances are presented as Changes in valuation inputs or assumptions. Activity for the composition of our primary servicing and subservicing portfolios as measured by UPB. The UPB amountsthree months ended March 31,2020 in the table below areabove has been recast to conform to current year disclosure, resulting in a $4.5 million loss reclassified from Realization of expected cash flows to Changes in valuation inputs or assumptions.
MSR UPB
March 31, 2021December 31, 2020March 31, 2020
Owned MSRs91,284,985 $90,174,495 $70,741,200 
NRZ pledged MSRs (1)61,841,181 64,061,198 70,914,910 
Total MSR UPB$153,126,166 $154,235,693 $141,656,110 
(1)MSRs subject to sale agreements with NRZ that do not included on our unaudited consolidated balance sheets, with the exception of the Reverse mortgage loans.
 UPB at
 June 30, 2020 December 31, 2019 June 30, 2019
Servicing$70,463,896
 $70,428,208
 $74,320,255
Reverse mortgage loan servicing (1)6,521,219
 6,229,724
 5,820,873
Subservicing20,007,180
 17,120,905
 27,432,019
NRZ (2) (3)109,020,760
 118,587,594
 121,709,898
 $206,013,055
 $212,366,431
 $229,283,045

meet sale accounting criteria. See Note 8 — Rights to MSRs.
(1)Reverse mortgage loans are reported on our unaudited consolidated balance sheets at fair value and are classified as loans held for investment. No separate MSRs are recognized in our unaudited consolidated balance sheets.
(2)UPB of loans for which the Rights to MSRs have been sold to NRZ, including $54.0 billion for which third-party consents have been received and the MSRs have been transferred to NRZ (the MSRs remain on balance sheet as the transactions do not achieve sale accounting treatment).
(3)
Includes $37.1 billion of servicing UPB at June 30, 2020 pursuant to the subservicing agreement between NRZ and PMC for which we received a notice of termination from NRZ on February 20, 2020. While the MSRs and the Rights to MSRs associated with these loans are derecognized from our consolidated balance sheet, we continue to service these loans until deboarding. See Note 8 — Rights to MSRs.
We acquiredpurchased MSRs with a UPB of $5.7$6.0 billion and $10.8$2.9 billion during the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively. We sold MSRs with a UPB of $41.7$7.2 million and $100.1$17.6 million during the sixthree months ended June 30,March 31, 2021 and 2020, and 2019, respectively.
A significant portion ofrespectively, mostly to Freddie Mac under the servicing agreementsVoluntary Partial Cancellation (VPC) program for our non-Agency servicing portfolio contain provisions where we could be terminated as servicer without compensation upon the failure of the serviced loans to meet certain portfolio delinquency or cumulative loss thresholds. We have not had any terminations as servicer as a result of a breach of any of these provisions in 2020 and 2019.delinquent loans.
At June 30, 2020,March 31, 2021, the S&P Global Ratings, Inc.’s (S&P’s) servicer ratings outlook for PMC is stable. On March 24, 2020, Fitch Ratings, Inc. (Fitch) placed all U.S Residential Mortgage Backed Securities (RMBS) servicer ratings on Outlook Negative, resulting from a rapidly evolving economic and operating environment due to the sudden impact of the COVID-19 virus. Downgrades inOn April 28, 2021, Fitch affirmed PMC’s servicer ratings could adversely affect our abilityand revised its outlook from Negative to service loans, sell or financeStable as PMC’s performance in this evolving environment has not raised any elevated concerns. According to Fitch, the affirmation and stable outlook reflected PMC’s diligent response to the coronavirus pandemic and its impact on servicing advancesoperations, effective enterprise-wide risk environment and could impair our ability to consummate futurecompliance management framework, satisfactory loan servicing transactions or adversely affect our dealings with lenders, other contractual counterparties,performance metrics, special servicing expertise, and regulators, including our ability to maintain our status as an approved servicer by Fannie Mae and Freddie Mac.efficient servicing technology. The servicer rating requirementsratings also consider the financial condition of Fannie Mae do not necessarily require or imply immediate action, as Fannie Mae has discretion with respect to whether we are in compliance with their requirements and what actions it deems appropriate under the circumstances in the event that we fall below their desired servicer ratings.
Certain of our servicing agreements require that we maintain specified servicer ratings from rating agencies such as Moody’s and S&P. As a result of our current servicer ratings, termination rights have been triggered in some non-Agency servicing agreements. To date, terminations as servicer as a result of a breach of any of these provisions have been minimal.

PMC’s parent, OFC.
Servicing RevenueThree Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Loan servicing and subservicing fees       
Servicing$52,336
 $55,387
 $107,745
 $108,569
Subservicing10,630
 4,203
 15,820
 10,410
NRZ88,405
 141,091
 208,073
 296,938
 151,371
 200,681
 331,638
 415,917
Late charges12,672
 13,242
 27,311
 28,682
Custodial accounts (float earnings)1,590
 13,341
 7,731
 25,275
Loan collection fees2,744
 3,401
 7,000
 7,750
Home Affordable Modification Program (HAMP) fees (1)20
 1,565
 428
 3,342
Other, net6,843
 7,730
 12,615
 15,610
 $175,240
 $239,960
 $386,723
 $496,576
21

(1)The HAMP expired on December 31, 2016. Borrowers who had requested assistance or to whom an offer of assistance had been extended as of that date had until September 30, 2017 to finalize their modification. We continue to earn HAMP success fees for HAMP modifications that remain less than 90 days delinquent at the first-, second- and third-year anniversary of the start of the trial modification.
Servicing RevenueThree Months Ended March 31,
20212020
Loan servicing and subservicing fees
Servicing$63,892 $55,408 
Subservicing3,487 5,190 
NRZ80,385 119,669 
147,764 180,267 
Ancillary income
Late charges9,231 14,639 
Custodial accounts (float earnings)1,008 6,141 
Loan collection fees2,949 4,256 
Recording fees3,651 2,558 
Other, net7,135 3,622 
23,974 31,216 
 $171,738 $211,483 
Float balances (balances in custodial accounts, which represent collections of principal and interest that we receive from borrowers) are held in escrow by unaffiliated banks and are excluded from our unaudited consolidated balance sheets. Float balances amounted to $1.9$2.4 billion, $1.7 billion and $2.0$1.9 billion at June 30, 2020,March 31, 2021, December 31, 20192020 and June 30, 2019,March 31, 2020, respectively.
Note 8 — Rights to MSRs

Ocwen and PMC have entered into agreements to sell MSRs or Rights to MSRs and the related servicing advances to NRZ, and in all cases have been retained by NRZ as subservicer. In the case of Ocwen Rights to MSRs transactions, while the majority of the risks and rewards of ownership were transferred in 2012 and 2013, legal title was retained by Ocwen, causing the Rights to MSRs transactions to be accounted for as secured financings. In the case of the PMC transactions, and for those Ocwen MSRs where consents were subsequently received and legal title was transferred to NRZ, due to the length of the non-cancellable term of the subservicing agreements, the transactions did not initially qualify for sale accounting treatment which resulted in such transactions being accounted for as secured financings. Until such time as the transaction qualifies as a sale for accounting purposes, we continue to recognize the MSRs and related financing liability on our consolidated balance sheets, as well as the full amount of servicing revenue and changes in the fair value of the MSRs and related financing liability in our unaudited consolidated statements of operations. Changes in fair value of the Rights to MSRs are recognized in MSR valuation adjustments, net in the unaudited consolidated statements of operations. Changes in fair value of the MSR related financing liability are reported in Pledged MSR liability expense.


The following tables present selected assets and liabilities recorded on our unaudited consolidated balance sheets as well as the impacts to our unaudited consolidated statements of operations in connection with our NRZ agreements.
Balance SheetsMarch 31, 2021December 31, 2020
MSRs, at fair value$550,364 $566,952 
Due from NRZ (Receivables): Advance funding, subservicing fees and reimbursable expenses11,653 4,611 
Due to NRZ (Other liabilities)$94,535 $94,691 
Financing liability - MSRs pledged, at fair value: Original Rights to MSRs Agreements550,364 566,952 



22

Balance SheetsJune 30, 2020 December 31, 2019
MSRs, at fair value (1)$582,558
 $915,148
    
Due from NRZ (Receivables)   
Sales and transfers of MSRs (2)$—
 $24,167
Subservicing fees and reimbursable expenses1,160
 9,197
 $1,160
 $33,364
    
Due to NRZ (Other liabilities)$106,295
 $63,596
    
Financing liability - MSRs pledged, at fair value   
Original Rights to MSRs Agreements$582,558
 $603,046
2017 Agreements and New RMSR Agreements (3)—
 35,445
PMC MSR Agreements (1)—
 312,102
 $582,558
 $950,593
Three Months Ended March 31,
20212020
Statements of Operations
Servicing fees collected on behalf of NRZ$80,385 $119,669 
Less: Subservicing fee retained by Ocwen23,991 29,331 
Net servicing fees remitted to NRZ56,394 90,338 
Less: Reduction (increase) in financing liability
Changes in fair value:
Original Rights to MSRs Agreements (1)(1,551)(7,068)
2017 Agreements and New RMSR Agreements0 (903)
PMC MSR Agreements0 40,720 
(1,551)32,749 
Runoff and settlement:
Original Rights to MSRs Agreements (1)17,616 15,741 
2017 Agreements and New RMSR Agreements0 25,142 
PMC MSR Agreements0 7,492 
17,616 48,375 
Other2,479 2,620 
Pledged MSR liability expense$37,850 $6,594 
(1) Effective January 1, 2021, changes in fair value due to actual vs. model variances are presented as Changes in valuation inputs or assumptions. Activity for the three months ended March 31,2020 in the table above has been recast to conform to current year disclosure, resulting in a $2.0 million gain reclassified from Runoff and settlement to Changes in fair value.

23

Three Months Ended
March 31, 2021March 31, 2020
Financing Liability - MSRs PledgedOriginal Rights to MSRs AgreementsOriginal Rights to MSRs Agreements2017 Agreements and New RMSR AgreementsPMC MSR AgreementsTotal
Beginning Balance$566,952 $603,046 $35,445 $312,102 $950,593 
Sales— — — (226)(226)
Changes in fair value:
Original Rights to MSRs Agreements (2)1,551 7,068 — — 7,068 
2017 Agreements and New RMSR Agreements— — 903 — 903 
PMC MSR Agreements— — — (40,720)(40,720)
Runoff and settlement:
Original Rights to MSRs Agreements (2)(17,616)(15,741)— — (15,741)
2017 Agreements and New RMSR Agreements— — (25,142)— (25,142)
PMC MSR Agreements— — — (7,492)(7,492)
Derecognition of Pledged MSR financing liability due to termination of PMC MSR Agreements— — — (263,664)(263,664)
Calls (1):
Original Rights to MSRs Agreements(523)(2,668)— — (2,668)
2017 Agreements and New RMSR Agreements— — (1,227)— (1,227)
Ending Balance$550,364 $591,705 $9,979 $0 $601,684 
(1)Represents the carrying value of MSRs in connection with call rights exercised by NRZ, for MSRs transferred to NRZ under the 2017 Agreements and New RMSR Agreements, or by Ocwen at NRZ’s direction, for MSRs underlying the Original Rights to MSRs Agreements. Ocwen derecognizes the MSRs and the related financing liability upon collapse of the securitization.
(2)Effective January 1, 2021, changes in fair value due to actual vs. model variances are presented as Changes in valuation inputs or assumptions. Activity for the three months ended March 31,2020 in the table above has been recast to conform to current year disclosure, resulting in a $2.0 million gain reclassified from Runoff and settlement to Changes in fair value.

As of March 31, 2021, the UPB of loans serviced on behalf of NRZ comprised the following:
Ocwen servicer of record (MSR title retained by Ocwen) - Ocwen MSR (1) (2)On February 20, 2020, we received a notice of termination from NRZ with respect to the PMC MSR Agreements. While the MSRs and the Rights to MSRs associated with these loans are derecognized from our balance sheet at June 30, 2020, we continue to service these loans until deboarding, and account for them as a subservicing relationship.$
13,673,665 
(2)NRZ servicer of record (MSR title transferred to NRZ) - Ocwen MSR (1)Balance represents the holdback of proceeds from PMC MSR sales and transfers to address indemnification claims and mortgage loan document deficiencies. These sales were executed by PMC prior to Ocwen’s acquisition of PHH.
48,153,327 
(3)Ocwen subservicerIncome was recognized through April 30, 2020 as a reduction in the financing liability based on the term of the original agreements.
 Three Months Ended June 30, Six Months Ended June 30,
 2020 2019 2020 2019
Statements of Operations       
Servicing fees collected on behalf of NRZ (1)$88,405
 $141,091
 $208,073
 $296,938
Less: Subservicing fee retained by Ocwen (1)25,523
 35,905
 54,855
 73,312
Net servicing fees remitted to NRZ62,882
 105,186
 153,218
 223,626
        
Less: Reduction (increase) in financing liability       
Changes in fair value:       
Original Rights to MSRs Agreements1,019
 (1,671) (8,101) (1,550)
2017 Agreements and New RMSR Agreements—
 4,634
 (903) (2,346)
PMC MSR Agreements (1)—
 47,782
 40,720
 80,878
 1,019
 50,745
 31,716
 76,982
Runoff and settlement:       
Original Rights to MSRs Agreements8,128
 11,412
 25,921
 20,447
2017 Agreements and New RMSR Agreements9,979
 26,062
 35,121
 49,382
PMC MSR Agreements (1)—
 15,814
 7,492
 33,588
 18,107
 53,288
 68,534
 103,417
        
Other2,070
 (1,777) 4,688
 (3,659)
        
Pledged MSR liability expense$41,686
 $2,930
 $48,280
 $46,886

2,505,208 
(1)Total NRZ UPBOn February 20, 2020, we received a notice of termination from NRZ with respect to the PMC MSR Agreements. As the MSRs and the Rights to MSRs associated with these loans were derecognized from our consolidated balance sheet on February 20, 2020, we do not$


report the associated servicing fees collected on behalf of, and remitted to NRZ, or the change in fair value, runoff and settlement of the financing liability subsequent to February 20, 2020.
 Three Months Ended June 30, 2020
Financing Liability - MSRs PledgedOriginal Rights to MSRs Agreements 2017 Agreements and New RMSR Agreements PMC MSR Agreements Total
Beginning Balance$591,705
 $9,979
 $—
 $601,684
Changes in fair value:       
Original Rights to MSRs Agreements(1,019) —
 —
 (1,019)
2017 Agreements and New RMSR Agreements—
 —
 —
 —
PMC MSR Agreements—
 —
 —
 —
Runoff and settlement:       
Original Rights to MSRs Agreements(8,128) —
 —
 (8,128)
2017 Agreements and New RMSR Agreements—
 (9,979) —
 (9,979)
PMC MSR Agreements—
 —
 —
 —
Balance at June 30, 2020$582,558
 $—
 $—
 $582,558
 Three Months Ended June 30, 2019
Financing Liability - MSRs PledgedOriginal Rights to MSRs Agreements 2017 Agreements and New RMSR Agreements PMC MSR Agreements Total
Beginning Balance$424,086
 $119,932
 $407,198
 $951,216
Additions—
 —
 299
 299
Changes in fair value:       
Original Rights to MSRs Agreements1,671
 —
 —
 1,671
2017 Agreements and New RMSR Agreements—
 (4,634) —
 (4,634)
PMC MSR Agreements—
 —
 (47,782) (47,782)
Runoff and settlement:       
Original Rights to MSRs Agreements(11,412) —
 —
 (11,412)
2017 Agreements and New RMSR Agreements—
 (26,062) —
 (26,062)
PMC MSR Agreements—
 —
 (15,814) (15,814)
Calls (1):       
Original Rights to MSRs Agreements(1,436) —
 —
 (1,436)
2017 Agreements and New RMSR Agreements—
 (1,133) —
 (1,133)
Balance at June 30, 2019$412,909
 $88,103
 $343,901
 $844,913

64,332,200 


 Six Months Ended June 30, 2020
Financing Liability - MSRs PledgedOriginal Rights to MSRs Agreements 2017 Agreements and New RMSR Agreements PMC MSR Agreements Total
Beginning Balance$603,046
 $35,445
 $312,102
 $950,593
Sales—
 —
 (226) (226)
Changes in fair value:      
Original Rights to MSRs Agreements8,101
 —
 —
 8,101
2017 Agreements and New RMSR Agreements—
 903
 —
 903
PMC MSR Agreements—
 —
 (40,720) (40,720)
Runoff and settlement:      
Original Rights to MSRs Agreements(25,921) —
 —
 (25,921)
2017 Agreements and New RMSR Agreements—
 (35,121) —
 (35,121)
PMC MSR Agreements—
 —
 (7,492) (7,492)
Derecognition of Pledged MSR financing liability due to termination of PMC MSR Agreements—
 —
 (263,664) (263,664)
Calls (1):      
Original Rights to MSRs Agreements(2,668) —
 —
 (2,668)
2017 Agreements and New RMSR Agreements—
 (1,227) —
 (1,227)
Balance at June 30, 2020$582,558
 $—
 $—
 $582,558
 Six Months Ended June 30, 2019
Financing Liability - MSRs PledgedOriginal Rights to MSRs Agreements 2017 Agreements and New RMSR Agreements PMC MSR Agreements Total
Beginning Balance$436,511
 $138,854
 $457,491
 $1,032,856
Purchases—
 —
 876
 876
Changes in fair value:       
Original Rights to MSRs Agreements1,550
 —
 —
 1,550
2017 Agreements and New RMSR Agreements—
 2,346
 —
 2,346
PHH MSR Agreements—
 —
 (80,878) (80,878)
Runoff and settlement:       
Original Rights to MSRs Agreements(20,447) —
 —
 (20,447)
2017 Agreements and New RMSR Agreements—
 (49,382) —
 (49,382)
PHH MSR Agreements—
 —
 (33,588) (33,588)
Calls (1):       
Original Rights to MSRs Agreements(4,705) —
 —
 (4,705)
2017 Agreements and New RMSR Agreements—
 (3,715) —
 (3,715)
Balance at June 30, 2019$412,909
 $88,103
 $343,901
 $844,913
(1)Represents the carrying value of MSRs in connection with call rights exercised by NRZ, for MSRs transferred to NRZ under the 2017 Agreements and New RMSR Agreements, or by Ocwen at NRZ’s direction, for MSRs underlying the Original Rights to MSRs Agreements. Ocwen derecognizes the MSRs and the related financing liability upon collapse of the securitization.
(1)The MSR sale transactions did not achieve sale accounting treatment.
(2)NRZ’s associated outstanding servicing advances were approximately $535.5 million as of March 31, 2021.
Ocwen Transactions
Prior to the transfer of legal title under the Master Servicing Rights Purchase Agreement dated as of October 1, 2012, as amended, and certain Sale Supplements, as amended (collectively, the Original Rights to MSRs Agreements), Ocwen agreed to service the mortgage loans underlying the MSRs on the economic terms set forth in the Original Rights to MSRs Agreements.


After the transfer of legal title as contemplated under the Original Rights to MSRs Agreements, Ocwen was to service the mortgage loans underlying the MSRs as subservicer on substantially the same economic terms.
24

On July 23, 2017 and January 18, 2018, we entered into a series of agreements with NRZ that collectively modify, supplement and supersede the arrangements among the parties as set forth in the Original Rights to MSRs Agreements. The July 23, 2017 agreements, as amended, include a Master Agreement, a Transfer Agreement and the Subservicing Agreement between Ocwen and New Residential Mortgage LLC (NRM), a subsidiary of NRZ, relating to non-agency loans (the NRM Subservicing Agreement) (collectively, the 2017 Agreements) pursuant to which the parties agreed, among other things, to undertake certain actions to facilitate the transfer from Ocwen to NRZ of Ocwen’s legal title to the remaining MSRs that were subject to the Original Rights to MSRs Agreements and under which Ocwen would subservice mortgage loans underlying the MSRs for an initial term ending July 2022 (the Initial Term).
On January 18, 2018, the parties entered into new agreements (including a Servicing Addendum) regarding the Rights to MSRs related to MSRs that remained subject to the Original Rights to MSRs Agreements as of January 1, 2018 and amended the Transfer Agreement (collectively, New RMSR Agreements) to accelerate the implementation of certain parts of our arrangements in order to achieve the intent of the 2017 Agreements sooner. Under the new agreements, following receipt of the required consents and transfer of the MSRs, Ocwen subservices the mortgage loans underlying the transferred MSRs pursuant to the 2017 Agreements and the August 2018 subservicing agreement with NewRez LLC dba Shellpoint Mortgage Servicing (Shellpoint) described below.
Ocwen received lump-sum cash payments of $54.6 million and $279.6 million in September 2017 and January 2018 in accordance with the terms of the 2017 Agreements and New RMSR Agreements, respectively. These upfront payments generally represented the net present value of the difference between the future revenue stream Ocwen would have received under the Original Rights to MSRs Agreements and the future revenue stream Ocwen expected to receive under the 2017 Agreements and the New RMSR Agreements. We recognized the cash received as a financing liability that we accounted for at fair value through the term of the original agreements (April 2020). Changes in fair value were recognized in Pledged MSR liability expense in the unaudited consolidated statements of operations.
On August 17, 2018, Ocwen and NRZ entered into certain amendments (i) to the New RMSR Agreements to include Shellpoint, a subsidiary of NRZ, as a party to which legal title to the MSRs could be transferred after related consents are received, (ii) to add a Subservicing Agreement between Ocwen and Shellpoint relating to non-agency loans (the Shellpoint Subservicing Agreement), (iii) to add an Agency Subservicing Agreement between Ocwen and NRM relating to agency loans (the Agency Subservicing Agreement), and (iv) to conform the New RMSR Agreements and the NRM Subservicing Agreement to certain of the terms of the Shellpoint Subservicing Agreement and the Agency Subservicing Agreement.
At any time during the Initial Term, NRZ may terminate the Subservicing Agreements and Servicing Addendum for convenience, subject to Ocwen’s right to receive a termination fee and 180 days’ notice. The termination fee is calculated as specified in the Subservicing Agreements and Servicing Addendum, and is a discounted percentage of the expected revenues that would be owed to Ocwen over the remaining contract term based on certain portfolio run-off assumptions.
Following the Initial Term, NRZ may extend the term of the Subservicing Agreements and Servicing Addendum for additional three-month periods by providing proper notice. Following the Initial Term, the Subservicing Agreements and Servicing Addendum can be cancelled by Ocwen on an annual basis. NRZ and Ocwen have the ability to terminate the Subservicing Agreements and Servicing Addendum for cause if certain specified conditions occur. The terminations must be terminations in whole (i.e., cover all the loans under the relevant Subservicing Agreement or Servicing Addendum) and not in part, except for limited circumstances specified in the agreements. In addition, if NRZ terminates any of the NRM or Shellpoint Subservicing Agreements or the Servicing Addendum for cause, the other agreements will also terminate automatically.
Under the terms of the Subservicing Agreements and Servicing Addendum, in addition to a base servicing fee, Ocwen receives certain ancillary fees, primarily late fees, loan modification fees and convenience or Speedpay® fees. We may also receive certain incentive fees or pay penalties tied to various contractual performance metrics. NRZ receives all float earnings and deferred servicing fees related to delinquent borrower payments, as well as being entitled to receive certain REO related income including REO referral commissions.
As of June 30, 2020,March 31, 2021, the UPB of MSRs subject to the Servicing Agreements and the New RMSR Agreements is $71.4$64.3 billion, including $17.4$13.7 billion for which title has not transferred to NRZ. As the third-party consents required for title to the MSRs to transfer were not obtained by May 31, 2019, the New RMSR Agreements set forth a process under which NRZ’s $17.4$13.7 billion Rights to MSRs may (i) be acquired by Ocwen at a price determined in accordance with the terms of the New RMSR Agreements, at the option of Ocwen, or (ii) be sold, together with Ocwen’s title to those MSRs, to a third party in accordance with the terms of the New RMSR Agreements, subject to an additional Ocwen option to acquire at a price based on the winning third-party bid rather than selling to the third party. If the Rights to MSRs are not transferred pursuant to these alternatives, then the Rights to MSRs will remain subject to the New RMSR Agreements.


In addition, as noted above, during the Initial Term, NRZ has the right to terminate the $17.4$13.7 billion New RMSR Agreements for convenience, in whole but not in part, subject to payment of a termination fee and 180 days’ notice. If NRZ exercises this termination right, NRZ has the option of seeking (i) the transfer of the MSRs through a sale to a third party of its
25

Rights to MSRs (together with a transfer of Ocwen’s title to those MSRs) or (ii) a substitute RMSR arrangement that substantially replicates the Rights to MSRs structure (a Substitute RMSR Arrangement) under which we would transfer title to the MSRs to a successor servicer and NRZ would continue to own the economic rights and obligations related to the MSRs. In the case of option (i), we have a purchase option as specified in the New RMSR Agreements. If NRZ is not able to sell the Rights to MSRs or establish a Substitute RMSR Arrangement with another servicer, NRZ has the right to revoke its termination notice and re-instate the Servicing Addendum or to establish a subservicing arrangement whereby the MSRs remaining subject to the New RMSR Agreements would be transferred to up to three subservicers who would subservice under Ocwen’s oversight. If such a subservicing arrangement were established, Ocwen would receive an oversight fee and reimbursement of expenses. We may also agree on alternative arrangements that are not contemplated under our existing agreements or that are variations of those contemplated under our existing agreements.
PMC Transactions
On December 28, 2016, PMC entered into an agreement to sell substantially all of its MSRs, and the related servicing advances, to NRM (the 2016 PMC Sale Agreement). In connection with this agreement, on December 28, 2016, PMC also entered into a subservicing agreement with NRZ which was subsequently amended and restated as of March 29, 2019 (together with the 2016 PMC Sale Agreement, the PMC MSR Agreements). The PMC subservicing agreement had an initial term of three years from the initial transaction date of June 16, 2017, subject to certain transfer and termination provisions. The MSR sale transaction did not originally achieve sale accounting treatment.
On February 20, 2020, we received a notice of termination from NRZ with respect to the PMC MSR Agreements, which accounted for $37.1 billion loan UPB, or 285,237 loans at June 30, 2020. In connection with the termination, we are entitled to loan deboarding fees from NRZ. Loan deboarding is under discussion with NRZ and is currently planned for September and October 2020, though is subject to various requirements that may delay the process.servicing agreement. This termination iswas for convenience and not for cause.cause, and provided for loan deboarding fees to be paid by NRZ. As the sale accounting criteria were met upon the notice of termination, the MSRs and the Rights to MSRs associated with the $37.1 billion loan UPB were derecognized from our balance sheet on February 20, 2020 without any gain or loss on derecognition. We continue to serviceserviced these loans until deboarding in October 2020 representing $34.2 billion of UPB, and accountaccounted for them as a subservicing relationship. Accordingly, we recognizerecognized subservicing fees associated with the subservicing agreement subsequent to February 20, 2020 and dohave not reportreported any servicing fees collected on behalf of, and remitted to NRZ, any change in fair value, runoff and settlement in financing liability thereafter. On September 1, 2020, 133,718 loans representing $18.2 billion of UPB were deboarded and the remaining 136,500 loans representing $16.0 billion of UPB were deboarded on October 1, 2020.
Note 9 – Receivables
 June 30, 2020 December 31, 2019
Servicing-related receivables:   
Government-insured loan claims$123,781
 $122,557
Sales and transfers of MSRs - Due from NRZ—
 24,167
Subservicing fees and reimbursable expenses - Due from NRZ1,160
 9,197
Reimbursable expenses6,925
 13,052
Due from custodial accounts18,511
 27,175
Other2,475
 4,970
 152,852
 201,118
Income taxes receivable (1)110,142
 37,888
Other receivables39,004
 20,086
 301,998
 259,092
Allowance for losses(54,382) (57,872)
 $247,616
 $201,220

(1)
SeeNote 16 – Income Taxes


 March 31, 2021December 31, 2020
Servicing-related receivables:
Government-insured loan claims - Forward$101,598 $103,058 
Government-insured loan claims - Reverse29,138 32,887 
Due from custodial accounts18,596 19,393 
Subservicing fees and reimbursable expenses - Due from NRZ11,653 4,611 
Reimbursable expenses11,360 4,970 
Other4,850 1,087 
177,195 166,006 
Income taxes receivable39,233 57,503 
Other receivables2,828 3,200 
219,256 226,709 
Allowance for losses(41,047)(39,044)
 $178,209 $187,665 
At June 30, 2020March 31, 2021 and December 31, 2019,2020, the allowance for losses primarily related to receivables of our Servicing business. The allowance for losses related to defaulted FHA- or VA-insured loans repurchased from Ginnie Mae guaranteed securitizations and not subsequently sold to third-party investors (government-insured loan claims) was $53.3$40.4 million and $56.9$38.3 million at June 30, 2020March 31, 2021 and December 31, 2019,2020, respectively. The government-insured loan claims that do not exceed HUD, VA or FHA insurance limits are guaranteed by the U.S. government.
26

Allowance for Losses - Government-Insured Loan ClaimsThree Months Ended June 30, Six Months Ended June 30,Allowance for Losses - Government-Insured Loan ClaimsThree Months Ended March 31,
2020 2019 2020 201920212020
Beginning balance (1)$58,103
 $51,280
 $56,868
 $52,497
Beginning balanceBeginning balance$38,339 $56,868 
Provision2,122
 4,561
 7,194
 11,806
Provision4,958 5,072 
Charge-offs and other, net(6,915) (5,330) (10,752) (13,792)Charge-offs and other, net(2,860)(3,837)
Ending balance$53,310
 $50,511
 $53,310
 $50,511
Ending balance$40,437 $58,103 
(1)The adoption of ASU 2016-13 did not result in any significant change to the allowance for losses related to receivables as of January 1, 2020.
Note 10 – Other Assets
 June 30, 2020 December 31, 2019
Contingent loan repurchase asset$614,447
 $492,900
Derivatives, at fair value22,852
 6,007
Prepaid expenses17,692
 21,996
Prepaid representation, warranty and indemnification claims - Agency MSR sale15,173
 15,173
Prepaid lender fees, net13,214
 8,647
REO7,469
 8,556
Security deposits2,141
 2,163
Deferred tax asset, net1,742
 2,169
Mortgage backed securities, at fair value1,726
 2,075
Interest-earning time deposits369
 390
Other3,657
 3,164
 $700,482
 $563,240

 March 31, 2021December 31, 2020
Contingent loan repurchase asset$399,126 $480,221 
Prepaid expenses26,725 21,176 
Derivatives, at fair value15,483 23,246 
Prepaid representation, warranty and indemnification claims - Agency MSR sale15,173 15,173 
REO8,827 7,771 
Prepaid lender fees, net7,071 9,556 
Deferred tax asset, net3,634 3,543 
Security deposits2,072 2,222 
Mortgage backed securities, at fair value1,613 2,019 
Other5,147 6,556 
 $484,871 $571,483 


Note 11 – Borrowings
Advance Match Funded LiabilitiesBorrowing CapacityMarch 31, 2021December 31, 2020
Borrowing TypeMaturity (1)Amort. Date (1)TotalAvailable (2)Weighted Average Interest RateBalanceWeighted Average Interest RateBalance
Advance Receivables Backed Notes - Series 2015-VF5 (3)Jun. 2051Jun. 2021$250,000 $190,479 4.22 %$59,521 4.26 %$89,396 
Advance Receivables Backed Notes, Series 2020-T1 (4)Aug. 2052Aug. 2022475,000 0 1.49 %475,000 1.49 %475,000 
Total Ocwen Master Advance Receivables Trust (OMART)725,000 190,479 1.79 %534,521 1.93 %564,396 
Ocwen Freddie Advance Funding (OFAF) - Advance Receivables Backed Notes, Series 2015-VF1 (5)
Jun. 2051Jun. 202170,000 54,084 3.22 %15,916 3.26 %16,892 
$795,000 $244,563 1.83 %$550,437 1.96 %$581,288 
Advance Match Funded Liabilities       June 30, 2020 December 31, 2019
Borrowing Type Maturity (1) Amorti- zation Date (1) Available Borrowing Capacity (2) Weighted Average Interest Rate Balance Weighted Average Interest Rate (3) Balance
Advance Financing Facilities:              
Advance Receivables Backed Notes - Series 2015-VF5 (3) Jun. 2051 Jun. 2021 $370,802
 4.61% $129,198
 3.36% $190,555
Advance Receivables Backed Notes, Series 2019-T1 (4) Aug. 2050 Aug. 2020 —
 2.62
 185,000
 2.62
 185,000
Advance Receivables Backed Notes, Series 2019-T2 (4) Aug. 2051 Aug. 2021 —
 2.53
 285,000
 2.53
 285,000
Total Ocwen Master Advance Receivables Trust (OMART)     370,802
 3.01
 599,198
 2.79
 660,555
Ocwen Freddie Advance Funding (OFAF) - Advance Receivables Backed Notes, Series 2015-VF1 (5)
 Jun. 2051 Jun. 2021 56,548
 3.60
 13,452
 3.53
 18,554
      $427,350
 3.02% $612,650
 2.81% $679,109
(1)(1)The amortization date of our facilities is the date on which the revolving period ends under each advance facility note and repayment of the outstanding balance must begin if the note is not renewed or extended. The maturity date is the date on which all outstanding balances must be repaid. In all of our advance facilities, there are multiple notes outstanding. For each note, after the amortization date, all collections that represent the repayment of advances pledged to the facility must be applied ratably to each outstanding amortizing note to reduce the balance and as such the collection of advances allocated to the amortizing note may not be used to fund new advances.
(2)Borrowing capacity under the OMART and OFAF facilities is available to us provided that we have sufficient eligible collateral to pledge. At June 30, 2020, NaN of the available borrowing capacity of our advance financing notes could be used based on the amount of eligible collateral.
(3)On May 7, 2020, we renewed this facility through June 30, 2021, and increased the total borrowing capacity of the Series 2015-VF5 variable notes from $200.0 million to $500.0 million, with interest computed based on the lender’s cost of funds plus a margin of 400 bps.
(4)On August 14, 2019, we issued two fixed-rate term notes of $185.0 million (Series 2019 T-1) and $285.0 million (Series 2019-T2) with amortization dates of August 17, 2020 and August 16, 2021, respectively, for a total combined borrowing capacity of $470.0 million. The weighted average rate of the notes is 2.57% with rates on the individual classes of notes ranging from 2.42% to 4.44%.
(5)On May 7, 2020, we renewed this facility through June 30, 2021 and increased the borrowing capacity from $60.0 million to $70.0 million with interest computed based on the lender’s cost of funds plus a margin of 300 bps.
Pursuant to the 2017 Agreements and New RMSR Agreements, NRZ is obligated to fund new servicing advancesadvances.
27

(2)Borrowing capacity under the OMART and OFAF facilities is available to us provided that we have sufficient eligible collateral to pledge. At March 31, 2021, NaN of the available borrowing capacity of the OMART and OFAF advance financing notes could be used based on the amount of eligible collateral.
(3)Interest is computed based on the lender’s cost of funds plus a margin of 400 bps.
(4)The weighted average rate of the notes at March 31, 2021 is 1.49%, with respectrates on the individual classes of notes ranging from 1.28% to 5.42%.
(5)Interest is computed based on the lender’s cost of funds plus a margin of 300 bps.
Financing LiabilitiesOutstanding Balance
Borrowing TypeCollateralInterest RateMaturityMarch 31, 2021December 31, 2020
HMBS-related borrowings, at fair value (1)Loans held for investment1ML + 245 bps (1)(1)$6,778,195 $6,772,711 
Other financing liabilities, at fair value
MSRs pledged (Rights to MSRs), at fair value:
Original Rights to MSRs AgreementsMSRs(2)(2)550,364 566,952 
Financing liability - Owed to securitization investors, at fair value:
Residential Asset Securitization Trust 2003-A11 (RAST 2003-A11) (3)Loans held for investment4.25% - 5.75% fixed; 1ML plus 0.45% variableOct. 20338,820 9,770 
Total Other financing liabilities, at fair value559,184 576,722 
$7,337,379 $7,349,433 
(1)Represents amounts due to the holders of beneficial interests in Ginnie Mae guaranteed HMBS which did not qualify for sale accounting treatment of HECM loans. Under this accounting treatment, the HECM loans securitized with Ginnie Mae remain on our consolidated balance sheets and the proceeds from the sale are recognized as a financing liability, which is recorded at fair value consistent with the related HECM loans. The beneficial interests in Ginnie Mae guaranteed HMBS have no maturity dates, and the borrowings mature as the related loans are repaid. Interest rate is a weighted average based on the pass-through rate of the loans. See Note 2 – Securitizations and Variable Interest Entities.
(2)This pledged MSR liability is recognized due to the accounting treatment of MSR sale transactions with NRZ which did not qualify as sales for accounting purposes. Under this accounting treatment, the MSRs underlying the Rights to MSRs. As of June 30, 2020, we were the servicer of Rights to MSRs soldtransferred to NRZ pertaining to $17.4 billion in UPB,remain on the consolidated balance sheet and the proceeds from the sale are recognized as a financing liability, which excludes those Rights to MSRs where legal titleis recorded at fair value consistent with the related MSRs. This financing liability has transferred to NRZ. NRZ’s associated outstanding servicing advances were approximately $637.1 million and $704.2 million as of June 30, 2020 and December 31, 2019, respectively. We are dependent upon NRZ for funding the servicing advance obligations for Rights to MSRs where we are the servicer. As the servicer, we are contractually required under our servicing agreements to make certain servicing advances even if NRZ does not perform itsno contractual obligations to fund those advances. NRZ currently uses advance financing facilities in order to fund a substantial portion of the servicing advances that they are contractually obligated to purchase pursuant to our agreements with them. If NRZ were unable to meet its advance funding obligations, we would remain obligated to meet any future advance financing obligations with respect to the loans underlying these Rights to MSRs for which legal title has not transferred, which could materially and adversely affect our liquidity, financial condition, results of operations and servicing business.maturity or repayment schedule. See Note 8 — Rights to MSRs for additional information.
In addition, although(3)Consists of securitization debt certificates due to third parties that represent beneficial interests in trusts that we are not an obligor or guarantor under NRZ’s advance financinginclude in our unaudited consolidated financial statements, as more fully described in Note 2 – Securitizations and Variable Interest Entities.
Other Secured BorrowingsAvailable Borrowing CapacityOutstanding Balance
Borrowing TypeCollateralInterest Rate (1)MaturityUncommittedCommitted (2)March 31, 2021December 31, 2020
SSTL (3)(3)1-Month Euro-dollar rate + 600 bps with a Eurodollar floor of 100 bps (3)May 2022 (3)$0 $0 $0 $185,000 
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Other Secured BorrowingsAvailable Borrowing CapacityOutstanding Balance
Borrowing TypeCollateralInterest Rate (1)MaturityUncommittedCommitted (2)March 31, 2021December 31, 2020
Master repurchase agreement (4)Loans held for sale (LHFS)1ML + 220 - 375 bpsJune 202285,109 0 189,891 195,773 
Mortgage warehouse agreement (5)LHFS (reverse)Greater of 1ML + 250 bps or 3.50%August 20210 1,000 0 0 
Master repurchase agreement (6)LHFS (forward and reverse)1ML + 325 bps forward; 1ML + 350 bps reverseNov. 202150,000 38,660 161,340 80,081 
Master repurchase agreement (7)N/ASOFR + 190 bps; SOFR floor 25 bpsN/A50,000 0 0 0 
Participation agreement (8)LHFS(8)June 2021120,000 0 0 0 
Master repurchase agreement (8)LHFS(8)June 20210 49,231 40,769 63,281 
Master repurchase agreementLHFS1 ML + 250 bpsJune 20210 1,000 0 0 
Mortgage warehouse agreement (9)LHFS1ML + 350 bps; Floor 5.25%Jan. 20220 35,042 14,958 11,715 
Mortgage warehouse agreement (10)LHFS (reverse)1ML + 250 bps; 3.25% floorOct. 2021519 0 99,481 73,134 
Mortgage warehouse agreement (11)LHFS(11)N/A48,671 0 51,329 27,729 
Master repurchase agreement (12)LHFS1ML + 150 - 200 bps; Floor 250 bpsN/A0 0 51,664 0 
Total mortgage loan warehouse facilities2.93% (17)354,299 124,933 609,432 451,713 
29

Other Secured BorrowingsAvailable Borrowing CapacityOutstanding Balance
Borrowing TypeCollateralInterest Rate (1)MaturityUncommittedCommitted (2)March 31, 2021December 31, 2020
Agency MSR financing facility (13)MSRs, Advances1ML + 450 bpsJune 20210 0 250,000 210,755 
Ginnie Mae MSR financing facility (14)MSRs, Advances1ML + 450 bps; 1ML floor 0.50%Dec. 202125,216 0 99,784 112,022 
Ocwen Excess Spread-Collateralized Notes, Series 2019-PLS1 (15)MSRs5.07%Nov. 20240 0 62,297 68,313 
Secured Notes, Ocwen Asset Servicing Income Series, Series 2014-1 (16)MSRs(16)Feb. 20280 0 45,273 47,476 
Total MSR financing facilities4.77% (17)25,216 0 457,354 438,566 
$379,515 $124,933 1,066,786 1,075,279 
Unamortized debt issuance costs - SSTL and PLS Notes (18)(764)(5,761)
Discount - SSTL0 (357)
$1,066,022 $1,069,161 
Weighted average interest rate3.68 %4.55 %
(1)1ML was 0.11% and 0.14% at March 31, 2021 and December 31, 2020, respectively.
(2)Of the borrowing capacity on mortgage loan warehouse facilities we areextended on a party to certaincommitted basis, NaN of the facility documents asavailable borrowing capacity could be used at March 31, 2021 based on the serviceramount of eligible collateral that could be pledged.
(3)On March 4, 2021, we repaid in full the $185.0 million outstanding principal balance. The prepayment resulted in our recognition of an $8.4 million loss on debt extinguishment, including a prepayment premium of 2% of the underlying loansoutstanding principal balance, or $3.7 million.
(4)The maximum borrowing under this agreement is $275.0 million, of which $160.0 million is available on which advances are being financed. Asa committed basis and the servicer,remainder is available at the discretion of the lender. On March 31, 2021, we make certain representations, warrantiesrenewed the facility and covenants, including representations and warranties in connection with advances subsequently soldthe maturity date was extended to or reimbursed by, NRZ.June 30, 2022.


Financing Liabilities       Outstanding Balance
Borrowing Type Collateral Interest Rate Maturity June 30, 2020 December 31, 2019
HMBS-Related Borrowings, at fair value (1) Loans held for investment 1ML + 260 bps (1) $6,477,616
 $6,063,435
Other Financing Liabilities          
MSRs pledged (Rights to MSRs), at fair value:          
Original Rights to MSRs Agreements MSRs (2) (2) 582,558
 603,046
2017 Agreements and New RMSR Agreements MSRs (3) (3) —
 35,445
PMC MSR Agreements MSRs (4) (4) —
 312,102
        582,558
 950,593
           
Financing liability - Owed to securitization investors, at fair value:          
IndyMac Mortgage Loan Trust (INDX 2004-AR11) (5) Loans held for investment (5) (5) —
 9,794
Residential Asset Securitization Trust 2003-A11 (RAST 2003-A11) (5) Loans held for investment (5) (5) 11,664
 12,208
        11,664
 22,002
Total Other Financing Liabilities       594,222
 972,595
        $7,071,838
 $7,036,030
(1)Represents amounts due to the holders of beneficial interests in Ginnie Mae guaranteed HMBS which did not qualify for sale accounting treatment of HECM loans. Under this accounting treatment, the HECM loans securitized with Ginnie Mae remain on our consolidated balance sheet and the proceeds from the sale are recognized as a secured liability. The beneficial interests have no maturity dates, and the borrowings mature as the related loans are repaid. We elected to record the HMBS-related borrowings at fair value consistent with the related HECM loans. Changes in fair value are reported within Reverse mortgage revenue, net.
(2)This pledged MSR liability is recognized due to the accounting treatment of MSR sale transactions with NRZ which did not qualify as sales for accounting purposes. Under this accounting treatment, the MSRs transferred to NRZ remain on the consolidated balance sheet and the proceeds from the sale are recognized as a secured liability. This financing liability has no contractual maturity or repayment schedule. We elected to record the liability at fair value consistent with the related MSRs. The balance of the liability is adjusted each reporting period to its fair value based on the present value of the estimated future cash flows underlying the related MSRs. Changes in fair value are reported within Pledged MSR liability expense, and are offset by corresponding changes in fair value of the MSR pledged to NRZ within MSR valuation adjustments, net.
(3)This financing liability arose in connection with lump sum payments of $54.6 million received upon transfer of legal title of the MSRs related to the Rights to MSRs transactions to NRZ in September 2017. In connection with the execution of the New RMSR Agreements in January 2018, we received a lump sum payment of $279.6 million as compensation for foregoing certain payments under the Original Rights to MSRs Agreements. We recognized the cash received as a financing liability that we are accounting for at fair value through the remaining term of the original agreements (April 2020). The balance of the liability was adjusted each reporting period to its fair value based on the present value of the estimated future cash flows, with changes in fair value recognized in Pledged MSR liability expense in the unaudited consolidated statements of operations.
(4)
Represented a liability for sales of MSRs to NRZ which did not qualify for sale accounting treatment and were accounted for as a secured borrowing which we assumed in connection with the acquisition of PHH. Under this accounting treatment, the MSRs transferred to NRZ remained on the consolidated balance sheet and the proceeds from the sale were recognized as a secured liability. We elected to record the liability at fair value consistent with the related MSRs. As disclosed in (5)Note 8 — Rights to MSRs, the liability was derecognized upon termination of the agreement by NRZ on February 20, 2020.
(5)
Consists of securitization debt certificates due to third parties that represent beneficial interests in trusts that we include in our unaudited consolidated financial statements, as more fully described in Note 3 – Securitizations and Variable Interest Entities. The holders of these certificates have no recourse against the assets of Ocwen. In June 2020, we sold the beneficial interests held in the INDX 2004-AR11 securitization trust and deconsolidated the trust. The certificates in the RAST 2003-A11 Trust pay interest based on fixed rates ranging between 4.25% and 5.75% and a variable rate based on 1ML plus 0.45%. The maturity of the certificates occurs upon maturity of the loans held by the trust. The remaining loans in the RAST 2003-A11 Trust have maturity dates extending through October 2033.



Other Secured Borrowings        Outstanding Balance
Borrowing Type Collateral Interest Rate (1) Maturity Available Borrowing Capacity (2) June 30, 2020 December 31, 2019
SSTL (3) (3) 1-Month Euro-dollar rate + 600 bps with a Eurodollar floor of 100 bps (3) May 2022 $—
 $195,000
 $326,066
Mortgage loan warehouse facilities            
Master repurchase agreement (4) Loans held for sale (LHFS) 1ML + 220 - 375 bps Jun. 2021 18,933
 91,067
 91,573
Mortgage warehouse agreement (5) LHFS (reverse) Greater of 1ML + 250 bps or 3.50%; Libor Floor 0% Aug. 2020 —
 —
 72,443
Master repurchase agreement (6) LHFS (forward and reverse) 1ML + 225 bps forward; 1ML + 275 bps reverse Dec. 2020 83,249
 116,751
 139,227
Master repurchase agreement (7) LHFS (reverse) Prime + 0.0%; 4.0% floor Jan. 2020 —
 —
 898
Master repurchase agreement (8) N/A 1ML + 170 bps; Libor Floor 35 bps N/A —
 —
 —
Participation agreement (9) LHFS (9) June 2021 —
 —
 17,304
Master repurchase agreement (9) LHFS (9) June 2021 57,458
 32,542
 —
Mortgage warehouse agreement (10) LHFS 1ML + 350 bps; Libor Floor 175 bps Dec. 2020 42,086
 7,914
 10,780
Mortgage warehouse agreement (11) LHFS (reverse) 1ML + 250 bps; 3.50% floor Aug. 2020 —
 77,070
 —
        201,726
 325,344
 332,225
             
Agency MSR financing facility (12) MSRs, Advances 1ML + 450 bps Jun. 2021 144,930
 105,070
 147,706
Ginnie Mae MSR financing facility (13) MSRs, Advances 1ML + 395 bps Dec. 2020 —
 97,060
 72,320
Ocwen Excess Spread-Collateralized Notes, Series 2019-PLS1 (14) MSRs 5.07% Nov. 2024 —
 80,138
 94,395
Secured Notes, Ocwen Asset Servicing Income Series, Series 2014-1 (15) MSRs (15) Feb. 2028 —
 52,813
 57,594
        144,930
 335,081
 372,015
        $346,656
 855,425
 1,030,306
Unamortized debt issuance costs - SSTL and PLS Notes   (7,603) (3,381)
Discount - SSTL   (491) (1,134)
        

 $847,331
 $1,025,791
             
Weighted average interest rate 4.30% 4.74%
(1)1ML was 0.16% and 1.76% at June 30, 2020 and December 31, 2019, respectively.


(2)Available borrowing capacity for our mortgage loan warehouse facilities does not consider the amount of the facility that the lender has extended on an uncommitted basis. Of the borrowing capacity extended on a committed basis, NaN of the available borrowing capacity could be used at June 30, 2020 based on the amount of eligible collateral that could be pledged.
(3)On January 27, 2020, we entered into a Joinder and Second Amendment Agreement (the Amendment) which amends the Amended and Restated SSTL Facility Agreement dated as of December 5, 2016, as amended by a Joinder and Amendment Agreement dated as of March 18, 2019. The Amendment provided for a net prepayment of $126.1 million of the outstanding balance at December 31, 2019 such that the facility has a maximum outstanding balance of $200.0 million. The Amendment also (i) extended the maturity of the remaining outstanding loans under the SSTL to May 15, 2022, (ii) provides that the loans under the SSTL bear interest at the one-month Eurodollar Rate or the Base Rate (as defined in the SSTL), at our option, plus a margin of 6.00% per annum for Eurodollar Rate loans or 5.00% per annum for Base Rate loans (increasing to a margin of 6.50% per annum for Eurodollar Rate loans or 5.50% per annum for Base Rate loans on January 27, 2021), (iii) provides for a prepayment premium of 2.00% until January 27, 2022 and (iv) requires quarterly principal payments of $5.0 million.
(4)The maximum borrowing under this agreement is $175.0 million, of which $110.0 million is available on a committed basis and the remainder is available at the discretion of the lender.
(5)Under this participation agreement, the lender provides financing for $1.0 million on a committed basis. The participation agreement allows the lender to acquire a 100% beneficial interest in the underlying mortgage loans. The transaction does not qualify for sale accounting treatment and is accounted for as a secured borrowing.
(6)The maximum borrowing under this agreement is $250.0 million, of which $200.0 million is available on a committed basis and the remainder is available on an uncommitted basis. The agreement allows the lender to acquire a 100% beneficial interest in the underlying mortgage loans. The transaction does not qualify for sale accounting treatment and is accounted for as a secured borrowing.
(7)The lender provides financing for up to $50.0 million at the discretion of the lender. The agreement has no stated maturity date. Interest on this facility is based on the Secured Overnight Financing Rate (SOFR).
(8)This facility is comprised of two lines, a $120.0 million uncommitted participation agreement and a $90.0 million committed repurchase agreement. The agreements allow the lender to acquire a 100% beneficial interest in the underlying mortgage loans. The transaction does not qualify for sale accounting treatment and is accounted for as a secured borrowing. On March 12, 2020, we voluntarily reduced the maximum borrowing capacity from $100.0 million to $1.0 million in connection with Liberty’s transfer of substantially all of its assets, liabilities, contracts and employees to PMC effective March 15, 2020.
(6)The maximum borrowing under this agreement is $250.0 million, of which $200.0 million is available on a committed basis and the remainder is available on an uncommitted basis. The agreement allows the lender to acquire a 100% beneficial interest in the underlying mortgage loans. The transaction does not qualify for sale accounting treatment and is accounted for as a secured borrowing.
(7)
Under this agreement, the lender provides financing for up to $50.0 million on an uncommitted basis.This facility expired on January 22, 2020 and was not renewed.
(8)
This agreement was originally entered into by PHH and subsequently assumed by Ocwen in connection with its acquisition of PHH. The lender provides financing for up to $200.0 million at the discretion of the lender. The agreement has no stated maturity date.
(9)We entered into this master participation agreement on February 4, 2019, under which the lender provided $300.0 million of borrowing capacity to PMC on an uncommitted basis. On June 25, 2020, this facility was amended to be comprised of two lines, a $120.0 million participation agreement and a $90.0 million repurchase agreement. The maturity date of the facility was extended to June 24, 2021. The participation agreement is uncommitted and allows the lender to acquire a 100% beneficial interest in the underlying mortgage loans. The repurchase agreement is committed and allows the lender to acquire a 100% beneficial interest in the underlying mortgage loans.
The transactions do not qualify for sale accounting treatment and are accounted for as secured borrowings. The lender earns the stated interest rate of the underlying mortgage loans less 35 bps, with a floor of 3.5%,3.50% for new originations and 3.75% for Ginnie Mae modifications, while the loans are financed under both the participation and repurchase agreements.
(10)Under this agreement, the lender provides financing for up to $50.0 million on a committed basis. The lender earns the stated interest rate of 1ML plus a margin of 350 bps.
(11)
On March 12, 2020, PMC entered into a mortgage loan warehouse agreement to fund reverse mortgage loan draws by borrowers subsequent to origination. Under this agreement, the lender provides financing for up to $100.0 million on an uncommitted basis and the lender earns the stated interest rate of 1ML plus a margin of 250 bps.
(9)Under this agreement, the lender provides financing for up to $50.0 million on a committed basis. On January 15, 2021, the maturity date of this facility was extended to January 15, 2022.
(10)Under this agreement, the lender provides financing for up to $100.0 million on an uncommitted basis. On February 1, 2021, the borrowing capacity was temporarily increased from $100.0 million to $150.0 million until February 28, 2021 when it was reduced to $100.0 million. On March 30, 2021, the borrowing capacity was temporarily increased to $150.0 million effective April 1, 2021 until May 30, 2021.
(11)This facility provides up to $100.0 million of uncommitted borrowing capacity. The agreement has no stated maturity date, however each transaction has a maximum duration of four years. The cost of this line is set at each transaction date and is based on the interest rate on the collateral.
(12)We entered into a repurchase agreement on March 29, 2021 which provides borrowing at our discretion up to a certain maximum amount of capacity on a rolling 30-day committed basis. This facility is structured as a gestation repurchase facility whereby dry Agency mortgage loans are sold to a trust which trust issues a trust certificate that is pledged as the collateral for the borrowings.
(13)PMC’s obligations under this facility are secured by a lien on the related MSRs. Ocwen guarantees the obligations of PMC under this facility. The maximum amount which we may borrow pursuant to the repurchase agreements is $250.0 million on a committed basis. We also pledged the membership interest of the depositor for our OMART advance financing facility as additional collateral to this facility. See Note 2 – Securitizations and Variable Interest Entities for additional information. We are subject to daily margining requirements
(12)
Financing facility entered into by PMC that is secured by certain Fannie Mae and Freddie Mac MSRs. In connection with this facility, PMC entered into repurchase agreements pursuant to which PMC sold trust certificates representing certain indirect economic interests in the MSRs and agreed to repurchase such trust certificates at a future date at the repurchase price set forth in the repurchase agreements. PMC’s obligations under this facility are secured by a lien on the related MSRs. Ocwen guarantees the obligations of PMC under this facility. On May 7, 2020, we renewed the facility through June 30, 2021 and reduced the maximum amount which we may borrow pursuant to the repurchase agreements from $300.0 million to $250.0 million on a committed basis. We also pledged the membership interest of the depositor for our OMART advance financing facility as additional collateral to this facility.The lender earns the stated interest rate of 1ML plus a margin of 450 bps. See Note 3 – Securitizations and Variable Interest Entities for additional information. We are subject to daily margining requirements under the terms of our MSR financing facilities. Declines in fair value of our MSRs due to declines in market interest rates, assumption updates or other factors require that we provide additional collateral to our lenders under these facilities.
(13)Financing facility entered into by PMC that is secured by certain Ginnie Mae MSRs. In connection with the facility, PMC entered into a repurchase agreement pursuant to which PMC has sold a participation certificate representing certain economic interests in the Ginnie Mae MSRs and has agreed to repurchase such participation certificate at a future date at the repurchase price set forth in the repurchase agreement. PMC’s obligations under the facility are secured by a lien on the related Ginnie Mae MSRs. Ocwen guarantees the obligations of PMC under the facility. On June 30, 2020, we amended the facility to increase the borrowing capacity from $100.0 million to $127.5 million on an uncommitted basis, accelerate the maturity date to December 27, 2020 and include Ginnie Mae servicing advances as additional collateral. The lender earns the stated interest rate of 1ML plus a margin of 395 bps on borrowings prior to June 1, 2020, with any subsequent borrowings at a stated interest of 1ML plus a margin of 700 bps. See (12) above regarding daily margining requirements.
(14)
PMC issued the PLS Notes secured by certain of PMC’s MSRs (PLS MSRs) pursuant to a credit agreement. PLS Issuer’s obligations under the facility are secured by a lien on the related PLS MSRs. Ocwen guarantees the obligations of PLS Issuer under the facility. The Class A PLS Notes issued pursuant to the credit agreement have an initial principal amount of $100.0 million and amortize in accordance with a pre-determined schedule subject to modification under certain events. The notes have a stated coupon rate of 5.07%. See Note 3 – Securitizations and Variable Interest Entities for additional information. See (12) above regarding daily margining requirements.
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(15)OASIS noteholders are entitled to receive a monthly payment equal to the sum of: (a) 21 basis points of the UPB of the reference pool of Freddie Mac mortgages; (b) any termination payment amounts; (c) any excess refinance amounts; and (d) the note redemption amounts, each as defined in the indenture supplement for the notes. Monthly amortization of the liability is estimated using the proportion of monthly projected service fees on the underlying MSRs as a percentage of lifetime projected fees, adjusted for the term of the notes.
under the terms of our MSR financing facilities. Declines in fair value of our MSRs due to declines in market interest rates, assumption updates or other factors require that we provide additional collateral to our lenders under these facilities. On March 31, 2021, the facility was upsized to $350.0 million, the interest rate reduced to 1ML plus 325bps, and the maturity was renewed to June 30, 2022. These changes became effective on April 15, 2021.
Senior NotesInterest Rate MaturityOutstanding Balance
 June 30, 2020 December 31, 2019
Senior unsecured notes:      
PHH (1)6.375% Aug. 2021$21,543
 $21,543
    21,543
 21,543
Senior secured notes8.375% Nov. 2022291,509
 291,509
    313,052
 313,052
Unamortized debt issuance costs   (1,230) (1,470)
Fair value adjustments (1)   (338) (497)
    $311,484
 $311,085
(14)PMC’s obligations under this facility are secured by a lien on the related Ginnie Mae MSRs. Ocwen guarantees the obligations of PMC under the facility. The borrowing capacity is $125.0 million on an uncommitted basis. See (13) above regarding daily margining requirements.
(1)These notes were originally issued by PHH and subsequently assumed by Ocwen in connection with its acquisition of PHH. We recorded the notes at their respective fair values on the date of acquisition, and we are amortizing the resulting fair value purchase accounting adjustments over the remaining term of the notes. We have the option to redeem the notes due in August 2021, in whole or in part, on or after January 1, 2019 at a redemption price equal to 100.0%
(15)PLS Issuer’s obligations under the facility are secured by a lien on the related PLS MSRs. Ocwen guarantees the obligations of PLS Issuer under the facility. The Class A PLS Notes issued pursuant to the credit agreement had an initial principal amount of $100.0 million and amortize in accordance with a pre-determined schedule subject to modification under certain events. See Note 2 – Securitizations and Variable Interest Entities for additional information. See (13) above regarding daily margining requirements.
(16)OASIS noteholders are entitled to receive a monthly payment equal to the sum of: (a) 21 basis points of the UPB of the reference pool of Freddie Mac mortgages; (b) any termination payment amounts; (c) any excess refinance amounts; and (d) the note redemption amounts, each as defined in the indenture supplement for the notes. Monthly amortization of the liability is estimated using the proportion of monthly projected service fees on the underlying MSRs as a percentage of lifetime projected fees, adjusted for the term of the notes.
(17)Weighted average interest rate at March 31, 2021, excluding the effect of debt issuance costs and discount.
(18)Balance at December 31, 2020 includes $4.9 million related to SSTL.
Senior NotesInterest RateMaturityOutstanding Balance
March 31, 2021December 31, 2020
PMC Senior Secured Notes7.875%March 2026$400,000 $0 
OFC Senior Secured Notes (1)12% paid in cash or 13.25% paid-in-kind (see below)March 2027199,500 0 
PHH Senior Notes6.375%August 20210 21,543 
PMC Senior Secured Notes8.375%November 20220 291,509 
Principal balance599,500 313,052 
Discount (2)
PMC Senior Secured Notes(2,025)0 
OFC Senior Secured Notes (1)(40,707)0 
(42,732)0 
Unamortized debt issuance costs (2)
PMC Senior Secured Notes(6,598)(968)
OFC Senior Secured Notes(7,243)0 
(13,841)(968)
Fair value adjustments0 (186)
$542,927 $311,898 
(1)At date of issuance on March 4, 2021, the discount included $24.5 million original issue discount (OID) on the OFC Senior Secured Notes and $16.5 million of additional discount related to the concurrent issuance of warrants. See below for additional information.
(2)The discount and debt issuance costs are being amortized to interest expense through the maturity of the respective notes.
Redemption of 6.375% Senior Unsecured Notes due 2021 and 8.375% Senior Secured Notes due 2022
On March 4, 2021, we redeemed all of PHH’s outstanding 6.375% Senior Notes due August 2021 at a price of 100% of the principal amount, plus any accrued and unpaid interest.
At any time, we may redeem all or a part of the 8.375% Senior secured notes, upon not less than 30 nor more than 60 days’ notice at a specified redemption price, plus accrued and unpaid interest, toand all of PMC’s 8.375% Senior Secured Notes due November 2022 at a price of 102.094% of the date of redemption. We may redeem all or a part of these notes at the redemption prices (expressed as percentages of principal amount) specified in the Indenture.amount, plus accrued and unpaid interest. The redemption prices duringresulted in our recognition of a $7.1 million loss on debt extinguishment.
Issuance of 7.875% Senior Secured Notes due 2026
On March 4, 2021, PMC completed the twelve-month periods beginningissuance and sale of $400.0 million aggregate principal amount of 7.875% senior secured notes due March 15, 2026 (the PMC Senior Secured Notes) at a discount of $2.1 million. The PMC Senior Secured Notes are guaranteed on Novembera senior secured basis by Ocwen and PHH (together, the Guarantors) and were sold in an offering exempt from the registration requirements of the Securities Act of 1933, as amended (the Securities Act).
Interest on the PMC Senior Secured Notes accrues at a rate of 7.875% per annum and is payable semi-annually in arrears on March 15th and September 15 of each year, are as follows:beginning on September 15, 2021.
Year Redemption Price
2019 104.188%
2020 102.094%
2021 and thereafter 100.000%
31

Upon a change of control (as defined in the Indenture), we are required to make an offer to the holdersOn or after March 15, 2023, PMC may redeem some or all of the 8.375%PMC Senior securedSecured Notes at its option at the following redemption prices, plus accrued and unpaid interest, if any, on the notes redeemed to, repurchasebut excluding, the redemption date if redeemed during the 12-month period beginning on March 15th of the years indicated below:
Redemption YearRedemption Price
2023103.938 %
2024101.969 
2025 and thereafter100.000 
Prior to March 15, 2023, PMC may, on any one or more occasions, redeem some or all or a portion of each holder’s notesthe PMC Senior Secured Notes at its option at a purchaseredemption price equal to 101.0%100% of the principal amount of the notes purchasedbeing redeemed, plus a “make-whole” premium equal to the greater of (i) 1.0% of the then outstanding principal amount of such note and (ii) the excess of (1) the present value at the redemption date of the sum of (A) the redemption price of the note at March 15, 2023 (such redemption price is set forth in the table above) plus (B) all required interest payments due on such notes through March 15, 2023 (excluding accrued but unpaid interest), such present value to be computed using a discount rate equal to the Treasury Rate (as defined in the Indenture) as of such redemption date plus 50 basis points; over (2) the then outstanding principal amount of such notes, plus accrued and unpaid interest, if any, on the notes redeemed to, but excluding, the redemption date.
In addition, on or prior to March 15, 2023, PMC may also redeem up to 35.0% of the principal amount of all of the PMC Senior Secured Notes originally issued under the Indenture (including any additional PMC Senior Secured Notes issued under the Indenture) using the net proceeds of certain equity offerings at a redemption price equal to 107.875% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of purchase.redemption (subject to the rights of holders of notes on the relevant regular record date to receive interest due on the relevant interest payment date that is on or prior to the applicable date of redemption); provided that: (i) at least 65.0% of the principal amount of all PMC Senior Secured Notes issued under the Indenture remains outstanding immediately after any such redemption; and (ii) PMC makes such redemption not more than 120 days after the consummation of any such equity offering.
The Indenture contains customary covenants for debt securities of this type that limit the ability of PHH and its restricted subsidiaries (including PMC) to, among other things, (i) incur or guarantee additional indebtedness, (ii) incur liens, (iii) pay dividends on or make distributions in respect of PHH’s capital stock or make other restricted payments, (iv) make investments, (v) consolidate, merge, sell or otherwise dispose of certain assets, and (vi) enter into transactions with Ocwen’s affiliates.
Issuance of OFC Senior Secured Notes
On March 4, 2021, Ocwen completed the private placement of $199.5 million aggregate principal amount of senior secured notes (the OFC Senior Secured Notes) with an OID of $24.5 million to certain special purpose entities owned by funds and accounts managed by Oaktree Capital Management, L.P. (the Oaktree Investors). The OFC Senior Secured Notes were issued pursuant to a Note and Warrant Purchase Agreement, dated February 9, 2021, between Ocwen and the Oaktree Investors. Concurrent with the issuance of the OFC Senior Secured Notes, Ocwen issued to the Oaktree Investors warrants to purchase 1,184,768 shares of its common stock at an exercise price of $26.82 per share, subject to antidilution adjustments. On March 4, 2021, the $175.0 million of total proceeds, net of OID, was allocated $158.5 million to the OFC Senior Secured Notes and $16.5 million to the warrants on a relative fair value basis. The warrants are accounted for as equity instruments and reported as Additional Paid-in Capital in our consolidated balance sheet, net of $0.8 million of allocated debt issuance costs. See Note 13 – Equity for additional information regarding the warrants.
The OFC Senior Secured Notes mature on March 4, 2027 with no amortization of principal. Interest is payable quarterly in arrears on the last business day of each March, June, September and December and accrues at the rate of 12% per annum to the extent interest is paid in cash or 13.25% per annum to the extent interest is “paid-in-kind” through an increase in the principal amount or the issuance of additional notes (PIK Interest). Prior to March 4, 2022, all of the interest on the OFC Senior Secured Notes may, at our option, be paid as PIK Interest. On or after March 4, 2022, a minimum amount of interest will be required to be paid in cash equal to the lesser of (i) 7% per annum of the outstanding principal amount of the OFC Senior Secured Notes and (ii) the total amount of unrestricted cash of Ocwen and its subsidiaries less the greater of $125.0 million and the minimum liquidity amounts required by any agency.
The OFC Senior Secured Notes are solely the obligation of Ocwen. The OFC Senior Secured Notes are secured by a pledge of substantially all of the assets of Ocwen, including a pledge of the equity of Ocwen’s subsidiaries held directly by Ocwen. The lien on Ocwen’s assets securing the OFC Senior Secured Notes is junior to the lien securing Ocwen’s guarantee of the 7.875% PMC Senior Secured Notes described above. The OFC Senior Secured Notes are not guaranteed by any of Ocwen’s subsidiaries nor are they secured by a pledge or lien on any assets of Ocwen’s subsidiaries.
Prior to March 4, 2026, we are permitted to redeem the OFC Senior Secured Notes in whole or in part at any time at a redemption price equal to par, plus a make-whole premium, plus accrued and unpaid interest. On and after March 4, 2026, we
32

will be permitted to redeem the OFC Senior Secured Notes in whole or in part at any time at a redemption price equal to par plus accrued and unpaid interest.
The OFC Senior Secured Notes have two financial maintenance covenants: (1) a minimum book value of stockholders’ equity of not less than $275.0 million and (2) a minimum amount of unrestricted cash of not less than $50.0 million at any time. The OFC Senior Secured Notes also have affirmative and negative covenants and events of default that are customary for debt securities of this type.
Credit Ratings
Credit ratings are intended to be an indicator of the creditworthiness of a company’s debt obligation. At June 30, 2020,March 31, 2021, the S&P issuer credit rating for Ocwen was “B-”. On July 3, 2019,February 24, 2021, concurrent with the launch of the PMC bond offering, S&P assigned areaffirmed the ratings at B- issuer credit rating withand changed the outlook from Negative to Stable. Moody’s reaffirmed their ratings of Caa1 and revised their outlook to PMC. On April 13, 2020, S&P placed Ocwen’s ratings outlookStable from Negative on CreditWatch with negative implications due to the uncertain economic impact of COVID-19 on liquidity. The CreditWatch was removed on July 23, 2020 and the Outlook was revised to Negative.February 24, 2021. It is possible that additional actions by credit rating agencies could have a material adverse impact on our liquidity and funding position, including materially changing the terms on which we may be able to borrow money.
Covenants
Under the terms of our debt agreements, we are subject to various qualitativeaffirmative and quantitativenegative covenants. Collectively, these covenants include:
•Financial covenants;covenants, including, but not limited to, specified levels of net worth and liquidity;
•Covenants to operate in material compliance with applicable laws;
•Restrictions on our ability to engage in various activities, including but not limited to incurring or guarantying additional forms of debt, paying dividends or making distributions on or purchasing equity interests of Ocwen and its subsidiaries, repurchasing or redeeming capital stock or junior capital, repurchasing or redeeming subordinated debt prior to maturity, issuing preferred stock, selling or transferring assets or making loans or investments or acquisitions or other restricted payments, entering into mergers or consolidations or sales of all or substantially all of the assets of Ocwen and its subsidiaries or of PHH or PMC and their respective subsidiaries, creating liens on assets to secure debt, of any guarantor,and entering into transactions with affiliates;
•Monitoring and reporting of various specified transactions or events, including specific reporting on defined events affecting collateral underlying certain debt agreements; and


•Requirements to provide audited financial statements within specified timeframes, including requirements that Ocwen’s financial statements and the related audit report be unqualified as to going concern.
Many of the restrictive covenants arising from the indenture for the Senior Secured Notes will be suspended if the Senior Secured Notes achieve an investment-grade rating from both Moody’s and S&P and if no default or event of default has occurred and is continuing.
Financial covenants in certain of our debt agreements require that we maintain, among other things:
a 40% loan to collateral value ratio (i.e., the ratio of total outstanding loans under the SSTL to certain collateral and other assets as defined under the SSTL), as of the last date of any fiscal quarter; and
specified levels of tangible net worth and liquidity at the consolidated Ocwen level.
Certain new financial covenants were added as part of the amendment and extension of our SSTL which closed on January 27, 2020. These include i) maintain a minimum unencumbered asset coverage ratio (i.e., the ratio of unrestricted cash and certain first priority perfected collateral to total outstanding loans under the SSTL) as of the last day of any fiscal quarter of 200% increasing to 225% after December 31, 2020 and ii) maintain minimum unrestricted cash of $125.0 million as of the last day of each fiscal quarter.
As of June 30, 2020,March 31, 2021, the most restrictive consolidated tangible net worth requirementsrequirement contained in our debt agreements were foris a minimum of $200.0$275.0 million inbook value of consolidated tangible net worth,common stockholders’ equity, as defined, under certain of our advance match funded debt, MSR financing facilities and mortgage warehouse agreements.the Note Purchase Agreement for the OFC Senior Secured Notes. The most restrictive liquidity requirements wererequirement under our debt agreements is for a minimum of $125.0 million in consolidated liquidity, as defined, under certain of our advance match funded debt and mortgage warehouse agreements. In addition, as amended, the SSTL limits our capacity to repurchase our securities and prepay certain junior debt to a combined total of $10.0 million, among other restrictions. Our current repurchase capacity has been reduced to the extent of repurchases executed under Ocwen’s share repurchase program announced in February 2020. See Note 13 – Equity for additional information regarding share repurchases.
As a result of the covenants to which we are subject, we may be limited in the manner in which we conduct our business and may be limited in our ability to engage in favorable business and investment activities or raise certain types of capital to finance future operations or satisfy future liquidity needs. In addition, breaches or events that may result in a default under our debt agreements include, among other things, nonpayment of principal or interest, noncompliance with our covenants, breach of representations, the occurrence of a material adverse change, insolvency, bankruptcy, certain material judgments and changes of control.
Covenants and default provisions of this type are commonly found in debt agreements such as ours. Certain of these covenants and default provisions are open to subjective interpretation and, if our interpretation was contested by a lender, a court may ultimately be required to determine compliance or lack thereof. In addition, our debt agreements generally include cross default provisions such that a default under one agreement could trigger defaults under other agreements. If we fail to comply with our debt agreements and are unable to avoid, remedy or secure a waiver of any resulting default, we may be subject to adverse action by our lenders, including termination of further funding, acceleration of outstanding obligations, enforcement of liens against the assets securing or otherwise supporting our obligations and other legal remedies. Our lenders can waive their contractual rights in the event of a default.
We believe we were in compliance with all of the qualitative and quantitative covenants in our debt agreements as of the date of these unaudited consolidated financial statements.

33

Collateral
Our assets held as collateral related to secured borrowings, committed under sale or other contractual obligations and which may be subject to secured liens under the SSTL and Senior Secured Notes are as follows at June 30, 2020:

   Collateral for Secured Borrowings    
 Total Assets Advance Match Funded Liabilities Financing Liabilities Mortgage Loan Warehouse / MSR Facilities Sales and Other Commitments (1) Other (2)
Cash$313,736
 $—
 $—
 $—
 $—
 $313,736
Restricted cash63,813
 14,742
 —
 4,015
 45,056
 —
MSRs (3)1,044,914
 —
 583,315
 460,869
 —
 43
Advances, net901,009
 726,856
 —
 61,081
 —
 113,072
Loans held for sale278,517
 —
 —
 244,015
 —
 34,502
Loans held for investment6,730,656
 —
 6,599,607
 98,590
 —
 32,459
Receivables, net247,616
 —
 —
 42,443
 —
 205,173
Premises and equipment, net29,695
 —
 —
 —
 —
 29,695
Other assets700,482
 —
 —
 5,575
 631,761
 63,146
Total assets$10,310,438
 $741,598
 $7,182,922
 $916,588
 $676,817
 $791,826
(1)Sales and Other Commitments include Restricted cash and deposits held as collateral to support certain contractual obligations, and Contingent loan repurchase assets related to the Ginnie Mae EBO program for which a corresponding liability is recognized in Other liabilities.
(2)The borrowings under the SSTL are secured by a first priority security interest in substantially all of the assets of Ocwen, PHH, PMC and the other guarantors thereunder, excluding among other things, 35% of the voting capital stock of foreign subsidiaries, securitization assets and equity interests of securitization entities, assets securing permitted funding indebtedness and non-recourse indebtedness, REO assets, as well as other customary carve-outs (collectively, the Collateral). The Collateral is subject to certain permitted liens set forth under the SSTL and related security agreement. The Senior Secured Notes are guaranteed by Ocwen and the other guarantors that guarantee the SSTL, and the borrowings under the Senior Secured Notes are secured by a second priority security interest in the Collateral. Assets securing borrowings under the SSTL and Senior Secured Notes may include amounts presented in Other as well as certain assets presented in Collateral for Secured Borrowings and Sales and Other Commitments, subject to permitted liens as defined in the applicable debt documents. The amounts presented here may differ in their calculation and are not intended to represent amounts that may be used in connection with covenants under the applicable debt documents.
(3)MSRs pledged as collateral for secured borrowings includes MSRs pledged to NRZ in connection with the Rights to MSRs transactions which are accounted for as secured financings and MSRs securing the financing facilities. Certain MSR cohorts with a negative fair value of $0.7 million that would be presented as Other are excluded from the eligible collateral of the facilities and are comprised of $20.0 million of negative fair value related to RMBS and $20.7 million of positive fair value related to private EBO and PLS MSRs.


Note 12 – Other Liabilities

March 31, 2021December 31, 2020
Contingent loan repurchase liability$399,126 $480,221 
Due to NRZ - Advance collections, servicing fees and other94,535 94,691 
Other accrued expenses63,648 87,898 
Liability for indemnification obligations43,289 41,920 
Accrued legal fees and settlements40,356 38,932 
Servicing-related obligations39,930 35,237 
Checks held for escheat39,842 35,654 
Liability for uncertain tax positions24,386 16,188 
Lease liability23,922 27,393 
MSR purchase price holdback16,140 20,923 
Derivatives, at fair value10,012 4,638 
Liability for unfunded India gratuity plan5,797 6,051 
Accrued interest payable5,502 4,915 
Liability for unfunded pension obligation12,587 12,662 
Other15,941 16,652 
$835,013 $923,975 
 June 30, 2020 December 31, 2019
Contingent loan repurchase liability$614,447
 $492,900
Due to NRZ - Advance collections, servicing fees and other106,295
 63,596
Other accrued expenses68,967
 67,241
Liability for indemnification obligations45,601
 52,785
Servicing-related obligations42,383
 88,167
Lease liability39,761
 44,488
Checks held for escheat30,178
 31,959
Accrued legal fees and settlements27,801
 30,663
Liability for unfunded pension obligation12,626
 13,383
Liability for uncertain tax positions10,786
 17,197
Accrued interest payable7,302
 5,964
Liability for unfunded India gratuity plan5,256
 5,331
Derivatives, at fair value1,033
 100
Liability for mortgage insurance contingency—
 6,820
Other21,930
 21,579
 $1,034,366
 $942,173

Note 13 – Equity
On February 3, 2020, Ocwen’s Board of Directors authorized a share repurchase program for an aggregate amount of up to $5.0 million of Ocwen’s issued and outstanding shares of common stock. During the three months ended March 31, 2020, we completed the repurchase of 5,662,257377,484 shares of common stock in the open market under this program at prevailing market prices for a total purchase price of $4.5 million for an average price paid per share of $0.79.$11.90. In addition, Ocwen paid $0.1 million in commissions. The repurchased shares were formally retired as of March 31, 2020. No additional shares were repurchased duringprior to the three months ended June 30, 2020. Unless we amend the share repurchase program or repurchase the remaining $0.5 million by an earlier date, the share repurchase program will expireprogram’s expiration on February 3, 2021. No assurances can be given as to the amount of shares, if any, that we may repurchase in any given period.
On April 8,Effective August 13, 2020, Ocwen was notified by the New York Stock Exchange (the NYSE) that the average per share trading price of its commonimplemented a one-for-15 reverse stock was below the NYSE’s continued listing standard rule relating to minimum average share price. The NYSE generally requires that a company’s common stock trade at a minimum average closing price of $1.00 over a consecutive 30 trading-day period. Companies have six months from receipt of the notice to regain compliance with the NYSE’s price condition. Receipt of the NYSE notification does not conflict with nor cause an event of default under any of Ocwen’s debt agreements. Pursuant to the NYSE’s rules, during the cure period, Ocwen’s common stock will continue to be listed and trade on the NYSE. On April 21, 2020, the NYSE announced that, due to market-wide declines brought about by the extraordinary circumstances of the COVID-19 pandemic, it would toll until July 1, 2020 the running of cure periods for companies not in compliance with the minimum share price standard. As a result, the remainder of Ocwen’s cure period was tolled until July 1, 2020 and Ocwen must regain compliance with the NYSE’s share price standard by December 17, 2020.
At Ocwen’s Annual Meeting of Shareholders held on May 27, 2020, its shareholders approved, on a non-binding advisory basis, an amendment to our Articles of Incorporation to effect a reverse split of all outstanding shares of ourits common stock at a ratio of any amount between, and including, one-for-five and one-for-25, and reducereduced the number of authorized shares of our common stock by the same proportion asproportion. Shareholders entitled to receive fractional shares of common stock received shares rounded up to the rationearest whole share in lieu of such fractional shares, with an aggregate 4,692 additional shares issued. The number of outstanding shares was reduced from 130,013,696 to 8,672,272 and the authorized shares from 200,000,000 to 13,333,333 effective August 13, 2020, with giving effect to the rounding up of fractional shares. The $0.01 par value per share of common stock remained unchanged.
As disclosed in Note 11 – Borrowings, concurrent with the issuance of the reverseOFC Senior Secured Notes on March 4, 2021, Ocwen issued to Oaktree warrants to purchase 1,184,768 shares of its common stock split. As authorized(which amount, upon exercise of the warrants, would be equal to 12% of Ocwen’s outstanding common stock as of the date of issuance of the warrants) at an exercise price of $26.82 per share, subject to antidilution adjustments. The warrants may be exercised at any time from the date of issuance through March 4, 2027. In lieu of a cash exercise price, the holder of the warrants may elect a net share exercise whereby the number of shares of common stock received upon exercise is reduced by the Boardnumber of Directors,shares equivalent to the exercise price based on July 28, 2020,the fair market value of the stock, as defined. The warrants may not be exercised if Oaktree’s ownership of Ocwen’s common stock would exceed 19.9% without prior shareholder approval, or 9.9% without prior regulatory approvals. If these limitations apply, Oaktree would have the right to exercise the warrants to purchase shares of Ocwen determinednon-voting perpetual preferred stock convertible into one share of Ocwen common stock. While the warrants will not be registered, we entered into a registration rights agreement with Oaktree pursuant to implement a reversewhich we will register for resale the shares of common stock splitissuable upon exercise of the warrants within 18 months after March 4, 2021. On March 4, 2021, the $16.5 million allocated fair value of the warrants was reported as Additional Paid-in Capital in a ratioour consolidated balance sheet, net of one-for-15, which is expected to take effect in August 2020. See Note 22 – Subsequent Events and Note 17 – Basic and Diluted Earnings (Loss) per Share.

allocated debt issuance costs of $0.8 million.

34

Note 14 – Derivative Financial Instruments and Hedging Activities
The following table below summarizes the fair value, notional and maturity of derivative activity, including the derivatives used in each of our identified hedging programs.instruments. The notional amount of our contracts does not represent our exposure to credit loss. None of the derivatives were designated as a hedge for accounting purposes as of or during the sixthree months ended June 30, 2020March 31, 2021 and 2019:2020.
March 31, 2021December 31, 2020
MaturitiesNotionalFair valueMaturitiesNotionalFair value
Derivative Assets
Forward sales of Reverse loansApr. 2021 to May .2021$70,000 $100 Jan. 2021$30,000 $34 
Forward loans IRLCsJul. 2021916,930 13,622 Apr. 2021619,713 22,224 
Reverse loans IRLCsApr. 202150,197 967 Jan. 202111,692 482 
TBA forward MBS tradesApr. 2021 to May .2021590,000 794 N/A0 0 
Interest rate swap futuresN/A0 0 Mar. 2021593,500 504 
OtherN/A0 0 0 2 
Total$1,627,127 $15,483 $1,254,905 $23,246 
Derivative Liabilities
Forward sales of Reverse loansApr. 2021$35,000 $(152)Jan. 2021$20,000 $(84)
TBA forward MBS tradesApr. 202110,000 (314)Jan. 2021400,000 (4,554)
Interest rate swap futuresJun. 20211,400,000 (9,532)N/A0 0 
OtherN/A0 (14)N/A0 0 
Total$1,445,000 $(10,012)$420,000 $(4,638)
The table below summarizes the net gains and losses of our derivative instruments recognized in our consolidated statement of operations.
Three Months Ended March 31, 2021Three Months Ended March 31, 2020
Gain / (Loss)Gain / (Loss)
AmountFinancial Statement LineAmountFinancial Statement Line
Derivative Assets (Liabilities)
Forward loans IRLCs$(8,602)Gain on loans held for sale, net$5,714 Gain on loans held for sale, net
Reverse loans IRLCs485 Reverse mortgage revenue, net(115)Reverse mortgage revenue, net
Interest rate swap futures and TBA forward MBS trades0 Gain on loans held for sale, net (Economic hedge)(7,192)Gain on loans held for sale, net (Economic hedge)
Interest rate swap futures and TBA forward MBS trades(13,682)MSR valuation adjustments, net35,291 MSR valuation adjustments, net
Forward sales of Reverse loans(2)Reverse mortgage revenue, net(143)Reverse mortgage revenue, net
Other(16)Gain on loans held for sale, net0 Gain on loans held for sale, net
Total$(21,816)$33,555 
 IRLCs Interest Rate Risk
 MSR Hedging IRLCs and Loans Held for Sale Borrowings
 TBA / Forward MBS Trades and Futures (1) Forward Trades Interest Rate Caps
Notional balance at June 30, 2020 (2)$507,632
 $395,000
 $80,000
 $—
Notional balance at December 31, 2019232,566
 1,200,000
 60,000
 27,083
        
MaturityJuly 2020 - Sept. 2020 Sept. 2020 July 2020 - Aug. 2020 N/A
        
Fair value of derivative assets (liabilities) at: 
  
  
  
June 30, 2020$17,818
 $5,019
 $(1,017) $—
December 31, 20194,878
 1,121
 (92) —
        
Gains (losses) on derivatives during the six months ended:Gain on loans held for sale, net MSR valuation adjustments, net Gain on loans held for sale, net Other, net
June 30, 2020$12,048
 $42,811
 $(10,320) $—
June 30, 2019(296) $—
 (3,238) (335)
35

(1)
The June 30, 2020 balance is comprised of $395.0 million notional balance and $5.0 million fair value, of interest rate swap futures (0 at December 31, 2019). The related gain on these interest rate futures for the six months ended June 30, 2020 was $5.0 million.
(2)Includes $30.2 million IRLC and $80.0 million forward trades related to reverse mortgage loans, for which we recorded a $0.7 million hedging gain in Reverse mortgage revenue, net for the six months ended June 30, 2020.
We report derivatives at fair value in Other assets or in Other liabilities on our unaudited consolidated balance sheets. Derivative instruments are generally entered into as economic hedges against changes in the fair value of a recognized asset or liability and are 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 (losses) gains were $(0.1) million and $(0.9) million, and $(0.1) million and $0.1 million, during the three and six months ended June 30, 2020 and 2019, respectively, and are reported in Other, net in the unaudited consolidated statements of operations.
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, managementManagement 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 8 — Rights to MSRs),

•
less the Agency MSRs subject to our agreements with NRZ (See Note 8 — Rights to MSRs),
less the asset value for securitized HECM loans, net of the corresponding HMBS-related borrowings, and
•less the net value of our held for sale loan portfolio and interest rate lock commitmentsIRLCs (pipeline).
In the first quarter of 2021, we have included in our net MSR portfolio exposure to be hedged the exposure related to expected future MSR bulk acquisitions subject to letters of intent, representing approximately $68 billion of UPB. The expected future MSR bulk acquisitions subject to non-binding letters of intent were not recognized as an asset or liability in our financial statements as of March 31, 2021.
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 June 30, 2020,March 31, 2021, 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 and exchange-traded interest rate swap futures as hedging instruments. These derivative instruments 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. Interest rate swap futures are exchange-traded and centrally cleared. We report changes in fair value of these derivative instruments in MSR valuation adjustments, net in our unaudited consolidated statements of operations.
The TBAs and interest rate swap futures 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 had previously been economically hedged with freestanding derivatives such as forward contracts. 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.
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 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 were primarily used to fix the forward sales price that 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.
Advance Match Funded Liabilities
When required by our advance financing arrangements, we purchase 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 debt.
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. Depending on the magnitude and risk of our positions we may enter into any forward
36

exchange contracts to hedge against the effect of changes in the value of the India Rupee or Philippine Peso. We currently do not hedge our foreign currency exposure with derivative instruments. Foreign currency remeasurement exchange gains (losses) were $0.2 million and $(0.9) million during the three months ended March 31, 2021 and 2020, respectively, and are reported in Other, net in the consolidated statements of operations.
Note 15 – Interest Expense
 Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Other secured borrowings$11,633
 $9,245
 $26,925
 $17,123
Senior notes6,658
 8,502
 13,319
 17,014
Advance match funded liabilities7,311
 7,045
 12,976
 14,697
Other1,158
 3,849
 3,522
 6,296
 $26,760
 $28,641
 $56,742
 $55,130

Three Months Ended March 31,
20212020
Senior notes$9,495 $6,661 
Mortgage loan warehouse facilities5,283 3,460 
MSR financing facilities4,572 5,037 
Advance match funded liabilities4,496 5,665 
SSTL2,957 6,794 
Other1,649 2,365 
 $28,452 $29,982 



Note 16 – Income Taxes
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was signed into law. The CARES Act includes several significant business tax provisions that, among other things, temporarily repealed the taxable income limitation for certain net operating losses (NOL) and allows businesses to carry back NOLs arising in 2018, 2019, and 2020 tax years to the five prior tax years, accelerateaccelerated refunds of previously generated corporate Alternative Minimum Tax (AMT) credits, and adjustsadjusted the business interest expense limitation under section 163(j) from 30% to 50% of Adjusted Taxable Income (ATI) for 2019 and 2020 tax years.
Based on information available at thisthe time, we estimateestimated that modifications to the tax rules for the carryback of NOLs and business interest expense limitations willwould result in U.S. and USVI federal net tax refunds of approximately $63.1$62.9 million and $1.9 million, respectively, and as such we recognized an income tax benefit of $65.0$64.8 million in our unaudited consolidated financial statements for the sixthree months ended June 30,March 31, 2020.
The income tax benefit recognized represents the release of valuation allowances against certain NOL and Section 163(j) deferred tax assets that are now more likely than not to be realizablewere realized as a result of certain provisions of the CARES Act as well as permanent income tax benefit related to the carryback of NOLs created in a tax year that was subject to U.S. federal tax at a 21% rate to a tax year subject to tax at a 35% rate.
The determination of the refund potential associated with the NOL carryback provision of the CARES Act is subject to change as we continue to wait upon further guidance from the IRS and analyze additional information necessary to finalize the calculations and maximize the long-term value to Ocwen. As we await further guidance and continue to analyze our options, our determination of the impact of the CARES Act on our 2020 financial statements is preliminary at this time..
We recognized an income tax benefit,expense, exclusive of the impact of the CARES Act related to tax years 2018recognized in 2020, of $3.1 million and 2019, of $5.0$2.9 million primarilyfor the three months ended March 31, 2021 and 2020, respectively, due to the favorable resolutionmix of an uncertainearnings among different tax position duringjurisdictions with different statutory tax rates. Under our transfer pricing agreements, our operations in India, Philippines, and USVI are compensated on a cost-plus basis for the six months ended June 30, 2020.services they provide, such that even when we incur a consolidated pre-tax loss from continuing operations these foreign operations generate taxable income, which is subject to statutory tax rates in these jurisdictions that are significantly higher than the U.S. statutory rate of 21%.



37

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 restricted stock awards, stock options and restrictedwarrants as determined using the treasury stock awards.method. For the sixthree months ended June 30,March 31, 2020, and three and six months ended June 30, 2019, 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 March 31,
20212020
Basic earnings (loss) per share
Net income (loss)$8,543 $(25,489)
Weighted average shares of common stock8,688,009 8,990,589 
Basic earnings (loss) per share$0.98 $(2.84)
Diluted earnings (loss) per share
Net income (loss)$8,543 $(25,489)
Weighted average shares of common stock8,688,009 8,990,589 
Effect of dilutive elements
Common stock warrants34,309 0 
Common stock awards155,174 0 
Dilutive weighted average shares of common stock8,877,492 8,990,589 
Diluted earnings (loss) per share$0.96 $(2.84)
Stock options and common stock awards excluded from the computation of diluted earnings (loss) per share
Anti-dilutive (1)180,225 249,188 
Market-based (2)157,581 125,397 
 Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Basic earnings (loss) per share       
Net income (loss)$1,954
 $(89,737) $(23,535) $(134,231)
        
Weighted average shares of common stock129,769,092
 134,465,741
 132,313,964
 134,193,874
        
Basic income (loss) per share$0.02
 $(0.67) $(0.18) $(1.00)
        
Diluted earnings (loss) per share       
Net income (loss)$1,954
 $(89,737) $(23,535) $(134,231)
        
Weighted average shares of common stock129,769,092
 134,465,741
 132,313,964
 134,193,874
Effect of dilutive elements       
Stock option awards—
 —
 —
 —
Common stock awards153,251
 —
 —
 —
Dilutive weighted average shares of common stock129,922,343
 134,465,741
 132,313,964
 134,193,874
        
Diluted earnings (loss) per share$0.02
 $(0.67) $(0.18) $(1.00)
        
Stock options and common stock awards excluded from the computation of diluted earnings (loss) per share       
Anti-dilutive (1)3,175,931
 4,107,485
 3,681,157
 4,126,819
Market-based (2)1,880,954
 854,181
 1,880,954
 854,181
(1)Includes stock options that are anti-dilutive because their exercise price was greater than the average market price of Ocwen’s stock, and stock awards that are anti-dilutive based on the application of the treasury stock method.
(1)Includes stock options that are anti-dilutive because their exercise price was greater than the average market price of Ocwen’s 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.
(2)Shares that are issuable upon the achievement of certain market-based performance criteria related to Ocwen’s stock price.
As disclosed in Note 13 – Equity,, on July 28, 2020, Ocwen determined to implementimplemented a reverse stock split in a ratio of one-for-15 which is expected to take effect ineffective on August 13, 2020. The above computationcomputations of earnings (loss) per share reflects the number of common stock without consideration for the reverse stock split, because it is not effective as of the date the financial statements are issued.
The below pro-forma computation of earnings (loss) per share reflectsreflect the number of common stock shares givingafter consideration for the one-for-15reverse stock split. All common share and loss per share amounts have been adjusted retrospectively to give effect to the reverse stock split assumingas if it was retroactively effective for eachoccurred at the beginning of the periods presented:first period presented.


Pro-forma computation of earnings (loss) per share assuming a one-for-15 reverse stock split:Three Months Ended June 30, Six Months Ended June 30,
2020 2019 2020 2019
Basic earnings (loss) per share       
Net income (loss)$1,954
 $(89,737) $(23,535) $(134,231)
        
Weighted average shares of common stock8,651,273
 8,964,383
 8,820,931
 8,946,258
        
Basic income (loss) per share$0.23
 $(10.01) $(2.67) $(15.00)
        
Diluted earnings (loss) per share       
Net income (loss)$1,954
 $(89,737) $(23,535) $(134,231)
        
Weighted average shares of common stock8,651,273
 8,964,383
 8,820,931
 8,946,258
Effect of dilutive elements       
Stock option awards—
 —
 —
 —
Common stock awards10,217
 —
 —
 —
Dilutive weighted average shares of common stock8,661,490
 8,964,383
 8,820,931
 8,946,258
        
Diluted earnings (loss) per share$0.23
 $(10.01) $(2.67) $(15.00)
        

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 currentOur reportable business segments is as follows:
Servicing. This segment is primarily comprisedconsist of our core residential mortgage servicing businessServicing, Originations, 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 or securitization 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.
Originations. The Originations segment (previously labeled as Lending) purchases and originates conventional and government-insured residential forward and reverse mortgage loans through multiple channels. 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 (recapture channel) 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. In addition to our originated MSRs, we acquire MSRs through multiple channels, including flow purchase agreements, the GSE Co-issue and Cash Window programs and bulk MSR purchases, and we acquire new subservicing through our enterprise sales. The pricing and acquisition decisions are made relative to other originated MSR channels. Accordingly, as part of our internal management reporting we renamed the Lending segment as Originations effective in the first quarter 2020, without any other changes to our operating and reporting segments.
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 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. Corporate Items and Other also includes severance, retention, facility-related and other expenses incurred in 2019 and 2020 related to our cost re-engineering plan and initiatives. Our cash balances are included in Corporate Items and Other. CRL provides re-insurance relatedDuring the three months ended March 31, 2021, there have been no changes to coverageour business segments as disclosed in our Annual Report on foreclosed real estate properties owned or serviced by us.Form 10-K for the year ended December 31, 2020.
Effective with the fourth quarter of 2020, we have reported the results of Reverse Servicing within the Servicing segment. Previously, the Reverse Servicing business was included in the reported results of the Originations segment. This alignment of our business segments is consistent with a change in the management of the business and a change in the internal management reporting to the chief operating decision maker. Segment results for 2020 have been recast to conform to the current segment presentation. Reverse Servicing generated Revenue and Income before income taxes of $16.0 million and $12.2 million, respectively, for the three months ended March 31, 2020. Reverse Servicing assets consist primarily of securitized Loans held for investment - Reverse Mortgages.
38


We allocate a portionRevenues and expenses directly associated with each respective business segments are included in determining its results of interest income to each business segment, including interest earned on cash balances. operations.We also allocate certain expenses incurred by corporate support services that are not directly attributable to a segment to each business segment. Beginning in 2020, we updated our methodology toWe allocate overhead costs incurred by corporate support services to the Servicing and Originations segments which now incorporates the utilization of various measurements primarily based on time studies, personnel volumes and service consumption levels. In 2019, corporate support services costs were primarily allocated based on relative segment size. Support services costs not allocated to the Servicing and Originations segments are retained in the Corporate Items and Other segment along with certain other costs including certain litigation and settlement related expenses or recoveries, costs related to our re-engineering plan,initiatives, and other costs related to operating as a public company. We allocate a portion of interest income to each business segment, including interest earned on cash balances.
Interest expense on direct asset-backed financings are recorded in the respective Servicing and Originations segments, whilesegments. Beginning in the third quarter of 2020, we began allocating interest expense on corporate debt, including the SSTL and Senior Notes, is recorded inused to fund servicing advances and other servicing assets from Corporate Items and Other to Servicing. Amortization of debt issuance costs and discount are excluded from the interest expense allocation. The interest expense related to the corporate debt has been allocated to the Servicing segment for periods prior to the third quarter of 2020 to conform to the current period presentation. The interest expense allocation is not allocated.$10.5 million for the three months ended March 31, 2020.
As a result of our risk management strategy to hedge the interest rate risk of our net MSR portfolio, the fair value changes of third-party derivative instruments are reported within MSR valuation adjustments, net. For management segment reporting purposes, we establish inter-segment derivative instruments to transfer the risks and allocate the associated fair value changes of derivatives between Servicing and Originations, and specifically between MSR valuation adjustments, net and Gain on loans held for sale, net (Gain/loss on economic hedge instruments). The inter-segment derivative fair value changes are eliminated in the consolidated financial statements in the Corporate Elimination column in the table below.
39

Financial information for our segments is as follows:
Three Months Ended March 31, 2021
Results of Operations ServicingOriginationsCorporate Items and OtherCorporate Eliminations (1)Business Segments Consolidated
Servicing and subservicing fees$169,354 $2,384 $0 $0 $171,738 
Reverse mortgage revenue, net2,035 19,791 0 0 21,826 
Gain on loans held for sale, net3,521 37,593 0 (35,393)5,721 
Other revenue, net502 6,518 1,289 0 8,309 
Revenue175,412 66,286 1,289 (35,393)207,594 
MSR valuation adjustments, net(22,690)8,505 0 35,393 21,208 
Operating expenses82,753 37,328 19,548 0 139,629 
Other (expense) income:
Interest income1,257 2,566 113 0 3,936 
Interest expense(20,309)(3,552)(4,591)0 (28,452)
Pledged MSR liability expense(37,883)0 33 0 (37,850)
Loss on extinguishment of debt0 0 (15,458)0 (15,458)
Other452 50 (212)0 290 
Other expense, net(56,483)(936)(20,115)0 (77,534)
Income (loss) before income taxes$13,486 $36,527 $(38,374)$0 $11,639 
Three Months Ended March 31, 2020
Results of Operations ServicingOriginationsCorporate Items and OtherCorporate Eliminations (1)Business Segments Consolidated
Servicing and subservicing fees$211,469 $1 $13 $0 $211,483 
Reverse mortgage revenue, net16,673 6,124 0 0 22,797 
Gain on loans held for sale, net229 13,102 0 0 13,331 
Other revenue, net1,159 2,445 — 2,627 0 6,231 
Revenue229,530 21,672 2,640 0 253,842 
MSR valuation adjustments, net(174,448)328 0 0 (174,120)
Operating expenses84,479 22,952 29,783 0 137,214 
Other (expense) income:
Interest income2,529 1,623 1,243 0 5,395 
Interest expense(24,581)(2,433)(2,968)0 (29,982)
Pledged MSR liability expense(6,623)0 29 0 (6,594)
Other3,655 (22)(2,305)0 1,328 
Other expense, net(25,020)(832)(4,001)0 (29,853)
Loss before income taxes$(54,417)$(1,784)$(31,144)$0 $(87,345)
 Three Months Ended June 30, 2020
Results of Operations Servicing Originations Corporate Items and Other Business Segments Consolidated
Revenue$180,436
 $45,545
 $1,043
 $227,024
        
MSR valuation adjustments, net(36,604) 13,170
 —
 (23,434)
        
Operating expenses (1)82,740
 28,750
 33,319
 144,809
        
Other (expense) income:       
Interest income1,438
 1,874
 254
 3,566
Interest expense(12,890) (2,399) (11,471) (26,760)
Pledged MSR liability expense(41,714) —
 28
 (41,686)
Other2,459
 (1) (2,515) (57)
Other expense, net(50,707) (526) (13,704) (64,937)
        
Income (loss) before income taxes$10,385
 $29,439
 $(45,980) $(6,156)
        
 Three Months Ended June 30, 2019
Results of Operations Servicing Originations Corporate Items and Other Business Segments Consolidated
Revenue$242,510
 $28,794
 $3,034
 $274,338
        
MSR valuation adjustments, net(147,199) (69) —
 (147,268)
        
Operating expenses (1)142,888
 20,957
 20,381
 184,226
 

 

 

 

Other (expense) income:       
Interest income1,872
 1,546
 419
 3,837
Interest expense(11,261) (1,399) (15,981) (28,641)
Pledged MSR liability expense(2,930) —
 —
 (2,930)
Other890
 444
 (777) 557
Other (expense) income, net(11,429) 591
 (16,339) (27,177)
        
Income (loss) before income taxes$(59,006) $8,359
 $(33,686) $(84,333)
        
(1)Corporate Eliminations for the three months ended March 31, 2021 includes an inter-segment derivatives elimination of $35.4 million with a corresponding offset in MSR valuation adjustments, net; nil for the three months ended March 31, 2020.
40

Total AssetsServicingOriginationsCorporate Items and OtherBusiness Segments Consolidated
March 31, 2021$9,869,673 $525,610 $376,505 $10,771,788 
December 31, 2020$9,847,603 $379,233 $424,291 $10,651,127 
March 31, 2020$9,321,628 $205,198 $459,198 $9,986,024 


Depreciation and Amortization ExpenseServicingOriginationsCorporate Items and OtherBusiness Segments Consolidated
Three months ended March 31, 2021
Depreciation expense$209 $24 $2,626 $2,859 
Amortization of debt issuance costs and discount129 0 1,495 1,624 
Three months ended March 31, 2020
Depreciation expense$215 $37 $3,745 $3,997 
Amortization of debt issuance costs and discount112 0 2,550 2,662 

 Six Months Ended June 30, 2020
Results of Operations Servicing Originations Corporate Items and Other Business Segments Consolidated
Revenue$393,991
 $83,192
 $3,683
 $480,866
        
MSR valuation adjustments, net(211,040) 13,486
 —
 (197,554)
        
Expenses (1)163,213
 55,708
 63,102
 282,023
        
Other (expense) income:       
Interest income3,324
 4,140
 1,497
 8,961
Interest expense(26,557) (5,260) (24,925) (56,742)
Pledged MSR liability expense(48,337) —
 57
 (48,280)
Other6,121
 (30) (4,820) 1,271
Other expense, net(65,449) (1,150) (28,191) (94,790)
        
Income (loss) before income taxes$(45,711) $39,820
 $(87,610) $(93,501)
        
 Six months ended June 30, 2019
Results of Operations Servicing Originations Corporate Items and Other Business Segments Consolidated
Revenue$501,784
 $69,885
 $6,557
 578,226
        
MSR valuation adjustments, net(256,113) (153) —
 (256,266)
        
Expenses (1) (2)299,871
 42,204
 13,258
 355,333
        
Other (expense) income:       
Interest income4,165
 3,095
 1,135
 8,395
Interest expense(22,003) (3,067) (30,060) (55,130)
Pledged MSR liability expense(46,886) —
 —
 (46,886)
Other2,416
 663
 (1,502) 1,577
Other (expense) income, net(62,308) 691
 (30,427) (92,044)
        
Income (loss) before income taxes$(116,508) $28,219
 $(37,128) $(125,417)

(1)
Compensation and benefits expense in the Corporate Items and Other segment for the three and six months ended June 30, 2020 and 2019includes $1.3 million and $1.5 million, and $0.8 million and $19.2 million, respectively, of severance expense attributable to PHH integration-related headcount reductions of primarily U.S.-based employees in 2019, as well as our overall efforts to reduce costs.
(2)Included in the Corporate Items and Other segment for the six months ended June 30, 2019, we recorded in Professional services expense a recovery from a service provider of $30.7 million during the first quarter of 2019 of amounts previously recognized as expense.


Total AssetsServicing Originations Corporate Items and Other Business Segments Consolidated
June 30, 2020$2,835,486
 $6,965,683
 $509,269
 $10,310,438
        
December 31, 2019$3,378,515
 $6,459,367
 $568,317
 $10,406,199
        
June 30, 2019$3,195,218
 $5,978,325
 $454,250
 $9,627,793

Depreciation and Amortization ExpenseServicing Originations Corporate Items and Other Business Segments Consolidated
Three months ended June 30, 2020
Depreciation expense$218
 $34
 $6,844
 $7,096
Amortization of debt discount—
 —
 (286) (286)
Amortization of debt issuance costs116
 —
 1,689
 1,805
        
Three months ended June 30, 2019
Depreciation expense$761
 $46
 $10,205
 $11,012
Amortization of debt discount—
 —
 350
 350
Amortization of debt issuance costs—
 —
 751
 751
        
Six Months Ended June 30, 2020
Depreciation expense$433
 $71
 $10,589
 $11,093
Amortization of debt discount—
 —
 643
 643
Amortization of debt issuance costs228
 —
 3,310
 3,538
        
Six months ended June 30, 2019
Depreciation expense$1,569
 $81
 $17,913
 $19,563
Amortization of debt discount—
 —
 701
 701
Amortization of debt issuance costs—
 —
 1,451
 1,451

Note 19 – Regulatory Requirements
Our business is subject to extensive regulation and supervision 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. In addition, the rules and regulations applicable to mortgage servicers and lenders, including relevant agency and investor requirements, are changing rapidly in response to the COVID-19 pandemic. 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 have in the past incurred, and may in the future incur, costs to comply with the terms of such resolutions, including staffing costs, legal costs and, in certain cases 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 CARES Act, 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 manyall facets of our business, including, but not limited to, licensing, loan origination,originations, consumer disclosures, default servicing and collections, foreclosure, filing of claims, registration of vacant or foreclosed properties, handling of escrow accounts, payment application, interest rate adjustments, assessment of fees, loss mitigation, use of credit reports, and 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.customers. These complex 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, and the requirements applicable to our business have been changing especially rapidly in response to the COVID-19 pandemic. 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, theThe 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, financial condition, liquidity and results of operations.
As further described below and in Note 21 – Contingencies, in recent years Ocwen has entered intoIn addition, a number of significant settlements with federalforeign laws and state regulators and state attorneys general that have imposed additional requirements on our business. For example, we made various commitments relating to the process of transferring loans off the REALServicing® servicing system and onto the Black Knight Financial Services, Inc. (Black Knight) LoanSphere MSP® servicing system (Black Knight MSP), we have engaged a third-party auditor to perform an analysis with respectregulations apply to our compliance with certain federaloperations outside of the U.S., including laws and stateregulations that govern licensing, privacy, employment, safety, taxes and insurance and laws relating toand regulations that govern the escrowcreation, continuation and the winding up of mortgage loan payments, we have revised various aspects ofcompanies as well as the relationships between shareholders, our complaint handling processescorporate entities, the public 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 withthe government in 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.countries.
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 June 30, 2020.
PMC and Liberty are also subject to
41

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,Mae, 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. We believe weour licensed entities were in compliance with applicableall of their minimum net worth requirements at June 30, 2020.March 31, 2021. 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 UPB of assets serviced by PMC. Under the applicable formula, the required minimum net worth was $225.4$272.0 million at June 30, 2020.March 31, 2021. PMC’s net worth was $328.8$524.2 million at June 30, 2020.March 31, 2021. The most restrictive of the various liquidity requirements for licensing and seller/servicer obligations referenced above was $27.2 million at March 31, 2021. PMC’s liquid assets were $227.0 million at March 31, 2021.
In addition,We have faced and expect to continue to face heightened regulatory and public scrutiny as an organization and have entered into a number of foreign lawssignificant settlements with federal and regulations applystate regulators and state attorneys general that have imposed additional requirements on our business. Our failure to comply with our settlement obligations to our regulators or with applicable federal, state and local laws, regulations, licensing requirements and agency guidelines could lead to (i) administrative fines, penalties, sanctions or 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) additional costs to address these matters and comply with the terms of any resulting resolutions, (vii) suspension or termination of our approved agency seller/servicer status, (viii) inability to raise capital or otherwise fund 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(ix) inability to execute on our business strategy, which could have a material adverse impact on our business, reputation, results of operations, in these countries, (ii) fines, penalties or sanctions or (iii) reputational damage.liquidity and financial condition.
New York Department of Financial Services.Services (NY DFS). In March 2017, we entered into a consent orderWe operate pursuant to certain regulatory requirements with the NY DFS, including obligations arising under a consent order entered into in March 2017 (the 2017 NY Consent Order) that provided forand the terminationterms of the engagement of a monitor appointed pursuant to an earlier 2014 consent order and for us to address certain concerns raised by the NY DFS that primarily relate to our servicing operations, as well as for us to comply with certain reporting and other obligations. In addition, in connection with the NY DFS’ conditional approval in September 2018 of our acquisition of PHH, we agreed to satisfy certain post-closing requirements, includingPHH. The conditional approval includes reporting obligations and record retention and other requirements relating to the transfer of loans collateralized by New York property (New York loans) onto Blackour servicing system, the Financial Services, Inc. (Black Knight) LoanSphere MSP® servicing system (Black Knight MSPMSP) and certain requirements with respect to the evaluation and supervision of management of both Ocwen and PMC. In addition, we were prohibited from boarding any additional loans onto the REALServicing system and we were required to transfer all New York loans off the REALServicing system by April 30, 2020. The conditional approval also modified a preexisting restriction onrestricts our ability to acquire MSRs such that the restriction applies only to New York loans and, with respect to New York loans, providesso 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).year. This restriction will remain in place until the NY DFS determines that all loans serviced on the REALServicing system have been successfully migrated to Black Knight MSP and that Ocwen has developed a satisfactory infrastructure to board sizable portfolios of MSRs. We have transferred all loans onto Black Knight MSP in 2019 and no longer service any loans on the REALServicing system.
We believe we have complied with all terms of the PHH acquisition conditional approval to date. 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 OversightFinancial Protection and Innovation (CA DFPI). In January 2015 and February 2017, Ocwen Loan Servicing, LLC (OLS) entered into a consent order (the 2015 CA Consent Order)orders with the CA DBODFPI (formerly known as the California Department of Business Oversight) 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 Orderexamination and resolved open matters between us and the CA DBO.relating to alleged servicing practices. We have completed all of our obligations under the 2017 CA Consent Order. Pursuant to the 2017 CA Consent Order,each of these consent orders. In October 2020, we entered into a consent order with the CA DBO engagedDFPI in order to resolve a third-party administratorlegacy PHH examination finding and, in conjunction therewith, agreed to confirm, at the expense ofpay $62,000 (sixty-two thousand dollars) in penalties. We continue to work with the CA DBO, that Ocwen completed certainDFPI to address matters they raise with us as well as to fulfill our commitments under the 2017 CA Consent Order, specifically including our obligation to complete $198.0 million in debt forgiveness for California borrowers by June 30, 2019. This third-party administrator has issued its final report, which confirms that we have completed all obligations under the 2017 CA Consent Order, including the debt forgiveness obligation.consent order.
Note 20 — Commitments
Servicer Advance Obligations
In the normal course of business as servicer or master servicer, we are required to advance loan principal and interest payments (P&I), property taxes and insurance premiums (T&I) on behalf of the borrower to the investor of the loan, if delinquent or delinquent and under a forbearance plan. We also advance legal fees, inspection, maintenance, and preservation costs (Corporate advances) on properties that are in default or have been foreclosed. Our obligations to make these advances are governed by servicing agreements or guides, depending on investors or guarantor.
For PLS loans, generally, we may stop advancing for P&I once future advances are deemed non-recoverable from the net proceeds of the property, although we are generally obligated to continue T&I and Corporate advances until the loan is brought


current or until completion of a foreclosure, in which case, we generally recover our advances from the net proceeds of the property or the pool level proceeds, i.e., generally after the completion of the foreclosure.
For Ginnie Mae loans, we are required to make advances for the life of the loan without regard to whether we will be able to recover those payments from cure, liquidation proceeds, insurance proceeds, or late payments. We may stop advancing P&I by purchasing loans out of the pool when they are more than 90 days delinquent. To the extent there are excess funds in the custodial accounts, we are permitted to net for our P&I remittance. We are also required to advance both T&I and Corporate advances until cure or liquidation.
For GSE loans, we are required to advance interest payments until the borrower is 120 days delinquent for Freddie Mac loans and P&I until borrower resolution or liquidation for Fannie Mae loans. For Freddie Mac loans, servicers may submit claims for T&I and Corporate advances upon borrower resolution or liquidation. For Fannie Mae loans, we can submit reimbursement claims for certain T&I and Corporate advances after incurring the expense. T&I and Corporate advancing on GSE loans continues until the property is sold.
As subservicer, we are required to make P&I, T&I and Corporate advances on behalf of servicers following the servicing agreements or guides. Servicers are generally required to reimburse us within 30 days of our advancing under the terms of the subservicing agreements. We are generally reimbursed by NRZ the same day we fund P&I advances, or within no more than three days for servicing advances and certain P&I advances under the Ocwen agreements.
NRZ is obligated to fund new servicing advances with respect to the MSRs underlying the Rights to MSRs (RMSR), pursuant to the 2017 Agreements and New RMSR Agreements. NRZ has the responsibility to fund advances for loans where they own the MSR, i.e., are the servicer of record.
We are dependent upon NRZ for funding the servicing advance obligations for Rights to MSRs where we are the servicer. As the servicer, we are contractually required under our servicing agreements to make certain servicing advances even if NRZ does not perform its contractual obligations to fund those advances. NRZ currently uses advance financing facilities in order to fund a substantial portion of the servicing advances that they are contractually obligated to purchase pursuant to our agreements with them. See Note 8 — Rights to MSRs and Note 11 – Borrowings for additional information. As of June 30, 2020, the UPB of loans serviced on behalf of NRZ comprised the following:
Ocwen servicer of record (MSR title retained by Ocwen) - Ocwen MSR (1)$17,424,584
NRZ servicer of record (MSR title transferred to NRZ) - Ocwen MSR (1)91,419,371
Ocwen subservicer176,805
Total NRZ UPB at June 30, 2020$109,020,760
(1)The MSR sale transactions did not achieve sale accounting treatment.
COVID-19 Update
On March 27, 2020, the CARES Act was signed into law. The CARES Act allows borrowers with federally backed mortgage loans who are affected by COVID-19 to request temporary loan forbearance. Servicers must provide such forbearance for up to 180 days if requested by the borrower. Borrowers may request an additional forbearance period of up to 180 days for FHA and VA guaranteed loans. Although PLS loans are not explicitly covered under the CARES Act, these loans are subject to various requirements and expectations from state Governors, regulators, and Attorneys General to assist borrowers enduring financial hardship due to COVID-19 with forbearance and other requirements. Ocwen provides payment relief to such borrowers in accordance with these requirements and expectations, as well as our servicing agreements. For example, we have granted eligible borrowers an initial three months of forbearance and related protection, including suspension of late fees, as well as suspension of foreclosure and eviction activity.
For eligible PLS loans that are not significantly delinquent at the time forbearance was applied to the account, Ocwen places these borrowers on initial forbearance plans of three months. Ocwen provides monthly payment deferrals throughout the forbearance period which advance the due date and move the resulting missed payments to or near the loan’s maturity as a non-interest bearing balance. As such, Ocwen does not expect to be out of pocket cash for P&I and T&I advances for any more than one month for each of these eligible loans with forbearance protection.
For Ginnie Mae loans, advance requirements until cure or liquidation are mitigated by the ability to use excess funds in custodial accounts to cover principal and interest advances, though the remaining advances are covered by corporate cash. For loans in forbearance, we advance P&I while the forbearance plan is active. Reimbursement of such P&I advance is expected after the forbearance period ends, through loan resolution, cure or liquidation.
For GSE loans, once we have advanced four months of missed payments on a loan, we have no further obligation to advance scheduled payments as the loan will be moved into an “Actual/Actual” remittance status. Reimbursement of such P&I advance is expected after the forbearance period ends, through loan resolution, cure or liquidation. We are required to make T&I


and Corporate advances until the property is sold but can submit reimbursement claims for certain T&I and Corporate advances after incurring the expense on Fannie Mae loans. Freddie Mac requires servicers to wait until borrower resolution or liquidation to submit claims for T&I and Corporate advances.
In June 2020, Fannie Mae and Freddie Mac announced a new servicer incentive related to their previously announced COVID-19 payment deferral, and temporary updates to other servicer incentives, which became effective on July 1, 2020. Subject to certain eligibility criteria, servicers will receive incentive fees of $500 for repayment plans with a first payment due date on or after July 1, 2020 and for payment deferrals completed on or after July 1, 2020, and will receive an incentive fee of $1,000 for completed Flex Modifications® with a trial plan period effective date on or after July 1, 2020. Total servicer incentives per mortgage loan will be cumulatively capped at $1,000.
The below table shows the requests for forbearance plans and the estimated obligation to advance monthly P&I:
 As of June 30, 2020 As of March 31, 2020
Number of Forbearance Plans (3) 
Estimated Monthly P&I Advance Obligation
($ million)
 Number of Forbearance Plans (3) 
Estimated Monthly P&I Advance Obligation
($ million)
GSE loans6,600
 $8.3
 1,400
 $1.8
Ginnie Mae loans9,900
 9.2
 400
 0.5
PLS loans18,000
 26.5
 3,700
 5.8
Servicer34,500
 $44.0
 5,500
 $8.1
        
GSE loans10,100
 $11.0
 2,300
 $2.6
PLS loans73,800
 70.8
 14,500
 14.0
NRZ’s responsibility (1)83,900
 $81.8
 16,800
 $16.6
Subservicer (2)7,600
 $10.1
 3,900
 $4.5
No advance requirements5,400
 —
 1,300
 —
Total131,400
 $135.9
 27,500
 $29.2
(1)
Ocwen is obligated to advance under the terms of the 2017 Agreements and New RMSR Agreements, and NRZ is obligated to reimburse Ocwen daily for PLS and weekly for Freddie Mac and Fannie Mae servicing advances. See above, Note 8 — Rights to MSRs and Note 11 – Borrowings for additional information, and below description of NRZ Relationship.
(2)Ocwen is obligated to advance under the terms of subservicing agreements, and subservicing clients (servicers) are generally obligated to reimburse Ocwen within one day to 30 days for P&I advances.
(3)Numbers have been rounded.
Unfunded Lending Commitments
We have originated floating-rate reverse mortgage loans under which the borrowers have additional borrowing capacity of $1.6$2.1 billion at June 30, 2020.March 31, 2021. This additional borrowing capacity is available on a scheduled or unscheduled payment basis. During the three months ended March 31, 2021, we funded $47.8 million out of the $2.0 billion borrowing capacity as of December 31, 2020. We also had short-term commitments to lend $477.5$916.9 million and $30.2$50.2 million in connection with our forward and reverse mortgage loan IRLCs, respectively, outstanding at June 30, 2020.March 31, 2021. We finance originated and purchased forward and reverse mortgage loans with repurchase and participation agreements, commonly referred to as warehouse lines.
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HMBS Issuer Obligations
As an HMBS issuer, we assume certain obligations related to each security issued. The most significant obligation is the requirementare required to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECMa reverse mortgage loan 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, or when they become inactive (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, includingprimarily MCA repurchases, are as follows:
Three Months Ended March 31, 2021
ActiveInactiveTotal
NumberAmountNumberAmountNumberAmount
Beginning balance141 $29,852 317 $56,449 458 $86,301 
Additions66 16,448 66 14,422 132 30,870 
Recoveries, net (1)(58)(16,805)(39)(3,828)(97)(20,633)
Transfers(12)(3,727)12 3,727 0 0 
Changes in value0 9 0 (897)0 (888)
Ending balance137 $25,777 356 $69,873 493 $95,650 
 Six Months Ended June 30, 2020
 Active Inactive Total
 Number Amount Number Amount Number Amount
Beginning balance62
 $10,546
 258
 $25,147
 320
 $35,693
Additions (1)111
 27,464
 157
 18,780
 268
 46,244
Recoveries, net (2)(5) (6,872) (16) (5,588) (21) (12,460)
Transfers(2) (958) 2
 958
 —
 —
Changes in value—
 43
 —
 (1,842) —
 (1,799)
Ending balance166
 $30,223
 401
 $37,455
 567
 $67,678
(1)Total repurchases during the six months ended June 30, 2020 includes 207 loans totaling $42.3 million related to MCA repurchases.
(2)(1)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 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. Receivables are valued at net realizable value.loan payoff, REO is valued at the estimated value of the underlying propertyliquidation and claim proceeds less cost to sell.any amounts charged off as unrecoverable.
NRZ Relationship
Our Servicing segment has exposure to concentration risk and client retention risk. As of June 30, 2020,March 31, 2021, our servicing portfolio included significant client relationships with NRZ which represented 53%36% and 60%45% of our servicing portfolio UPB and loan count, respectively. The NRZ servicing portfolio accounts forrespectively, and approximately 65%64% of all delinquent loans that Ocwen services. The current terms of our agreements with NRZ extend through July 2022 (legacy Ocwen agreements). On February 20, 2020, we received a notice of termination from NRZ with respect to the subservicing agreement between NRZ and PMC, which accounted for 18% of our servicing portfolio UPB at June 30, 2020.2022. Currently, subject to proper notice (generally 180 days’ notice), the payment of termination fees and certain other provisions, NRZ has rights to terminate the legacy Ocwen agreements for convenience. Because
Oaktree MAV (MSR Asset Vehicle, LLC) Transaction
On December 21, 2020, Ocwen entered into a transaction agreement (the Transaction Agreement) with Oaktree Capital Management L.P. and certain affiliates (collectively Oaktree) and OCW MAV Holdings, LLC (OMH), a special purpose entity managed by Oaktree. The Transaction Agreement provides for Ocwen and OMH to form a strategic relationship, which will be conducted through MSR Asset Vehicle, LLC (MAV), for the purpose of investing in MSRs pertaining to mortgage loans held or securitized by Fannie Mae and Freddie Mac, subject to certain terms and conditions. The Transaction Agreement includes customary representations, warranties, covenants and closing conditions, including receipt of required regulatory approvals. The closing of the large percentagetransaction is expected to occur in the second quarter of our servicing business that is represented2021. The Transaction Agreement may be terminated on or prior to closing by agreements with NRZ, if NRZ exercised all or a significant portionmutual written agreement of these termination rights, we might need to right-size or restructure certain aspects of our servicing business as well as the related corporate support functions.
We currently account for the MSR sale agreements with NRZ as secured financings as the transactions did not achieve sale accounting treatment, except for the PMC agreement since February 2020. Accordingly, our balance sheet reflects a $582.6 million MSR asset pledged to NRZ out of a total $1.0 billion MSRs at fair value at June 30, 2020,Ocwen and a corresponding $582.6 million pledged MSR liability at fair value within Other financing liabilities. Similarly, our unaudited consolidated statement of operations reflects $62.9 millionOMH, and $153.2 million net servicing fees collected on behalf of, and remitted to, NRZ out of a total $175.2 million and $386.7 million Servicing and subservicing fees for the three and six months ended June 30, 2020, respectively, and a corresponding $62.9 million and $153.2 million expense reported within Pledged MSR liability expense. The net servicing fees collected on behalf of, and remitted to, NRZ did not affect our net earnings. In addition, we recognized amortization income related to lump sum payments we received from NRZ in 2017 and 2018, through April 2020. The reporting of MSRs and revenue gross versus net in our financial statements is required until sale accounting criteria are met, upon the earliestoccurrence of certain conditions including if the termsclosing has not occurred by July 1, 2021, subject to the ability of the agreementseither OMH or Ocwen to extend such date for up to an additional 60 days to obtain any termination notice.outstanding required regulatory approvals.
At closing, OMH and Ocwen will initially hold 85% and 15%, respectively, in MAV, which is presently a wholly owned subsidiary of OMH. The NRZ agreements affect our net earnings through the recognitionparties have agreed to invest up to $250.0 million, contributed on a pro rata basis, over a term of subservicing fees we retain, which amountedthree years following closing (subject to $25.5 million and $54.9 millionextension) for the three and six months ended June 30, 2020, respectively, and ancillary income. If NRZ were to exercise its termination rights, our net earnings would be affected by the loss of such subservicing revenue and a decrease in direct operating expenses for servicing the NRZ portfolio.
Selected assets and liabilities recorded on our consolidated balance sheets as well as the impacts to our unaudited consolidated statements of operationsuse in connection with our NRZ agreements are disclosed in Note 8 — Rightseligible MSR investments and operating expenses. Following the execution of the Transaction Agreement and until the parties have contributed their respective aggregate $250.0 million capital contributions, Ocwen has an obligation to provide an indirect subsidiary of OMH with a “first look” at opportunities presented to Ocwen or its affiliates to acquire Fannie Mae and Freddie Mac MSRs. that meet certain criteria.
NRZ is obligatedEffective as of closing, PMC will enter into a subservicing agreement (Subservicing Agreement) with an indirect subsidiary of OMH to fund new servicing advances with respect toservice the mortgage loans underlying the MSRs underlyingin exchange for a per-loan subservicing fee and certain other ancillary fees as set forth in the RightsSubservicing Agreement.
Ocwen has agreed to MSRs, pursuantsell to Oaktree and certain affiliates up to 4.9%, at Oaktree’s sole discretion, of Ocwen’s outstanding common stock at a price of $23.15 per share, and to issue to Oaktree warrants to purchase from Ocwen additional common stock equal to 3% of Ocwen’s outstanding common stock at a purchase price of $24.31 per share (subject to anti-dilution adjustments), in each case, upon closing of the 2017 AgreementsMAV transaction with Oaktree and New RMSR Agreements. We are dependent upon NRZ for funding the servicing advance obligations for


Rightssubject to MSRs where we are the servicer. As part of our risk management practices, we closely monitor the counterparty exposure arisingother customary closing conditions. The warrants expire four years after their issue date. Ocwen also agreed to grant Oaktree a pre-emptive right, effective from the funding obligationsdate of our servicer clients, including NRZ,the Transaction Agreement until 90 days after closing of the MAV transaction, to ensure timely advance remittanceparticipate in accordance with contractual requirements. Refercertain future equity financings of Ocwen in an amount that would allow Oaktree to maintain its fully-diluted ownership
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percentage of Ocwen as a result of its investment in Ocwen’s common stock and warrants. Ocwen and Oaktree have agreed to enter into a securities purchase agreement (the Securities Purchase Agreement) and warrant agreement (Warrant Agreement) at closing of the Servicer Advance Obligations above.MAV transaction to reflect these transactions. The Securities Purchase Agreement and the Warrant Agreement provide that the ownership of Oaktree and its affiliates in Ocwen’s common stock on an as-converted basis may not exceed 19.9% at any time without receipt of shareholder approval subject to applicable NYSE listing rules.
See Note 22 – Subsequent Events for information regarding the closing of the MAV transaction on May 3, 2021.
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. In addition, we may be a party or potential party to threatened or pending legal proceedings brought by fair-housing advocates, commercial counterparties, including claims by parties who provide trustee services, parties to whom we have sold MSRs or other assets, parties on whose behalf we service mortgage loans, and parties who provide ancillary services including property preservation and other post-foreclosure related services.
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 FDCPA, the RESPA, the TILA, the Fair Credit Reporting Act, the Servicemembers Civil Relief Act, the Homeowners Protection Act, the Federal Trade Commission Act, the 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, payment misapplication 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 and individual state laws, 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, claims related to call recordings, 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 matters alleging that (1) certain fees imposed on borrowers relating to payment processing, payment facilitation or payment convenience violate the FDCPA and similar state laws, (2) certain fees we assess on borrowers are marked up improperly in violation of applicable state and federal law, (3) we breached fiduciary duties we purportedly owe to benefit plans due to the discretion we exercise in servicing certain securitized mortgage loans and (4) 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
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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 $27.8$40.4 million at June 30, 2020.March 31, 2021. We cannot currently estimate the amount, if any, of reasonably possible losses above amounts that have been recorded at June 30,March 31, 2021.
As previously disclosed, we are subject to individual lawsuits relating to our FDCPA compliance and putative state law class actions based on the FDCPA and state laws similar to the FDCPA. Ocwen has recently agreed to a settlement in principle of a putative class action, Morris v. PHH Mortgage Corp., filed in March 2020 in the United States District Court for the Southern District of Florida, alleging that PMC’s practice of charging a fee to borrowers who voluntarily choose to use certain optional expedited payment options violates the FDCPA and its state law analogs. Several similar putative class actions have been filed against PMC and Ocwen since July 2019. Following mediation, PMC agreed to the terms of a settlement agreement to resolve all claims in the Morris matter. A motion requesting preliminary approval of the settlement was filed on August 25, 2020.
Several third parties, including a group of State Attorneys General, have filed papers opposing preliminary approval, and these third parties could ultimately file objections to the proposed settlement. Following the preliminary approval hearing, PMC and plaintiffs renegotiated portions of the settlement agreement to address several questions raised by the Court, and subsequently filed a renewed motion for preliminary approval. Ocwen expects final approval of the Morris settlement will resolve the claims of the substantial majority of the putative class members described in the other similar cases that Ocwen is defending. Ocwen cannot guarantee that the proposed settlement will receive final approval and in the absence of such approval, Ocwen cannot predict the eventual outcome of the Morris proceeding and similar putative class actions.
In addition, we continue to be involved in legacy matters arising prior to Ocwen’s October 2018 acquisition of PHH, including a putative class action filed in 2008 in the United States District Court for the Eastern District of California against PHH and related entities in alleging that PHH’s legacy mortgage reinsurance arrangements between its captive reinsurer, Atrium Insurance Corporation, and certain mortgage insurance providers violated RESPA. See Munoz v. PHH Mortgage Corp. et al., No. 1:08-cv-00759-DAD-BAM (E.D. Ca.). In June 2015, the court certified a class of borrowers who obtained loans with private mortgage insurance through PHH’s captive reinsurance arrangement between June 2, 2007 and December 31, 2009. PHH has asserted numerous defenses to the merits of the case. On August 12, 2020, the Court granted, in part, Plaintiffs’ Motion for Partial Summary Judgment. The only issue remaining for trial is whether the reinsurance services provided by PHH’s captive reinsurance subsidiary, Atrium, were actually provided in order for the safe harbor provision of RESPA to apply. A pre-trial conference was held on February 1, 2021. The Court declined to set a trial date due to COVID issues and strained judicial resources. Instead, the Court will resume the Pre-Trial Conference on May 24, 2021, to determine when a trial may be feasible. PHH accrued $2.5 million when the case was filed in 2008 and that amount is included in the $40.4 million legal and regulatory accrual referenced above. At this time, Ocwen is unable to predict the outcome of this 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. Ocwen intends to vigorously defend against this lawsuit. If our efforts to defend this lawsuit are not successful, our business, reputation, financial condition liquidity and results of operations could be materially and adversely affected.
The same plaintiffs who filed a TCPA class action that involves claimsagainst Ocwen subsequently filed a similar class action against trustees of RMBS trusts based on vicarious liability for Ocwen’s alleged non-compliance with the TCPA. TheAlthough they have yet to take any formal action, the trustees have soughtindicated their intent to seek indemnification from Ocwen based on the vicarious liability claims. Additional lawsuits have beenHowever, a recent Supreme Court decision significantly undercuts the predominant theory of liability under the TCPA, and may be filed against us in relation to our TCPA compliance. At this time, Ocwen is unable to predictshould provide even greater defenses on which the outcome ofCompany can rely when defending existing lawsuits or any additional lawsuits that may be filed,filed. Nevertheless, given the recency of this Supreme Court decision, and the lack of opportunity for lower courts to interpret and apply it, it remains difficult to predict the possible loss or range of loss, if any, above the 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.
Ocwen is a defendant in a certified class action in the U.S. District Court in the Eastern District of California where the plaintiffs claim Ocwen marked up fees for property valuations and title searches in violation of California state law. See Weiner v. Ocwen Financial Corp., et al.; 2:14-cv-02597-MCE-DB. Ocwen’s motion for summary judgment, filed in June 2019, was denied in May 2020; however, the court did rule that plaintiff’ recoverable damages are limited to out-of-pocket costs, i.e., the amount of marked-up fees actually paid, rather than the entire cost of the valuation that plaintiffs sought. A jury trial was scheduled for August 30, 2021, however on April 12, 2021, the case was reassigned to a new district judge and we are anticipating the new judge will advise soon on any changes to the schedule. At this time, Ocwen is unable to predict the outcome of this 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. Ocwen intends to vigorously
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defend against this lawsuit. If our efforts to defend this lawsuit are not successful, our business, financial condition liquidity and results of operations could be materially and adversely affected. Ocwen may have affirmative indemnification rights and/or other claims against third parties related to the allegations in the lawsuit. Although we may pursue these claims, we cannot currently estimate the amount, if any, of recoveries from these third parties.
From time to time we are also subject to indemnification claims from contractual parties (i) on whose behalf we service or subservice loans. loans, or did so in the past and (ii) to whom we sold loans or MSRs.
We are currently involved in a dispute with a former subservicing client, relatingHSBC Bank USA, N.A. (HSBC), which filed a complaint in the Supreme Court of the State of New York against PHH. See HSBC Bank USA, N.A. v. PHH Mortgage Corp.; (Supreme Court of the State of N.Y.; Index No. 655868/2020). HSBC’s claims relate to alleged violationsbreaches of our contractual agreements including thatentered into under a prior subservicing arrangement. We believe we did not properly submit mortgage insurancehave strong factual and otherlegal defenses to all of HSBC’s claims for reimbursement. Ocwen has contested these allegations. Weand are presently engaged in a dispute resolution process relating to these claims.vigorously defending the action. Ocwen is currently unable to predict the outcome of this dispute or estimate the size of any loss which could result from a potential resolution reached through mediation, following litigation or otherwise. We are also currently involved in three lawsuits pending in the Supreme Court of the State of New York with a purchaser of MSRs, Mr. Cooper (formerly Nationstar Mortgage Holdings Inc.), who alleges breaches of representations and warranties made by PHH in the MSR sale agreements. The initial complaint filed in the first case was dismissed in its entirety, but Mr. Cooper has since appealed that ruling, filed an amended complaint in that case, and commenced the second and third litigation. We believe we have strong factual and legal defenses to Mr. Cooper’s claims and are vigorously defending ourselves. We have also received demands for indemnification for alleged breaches of representations and warranties from parties to whom we sold loans and we are currently a defendant in an adversary proceeding brought by a bankruptcy plan administrator seeking to enforce its right to contractual indemnification for the sale of allegedly defective mortgage loans.
Over the past several years, lawsuits have been filed by RMBS trust investors alleging that the trustees and master servicers breached their contractual and statutory duties by (i) failing to require loan servicers to abide by their contractual obligations; (ii) failing to declare that certain alleged servicing events of default under the applicable contracts 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 vigorously defending itself in those cases against allegations by the mortgage loan seller-defendant that Ocwen failed to inform its contractual counterparties that it had discovered defective loans in the course of servicing them and had otherwise failed to service the loans in accordance with accepted standards. Ocwen is unable at this time to predict the ultimate outcome of these matters, the possible loss or range of loss, if any, associated with the resolution of these 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, reputation, financial condition, liquidity and results of operations could be adversely affected.
In addition, several RMBS trustees have received notices of events 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 noticean event of default notice, 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 certificate holders, or, under certain circumstances, that the RMBS investors who issue notices of event of default could seek to press their allegations against Ocwen, independent of the trustees. We are unable at this time to predict what, if any, actions any trustee will take in response to a noticean event of default notice, nor can we predict at this time the potential loss or range of loss, if any, associated with the resolution of any noticesevent of default notice 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, reputation, financial condition, liquidity and results of operations.
Regulatory
We are subject to a number of ongoing federal and state regulatory examinations, consent orders, inquiries, subpoenas, civil investigative demands,requests for information and other actions. 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.
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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 (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
In April 2017, the CFPB filed a lawsuit in the federal district court for the Southern District of Florida against Ocwen, Ocwen Mortgage Servicing, Inc. (OMS) and 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 laws prohibiting unfair, deceptive or abusive acts or practices, as well as violations of other 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 onin November 1, 2019.
Prior to the initiation of legal proceedings, we had been engaged with Ocwen and the CFPB in efforts to resolve the matter and recorded $12.5 million as of December 31, 2016 ascompleted a result of these discussions. We are taking all reasonable and prudent actions to resolve the CFPB matter, along with the Florida matter discussed below, in the shortest time frame possible that would result in an acceptable financial outcome for our stakeholders. The Court has consolidated both the CFPB and Florida matters for trial, but has removed them from the October 2020 trial calendar and will reset the trial for a later date. In addition, the Court has ordered the parties to mediation once summary judgment briefing is completedon September 4, 2020. The parties participated in September 2020. We increased our accrual relateda mediation session on October 23, 2020,and held additional settlement discussions following the conclusion of the mediation session, however, the parties were unable to reach a resolution of the litigation.
On March 4, 2021, the court issued an order granting in part and reserving ruling in part on Ocwen’s motion for summary judgment. In that order, the court granted Ocwen summary judgment on 9 of 10 counts in the CFPB’s amended complaint, finding that the CFPB’s allegations were barred under the principles of claim preclusion or res judicata to the extent those claims are premised on servicing activity occurring prior to February 26, 2017 and are covered by a 2014 Consent Judgment entered by the United States District Court for the District of Columbia. The court held that to the extent counts 1-9 concern servicing activity occurring after the expiration of the NMS consent judgment on February 26, 2017, res judicata is not a bar and therefore ordered the CFPB to submit a supplemental statement concerning its intent to pursue claims for servicing activity post-dating the expiration of the NMS Consent Judgment. As to the remaining count, the court denied the summary judgment motions of both parties, concluding that the summary judgment record revealed a genuine issue of fact. In a subsequently-filed position statement, the CFPB stated it would not be pursuing counts 1–9 for any conduct that took place after February 26, 2017, and Florida matters by $4.4 millionon April 19, 2021, the CFPB filed its Second Amended Complaint to remove count 10 as well as allegations in counts 1-9 concerning servicing activity that occurred after February 26, 2017. On April 21, 2021, the first quartercourt entered final judgment in our favor, denied all pending motions as moot, and closed the case. The CFPB has filed a notice of 2020. appeal.
Our current accrual with respect to this matter is included in the $27.8$40.4 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
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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 2017 and shortly thereafter, mortgage and banking regulatory agencies from 29 states and the District of Columbia took regulatoryadministrative 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 regulatoryThese administrative 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,actions, including Ocwen Financial Corporation, OMS, Homeward, Liberty, OFSPL and Ocwen Business Solutions, Inc. (OBS).
We entered into agreements with all 29 states plus the District of Columbia to resolve these regulatory actions. These agreements generally contained the following key terms (the Multi-State Common Settlement Terms):
Ocwen would not acquire any new residential MSRs until April 30, 2018.
Ocwen 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 would develop corrective action plans for any errors identified by the third-party auditor.
Ocwen would develop and submit for review a plan to enhance our consumer complaint handling processes.
Ocwen 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 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 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 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 would regain eligibility to acquire residential MSRs on Massachusetts loans (including loans originated by Ocwen) as we met certain thresholds in our transition to a new servicing system. Pursuant to this agreement, all restrictions on Massachusetts MSR acquisitions would be lifted when Ocwen completed the second phase of a three-phase data integrity audit. Having now completed the first and second phases of this audit, Ocwen is no longer bound by any restriction on the volume of MSR acquisitions in Massachusetts.
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,As discussed further below, we have now resolved all of the administrative actions (but not all of the legal actions, which are described below) taken by state regulatorsregulatory matters arising in April 20172017. In resolving these matters, we entered into agreements containing certain restrictions and shortly thereafter.commitments with respect to the operation of our business and our regulatory compliance activities, including restrictions and conditions relating to acquisitions of MSRs, a transition to an alternate loan servicing system from the REALServicing system, engagement of third-party auditors, escrow and data testing, error remediation, and financial condition reporting. In some instances, we also provided borrower financial remediation and made payments to state regulators.
We have taken substantial steps toward fulfilling our commitments under the agreements described above, including completing the transfer of loans to Black Knight MSP, completing pre-transfer and post-transfer data integrity audits, as described above, developing and implementing certain enhancements to our consumer complaint process, engagingcompleting a third-party auditor who has issued its final report with respect to the escrow review and ongoing reporting and information sharing. We continue to be subject to obligations under these agreements, including completing the final phase of a data integrity audit under our agreement with the State of Massachusetts.
Concurrent with the issuanceinitiation of the cease and desist ordersadministrative actions and the filing of the CFPB lawsuit discussed above, 2 state attorneys general took actions against us relating to our servicing practices. Thethe 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 (ten thousand dollars) 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 in November 2019. We filed a partial motion to dismiss the amended complaint in December 2019. On April 22, 2020, the court granted our motion and dismissed Count V of the amended complaint with prejudice holding the plaintiff failed to plead an actionable claim under the Florida Deceptive and Unfair Trade Practices Act. On May 6, 2020, Ocwen filed its answer and affirmative defenses to the amended complaint. Ocwen and the plaintiffs completed a summary judgment briefing on September 4, 2020.
On October 15, 2020, we announced that we had reached an agreement to resolve the Florida plaintiffs’ lawsuit. Pursuant to that agreement, Ocwen was required to pay the State of Florida $5.2 million within 60 days of the Court entering the final consent judgment between the parties.Ocwen then has an additional two years to provide debt forgiveness totaling at least $1.0 million to certain Florida borrowers.If Ocwen is unable to do so, then two years from now it will owe the State of Florida an additional $1.0 million. We anticipate that we will be able to satisfy the debt forgiveness obligation and therefore do not presently anticipate that the additional $1.0 million payment will be required. In addition, Ocwen agreed to certain late fee waivers, a targeted loan modification program for certain eligible Florida borrowers, and certain non-monetary reporting and handling obligations. Ocwen did not admit any fault or liability as part of the settlement. An Amended Final Consent Judgment was entered on October 27, 2020 and Ocwen satisfied the monetary portions of the settlement on December 17, 2020. Although we believe we have factual and legalhad strong defenses to theall of Florida’s claims, this was an opportunity to resolve one of Ocwen’s remaining allegations raisedsignificant legacy matters, and to do so without incurring further expense 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 $27.8 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.preparing for trial.
Our accrual with respect to the administrative and legal actions initiated in April 2017 is included in the $27.8$40.4 million litigation and regulatory matters accrual referenced above. We have also incurred, and will continue to incur costs to comply with the terms of the settlements we have entered into, including the costs of conducting an escrow review, Maryland organizational assessments and Massachusetts data integrity audits, and costs relating to the transition to Black Knight MSP. With respect to the escrow review, the third-party auditor has issued its final report which will require some additionaland we have completed all required remediation measures in connection with which we will incur costsrequired as part of that we expect will be immaterial to our overall financial condition.review. In addition, it is possible that legal or other actions could be taken against us with respect to such errors, which could result in additional costs or other adverse impacts. If we fail to comply with the
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terms of our settlements, additional legal or 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 referenced a confidential supervisory memorandum of understanding (MOU) that we entered into with the Multistate Mortgage Committee (MMC) and 6 states relating to a servicing examination from 2013 to 2015. Among other things, the MOU prohibited us from repurchasing stock during the development of a going forward plan and, thereafter, except as permitted by the plan. We submitted a plan in 2016 that contained no stock repurchase restrictions and, therefore, we do not believe we are currently restricted from repurchasing stock. We requested confirmation from the signatories of the MOU that they agree with this interpretation, and received affirmative responses from the MMC and five states, and a response declining to take a legal position from the remaining state.
On occasion, we engage with agencies of the federal government on various matters. For example, OLS received a letter from the Department of Justice, Civil Rights Division, notifying OLS that the Department of Justice had initiated a general investigation into OLS’s policies and procedures to determine whether violations of the Servicemembers Civil Relief Act by OLS might exist. The Department of Justice has informed us that it has decided not to take enforcement action related to this matter at this time and has, consequently, closed its investigation. 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 companyOcwen 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 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 HAMP. We have been providing documents and information in response to these subpoenas. In April 2019, PMC received a subpoena from the VA Office of the Inspector General requesting the production of documentation related to the origination and underwriting of loans guaranteed by the Veterans Benefits Administration. We understand that other 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 generally 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 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 originations 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 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 relating to our Originations business, including lending, sales and securitization 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,activities, 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 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 June 30,March 31, 2021 and March 31, 2020, and June 30, 2019, we had outstanding representation and warranty repurchase demands of $43.7$53.6 million UPB (262(275 loans) and $48.3$44.7 million UPB (297(277 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 similar indemnification obligations:
Three Months Ended March 31,
20212020
Beginning balance (1)$40,374 $50,838 
Provision (reversal) for representation and warranty obligations400 (768)
New production liability1,273 170 
Charge-offs and other (2)(358)(3,161)
Ending balance (1)$41,689 $47,079 
 Six Months Ended June 30,
 2020 2019
Beginning balance (1)$50,838
 $49,267
Provision (reversal) for representation and warranty obligations1,725
 (3,831)
New production reserves522
 132
Charge-offs and other (2)(8,673) (2,718)
Ending balance (1)$44,412
 $42,850
(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.
(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.
(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.
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 June 30, 2020March 31, 2021.
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Other
Ocwen, on its own behalf and on behalf of various mortgage loan investors, 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 fourfive 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 service providers and parties from whom we acquiredpurchased MSRs or other assets. Although we pursue these claims, we cannot currently estimate the amount, if any, of further recoveries. Similarly, from time to time, indemnification and other claims are made against us by parties to whom we sold MSRs or other assets or by parties on whose behalf we service mortgage loans. We cannot currently estimate the amount, if any, of reasonably possible loss above amounts recorded.
Note 22 – Subsequent Events
Note 22 – Subsequent Events
Reverse Stock SplitOn May 3, 2021, pursuant to the previously disclosed Transaction Agreement dated December 21, 2020 (see Note 20 — Commitments), we entered into a definitive agreement with special purpose entities owned by funds and accounts managed by Oaktree Capital Management, L.P. (collectively Oaktree) to operate an MSR investment joint venture, MSR Asset Vehicle LLC (MAV). Ocwen contributed MAV, which had total member’s equity of approximately $5 million on May 3, 2021, to an intermediate holding company held by Oaktree, MAV Canopy HoldCo I, LLC (MAV Canopy), and received 15% of MAV Canopy. We obtained all necessary approvals or non-objection confirmations from state regulators, Freddie Mac and Fannie Mae to close the MAV transaction. MAV is currently approved to purchase Freddie Mac MSRs throughout the continental United States, with the exception of one state. We expect to receive Fannie Mae’s approval to purchase Fannie Mae MSRs in the near future and continue working to finalize 1 remaining state regulatory approval.
On July 28, 2020, Ocwen determinedIn connection with closing, we issued Oaktree 426,705 shares of our common stock, representing 4.9% of our outstanding common stock, at a price per share of $23.15 for an aggregate purchase price of approximately $9.9 million, and 261,248 four-year warrants to implementpurchase shares of our common stock at a reverse stock splitprice per share of $24.31 in a ratioconsideration of one-for-15, which isthe transaction.
The closing of the MAV transaction also satisfied the remaining closing condition to the issuance to Oaktree of the second tranche of the OFC Senior Secured Notes in an aggregate principal amount of $85.5 million. The net proceeds before expenses from the closing of the tranche of OFC Senior Secured Notes were approximately $75.0 million (after $10.5 million of OID) and are expected to take effectbe used to fund our investment in August 2020. See Note 13 – EquityMAV, investments in MSRs and for general corporate purposes.

Note 17 – Basic
ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in millions, except per share amounts and Diluted Earnings (Loss) per Shareunless otherwise indicated)
for additional information.

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’sEffective February 10, 2021, the SEC issued Release No. 33-10890 adopting amendments to Regulation S-K to modernize, simplify and enhance certain financial disclosure requirements. This release amends, among other items, Item 303 of Regulation S-K (Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as other portionsor MD&A). While adoption is not required until fiscal years ending on or after August 9, 2021, we have elected to adopt the amended Item 303 of Regulation S-K commencing with 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. Risk Factors, as well as those discussed in our other reports and filings with the SEC, including those in our AnnualQuarterly Report on Form 10-K10-Q for the yearquarter ended DecemberMarch 31, 20192021. As a result, we compare our quarterly results to the immediately preceding quarter instead of the corresponding quarter of the preceding year.. We believe it is helpful to compare our quarterly results to the immediately preceding quarter, because the mortgage industry and any subsequent SEC filings.our business can be affected by a rapidly changing environment. In addition, we continuously transform our operations and internally measure our performance relative to the most recent period. Accordingly, we believe a comparison of our results of operations to the immediately preceding quarter provides a more relevant and meaningful analysis for investors to assess our performance than a comparison to the corresponding quarter of the preceding year. As required, we continue to compare our year-to-date results to the preceding year-to-date results.
OVERVIEW
General
We are a financial services company that services and originates mortgage loans. We are a leading mortgage special servicer, servicing 1.4approximately 1.1 million loans with a total UPB of $206.0$179.4 billion on behalf of more than 4,000 investors
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and 179126 subservicing clients. We service all mortgage loan classes, including conventional, government-insured and non-Agency loans. Our originations business is part of our balanced business model to generate gains on loan sales and profitable returns, and to support the replenishment and the growth of our servicing portfolio. Through our recapture, retail, correspondent and wholesale channels, we originate and purchase conventional and government-insured forward and reverse mortgage loans that we sell or securitize on a servicing retained basis. In addition, we grow our mortgage servicing volume through servicingMSR flow purchase agreements, GSE Cash Window and Co-issue programs, opportunistic bulk MSR purchase transactions, and new subservicing agreements.


Over the past year, we have builtWe operate a multi-channel, scalable originationsorigination platform that creates sustainable sources of replenishment and growth of our servicing portfolio, as detailed in the table below. We determine our target returns for each channel, however, the channel and delivery selection is generally our clients’ decision.
Amounts in billionsUPB
 Quarter Ended June 30, 2020 Quarter Ended March 31, 2020 Quarter Ended December 31, 2019 Quarter Ended September 30, 2019
Mortgage servicing originations       
Recapture MSR (1)$0.32
 $0.20
 $0.17
 $0.13
Correspondent MSR (1)0.66
 0.51
 0.40
 0.09
Flow purchases MSR (3)0.51
 0.82
 0.24
 —
GSE Cash Window MSR (3)2.33
 0.52
 0.55
 0.12
Reverse mortgage servicing (2)0.21
 0.23
 0.26
 0.19
Total servicing originations4.03
 2.28
 1.62
 0.53
Bulk MSR purchases (3)—
 1.54
 2.74
 1.03
Total servicing additions4.03
 3.82
 4.36
 1.56
Subservicing additions (4)4.59
 3.14
 3.79
 3.75
Total servicing and subservicing UPB additions (2)$8.62
 $6.96
 $8.15
 $5.31
(1)Represents the UPB of loans that have been originated or purchased during the respective periods and for which we recognize a new MSR on our consolidated balance sheets upon sale or securitization.
(2)Represents the UPB of reverse mortgage loans that have been securitized on a servicing retained basis. The loans are recognized on our consolidated balance sheets under GAAP without any separate recognition of MSRs.
(3)Represents the UPB of loans for which the MSR is acquired.
(4)Excludes the volume UPB associated with short-term interim subservicing for some clients as a support to their originate-to-sell business, where loans are boarded and de-boarded within the same quarter.
COVID-19 Pandemic Update
In March 2020,The table below summarizes the World Health Organization (WHO) categorized COVID-19 as a pandemicnew volume of Originations by channel, in the current quarter, compared with the preceding quarter and the COVID-19 outbreak was declared a national emergency. The efforts to contain the spreadsame quarter of the COVID-19 pandemic have adversely affected economic conditions, including high levelsprior year. The new volume of unemployment,Originations is a key driver of our net Originations segment revenue and are creating uncertainties about the durationexpenses, together with margins, and magnitudea key driver of the economic downturn. Ocwen has rapidly adapted to the COVID-19 global pandemicreplenishment and is currently operating through a secure remote workforce model for approximately 98% of its global workforce. We adhere to COVID-19 health and safety-related requirements and best practices across allgrowth of our locations.
Ocwen is an experienced special servicerServicing segment. In the first quarter of 2021, our Originations volume remained mostly consistent with proven capability to assist borrowers who are facing financial difficulties and generate positive outcomes for mortgage loan investors. During the secondprior quarter ($9.4 billion vs $10.0 billion) despite increased competition, including within the GSE Cash Window programs. We closed large bulk MSR acquisitions in the fourth quarter of 2020 that aggregated to $15.0 billion, In March 2021, we have demonstratedentered into non-binding letters of intent to acquire MSRs in bulk, representing approximately $54.0 billion of UPB, that we hadexpect to close in the necessary operating processes, practices and systems to track large servicer advance balances at a detailed level and drive strong advance recoveries within elevated delinquency and forbearance portfolios.
The CARES Act signed in March 2020 allows borrowers with federally backed mortgage loans who are affected by COVID-19 to request temporary loan forbearance. Servicers must provide such forbearance for up to 180 days if requested by the borrower. Borrowers may request an additional forbearance periodthird quarter of up to 180 days for FHA and VA guaranteed loans. During any period of forbearance, servicers must also provide related protection, including, but not limited to, suspension of late fees, as well as foreclosure and eviction activity. Servicers are restricted from pursuing certain foreclosure and eviction activity on all occupied, federally backed mortgage loans until at least August 31, 2020, regardless of whether the borrower has requested assistance.
Although PLS loans are not explicitly covered under the CARES Act, these loans are subject to various requirements and expectations from state Governors, regulators, and Attorneys General to assist borrowers enduring financial hardship due to COVID-19 with forbearance, moratoria on foreclosure sales and evictions and other requirements, some of which apply regardless of whether the borrower has requested assistance. Ocwen provides payment relief to such borrowers in accordance with these requirements and expectations, as well as our servicing agreements. For example, we generally grant eligible borrowers an initial three months of forbearance and related protection, including suspension of late fees, as well as suspension of foreclosure and eviction activity.


Generally, borrowers are required to repay their suspended or reduced mortgage payments after the forbearance period ends unless an alternate loss mitigation solution is reached, which we anticipate will include extensions of forbearance, payment deferrals, repayment plans, and loan modifications, depending on the borrower’s situation, account status, and applicable investor guidelines. Before the completion of each period of forbearance, Ocwen attempts to contact the borrowers to assess their ability to resume making payments and discuss other options which may be available if their hardship persists. Ocwen conducts different outreach events, in partnership with non-profit housing advocacy groups to further assist borrowers.
On June 10, 2020, Fannie Mae and Freddie Mac announced the servicer incentive for their previously announced COVID-19 payment deferral, and temporary updates to other servicer incentives, which became effective on July 1, 2020. Subject to certain eligibility criteria, servicers will receive incentive fees of $500 for repayment plans with a first payment due date on or after July 1, 2020 and for payment deferrals completed on or after July 1, 2020, and will receive an incentive fee of $1,000 for completed Flex Modifications with a trial plan period effective date on or after July 1, 2020. Total servicer incentives per mortgage loan will be cumulatively capped at $1,000.
Loans under forbearance rose significantly2021. In addition, in April 2020,2021, we entered into an agreement to acquire MSR in responsebulk approximating $13.6 billion, that we expect to the increase in unemployment claims and to a lesser impact, in May 2020. Consistent with the industry trend, the volume of forbearance plans stabilized in June 2020 and started decreasing in July 2020. In addition, 35% of borrowers under forbearance plans continued to make payments as of June 30, 2020. As of June 30, 2020, we managed 131,400 loans under forbearance, 39,900 of which related to our owned MSRs excluding NRZ, or 9.6% and 8.5% of the total portfolios, respectively. See below chart of new and closed forbearance plans during COVID-19 for our total serviced and subserviced portfolios:            
chart-3b7e2a0ee012ff81375.jpg
(*): through July 29, 2020
Determining the COVID-19 impact on our financial performanceclose in the second quarter of 2020 requires management2021.
$ in billionsUPB
Quarter Ended March 31, 2021Quarter Ended December 31, 2020Quarter Ended March 31, 2020
Mortgage servicing originations
Recapture MSR (1)$0.56 $0.43 $0.20 
Correspondent MSR (1)2.63 2.59 0.51 
Flow and GSE Cash Window MSR purchases (3)5.99 6.73 1.34 
Reverse mortgage servicing (2)0.26 0.27 0.23 
Total servicing originations9.44 10.01 2.28 
Bulk MSR purchases (3)— 15.02 1.54 
Total servicing additions9.44 25.04 3.82 
Subservicing additions (4)4.09 5.08 3.14 
Total servicing and subservicing UPB additions (2)$13.53 $30.11 $6.96 
(1)Represents the UPB of loans that have been originated or purchased during the respective periods and for which we recognize a new MSR on our consolidated balance sheets upon sale or securitization.
(2)Represents the UPB of reverse mortgage loans that have been securitized on a servicing retained basis. The loans are recognized on our consolidated balance sheets under GAAP without any separate recognition of MSRs.
(3)Represents the UPB of loans for which the MSR is purchased.
(4)Interim subservicing, excluding the volume UPB associated with short-term interim subservicing for some clients as a support to use judgment, includingtheir originate-to-sell business, where loans are boarded and de-boarded within the estimationsame quarter.
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The following table summarizes the average volume of those variances that are directly attributable to COVID-19 factors. The below discussion includes some comparisonsour Servicing segment during the current quarter, compared with the financial performancepreceding quarter and the same quarter of the prior year. The volume of Servicing is a key driver of our net Servicing revenue and expenses. In the first quarter of 2021, we have increased our owned MSR portfolio and maintained our subservicing volume despite significant MSR runoff due to historical refinancing activities by borrowers. In addition to runoff, the NRZ portfolio declined as a result of the termination by NRZ of the PMC servicing agreement resulting in the deboarding of loans with $34.2 billion of UPB in September and October 2020.
$ in billionsAverage UPB
Quarter Ended March 31, 2021Quarter Ended December 31, 2020Quarter Ended March 31, 2020
Owned MSR$90.476.6$67.5
NRZ65.872.3118.1
Subservicing22.723.016.8
Reverse mortgage loans6.76.75.5
Commercial and other servicing0.70.71.0
Total$186.3$179.4$208.9
Financial Highlights
Results of operations for the first quarter of 2021
•Net income of $9 million, or $0.98 per share basic and $0.96 per share diluted
•Servicing fee revenue of $172 million
•Originations gain on sale of $38 million
Financial condition at the end of the first quarter of 20202021
•Stockholders’ equity of $440 million, or $50.57 book value per common share
•MSR investment of $1.4 billion
•Liquidity position of $259 million
•Total assets of $10.77 billion
•Corporate refinancing in March 2021, with $400 million PMC senior secured notes maturing 2026, $199.5 million OFC senior secured notes maturing 2027 and warrants issued to isolate the impactOaktree. Prepayment of certain COVID-19 factors. We estimate that the overall impact of COVID-19 on our financial performance during the second quarter of 2020 has not been as significant as previously anticipated, due to multiple offsetting factors, mainly due to the natural hedge between our growing Originations business$185 million SSTL and our Servicing business, i.e., the increased profitability of our Originations business largely offset the adverse COVID-19 conditions on our Servicing business in the second quarter of 2020.
The COVID-19 environment has resulted in reduced servicing revenue during the second quarter of 2020. Our ancillary income decreased in the second quarter of 2020 by approximately $5.4$313 million as a result of the significant drop in interest rates (specifically, 1-month LIBOR). In addition, we did not collect any servicing fees and certain ancillary income, including late and collection fees, on non-paying forbearance loans and on loan foreclosures and liquidations due to the foreclosure moratorium. We estimate our servicing fees declined by $3.1 million in the second quarter of 2020 due to COVID-19 (excluding NRZ). Our subservicing fees were not significantly impacted by the COVID-19 environment because the borrower’s delinquency or forbearance does not affect the collection of our compensation. As such, subservicing fees and net servicing fees related to NRZ (collection on behalf of NRZ), net of remittances to NRZ (recorded as MSR pledged liability expense) relating to the $20.0 billion and $109.0 billion UPB respectively, were not significantly impacted by the COVID-19 environment as per the terms of the subservicing agreements, whereby borrower’s delinquency or forbearance does not affect the collection of our subservicing fee.senior notes maturing 2021/2022.
The decrease or delay in servicing fee collection where we operate as servicer, i.e., relating to the $70.5 billion UPB, was partially offset by the lower runoff of loans in forbearance in our MSR portfolio in the second quarter of 2020, as the deferred servicing fees or GSE incentive fees generally remain projected as future cash flows. The MSR runoff of forbearance loans was partially offset by higher prepayments in our GSE portfolios, with historically high voluntary CPRs due to lower mortgage interest rates.


The overall fair value changes of our MSR portfolio during the second quarter of 2020 attributable to rates and assumptions were also not significantly impacted by the COVID-19 environment, due to certain offsetting factors. Rates declined modestly during the second quarter of 2020 (8 basis point decline in the 10-year swap rate) and we previously increased the coverage ratio of our macro-hedging strategy to mitigate our exposure to rates. In addition, the fair value changes of the NRZ MSR are offset in our income statement by the fair value changes of the pledged MSR liability. We also recorded a $13.2 million MSR valuation gain in the second quarter of 2020 relating to certain MSRs that we opportunistically purchased in a disorderly market due to the COVID-19 environment.
Our cost to service and operating expenses were not significantly impacted by COVID-19 during the second quarter of 2020 due to two main offsetting factors. Loans in forbearance required more intensive effort and, as forbearance periods end, additional efforts may be required to establish repayment plans, loan modifications, extensions of forbearance, payment deferrals, or other loss mitigation solutions. During the second quarter of 2020, we incurred $6.1 million additional expense related to COVID-19, including $2.8 million stipend and overtime, $1.6 million staff augmentation to manage our call center increased activity, and $1.2 million technology costs to adapt to our remote working model. The temporary moratorium on evictions and foreclosure sales reduced our expenses, for example due to lower conveyance volumes with Ginnie Mae loans.
Furthermore, we did not incur any significant change to our interest expense. The increase in our servicing advances for loans in forbearance was more than offset by our collection and recovery efforts and by the surge in prepayments. In addition, the moratorium on evictions and foreclosures delayed certain corporate advances.
The recent declines in interest rates and the continued execution of our originations strategy have led to an increase in our originations volume and improved margins. We continue to replenish and grow our owned MSR portfolio despite the significant runoff and voluntary prepayments (excluding NRZ’s MSR portfolio). Refer to the discussion below of our Originations segment.
Looking ahead, the spread of the COVID-19 pandemic may continue, with the risk of resurgence in certain areas. The different responses from the government and other authorities to keep social distancing and to support individuals experiencing financial hardship have continued to evolve. The disruption created by the pandemic and the measures being taken have given rise to elevated unemployment levels. As of today, uncertainties related to the duration and severity of the economic downturn remain, without any indications of a rapid recovery. The business disruption triggered by COVID-19 could ultimately have a material and adverse effect our business, financial condition, liquidity or results of operations.
Business Initiatives
WeIn 2021, we have established five key operating objectives to drive improved value for shareholders, as our near-term priority remains to return to sustainable profitability. Our objectives are focused on:
•Accelerating growth, by expanding our client base, our product offering and by leveraging our MSR asset vehicle with Oaktree;
•Strengthening recapture performance, by expanding our operating capacity;
•Improving our cost leadership position, by driving productivity and efficiencies, with our technology and continuous improvement initiatives;
•Maintaining high quality operational execution, through our technology and continuous improvement initiatives, and our commitment to employee engagement and customer satisfaction; and
•Expanding servicing and other revenue opportunities.
COVID-19 Pandemic Update
In March 2020, the Coronavirus Disease 2019 (COVID-19) was categorized as a set of key business initiatives to achieve our objective of returning to profitabilitypandemic by the WHO and declared a national emergency in the shortest timeframe possible within an appropriate riskU.S. The pandemic has adversely affected economic conditions since March 2020, with high levels of unemployment, and compliance environment. We are executingprompted unprecedented government measures to contain the pandemic and to support individuals and companies. Our financial performance in 2020 was affected by the pandemic, mostly due to large losses on eachMSRs and lower revenue in our Servicing business, partially offset by the growth and profitability of these initiativesour Originations business. Furthermore, the CARES Act allowed us to recognize income tax benefits in 2020 mostly due to the carryback of a portion of our prior net operating losses.
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During the first quarter of 2021, our businesses continued to be impacted by the COVID-19 pandemic, with the Servicing business negatively affected by the loans placed under forbearance and believe we will continue to drive stronger financial performance. These initiatives include:
Expanding our originations business to replenishthe moratorium on foreclosures, and growby elevated prepayments of our servicing portfolio;
Re-engineering our cost structure to maintain an industry cost competitive position;
Effectively managing our balance sheet to ensure adequate liquidity, finance our ongoing business needs and provide a solid platform for executing on our growth initiatives; and,
Fulfilling our regulatory commitments and resolving remaining legacy and regulatory matters.
First, we must continue to expandportfolio. Conversely, our Originations business has continued to replenishbenefit from high refinance activities during the first quarter of 2021, despite higher competition and growlower margins. As of March 31, 2021, we managed 76,100 loans under forbearance, 21,300 of which related to our owned MSRs (excluding NRZ), or 7.2% of our total portfolio and 4.2% of our owned MSR servicing portfolio and mitigate(excluding NRZ), respectively. The number of loans under forbearance remained at an elevated level, as illustrated by the below chart of forbearance plans by investor during COVID-19 for our client concentration risk with NRZ. owned MSR portfolio (excluding NRZ).
ocn-20210331_g1.jpg
We expect to continue to focus on selectively acquiring Agencyoperate through a secure remote workforce model for approximately 98% of our global workforce and government-insured MSR portfolios that meet or exceedcontinue to adhere to COVID-19 health and safety-related requirements and best practices across all of our minimum targeted investment returns.locations. We executedmonitor the impact of the pandemic on our workforce and established business contingency plans to re-enterin regions where the forward lending correspondent channelpandemic may surge or re-surge, such as in India and in the second quarterPhilippines. At March 31, 2021, we had approximately 4,900 employees, of 2019which approximately 3,000 were located in India and approximately 400 were based in the Philippines. Due to the rising incidence of COVID-19 illness in these areas, we could face a reduction in employee availability which could impact our operations generally and loan servicing operations especially. While we have built a multi-channel, scalable originations platform, withcontingency and continuity plans in place, we cannot guarantee that our operations will not be negatively impacted. To date, our operations have not been significantly affected, but we have incurred additional operating expenses to adjust to the launchCOVID-19 environment, including additional compensation, technology equipment and legal consulting fees among others.
Uncertainties related to the duration and severity of the FNMA SMP program in June 2020.
Second, we must continuepandemic and related economic downturn remain and make it difficult for us to re-engineerdetermine the continued ongoing impact the pandemic may have on us and our cost structure. Our continuous cost improvement efforts are focused on reducing operating and overhead costs through facility rationalization, strategic sourcing and actions, off-shore utilization, lean process design, simplification, automation and other technology-enabled productivity enhancements. Our initiatives are targeted at delivering superior accuracy, cost, speed and customer satisfaction.
Third, we must manage our balance sheet to ensure adequatebusiness, financial condition, liquidity finance our ongoing business needs and provide a solid platform for executing on our growth initiatives. To this end, we have engaged bankers to assist us in exploring all strategic options to leverage our proven operating capability in this environment as we seek to fully realize the valueor results of our platform.
Finally, we must fulfill our regulatory commitments and resolve our remaining legal and regulatory matters on satisfactory terms, including the legacy CFPB and Florida matters.


operations.
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, 2019.2020.



53

Results of Operations SummaryThree Months Ended% ChangeThree Months Ended March 31, 2020% Change
March 31,December 31,
20212020
Revenue
Servicing and subservicing fees$171.7$168.92 %$211.5(19)%
Reverse mortgage revenue, net21.89.7126 22.8(4)%
Gain on loans held for sale, net5.744.5(87)13.3(57)
Other revenue, net8.38.04 6.233 
Total revenue207.6231.0(10)253.8(18)
MSR valuation adjustments, net21.2(20.6)(203)(174.1)(112)
Operating expenses
Compensation and benefits68.369.9(2)60.712 
Servicing and origination27.516.764 20.336 
Professional services17.329.1(40)25.6(32)
Technology and communications13.112.46 15.2(13)
Occupancy and equipment8.99.8(10)12.0(26)
Other expenses4.66.2(27)3.433 
Total operating expenses139.6144.2(3)137.22 
Other income (expense)   
Interest income3.93.222 5.4(27)
Interest expense(28.5)(25.8)10 (30.0)(5)
Pledged MSR liability expense, net(37.9)(46.7)(19)(6.6)474 
Loss on extinguishment of debt(15.5)—n/m—n/m
Other, net0.32.1(86)1.3(78)
Total other expense, net(77.5)(67.1)16 (29.9)160 
Income (loss) before income taxes11.6(0.8)n/m(87.3)(113)
Income tax (benefit) expense3.16.4(52)(61.9)(105)
Net income (loss)$8.5$(7.2)(218)$(25.5)(134)
Segment income (loss) before income taxes
Servicing$13.5$(1.5)(999)%$(54.4)(125)%
Originations36.533.011 (1.8)n/m
Corporate Items and Other(38.4)(32.3)19 (31.1)23 
$11.6$(0.8)n/m$(87.3)(113)%
n/m: not meaningful
54

Total Revenue
The following discussion addresses each componentbelow table presents total revenue by segment and at the consolidated level:
RevenueThree Months Ended% ChangeThree Months Ended March 31, 2020% Change
March 31,December 31,
20212020
Servicing$175.4$165.66 %$229.5(24)%
Originations66.354.522 21.7206 %
Corporate1.31.3(4)2.6(51)
Total segment revenue243.0221.510 253.8(4)
Inter-segment elimination (1)(35.4)9.5(471)—n/m
Total revenue$207.6231.0(10)$253.8(18)
(1)The fair value change of our statement of operations, and further detail related to our servicing, originations and corporate segments is provided in the discussion by segment.
Results of Operations SummaryThree Months Ended June 30, % Change Six Months Ended June 30, % Change
2020 2019  2020 2019 
Revenue           
Servicing and subservicing fees$175,240
 $239,960
 (27)% $386,723
 $496,576
 (22)%
Reverse mortgage revenue, net13,759
 20,493
 (33) 36,556
 52,616
 (31)%
Gain on loans held for sale, net33,547
 8,318
 303
 46,878
 17,300
 171
Other revenue, net4,478
 5,567
 (20) 10,709
 11,734
 (9)
Total revenue227,024
 274,338
 (17) 480,866
 578,226
 (17)
            
MSR valuation adjustments, net(23,434) (147,268) (84) (197,554) (256,266) (23)
            
Operating expenses           
Compensation and benefits65,017
 82,283
 (21) 125,745
 176,979
 (29)
Servicing and origination17,361
 21,510
 (19) 37,617
 50,208
 (25)
Professional services23,818
 37,136
 (36) 49,455
 40,577
 22
Technology and communications16,111
 20,001
 (19) 31,304
 44,436
 (30)
Occupancy and equipment16,136
 18,699
 (14) 28,105
 35,288
 (20)
Other expenses6,366
 4,597
 38
 9,797
 7,845
 25
Total operating expenses144,809
 184,226
 (21) 282,023
 355,333
 (21)
 

 

 

 

 

 

Other income (expense) 
  
    
  
 

Interest income3,566
 3,837
 (7) 8,961
 8,395
 7
Interest expense(26,760) (28,641) (7) (56,742) (55,130) 3
Pledged MSR liability expense, net(41,686) (2,930) n/m
 (48,280) (46,886) 3
Other, net(57) 557
 (110) 1,271
 1,577
 (19)
Total other expense, net(64,937) (27,177) 139
 (94,790) (92,044) 3
            
Loss before income taxes(6,156) (84,333) (93) (93,501) (125,417) (25)
Income tax (benefit) expense(8,110) 5,404
 (250) (69,966) 8,814
 (894)
Net income (loss)$1,954
 $(89,737) (102) (23,535) (134,231) (82)
            
Segment income (loss) before income taxes           
Servicing$10,385
 $(59,006) (118)% $(45,711) $(116,508) (61)%
Originations29,439
 8,359
 252
 39,820
 28,219
 41
Corporate Items and Other(45,980) (33,686) 36
 (87,610) (37,128) 136
 $(6,156) $(84,333) (93)% $(93,501) $(125,417) (25)%
n/m: not meaningful           


Three Months Ended June 30, 2020 versus 2019
Weinter-segment economic hedge derivatives reported net income of $2.0 million in the second quarter of 2020 versus a net loss of $89.7 million in the second quarter of 2019.
within Total revenue was $227.0 million in the second quarter of 2020, $47.3 million or 17% lower than the second quarter of 2019, mostly due to declines in servicing fee revenue and reverse mortgage revenue, offset in part by an increase in gains(gain on loans held for sale.sale) is eliminated at the consolidated level with an offset in MSR valuation adjustments, net.
Total segment revenue was $243.0 million for the first quarter of 2021, $21.5 million or 10% higher than the fourth quarter of 2020, driven by a $9.8 million revenue increase from Servicing and subservicing feea $11.8 million revenue decreased $64.7increase from Originations. The Servicing revenue increase is mostly due to the net growth of our owned MSR portfolio, including the large MSR bulk acquisitions in December 2020. The increase in Originations revenue is mostly due to higher gains on sale from our Recapture channel with increased production volumes.
Total revenue (after elimination of inter-segment derivative fair value changes) was $207.6 million for the first quarter of 2021, $23.4 million or 27%,10% lower than the fourth quarter of 2020, mostly due to the presentation of macro-hedging derivative gains and losses reported within MSR valuation adjustments, net at the consolidated level, as disclosed in Note 4 – Loans Held for Sale, Note 14 – Derivative Financial Instruments and Hedging Activities and Note 18 – Business Segment Reporting. The below table presents the individual financial statement line item impacted by the inter-segment derivative allocation:
ServicingOriginationsInter-segment EliminationBusiness Segments Consolidated
Three Months Ended March 31, 2021
Gain on loans held for sale, net$3.537.6(35.4)$5.7
MSR valuation adjustments, net(22.7)8.535.421.2
Three Months Ended December 31, 2020
Gain on loans held for sale, net3.931.09.544.5
MSR valuation adjustments, net$(26.4)15.4(9.5)$(20.6)
As compared to the secondfirst quarter of 2019, with a $52.72020, total revenue for the first quarter of 2021 was $46.2 million or 18% lower, mostly due to $54.1 million, or 24% decline in NRZServicing revenue. We collected $39.3 million lower servicing fees primarily due to a lower serviced UPB and an increase in non-paying forbearance and delinquent loanson behalf of NRZ, as a result of the COVID-19 pandemic. Reverse mortgage revenue, net decreased $6.7 million, or 33%, as compared to the second quarter of 2019 largely due to the decline in fair value of our reverse mortgage portfolio due to rates and assumptionsrun-off and the impactderecognition of the fair value election on January 1, 2020 of tail draws. The $25.2 million, or 303%, increase in gains on loans held for sale is due to the increase in forward loan production, from both our recapture channel, fueled by industry-wide refinance activity, and our correspondent channel that we re-started in the second quarter of 2019. See Segment Results of Operations for additional information.
We reported a $23.4 million loss in MSR valuation adjustments, net in the second quarter of 2020, mostly driven by $31.2 million portfolio runoff partially offset by a $7.5 million favorable fair value gain from our MSR hedging strategy and $13.2 million valuation gain on certain MSRs opportunistically purchased in a disorderly market. The $123.8 million reduction in loss as compared to the second quarter of 2019 is primarily due to a lower decline in market interest rates, derecognition of MSRs in connection with the termination of the PMC agreement by NRZ in February 2020 with the transfer of $34.2 billion UPB of loans completed in October 2020. The decline in servicing fees collected on February 20,behalf of NRZ is partially offset by a $33.9 million decline in servicing fees remitted to NRZ that are separately reported as Pledged MSR liability expense (Other expense), with a $5.3 million net decline in the NRZ servicing fee retained. Originations revenue in the first quarter of 2021 were $44.6 million or 206% higher than the fourth quarter of 2020, due to the significant volume increases in our Originations channels including Recapture, fueled by borrower refinance activities. The $7.6 million, or 57%, decrease in gain on loans held for sale is mostly due to the presentation of $35.4 million derivative gains reported in the first quarter of 2021 within MSR valuation adjustments, net, that were economically hedging the gains on loans held for sale.
See the respective Segment Results of Operations for additional information.
MSR Valuation Adjustments, Net
We reported a $21.2 million gain in MSR valuation adjustments, net for the first quarter of 2021, resulting in a $41.8 million favorable change in fair value as compared to the fourth quarter of 2020. The $21.2 million gain recognized in the first quarter of 2021 comprised a $22.7 million loss in Servicing, a $8.5 million gain on MSR purchases and a $35.4 million inter-segment derivative gain reported in gain on loans held for sale. The $22.7 million net loss in Servicing is due to the $49.1 million MSR portfolio runoff, and the effectseffect of the rise of interest rates, increasing the fair value of the MSR portfolio by $75.5
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million, partially offset by $49.1 million MSR hedging program implementedlosses. MSR portfolio runoff represents the realization of expected cash flows and yield based on September 1, 2019. projected borrower behavior, including scheduled amortization of the loan UPB together with prepayments.
In the first quarter of 2020, we reported a $174.1 million loss in MSR valuation adjustments, net, mostly due to the COVID-19 distressed conditions as of March 31, 2020. The total loss included a $161.3 million fair value loss on the MSR portfolio due to the decline in interest rates, partially offset by $35.3 million favorable fair value gain from our MSR hedging strategy, and a $48.1 million portfolio runoff. The loss on the NRZ pledged MSRs was offset by a $56.9 million gain recorded as MSR pledged liability expense.
See Segment Results of Operations - Servicing and Originations for additional information.
Compensation and Benefits
Compensation and benefits expense for the first quarter of 2021 decreased $1.6 million, or 2%, as compared to the fourth quarter of 2020. Incentive compensation declined $3.5 million, mostly due to the annual adjustment of incentives recorded in the fourth quarter of 2020. Originations segment compensation and benefits increased by $1.5 million, mostly due to additional headcount to support higher loan production levels. The total Ocwen headcount declined by 3% from the fourth quarter of 2020 to the first quarter of 2021, driven by the reduction in Servicing headcount, that reflects the scaling down of our platform to the loans being serviced. Overall, our offshore-to-total headcount ratio decreased from 71% in the fourth quarter of 2020 to 69% in the first quarter of 2021.
As compared to the first quarter of 2020, compensation and benefits expense for the first quarter of 2021 increased $7.6 million, or 12%, Originations segment compensation and benefits expense increased by $9.0 million, mostly due to additional commissions and salaries driven by additional headcount to support higher loan production levels. Servicing segment compensation and benefits expense decreased by $2.3 million, mostly driven by a decrease in average headcount, that was largely due to the scaling down of our workforce to our volumes and our cost re-engineering initiatives. Our average headcount declined by 8%, and overall, our offshore-to-total headcount ratio decreased from 72% in the first quarter of 2020 to 69% in the first quarter of 2021.
Servicing and Origination Expense
Servicing and origination expense for the first quarter of 2021 increased $10.8 million, or 64%, as compared to the fourth quarter of 2020 as Servicing expenses increased $10.6 million. The increase was largely due to favorable servicing reserve provisions of $10.2 million recorded during the fourth quarter of 2020 associated with recoveries in excess of the allowance, and recoveries of previously recognized expenses in connection with a settlement from a mortgage insurer. In addition, while servicing expense increased by $1.0 million due to higher satisfaction and interest of payoff expenses attributable to higher payoffs, other loan related expenses (e.g., credit report expenses) decreased in line with the lower serviced volume in the first quarter of 2021.
Servicing and origination expense for the first quarter of 2021 increased $7.2 million, or 36%, as compared to the first quarter of 2020, primarily due to a $6.1 million increase in Servicing expenses largely as a result of a $2.2 million increase in satisfaction and interest payoff expenses attributable to higher payoffs, a $2.1 million increase in provisions for non-recoverable servicing advances and receivables, and a $2.0 million increase in other servicer-related expenses driven by the favorable release of a legal accrual in the first quarter of 2020.
See Segment Results of Operations - Servicing for additional information.
Total operating expensesOther Operating Expenses
Professional services expense for the first quarter of 2021 decreased $39.4$11.7 million, or 21%40%, as compared to the secondfourth quarter of 20192020, primarily due to a $7.0 million decline in legal expenses and $4.1 million decline in other professional services. During the decrease isfourth quarter of 2020, we recorded a $13.1 million increase in our accrual related to the resultCFPB matter and recognized the recovery of multiple variances, as discussed below.$8.5 million prior expenses in connection with a settlement from a mortgage insurer. Nonrecurring costs recorded in the fourth quarter of 2020, including costs related to 2020 reengineering activities, resulted in lower other professional services expenses in the first quarter of 2021.
Compensation and benefitsProfessional services expense declined $17.3for the first quarter of 2021 decreased $8.3 million, or 21%32%, as compared to the secondfirst quarter of 2019,2020, primarily due to a $7.7 million decline in legal expenses largely due to $6.6 million recorded in the first quarter of 2020 related to the CFPB matter.
Occupancy and equipment expense for the first quarter of 2021 decreased $1.0 million, or 10%, as compared to the fourth quarter of 2020 primarily due to a $0.8 million decline in depreciation expense, in part due to accelerated amortization in the fourth quarter of 2020 resulting from our early exit from one of our leased facilities.
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Occupancy and equipment expense for the first quarter of 2021 decreased $3.1 million, or 26%, as compared to the first quarter of 2020. Depreciation expense decreased $0.6 million compared to the first quarter of 2020, largely due to our cost re-engineering initiatives that resultedreduction efforts in 2020 which included closing and consolidating certain facilities. Postage and mailing expenses decreased $1.5 million compared to the first quarter of 2020, largely due to a 19% decline in average headcountletter volume attributed to COVID-19 during first quarter of 2021.
Technology and communication expense for the recognitionfirst quarter of 2021 decreased $2.1 million, or 13%, as compared to the first quarter of 2020. Maintenance expense decreased $1.1 million compared to first quarter of 2020, largely driven by the effects of implementing cost-saving enhancements in the second quarter of 20192020. Telephone expense declined $1.2 million as compared to the first quarter of $3.52020, largely driven by our transition to a more cost-effective alternative telephone system.
Other Income (Loss)
Pledged MSR liability expense for the first quarter of 2021 decreased $8.8 million, of severance and retention costs. Offshore headcount, whose average compensation cost is relatively lower, increased from 65% to 72% of average total headcount,as compared to the fourth quarter of 2020, largely due to a $4.8 million favorable fair value adjustment and a $3.9 million decline in servicing fee remittance due to runoff of the portfolio.
Pledged MSR liability expense for the first quarter of 2021 increased $31.3 million as compared to the first quarter of 2020, primarily due to a $40.8 million unfavorable fair value change. Also, the lump-sum cash payments received from NRZ in 2017 and 2018 were fully amortized as of the end of the second quarter of 2019.
Servicing and origination expense decreased $4.12020 ($24.2 million or 19%, as compared toin the secondfirst quarter of 2019, primarily due to2020). These increases were partially offset by a $4.3$33.9 million decreasedecline in servicing expenses largely as a result of a reduction in government-insured claim loss provisions and a generalfee remittance. The decline in servicer-related expenses thatnet servicing fee remittance to NRZ was primarily driven by a reductionthe runoff of the portfolio and the termination of the PMC agreement by NRZ in our servicing portfolio. February 2020.
See Segment Results of Operations - Servicing for additional information.
Professional services expense decreased $13.3Loss on debt extinguishment of $15.5 million or 36%, as compared torecognized in the secondfirst quarter of 2019,2021 resulted from our early repayment of the SSTL due May 2022, PHH 6.375% senior unsecured notes due August 2021, and PMC 8.375% senior secured notes due November 2022. The loss includes the write-off of unamortized debt issuance costs and discount, as well as contractual prepayment premiums totaling $9.8 million on the SSTL and PMC 8.375% senior secured notes.
Income Tax Benefit (Expense)
The $3.3 million decrease in income tax expense for the first quarter of 2021, compared with the fourth quarter of 2020, was primarily due to a $13.0 million decline in legal fees relating to the PHH integration, legal entity reorganization and litigation.
Technology and communication expense declined $3.9 million, or 19%, as compared to the second quarter of 2019 primarily because we no longer license the REALServicing servicing system from Altisource following our transition to Black Knight MSP in June 2019, a $1.8 million reduction in depreciation expense that is largely the result of a decline in capitalized technology investments, our closure of U.S. facilities in 2019 and the effects of a decline in total average headcount and our other cost reduction efforts, which include bringing technology services in-house and re-engineering initiatives.
Occupancy and equipment expense decreased $2.6 million, or 14%, as compared to the second quarter of 2019 primarily due to the results of our cost reduction efforts, which include consolidating vendors and closing and consolidating certain facilities, and the effect of the declinedecrease in the size of the servicing portfolio on various expenses. Depreciation expense declined $2.2 million as compared to the second quarter of 2019.
Pledged MSR liability expense increased $38.8 million, as compared to the second quarter of 2019, largely due to fair value gains and runoffprojected income tax benefit related to the PMC MSR AgreementsCARES Act that we recognized in the secondfourth quarter of 2019 and a lower 2017/18 lump sum amortization gain, offset in part by lower net servicing fee remittance to NRZ. These changes were mostly due to termination of the PMC servicing agreement by NRZ on February 20, 2020, final amortization of the 2017/2018 upfront cash payments in April 2020 and a lower UPB serviced. See Segment Results of Operations - Servicing for additional information.
Six Months Ended June 30, 2020 versus 2019
We reported a net loss of $23.5 million2020. This expense recognized in the six months ended June 30, 2020, as compared to a net loss of $134.2 million in the six months ended June 30, 2019. The net loss reported in the six months ended June 30, 2020 is driven in large part by two partially offsetting effects of the COVID-19 pandemic environment. First, the fair value of our MSRs and related MSR financing liability at fair value decreased by $123.9 million due to the decline in market interest rates, offset in part by $42.8 million gains of our hedging derivatives. Second, we recognized a $70.0 million income tax benefit for the six months ended June 30, 2020 as the CARES Act


allows the carryback of tax net operating losses (NOL) and the associated refund of taxes that we paid in prior years.
Total revenue was $480.9 million for the six months ended June 30, 2020, $97.4 million or 17% lower than the six months ended June 30, 2019, primarily due to declines in servicing fee revenue and reverse mortgage revenue, offset in part by an increase in gains on loans held for sale. Servicing and subservicing fee revenue decreased $109.9 million, or 22%, as compared to the six months ended June 30, 2019, with an $88.9 million decline in NRZ servicing fees, primarily due to a lower serviced UPB and an increase in non-paying forbearance and delinquent loans as a result of the COVID-19 pandemic. Reverse mortgage revenue, net decreased $16.1 million, or 31%, as compared to the six months ended June 30, 2019 largely due to the decline in fair value of our reverse mortgage portfolio. The $29.6 million, or 171%, increase in gains on loans held for sale is mostly due to the increase in forward loan production, from both our recapture channel, fueled by industry-wide refinance activity, and from our correspondent channel that we re-started in the secondfourth quarter of 2019. See Segment Results of Operations for additional information.
We reported a $197.6 million loss in MSR valuation adjustments, net in the six months ended June 30, 2020 mostly driven by a $156.5 million loss due to the decline in interest rates and $83.9 million portfolio runoff, partially offset by $42.8 million favorable fair value gain from our MSR hedging strategy. The $58.7 million reduction in loss as compared to the six months ended June 30, 2019 is primarily due to derecognition of MSRs in connection with the termination of the PMC agreement by NRZ on February 20, 2020 and the effects of the MSR hedging program,was offset in part by the impactaccrual of projected taxes due of $3.1 million on first quarter of 2021 earnings.
Our overall effective tax rates for the additional decline in interest rates (126 basis-point decline in the 10-year swap rate). See Segment Resultsfirst quarter of Operations - Servicing for additional information.
Total operating expenses declined $73.3 million, or 21%2021 and fourth quarter of 2020 were 26.6% and (792.8)%, as compared to the six months ended June 30, 2019 and the decrease is the result of multiple, offsetting variances, as discussed below.
Compensation and benefits expense declined $51.2 million, or 29%, as compared to the six months ended June 30, 2019, primarily due to a 21% decline in average headcount and the recognitionrespectively. As disclosed above, during the six months ended June 30, 2019fourth quarter of $24.22020 we recognized $6.4 million of severance and retention costs incurred in connection with our 2019 cost re-engineering plan. Offshore headcount increased from 65%income tax expense related to 72% of average total headcount, compared to the six months ended June 30, 2019.
Servicing and origination expense decreased $12.6 million, or 25%, as compared to the six months ended June 30, 2019, primarily due to a $14.3 million decrease in servicing expenses largely as a result of a reduction in government-insured claimthe projected benefits under the CARES Act on a $0.8 million pre-tax loss, provisions and a general declineresulting in servicer-related expenses that was primarily driven by a reductionthe large negative tax rate of (792.8)%. During the first quarter of 2021, we recognized $3.1 million of tax expense on $11.6 million of pre-tax income resulting in our servicing portfolio. See Segment Resultsan effective tax rate of Operations - Servicing for additional information.
Professional services expense increased $8.9 million, or 22%26.6%. Our U.S., as compared towell as our foreign operations that are compensated on a cost-plus basis under our transfer pricing agreements for the six months ended June 30, 2019, primarily due to the $30.7 million recoveryservices they provide, all recognized pre-tax income in the first quarter of 20192021 and are projected to be subject to tax on a full-year basis.
The $65.0 million change in income tax expense for the first quarter of amounts previously recognized as expense from a service provider and a $4.4 million increase to our accrual related to the CFPB and Florida matters in2021, compared with the first quarter of 2020, offset in part by a $24.0 million decline in legal fees largely due to a decline in legal expenses relating to the PHH integration, legal entity reorganization and litigation.
Technology and communication expense decreased $13.1 million, or 30%, as compared to the six months ended June 30, 2019 primarily because we no longer license the REALServicing servicing system from Altisource following our transition to Black Knight MSP in June 2019, a $4.6 million reduction in depreciation expense that is largely the result of a decline in capitalized technology investments, our closure of U.S. facilities in 2019, the effects of a decline in total average headcount and our other cost reduction efforts and re-engineering actions.
Occupancy and equipment expense decreased $7.2 million, or 20%, as compared to the six months ended June 30, 2019 primarily due to the results of our cost reduction efforts and the effect of the decline in the size of the servicing portfolio on various expenses, particularly mailing services. Depreciation expense declined $3.8 million as compared to the six months ended June 30, 2019.
Pledged MSR liability expense increased $1.4 million, or 3%, as compared to the six months ended June 30, 2019, largely due to a decline in fair value gains and runoff related to the PMC MSR Agreements and lower 2017/18 lump sum amortization gain, offset by a lower net servicing fee remittance to NRZ. These changes were primarily attributed to termination of the PMC servicing agreement by NRZ on February 20, 2020, final amortization of the 2017/2018 upfront cash payments in April 2020 and a lower UPB serviced. See Segment Results of Operations - Servicing for additional information.
Although we incurred a pre-tax loss for the six months ended June 30, 2020 of $93.5 million, we recorded an income tax benefit of $70.0 million primarily due to $65.0$64.8 million of estimated income tax benefit to be recognized under the CARES Act related to tax years 2018 and 2019during the three months ended March 31, 2020 as a result of modification of the tax rules to allow the carryback of NOLs arising in 2018, 2019 and 2020 tax years to the five prior tax years and the increase to the business interest expense limitation under IRC Section 163(j). We recognized an incomeIn 2020, we collected $51.4 million, which represents the tax benefit, exclusive ofrefund associated with the impact of the CARES ActNOLs generated in 2018 carried back to prior tax years, 2018 and 2019, of $5.0recognized a $24.0 million primarily due toreceivable which represents the favorable resolution of an uncertain tax position duringrefund associated with the six months ended June 30, 2020.NOLs generated in 2019. We collected this $24.0 million tax refund receivable from the U.S. Internal Revenue Service in January 2021. See Note 16 – Income Taxes for additional information.


Our overall effective tax rates for the six months ended June 30,first quarter of 2021 and 2020 were 26.6% and 2019 were 74.8% and (7.0)%70.8%, 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 is subject to statutory tax rates in these jurisdictions that are significantly higher than the U.S. statutory rate of 21%. The $78.8 million change in income tax expense for the six months ended June 30, 2020, compared with the same period in 2019, was primarily due to recognition of the estimated impact of the CARES Act as well as the favorable resolution of an uncertain tax position during the six months ended June 30, 2020. See Note 16 – Income Taxes for additional information.
Financial Condition Summary June 30, 2020 December 31, 2019 $ Change % Change
Cash$313,736
 $428,339
 $(114,603) (27)%
Restricted cash63,813
 64,001
 (188) —
MSRs, at fair value1,044,914
 1,486,395
 (441,481) (30)
Advances, net901,009
 1,056,523
 (155,514) (15)
Loans held for sale278,517
 275,269
 3,248
 1
Loans held for investment, at fair value6,730,656
 6,292,938
 437,718
 7
Receivables247,616
 201,220
 46,396
 23
Other assets730,177
 601,514
 128,663
 21
Total assets$10,310,438
 $10,406,199
 $(95,761) (1)%
        
Total Assets by Segment       
Servicing$2,835,486
 $3,378,515
 $(543,029) (16)%
Originations6,965,683
 6,459,367
 506,316
 8
Corporate Items and Other509,269
 568,317
 (59,048) (10)
 $10,310,438
 $10,406,199
 $(95,761) (1)%
        
HMBS-related borrowings, at fair value$6,477,616
 $6,063,435
 414,181
 7 %
Advance match funded liabilities612,650
 679,109
 (66,459) (10)
Other financing liabilities, at fair value594,222
 972,595
 (378,373) (39)
SSTL and other secured borrowings, net847,331
 1,025,791
 (178,460) (17)
Senior notes, net311,484
 311,085
 399
 —
Other liabilities1,034,366
 942,173
 92,193
 10
Total liabilities9,877,669
 9,994,188
 (116,519) (1)%
        
Total stockholders’ equity432,769
 412,011
 20,758
 5
        
Total liabilities and equity$10,310,438
 $10,406,199
 $(95,761) (1)%
        
Total Liabilities by Segment       
Servicing$2,444,558
 $2,862,063
 $(417,505) (15)%
Originations6,794,256
 6,347,159
 447,097
 7
Corporate Items and Other638,855
 784,966
 (146,111) (19)
 $9,877,669
 $9,994,188
 $(116,519) (1)%
        
Book value per share$3.33
 $3.06
 $0.27
 9 %
Pro forma book value per share (1)$49.93
 $45.83
 $4.10
 9 %
        
(1)
Pro forma book value per share reflects the number of common stock shares giving consideration for the 1-to-15 reverse stock split approved on July 28, 2020 and expected to be effective in August 2020, assuming it was retroactively effective as of each of the dates presented. See Note 13 – Equity and Note 17 – Basic and Diluted Earnings (Loss) per Share to the Unaudited Consolidated Financial Statementsfor additional information.


The $95.8 million decrease in our balance sheet for the six months ended June 30, 2020 is attributable to multiple offsetting changes. First, the MSR portfolio decreased by $441.5 million or 30%. The decrease is mostly due to the $263.7 million derecognition of NRZ related MSRs effective with the February 20, 2020 notice of termination of the subservicing agreement between NRZ and PMC, and a $197.6 million MSR valuation loss due to the decline in interest rates, mostly recognized inDuring the first quarter of 2020, the income tax benefit recorded was driven by the $64.8 million of estimated income tax benefit recognized under the CARES Act as noted above. The estimated benefit recorded related solely to prior period losses with no relationship to operating results of that period, which in turn resulted in the high effective tax rate of 70.8% for first quarter of 2020.

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Financial Condition Summary March 31, 2021December 31, 2020        $ Change% Change
Cash$259.1$284.8$(25.7)(9)%
Restricted cash77.372.54.87 
MSRs, at fair value1,400.21,294.8105.48 
Advances, net786.7828.2(41.5)(5)
Loans held for sale517.8387.8130.034 
Loans held for investment, at fair value7,053.27,006.946.31 
Receivables178.2187.7(9.5)(5)
Other assets499.2588.4(89.2)(15)
Total assets$10,771.8$10,651.1$120.71 %
Total Assets by Segment
Servicing$9,869.7$9,847.6$22.1— %
Originations525.6379.2146.439 
Corporate Items and Other376.5424.3(47.8)(11)
$10,771.8$10,651.1$120.71 %
HMBS-related borrowings, at fair value$6,778.2$6,772.7$5.5— %
Advance match funded liabilities550.4581.3(30.9)(5)
Other financing liabilities, at fair value559.2576.7(17.5)(3)
Other secured borrowings, net1,066.01,069.2(3.2)— 
Senior notes, net542.9311.9231.074 
Other liabilities835.0924.0(89.0)(10)
Total liabilities10,331.810,235.896.01 %
Total stockholders’ equity440.0415.424.66 
Total liabilities and equity$10,771.8$10,651.2$120.61 %
Total Liabilities by Segment
Servicing$9,161.1$9,163.5$(2.4)— %
Originations480.0428.551.512 
Corporate Items and Other690.7643.747.07 
$10,331.8$10,235.8$96.01 %
Book value per share$50.57 $47.81 $2.76 6 %
Total assets increased $120.7 million between December 31, 2020 and March 31, 2021, mostly due to the distressed COVID-19 market conditions. Second,$130.0 million increase in our cash balance decreased by $126.1 million to prepay a portion of the outstanding SSTL balance on January 27, 2020. Third, our total assets increased with an additional $437.7 million loans held for sale portfolio - driven by higher production volumes - and a $105.4 million or 8% increase in the MSR portfolio - driven by MSR valuation gain and new capitalized MSR. Loans held for investment increased by $46.3 million mostly due to the continued growth of our reverse mortgage business. Fourth, the $128.7Servicing advances declined $41.5 million increasemostly due to heightened payoff activity. The $89.2 million decrease in other assets is mostly attributable to the increasedecrease in the Ginnie Mae contingent repurchase rights of loans under forbearance.
Total liabilities decreased by $116.5$96.0 million as compared to December 31, 2020, with similar effects as described above. First, the $378.4 million decline in Other financing liabilities is mostly due to the $263.7 million derecognition of NRZ pledged MSR liability on February 20, 2020 upon termination of the subservicing agreement between NRZ and PMC, and MSR valuation adjustments due to interest rates. Second, the SSTL liability decreased as a result of our $126.1 million prepayment on January 27, 2020. Third, our HMBS-related borrowingsOur senior notes increased by $414.2$231.0 million due to the continued growthrefinancing transactions completed on March 4, 2021. On that date, we issued $556.4 million of new senior notes, net of discount, and repaid in full $313.1 million of existing notes. The decrease in other secured borrowings due to the $185.0 million repayment of the SSTL on March 4, 2021 was largely offset by an increase in borrowings under our reverse mortgage business and its securitization. Fourth,warehouse lines. Advance match funded liabilities decreased $30.9 million consistent with the $92.2decline in servicing advances. Further, the $89.0 million increasedecrease in other liabilities is mostly attributable to the increasedecrease in the Ginnie Mae contingent repurchase rights of loans under forbearance.
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Total equity increased $20.8$24.6 million due to a $47.0net income of $8.5 million adjustment to stockholders’ equityfor the first quarter of 2021 and the issuance of common stock warrants on January 1, 2020 as a resultMarch 4, 2021.
Outlook
The following discussion provides outlook information for certain key drivers of our electionfinancial performance. Also refer to measure futurethe Segment results of operations section for further detail and the description of our business initiatives.
Servicing fee revenue - Our servicing fee revenue is a function of the volume being serviced - UPB for servicing fees and loan count for subservicing fees. We expect we will continue to replenish and grow our servicing portfolio through our multi-channel Originations platform, with additional bulk acquisitions and the expected launch of MAV in the second quarter of 2021. We recently signed letters of intent (non-binding) and entered into an agreement to purchase bulk MSRs representing a total $68 billion of UPB. The expected volume increase is also intended to exceed the portfolio serviced on behalf of NRZ that may end in July 2022. Ancillary income has been adversely impacted by COVID-19 and the low rate environment, which may persist throughout 2021.
Gain on sale of loans held for sale - Our gain on sale is driven by both volume and margin and is channel-sensitive, with recapture generating relatively higher margins than correspondent. While we intend to increase our recapture rate by expanding our channel operating capacity, the volume of refinance activity by borrowers is expected to decline with relatively higher interest rates. Intense competition is expected in the correspondent channel or through GSE Cash Window and co-issue programs for the remainder of 2021 imposing a trade-off between volumes and margins.
Reverse mortgage revenue, net - The reverse mortgage draw commitmentsorigination gain is driven by the same factors as gain on sale of loans held for sale, with smaller volumes in the reverse mortgage market and generally larger margins. With our experience and brand in the marketplace, we expect to continue to grow our volumes at fair valuesimilar margins in conjunctioneach channel, however the channel mix may vary. With a relatively stable UPB, reverse mortgage servicing revenue is expected to generate a stable return on the portfolio, absent any significant change in interest rates.
Operating expenses - Compensation and benefits is a significant component of our cost-to-service and cost-per-loan, and is directly correlated to headcount levels. We have recently scaled down our Servicing workforce to adjust for portfolio termination and attempt to maintain the relative income contribution of our Servicing business. The COVID-19 environment required us to maintain additional resources to support borrowers, for example through the offering and management of forbearance plans, or as the eviction and foreclosure moratorium was postponed several times, As servicing volume is expected to increase (see above), we expect an increase in our workforce, some of which may be in anticipation of the expected loan transfers. We expect we will continue to increase our Originations workforce for the remainder of 2021 to accompany the growth of the channels. Other operating expenses are expected to favorably correlate with volumes, as productivity and efficiencies are expected with our technology and continuous improvement initiatives.
Stockholders’ equity - With the above considerations, we expect our businesses to generate net income and increase our equity for the remainder of 2021. We expect additional capital from Oaktree with the applicationissuance of shares and warrants upon closing of the new credit loss accounting standard, offset by the $23.5 million net loss for the six months ended June 30, 2020, and our repurchase of 5.7 million shares of our common stock during the first quarter.MAV transaction.
SEGMENT RESULTS OF OPERATIONS
Our activities are organized into two reportable business segments that reflect our primary lines of business - Servicing and Originations - as well as a Corporate Items and Other segment.

SERVICING
We earn contractual monthly servicing fees pursuant to servicing agreements, which are typically payable as a percentage of UPB, as well as ancillary fees, including late fees, modification incentive fees, REO referral commissions, float earnings and Speedpay/collection fees. In addition, we earn performance or incentive fees depending on operational and other metrics exceeding certain service level agreement targets. We also earn fees under both subservicing and special servicing arrangements with banks and other institutions that own the MSRs. Subservicing and special servicing fees are earned either as a percentage of UPB or on a per-loan basis. Per loanPer-loan fees typically vary based on type of investor and on delinquency status. As of June 30, 2020,March 31, 2021, we serviced 1.4approximately 1.1 million mortgage loans with an aggregate UPB of $206.0$179.4 billion. The average UPB of loans serviced during the secondfirst quarter of 2020 decreased2021 increased by 14%4% or $34.0$6.9 billion compared to the secondfourth quarter of 2019,2020, mostly due to portfolio runoff, net ofour replenishment and growth strategy that resulted in newly originated and acquiredpurchased MSRs and certain servicing transfers inexceeding high levels of portfolio runoff. Compared to the secondfirst quarter of 2019.2020, the average UPB of loans serviced during the first quarter of
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2021 decreased by 11% or $22.6 billion mostly due to the heightened portfolio runoff due to low rate environment and the termination of the PMC MSR Agreements by NRZ with the transfer of $34.2 billion UPB of loans completed in October 2020.
NRZ is our largest servicingsubservicing client, accounting for 53%36% and 60%45%, respectively, of the UPB and loansloan count in our servicing portfolio as of June 30, 2020, respectively.March 31, 2021. NRZ servicing fees retained by Ocwen represented approximately 23%21% of the total servicing and subservicing fees earned by Ocwen, net of servicing fees remitted to NRZ and excluding ancillary income, for both the threefirst quarter of 2021, and six months ended June 30, 2020,22% for the fourth quarter of 2020. This compares to 24% for the first quarter of 2020. NRZ’s portfolio represents approximately 64% of all delinquent loans that Ocwen serviced, for which the cost to service and 27% for both the three and six months ended June 30, 2019. Consistentassociated risks are higher. However, consistent with a subservicing relationship, NRZ is responsible for funding the advances we service for NRZ.
In 2017 and early 2018, we renegotiated the Ocwen agreements with NRZ to more closely align with a typical subservicing arrangement whereby we receive a base servicing fee and certain ancillary fees, primarily late fees, loan modification fees and 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 represented 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 received under the renegotiated agreements. These upfront payments received from NRZ were deferred and recorded within Other income (expense), Pledged MSR liability expense, as they amortized through the term of the original agreements (April 2020).


The following table presents subservicing fees retained by Ocwen under the NRZ agreements and the amortization gain (including fair value change) of the lump-sum payments received in connection with the 2017 Agreements and New RMSR Agreements:
 Three Months Ended June 30,Six Months Ended June 30,
 2020 20192020 2019
Retained subservicing fees on NRZ agreements (1)$25,523
 $35,905
$54,855
 $73,312
Amortization gain of the lump-sum cash payments received (including fair value change) recorded as a reduction of Pledged MSR liability expense9,979
 30,696
34,218
 47,036
Total retained subservicing fees and amortization gain of lump-sum payments (including fair value change)$35,502
 $66,601
$89,073
 $120,348
       
Average NRZ UPB (2)$72,878,102
 $123,856,714
$75,886,160
 $126,114,653
Average annualized retained subservicing fees as a % of NRZ UPB0.14% 0.12%0.14% 0.12%
(1)Excludes the servicing fees of loans under the PMC Servicing Agreement after February 20, 2020 due to the notice of termination by NRZ, and subservicing fees earned under subservicing agreements.
(2)Excludes the UPB of loans subserviced under the PMC Servicing Agreement after February 20, 2020 due to the notice of termination by NRZ, and excludes the UPB of loans under subservicing agreements.
Our MSR portfolio is carried at fair value, with changes in fair value recorded in MSR valuation adjustments, net. The value of our MSRs is typically correlated to changes in interest rates; as interest rates decrease, the value of the servicing portfolio typically decreases as a result of higher anticipated prepayment speeds. The sensitivity of MSR fair value to interest rates is typically higher for higher credit quality loans, such as our Agency loans. Our Non-Agency portfolio is significantly seasoned, with an average loan age of approximately 15 years, exhibiting little response to movements in market interest rates. Valuation is also impacted by loan delinquency rates whereby as delinquency rates rise, the value of the servicing portfolio declines. The MSR portfolio is an investment that decreases in value over time, through portfolio runoff, as we realize its cash flows and yield. MSR portfolio runoff is an expense to our Servicing segment as a fair value loss, and represents the realization of expected cash flows and yield based on projected borrower behavior, including scheduled amortization of the loan UPB together with prepayments.
For those MSR sale transactions with NRZ that do not achieve sale accounting treatment, we present on a gross basis the pledged MSR as an asset at fair value and the corresponding liability amount pledged MSR liability on our balance sheet. Similarly, we present the total servicing fees and theThe changes in fair value changes related toof the pledged MSR sale transactions with NRZ within Servicing and subservicing fees, net andare reflected as MSR valuation adjustments, net respectively. Net servicing fee remittance to NRZ and the fair value changes of the pledged MSR liability are separately presented within Pledged MSR liability expense and are offset by the two corresponding amounts presented in other statement of operations line items. We record both our pledged MSRs with NRZ and the associated MSR liability at fair value, the changes in fair value of the pledged MSR liability were offset by the changes in fair value of the associated MSRs pledged, presented inare reported within Pledged MSR valuation adjustments, net. Although fair value changes are separately presented in our statement of operations, we are not exposed to any fair value changes of the MSR related to NRZ.
On February 20, 2020, we received a notice of termination from NRZ with respect to the PMC MSR Agreements, which accounted for $37.1 billion loan UPB, or 285,237 loans at June 30, 2020. In connection with the termination, we are entitled to loan deboarding fees from NRZ. Loan deboarding is under discussion with NRZ and is currently planned for September and October 2020, though is subject to various requirements that may delay the process. This termination is for convenience and not for cause. As the sale accounting criteria were met upon the notice of termination, the MSRs and the Rights to MSRs associated with the $37.1 billion loan UPB were derecognized from our balance sheet on February 20, 2020liability expense, without any gain or loss on derecognition. We continue to service these loans until deboarding, and account for them as a subservicing relationship. Accordingly, we recognize subservicing fees associated withnet earnings impact. In addition, the subservicing agreement subsequent to February 20, 2020 and do not report anytotal servicing fees collected on behalf of NRZ are reported within Servicing and subservicing fees, and the servicing fees remitted to NRZ are presented within Pledged MSR liability expense.
Loan Resolutions
We have a strong track record of success as a leader in the servicing industry in foreclosure prevention and loss mitigation that helps homeowners stay in their homes and improves financial outcomes for mortgage loan investors. Reducing delinquencies also enables us to recover advances and recognize additional ancillary income, such as late fees, which we do not recognize on delinquent loans until they are brought current. Loan resolution activities address the pipeline of delinquent loans and generally lead to (i) modification of the loan terms, (ii) repayment plan alternatives, (iii) a discounted payoff of the loan (e.g., a “short sale”), or (iv) foreclosure or deed-in-lieu-of-foreclosure and sale of the resulting REO. Loan modifications must be made in accordance with the applicable servicing agreement as such agreements may require approvals or impose restrictions upon, or even forbid, loan modifications. To select an appropriate loan modification option for a borrower, we perform a structured analysis, using a proprietary model, of all options using information provided by the borrower as well as external data, including recent broker price opinions to value the mortgaged property. Our proprietary model includes, among other things, an assessment of re-default risk.
Our future financial performance will be less impacted by loan resolutions because, under our NRZ agreements, NRZ receives all deferred servicing fees. Deferred servicing fees related to delinquent borrower payments were $162.8 million at March 31, 2021, of which $128.5 million were attributable to NRZ agreements.
Advance Obligation
As a servicer, we are generally obligated to advance funds in the event borrowers are delinquent on their monthly mortgage related payments. We advance principal and interest (P&I Advances), taxes and insurance (T&I Advances) and legal fees, property valuation fees, property inspection fees, maintenance costs and preservation costs on properties that have been foreclosed (Corporate Advances). For certain loans in non-Agency securitization trusts, we have the ability to cease making P&I advances and immediately recover advances previously made from the general collections of the respective trust if we determine that our P&I advances cannot be recovered from the projected future cash flows. With T&I and Corporate advances, we continue to advance if net future cash flows exceed projected future advances without regard to advances already made.
Most of our advances have the highest reimbursement priority (i.e., they are “top of the waterfall”) so that we are entitled to repayment from respective loan or REO liquidation proceeds before any changeinterest or principal is paid on the bonds that were issued by the trust. In the majority of cases, advances in fair value, runoff and settlementexcess of respective loan or REO liquidation proceeds may be recovered from pool-level proceeds. The costs incurred in meeting these obligations consist principally of the interest expense incurred in financing liability thereafter.the servicing advances. Most subservicing agreements, including our agreements with NRZ, provide for prompt reimbursement of any advances from the owner of the servicing rights.
60

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.


The following table summarizes our key servicer ratings:
PHH Mortgage Corporation (PMC)
Moody’sS&PFitch
Residential Prime ServicerSQ3AverageRPS3
Residential Subprime ServicerSQ3AverageRPS3
Residential Special ServicerSQ3AverageRSS3
Residential Second/Subordinate Lien ServicerSQ3AverageRPS3
Residential Home Equity Servicer——RPS3
Residential Alt-A Servicer——RPS3
Master ServicerSQ3AverageRMS3
Ratings OutlookN/AStableStable
PHH Mortgage Corporation
Moody’sS&PFitch
Residential Prime ServicerSQ3AverageRPS3
Residential Subprime ServicerSQ3AverageRPS3
Residential Special ServicerSQ3AverageRSS3
Residential Second/Subordinate Lien ServicerSQ3AverageRPS3
Residential Home Equity Servicer——RPS3
Residential Alt-A Servicer——RPS3
Master ServicerSQ3AverageRMS3
Ratings OutlookN/AStableNegative
Date of last actionAugust 29, 2019December 27, 2019March 24, 2020April 28, 2021
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.” On March 24, 2020, Fitch placed all U.S RMBS servicer ratings on Negative outlook resulting from a rapidly evolving economic and operating environment due to the sudden impact of the COVID-19 virus.
Downgrades in On April 28, 2021, Fitch affirmed PMC’s servicer ratings could adversely affect our abilityand revised its outlook from Negative to service loans, sell or financeStable as PMC’s performance in this evolving environment has not raised any elevated concerns. According to Fitch, the affirmation and stable outlook reflected PMC’s diligent response to the coronavirus pandemic and its impact on servicing advancesoperations, effective enterprise-wide risk environment and could impair our ability to consummate futurecompliance management framework, satisfactory loan servicing transactions or adversely affect our dealings with lenders, other contractual counterparties,performance metrics, special servicing expertise, and regulators, including our ability to maintain our status as an approved servicer by Fannie Mae and Freddie Mac.efficient servicing technology. The servicer rating requirementsratings also consider the financial condition 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.PMC’s parent, OFC.

61

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:
Three Months Ended% ChangeThree Months Ended March 31, 2020% Change
March 31,December 31,
20212020
Revenue
Servicing and subservicing fees
Residential$168.7$165.02 $210.7(20)
Commercial0.71.0(30)0.7— 
169.4166.02 211.5(20)
Gain on loans held for sale, net3.53.9(10)0.2n/m
Reverse mortgage revenue, net2.0(5.3)(138)16.7(88)
Other revenue, net0.50.9(44)1.2(58)
Total revenue175.4165.66 229.5(24)
 
MSR valuation adjustments, net(22.7)(26.4)(14)(174.4)(87)
Operating expenses
Compensation and benefits25.127.9(10)27.2(8)
Servicing and origination24.513.878 18.433 
Occupancy and equipment6.56.8(4)9.1(29)
Professional services7.18.3(14)5.139 
Technology and communications5.75.210 7.3(22)
Corporate overhead allocations12.212.7(4)17.8(31)
Other expenses1.61.6— (0.4)(500)
Total operating expenses82.876.48 84.5(2)
Other income (expense) 
Interest income1.30.786 2.5(48)
Interest expense (1)(20.3)(20.9)(3)(24.6)(17)
Pledged MSR liability expense(37.9)(46.7)(19)(6.6)474 
Other, net0.52.5(80)3.7(86)
Total other expense, net(56.5)(64.4)(12)(25.0)126 
Income (loss) before income taxes$13.5$(1.5)n/m$(54.4)(125)%
n/m: not meaningful
 Three Months Ended June 30,   Six Months Ended June 30,  
 2020 2019 % Change 2020 2019 % Change
Revenue           
Servicing and subservicing fees           
Residential$174,361
 $238,536
 (27)% $385,188
 $493,747
 (22)%
Commercial687
 616
 12
 1,414
 1,843
 (23)
 175,048
 239,152
 (27) 386,602
 495,590
 (22)
Gain on loans held for sale, net4,572
 1,723
 165
 5,414
 2,939
 84
Other revenue, net816
 1,635
 (50) 1,975
 3,255
 (39)
Total revenue180,436
 242,510
 (26) 393,991
 501,784
 (21)
      
      
MSR valuation adjustments, net(36,604) (147,199) (75) (211,040) (256,113) (18)
            
Operating expenses           
Compensation and benefits28,675
 40,834
 (30) 55,461
 81,237
 (32)
Servicing and origination12,811
 17,157
 (25) 27,745
 42,043
 (34)
Occupancy and equipment8,345
 11,868
 (30) 17,375
 24,475
 (29)
Professional services8,802
 11,037
 (20) 13,873
 22,460
 (38)
Technology and communications6,701
 7,649
 (12) 13,956
 17,149
 (19)
Corporate overhead allocations16,081
 53,721
 (70) 33,874
 111,315
 (70)
Other expenses1,325
 622
 113
 929
 1,192
 (22)
Total operating expenses82,740
 142,888
 (42) 163,213
 299,871
 (46)
     

      
Other income (expense)     
      
Interest income1,438
 1,872
 (23) 3,324
 4,165
 (20)
Interest expense(12,890) (11,261) 14
 (26,557) (22,003) 21
Pledged MSR liability expense(41,714) (2,930) n/m
 (48,337) (46,886) 3
Other, net2,459
 890
 176
 6,121
 2,416
 153
Total other expense, net(50,707) (11,429) 344
 (65,449) (62,308) 5
     

      
Income (loss) before income taxes$10,385
 $(59,006) (118)% $(45,711) $(116,508) (61)%
n/m: not meaningful           
(1) Beginning in the third quarter of 2020, we began allocating interest expense on the corporate debt used to fund servicing advances and other servicing assets from Corporate Items and Other to Servicing. The interest expense related to the corporate debt has been allocated from Corporate Items and Other to the Servicing segment for prior periods to conform to the current period presentation. See Note 18 – Business Segment Reporting.

62

The following tables provide selected operating statistics:
March 31,December 31,% ChangeMarch 31,% Change
 202120202020
Residential Assets Serviced
Unpaid principal balance (UPB) in billions:
Performing loans (1)$169.7 $177.6 (4)%$196.1 (13)%
Non-performing loans8.8 10.3 (15)10.6 (17)
Non-performing real estate0.9 0.9 — 2.1 (57)
Total179.4 188.8 (5)208.8 (14)%
Conventional loans (2)$75.6 $77.0 (2)%$92.8 (19)%
Government-insured loans29.4 34.8 (16)31.6 (7)
Non-Agency loans74.3 77.0 (4)84.3 (12)
Total$179.4 $188.8 (5)%$208.8 (14)%
Servicing portfolio (5)$98.7 $97.4 1 %$77.2 28 %
Subservicing portfolio16.3 24.3 (33)17.7 (8)
NRZ (3) (6)64.3 67.1 (4)113.9 (44)
Total$179.4 $188.8 (5)%$208.8 (14)
Prepayment speed (CPR) (4):
3-month % Voluntary CPR21.7 %18.30 %19 %10.5 %107 %
3-month % Involuntary CPR0.8 %1.50 %(47)1.2 (33)
Total 3-month % CPR25.2 %22.80 %11 15.3 %65 
Number (in 000’s):
Performing loans (2)1,011.1 1,048.7 (4)%1,326.6 (24)%
Non-performing loans45.5 52.2 (13)55.9 (19)
Non-performing real estate6.7 6.7 — 13.8 (51)
Total1,063.2 1,107.6 (4)%1,396.3 (24)%
Conventional loans (1)344.3 349.6 (2)%593.2 (42)%
Government-insured loans180.2 201.9 (11)193.7 (7)
Non-Agency loans538.6 556.1 (3)609.4 (12)
Total1,063.2 1,107.6 (4)%1,396.3 (24)%
Servicing portfolio513.0 511.6 — %474.9 8 %
Subservicing portfolio67.5 96.3 (30)79.3 (15)
NRZ (4)482.7 499.6 (3)842.2 (43)
Total1,063.2 1,107.6 (4)%1,396.3 (24)
Number of completed modifications (in 000’s)
4.8 5.8 (17)%8.3 (42)%
(1)Performing loans include those loans that are less than 90 days past due and those loans for which borrowers are making scheduled payments under loan modification, forbearance or bankruptcy plans. We consider all other loans to be non-performing.
(2)Conventional loans include 85,479 and 89,458 prime loans with a UPB of $15.3 billion and $16.1 billion at March 31, 2021 and December 31, 2020, respectively, that we service or subservice. This compares to 107,352 prime loans with a UPB of $19.6 billion at March 31, 2020. Prime loans are generally good credit quality loans that meet GSE underwriting standards.
(3)Loans serviced or subserviced pursuant to our agreements with NRZ.
(4)Average CPR includes voluntary and involuntary prepayments and scheduled principal amortization (not reflected in the above table).
(5)Includes $6.7 billion UPB of reverse mortgage loans that are recognized in our consolidated balance sheet at March 31, 2021.
(6)Includes $2.5 billion UPB of subserviced loans at March 31, 2021.
63

 June 30,  
 2020 2019 % Change
Residential Assets Serviced     
Unpaid principal balance (UPB) in billions:     
Performing loans (2)$191.9
 $220.7
 (13)%
Non-performing loans12.5
 6.5
 92
Non-performing real estate1.6
 2.1
 (24)
Total (1)206.0
 229.3
 (10)%
      
Conventional loans (3)$90.8
 $106.4
 (15)%
Government-insured loans33.4
 29.2
 14
Non-Agency loans81.8
 93.7
 (13)
Total (1)$206.0
 $229.3
 (10)%
      
Servicing portfolio$77.0
 $80.2
 (4)%
Subservicing portfolio20.0
 27.4
 (27)
NRZ (4)109.0
 121.7
 (10)
Total (1)$206.0
 $229.3
 (10)
      
Number:     
Performing loans (2)1,293,817
 1,443,253
 (10)%
Non-performing loans63,819
 36,860
 73
Non-performing real estate9,776
 10,916
 (10)
Total (1)1,367,412
 1,491,029
 (8)%
      
Conventional loans (3)576,361
 639,648
 (10)%
Government-insured loans199,034
 187,527
 6
Non-Agency loans592,017
 663,854
 (11)
Total (1)1,367,412
 1,491,029
 (8)%
      
Servicing portfolio471,811
 487,933
 (3)%
Subservicing portfolio81,210
 105,060
 (23)
NRZ (4)814,391
 898,036
 (9)
Total (1)1,367,412
 1,491,029
 (8)
The following table provides selected operating statistics related to our reverse mortgage loans reported within our Servicing segment:


March 31,December 31,% ChangeMarch 31,% Change
202120202020
Reverse Mortgage Loans at December 31
Unpaid principal balance (UPB) in millions:
Loans held for investment (1)$6,326.1 $6,299.6 — %$5,864.2 7 %
Active Buyouts (2)27.0 28.4 (5)15.0 89 
Inactive Buyouts (2)75.9 64.2 18 35.6 80 
Total$6,429.0 $6,392.3 1 $5,914.7 8 
Inactive buyouts % to total1.18 %1.00 %18 0.60 %67 
Future draw commitments (UPB) in millions:2,052.6 2,044.4 — 1,574.6 30 
Fair value in millions:
Loans held for investment (1)$6,874.9 $6,872.3 — $6,438.8 7 
HMBS related borrowings6,778.2 6,772.7 — 6,323.1 7 
Net asset value$96.7 $99.5 (3)$115.7 (14)

(1)Securitized loans only; excludes unsecuritized loans as reported within the Originations segment.

(2)Buyouts are reported as Loans held for sale, Accounts Receivable or REO depending on the loan and foreclosure status.

The following table provides selected operating statistics related to advances for our Servicing segment:

March 31, 2021December 31, 2020
Advances by investor typePrincipal and InterestTaxes and InsuranceForeclosures, bankruptcy, REO and otherTotalPrincipal and InterestTaxes and InsuranceForeclosures, bankruptcy, REO and otherTotal
Conventional$2$27$5$35$4$30$5$38
Government-insured14927761552884
Non-Agency255272149676272279155705
Total, net$258$349$180$787$277$365$187$828







 Three Months Ended June 30,   Six Months Ended June 30,  
 2020 2019 % Change 2020 2019 % Change
Residential Assets Serviced           
Average UPB:           
Servicing portfolio$77.4
 $78.9
 (2)% $75.5
 $76.3
 (1)%
Subservicing portfolio18.6
 38.6
 (52) 17.7
 44.6
 (60)
NRZ (4)111.5
 123.9
 (10) 114.9
 126.1
 (9)
Total$207.5
 $241.4
 (14)% $208.1
 $247.0
 (16)%
            
Prepayment speed (CPR) (5)18.9% 15.2% 24 % 17.1% 13.8% 24 %
% Voluntary CPR (5)14.5
 10.5
 38
 12.5
 9.1
 37
% Involuntary CPR (5)1.3
 1.2
 8
 1.2
 1.6
 (25)
            
Average number:    

      
Servicing portfolio476,118
 484,538
 (2)% 462,415
 473,961
 (2)%
Subservicing portfolio77,714
 122,013
 (36) 75,084
 134,503
 (44)
NRZ (5)828,116
 910,325
 (9) 852,774
 924,069
 (8)
 1,381,948
 1,516,876
 (9)% 1,390,273
 1,532,533
 (9)%
            
            
Residential Servicing and Subservicing Fees           
Loan servicing and subservicing fees:           
Servicing$51,737
 $54,942
 (6)% $106,817
 $107,457
 (1)%
Subservicing10,623
 4,203
 153
 15,812
 10,410
 52
NRZ88,405
 141,091
 (37) 208,073
 296,938
 (30)
 150,765
 200,236
 (25) 330,702
 414,805
 (20)
Late charges12,619
 13,182
 (4) 27,217
 28,520
 (5)
Custodial accounts (float earnings)1,590
 13,288
 (88) 7,720
 25,198
 (69)
Loan collection fees2,741
 3,395
 (19) 6,993
 7,657
 (9)
HAMP fees20
 1,565
 (99) 428
 3,342
 (87)
Other6,626
 6,870
 (4) 12,128
 14,225
 (15)
 $174,361
 $238,536
 (27)% $385,188
 $493,747
 (22)%
            
            
Number of Completed Modifications           
Non-HAMP7,263
 5,051
 44
 15,588
 13,083
 19
HAMP—
 250
 (100)% —
 503
 (100)%
Total7,263
 5,301
 37 % 15,588
 13,586
 15 %
            
n/m: not meaningful           
(1)Includes 35,214 and 33,521 reverse mortgage loans, recorded on our balance sheet and classified as loans held for investment, with a UPB of $6.5 billion and $5.8 billion at June 30, 2020 and 2019, respectively.
(2)Performing loans include those loans that are less than 90 days past due and those loans for which borrowers are making scheduled payments under loan modification, forbearance or bankruptcy plans. We consider all other loans to be non-performing.
(3)Conventional loans include 103,611 and 123,747 prime loans with a UPB of $18.9 billion and $28.1 billion at June 30, 2020 and 2019, respectively, which we service or subservice. Prime loans are generally good credit quality loans that meet GSE underwriting standards.
(4)Loans serviced or subserviced pursuant to our agreements with NRZ.
(5)Average CPR includes voluntary and involuntary prepayments and scheduled principal amortization (not reflected in the above table).




 June 30, 2020 December 31, 2019
Dollars in millionsPrincipal and Interest Taxes and Insurance Foreclosures, bankruptcy, REO and other Total Principal and Interest Taxes and Insurance Foreclosures, bankruptcy, REO and other Total
Advances by investor type               
Conventional$3
 $20
 $10
 $34
 $4
 $20
 $27
 $51
Government-insured—
 34
 27
 62
 —
 47
 26
 73
Non-Agency333
 301
 172
 805
 410
 354
 168
 932
Total, net$336
 $355
 $209
 $901
 $414
 $421
 $221
 $1,056

 June 30, 2020 December 31, 2019
Advances by MSR ownershipAdvances ($ millions)
UPB
($ billions) (3)
 Advances ($ millions)
UPB
($ billions) (3)
Servicer$848
$70.5
 $976
$67.6
Master Servicer (1)4
1.7
 —
1.8
Subservicer40
20.0
 38
17.3
NRZ (2)9
109.0
 42
118.6
Total, net (3)$901
$201.2
 $1,056
$205.3
(1)Excludes relationships where we are both master servicer and servicer (included in Servicer).
(2)Pursuant to the 2017 Agreements and New RMSR Agreements, NRZ is obligated to fund new servicing advances with respect to the MSRs underlying the Rights to MSRs. We are dependent upon NRZ for funding the servicing advance obligations for Rights to MSRs where we are the servicer. As the servicer, we are contractually required under our servicing agreements to make certain servicing advances even if NRZ does not perform its contractual obligations to fund those advances. NRZ currently uses advance financing facilities in order to fund a substantial portion of the servicing advances that they are contractually obligated to purchase pursuant to our agreements with them.
(3)Excludes reverse mortgage loans reported on our unaudited consolidated balance sheets and classified as loans held for investment. No separate MSRs are recognized in our unaudited consolidated balance sheets.



 Three Months Ended June 30,   Six Months Ended June 30, 
 2020 2019 % Change 2020 2019% Change
Financing Costs          
Average balance of advances$908,111
 $1,147,164
 (21)% $987,683
 $1,087,925
(9)%
Average borrowings          
Advance match funded liabilities625,360
 646,369
 (3) 649,900
 681,813
(5)
Other secured borrowings437,069
 74,074
 490
 555,595
 83,585
565 %
Interest expense on borrowings          
Advance match funded liabilities7,311
 7,045
 4
 12,976
 14,697
(12)
Other secured borrowings4,422
 1,206
 267
 10,059
 2,921
244
Effective average interest rate          
Advance match funded liabilities4.68% 4.36% 7 % 3.99% 4.31%(7)%
Other secured borrowings4.05
 6.51
 (38) 3.62
 6.99
(48)
Facility costs included in interest expense$3,548
 $1,369
 159 % $5,741
 $2,652
116 %
Average 1ML0.36% 2.44% (85)% 0.90% 2.47%(64)%
           
Average Employment          
India and other3,018
 3,497
 (14)% 3,019
 3,585
(16)%
U.S.747
 1,452
 (49)% 751
 1,482
(49)%
Total3,765
 4,949
 (24)% 3,770
 5,067
(26)%

The following table provides information regarding the changes in our portfolio of residential assets serviced or subserviced:
Amount of UPB ($ in billions)
Count (000’s)
2021202020212020
Portfolio at January 1$188.8 $212.4 1,107.6 1,419.9 
Additions (1)13.5 6.9 49.4 28.8 
Sales— (0.1)(0.1)(0.7)
Servicing transfers (2)(10.9)(2.2)(42.5)(8.5)
Runoff(12.1)(8.2)(51.2)(43.2)
Portfolio at March 31$179.4 $208.8 1,063.2 1,396.3 
(1)Additions include purchased MSRs on portfolios consisting of 5,971 loans with a UPB of $1.6 billion that have not yet transferred to the Black Knight MSP servicing system as of March 31, 2021. Because we have legal title to the MSRs, the UPB and count of the loans are included in our reported servicing portfolio. The seller continues to subservice the loans on an interim basis until the servicing transfer date.
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Amount of UPB (in billions)
 Count
 2020 2019 2020 2019
Portfolio at January 1$212.4
 $256.0
 1,419,943
 1,562,238
Additions (1) (2)6.9
 4.7
 28,781
 16,419
Sales(0.1) (0.1) (720) (723)
Servicing transfers (2)(2.2) (0.4) (8,527) (3,092)
Runoff(8.2) (9.1) (43,161) (40,491)
Portfolio at March 31$208.8
 $251.1
 1,396,316
 1,534,351
Additions (1)8.5
 8.9
 28,949
 34,123
Sales(0.1) (0.2) (720) (1,288)
Servicing transfers (2)(0.9) (20.7) (3,862) (29,625)
Runoff(10.2) (9.8) (53,271) (46,532)
Portfolio at June 30$206.0
 $229.3
 1,367,412
 1,491,029
(2)     Excludes the volume UPB associated with short-term interim subservicing for some clients as a support to their originate-to-sell business, where loans are boarded and deboarded within the same quarter.
(1)Additions in the second quarter of 2020 include purchased MSRs on portfolios consisting of 1,682 loans with a UPB of $0.5 billion that have not yet transferred to the Black Knight MSP servicing system as of June 30, 2020. Additions in the first quarter of 2020 include purchased MSRs on portfolios consisting of 12,584 loans with a UPB of $2.4 billion that had not transferred to the Black Knight MSP servicing system as of March 31, 2020. Because we have legal title to the MSRs, the UPB and count of the loans are included in our reported servicing portfolio. The seller continues to subservice the loans on an interim basis until the servicing transfer date.
(2)Excludes the volume UPB associated with short-term interim subservicing for some clients as a support to their originate-to-sell business, where loans are boarded and deboarded within the same quarter. To conform to the current period presentation, 6,186 short-term interim subservicing loans with a UPB of $1.2 billion previously reported as additions and servicing transfers for the quarter ended June 30, 2019 are not reflected in the table above.

Servicing and Subservicing Fees
Three Months EndedThree Months Ended March 31, 2020
March 31,December 31,% Change% Change
20212020
Loan servicing and subservicing fees:
Servicing$63.9 $55.1 16 %$55.4 15 %
Subservicing3.5 2.7 30 5.2 (33)
NRZ80.4 84.6 (5)119.7 (33)
Servicing and subservicing fees147.8 142.4 4 180.3 (18)
Ancillary income21.6 23.6 (8)31.2 (31)
$169.4 $166.0 2 $211.5 (20)%
We reported $169.4 million total servicing and subservicing fees in the first quarter of 2021, a $3.3 million, or 2% increase as compared to the fourth quarter of 2020. Our fee income increase is primarily due to an $8.8 million, or 16% increase in servicing fees on our owned MSR driven by a 16% increase in our average UPB serviced. Partially offsetting this increase, fees collected on behalf of NRZ declined by $4.2 million due to a 9% decline in average UPB. These changes reflect our strategy to grow our owned MSR and subservicing portfolios while reducing our concentration on the NRZ portfolio.
The $42.1 million, or 20% decline in total servicing and subservicing fees in the first quarter of 2021 as compared to the first quarter of 2020 is primarily driven by three main factors: the reduction in fees collected on behalf of NRZ, the reduction in ancillary income, mostly due to the COVID-19 environment and lower interest rates, and the partially offsetting increase in our owned MSR servicing fee income. The $8.5 million, or 15% increase in servicing fees on our owned MSR as compared to the first quarter of 2020 is due to a 32% increase our average volume serviced.
The following table below presents the respective drivers of residential loan servicing (owned MSR) and subservicing fees.
Three Months EndedThree Months Ended March 31, 2020
March 31,December 31,% Change% Change
 20212020
Servicing and subservicing fee
Servicing fee$63.9$55.116 %$55.415 %
Average servicing fee (% of UPB)0.260.26— %0.30(13)%
Subservicing fee (1)$3.5$2.730 $5.2(33)
Average monthly fee per loan (in dollars)$13$1030 $863 
Residential assets serviced
Average UPB ($ in billions):
Servicing portfolio$97.8$84.016 %$74.032 %
Subservicing portfolio22.723.0(1)16.835 
NRZ65.872.3(9)118.1(44)
Total$186.3$179.44 %$208.9(11)%
Average number (in 000’s):
Servicing portfolio510.8474.78 %451.813 %
Subservicing portfolio90.391.7(2)226.5(60)
NRZ491.5541.2(9)721.8(32)
1,092.61,107.6(1)%1,400.1(22)%
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The following table presents both servicing fees collected and subservicing fees retained by Ocwen under the NRZ agreements, together with the previously recognized amortization gain of the lump-sum payments received in connection with the 2017 Agreements and New RMSR Agreements (through the first quarter of 2020 only):
NRZ servicing and subservicing feesThree Months EndedThree Months Ended March 31, 2020
March 31, 2021December 31, 2020
Servicing fees collected on behalf of NRZ$80.4 $84.6 $119.7 
Servicing fees remitted to NRZ (1)(56.4)(60.3)(90.4)
Retained subservicing fees on NRZ agreements (2)$24.0 $24.3 $29.3 
Amortization gain of lump-sum cash payments received (including fair value change) (1)(3)— — 24.2 
Total retained subservicing fees and amortization gain of lump-sum cash payments (including fair value change)$24.0 $24.3 $53.5 
Average NRZ UPB ($ in billions) (4)$65.8 $72.3 $101.1 
Average annualized retained subservicing fees as a % of NRZ UPB (excluding amortization gain of lump-sum cash payments)0.15 %0.13 %0.12 %
(1)Reported within Pledged MSR liability expense. The NRZ servicing fee includes the total servicing fees collected on behalf of NRZ relating to the MSR sold but not derecognized from our balance sheet. Under GAAP, we separately present servicing fee collected and remitted on a gross basis, with the servicing fee remitted to NRZ reported as Pledged MSR liability expense.
(2)Excludes the servicing fees of loans under the PMC Servicing Agreement after February 20, 2020 due to the notice of termination by NRZ, and subservicing fees earned under subservicing agreements.
(3)In 2017 and early 2018, we renegotiated the Ocwen agreements with NRZ to more closely align with a typical subservicing arrangement whereby we receive a base servicing fee and certain ancillary fees, primarily late fees, loan modification fees and 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 represented 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 received under the renegotiated agreements. These upfront payments received from NRZ were deferred and recorded within Other income (expense), Pledged MSR liability expense, as they amortized through the term of the original agreements (April 2020). See Note 8 — Rights to MSRs for further information.
(4)Excludes the UPB of loans subserviced under the PMC Servicing Agreement after February 20, 2020 due to the notice of termination by NRZ, and excludes the UPB of loans under subservicing agreements.
The net retained fee of our NRZ portfolio remained constant (-1%) in the first quarter of 2021 as compared to the fourth quarter of 2020. Additional incentive and performance fees in the first quarter of 2021 offset the 9% decline in UPB serviced, resulting in an increase in the average annualized retained subservicing fee from 13 to 15 basis points. The net retained fee of our NRZ portfolio decreased by $29.6 million, as compared to the first quarter of 2020, mostly due to the $24.2 million 2017/2018 upfront payment amortization gain (see note (3) above).
The NRZ collected fee in the first quarter of 2021 decreased by $4.2 million and $39.3 million, as compared to the fourth quarter of 2020 and first quarter of 2020, respectively. The decline in the NRZ fee collection is driven by the decline in the average UPB of 9% and 44% as compared to the fourth quarter of 2020 and first quarter of 2020, respectively. The volume decline is mostly explained by the NRZ portfolio runoff and the derecognition of the MSRs in connection with the termination of the PMC agreement by NRZ on February 20, 2020. As the NRZ relationship is effectively a subservicing agreement, the COVID-19 environment, loans under forbearance and the fee collection do not impact our financial results to the same extent as for serviced loans with our owned MSRs.
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The following table presents the detail of our ancillary income:
Ancillary IncomeThree Months EndedThree Months Ended March 31, 2020
March 31, 2021December 31, 2020% Change% Change
Late charges$9.2 $9.4 (1)%$14.6 (37)%
Custodial accounts (float earnings)1.0 1.2 (13)6.1 (84)
Loan collection fees2.9 2.9 — 4.3 (33)
Recording fees3.7 3.3 12 2.6 42 
Other4.7 6.8 (31)3.6 31 
Ancillary income$21.6 $23.6 (9)%$31.2 (31)%
Ancillary income decreased by $2.0 million, or 9% in the first quarter of 2021 as compared to the fourth quarter of 2020, mostly due to the deboarding fee recorded (in Other) in the fourth quarter of 2020 on the NRZ-PMC portfolio and the overall decline in UPB serviced.
As compared to the first quarter of 2020, ancillary income declined by $9.6 million due to the combined effect of lower servicing volume, the COVID-19 environment restricting late fees or collection fees on loans under forbearance, and lower interest rates on float earnings. The average 1-month LIBOR rate dropped 80 basis points as compared to the first quarter of 2020.
Reverse Mortgage Revenue, Net
Reverse mortgage revenue, net is the net change in fair value of securitized loans held for investment and HMBS-related borrowings. The following table presents the components of the net fair value change and is comprised of net interest income and other fair value gains or losses. Net interest income is primarily driven by the volume of securitized UPB as it is the interest income earned on the securitized loans offset against interest expense incurred on the HMBS-related borrowings, and typically represents our compensation for servicing the portfolio. Other fair value changes are primarily driven by changes in market-based inputs or assumptions. Lower interest rates generally result in favorable net fair value impacts on our HECM reverse mortgage loans and the related HMBS financing liability and higher interest rates generally result in unfavorable net fair value impacts.
Three Months EndedThree Months Ended March 31, 2020
March 31, 2021December 31, 2020% Change% Change
Net interest income$5.0 $4.9 2 %$4.9 2 %
Other fair value changes(2.9)(10.1)(71)11.8 (125)
Reverse mortgage revenue, net (Servicing)$2.0 $(5.3)(139)%$16.7 (88)%
The increase of $7.3 million, or 139%, for the first quarter of 2021 as compared to the fourth quarter of 2020 is primarily attributable to tightening of yield spreads observed in the market during the first quarter of 2021 and a favorable adjustment due to prepayment assumptions. The increase in net interest income is due to the increase in the UPB of securitized loans and HMBS-related borrowings.
As compared to the first quarter of 2020, Reverse mortgage revenue during the first quarter of 2021 decreased $14.6 million, or 88%, primarily due to the impact of decreasing interest rates partially offset by widening of yield spreads observed in the market during the first quarter of 2020.
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MSR Valuation Adjustments, Net
The following tables summarize the MSR valuation adjustments, net reported in our Servicing segment, with the breakdown of the total MSRs recorded on our balance sheet between our owned MSRs and the pledged MSRs transferred to NRZ that did not achieve sale accounting treatment:
Three Months Ended March 31, 2021Three Months Ended December 31, 2020
Total (1)Owned MSR (1)Pledged MSR (NRZ) (2)Total (1)Owned MSR (1)Pledged MSR (NRZ) (2)
Runoff$(49.1)(31.5)$(17.6)$(43.5)(35.3)$(8.2)
Rate and assumption change (1)75.5 73.9 1.6 19.3 22.4 (3.1)
Hedging loss(49.1)(49.1)— (2.2)(2.2)— 
Total$(22.7)$(6.7)$(16.1)$(26.4)$(15.1)$(11.3)
Three Months Ended March 31, 2020
Total (1)Owned MSRPledged MSR (NRZ) (2)
Runoff$(48.5)(25.3)$(23.2)
Rate and assumption change (1)(161.3)(127.6)(33.7)
Hedging gain35.3 35.3 — 
Total$(174.4)$(117.6)$(56.9)
(1)Excludes gains of $8.5 million, $15.4 million and $0.3 million in the first quarter of 2021, fourth quarter of 2020 and first quarter of 2020, respectively, on the revaluation of MSR purchased in disorderly markets, that is reported in the Originations segment as MSR valuation adjustments, net.
(2)For those MSR sale transactions with NRZ that do not achieve sale accounting treatment, we present gross the pledged MSR as an asset and the corresponding liability amount pledged MSR liability on our balance sheet. Because we record both our pledged MSRs with NRZ and the associated MSR liability at fair value, the changes in fair value of the pledged MSR liability are offset by the changes in fair value of the associated pledged MSR asset, presented in MSR valuation adjustments, net. Although fair value changes are separately presented in our statement of operations, we are not exposed to any fair value changes of the MSR pledged to NRZ. See Note 8 — Rights to MSRs for further information.
We reported a $22.7 million loss in MSR valuation adjustments, net for the first quarter of 2021, comprised of a $6.7 million loss on our owned MSRs and a $16.1 million loss on the MSRs transferred and pledged to NRZ.
The $6.7 million loss on our owned MSRs for the first quarter of 2021 is comprised of $31.5 million portfolio runoff and a $49.1 million hedging loss, largely offset by a $73.9 million gain due to changes in interest rates and assumptions as interest rates increased during the quarter. MSR portfolio runoff represents the realization of expected cash flows and yield based on projected borrower behavior, including scheduled amortization of the loan UPB together with prepayments.
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The following table provides information regarding the changes in the fair value and the UPB of our portfolio of owned MSR, excluding NRZMSRs during the secondfirst quarter of 2020:
 Quarter ended June 30, 2020
 Fair Value UPB
 Conventional Government- insured 
Non-
Agency
 Total Conventional Government-insured 
Non-
Agency
 Total
Beginning balance$216.5
 $80.2
 $161.3
 $458.0
 $30.0
 $15.3
 $24.8
 $70.1
Additions      
       
New cap.7.1
 2.0
 —
 9.1
 0.8
 0.2
 —
 1.0
Purchases15.3
 —
 —
 15.3
 2.8
 —
 0.2
 3.0
Servicing transfers and adjustments—
 —
 1.3
 1.3
 —
 —
 —
 —
Sales/calls—
 —
 (0.1) (0.1) —
 —
 —
 —
Change in fair value      
       
Runoff(14.4) (2.7) (5.6) (22.7) (2.8) (0.8) (1.2) (4.8)
Assumptions7.2
 (3.6) (2.1) 1.5
 —
 —
 —
 —
Ending balance$231.7
 $75.9
 $154.8
 $462.4
 $30.8
 $14.7
 $23.8
 $69.3
2021, with the breakdown by investor type.
Fair ValueUPB ($ in billions)
GSEsGinnie MaeNon-
Agency		TotalGSEsGinnie MaeNon-
Agency		Total
Beginning balance$507.90 $75.40 $144.50 $727.80 $55.10 $13.10 $22.1$90.3
Additions
New cap.32.3 2.0 — 34.3 3.20.1—3.3
Purchases37.0 — — 37.0 6.0——6.0
Sales/servicing transfers— — — — ————
Sales/calls(0.2)— — (0.2)(0.1)——(0.1)
Change in fair value:
Inputs and assumptions (1)62.2 21.2 (0.9)82.5 ————
Realization of cash flows(21.4)(2.9)(7.3)(31.6)(5.9)(1.0)(1.1)(8.0)
Ending balance$617.8 $95.7 $136.3 $849.8 $58.3$12.2$21.0$91.5
Fair value
(% of UPB)		1.06 %0.78 %0.65 %0.93 %
Fair value
multiple (2)		4.05 x2.24 x2.07 x3.26 x
Three Months Ended June 30, 2020 versus 2019(1)Includes gains of $8.5 million on the revaluation of MSRs purchased in a COVID-19 market conditions, that is reported in the Originations segment.
Servicing(2)Multiple of average servicing fee and subservicing fee revenue declinedUPB.
The $16.1 million loss on the MSRs transferred to NRZ does not affect our net income as it is offset by $64.1a corresponding $16.1 million or 27%,gain on the pledged MSR liability, reported as comparedPledged MSR liability expense. The factors underlying the fair value loss of the NRZ Pledged MSR are similar to our owned MSR, discussed above, including runoff, noting that the second quarter of 2019,NRZ MSR portfolio is significantly smaller, with a $52.7 million decline in NRZ servicing fees, mostly$34.2 billion lower UPB due to the decline in the UPB serviced for NRZ, derecognition of MSRs in connection with the termination of the PMC agreement by NRZ on February 20, 2020, and, to a lesser impact, the COVID-19 market environment. The average UPB of our portfolio declined 14% as compared to the second quarter of 2019, mostly due to portfolio runoff, net of newly originated and acquired MSRs and certain servicing transfers in the second quarter of 2019.
While our servicing fees with NRZ decreased due to derecognition of MSRs in connection with the termination of the PMC servicing agreement by NRZ onin February 20,2020.
Compensation and Benefits
Three Months EndedThree Months Ended March 31, 2020
March 31, 2021December 31, 2020% Change% Change
Compensation and benefits$25.1 27.9(10)%$27.2 (8)%
Average Employment
India and other2,410 2,635 (9)%3,018 (20)
U.S.681 708 (4)752 (9)
Total3,091 3,343 (8)3,770 (18)
Compensation and benefits expense for the first quarter of 2021 declined $2.8 million, or 10%, as compared to the fourth quarter of 2020, due to two main reasons. First, the netexpense declined by $1.3 million due to additional incentive compensation recorded in the fourth quarter of 2020. Second, salaries and benefit expenses declined $1.2 million primarily due to an 8% decline in average servicing fee retained by Ocwen was not materially impacted duringheadcount compared to the period by such termination as we continuefourth quarter of 2020. The decline in servicing headcount reflects the scaling of our platform to subservice the loans through deboarding. The terminationbeing serviced.
Compensation and benefits expense for the first quarter of 2021 declined $2.1 million, or 8%, as compared to the PMC servicing agreement by NRZ both reduced the amountfirst quarter of servicing fee collected on behalf of NRZ that is reported as Servicing2020, primarily salaries and subservicing fees and the amount of servicing fee remitted to NRZ that is reported as Pledged MSR liability expense, without any impact on the net servicing fee retained, that is reported as subservicing fee after February 20, 2020. Ocwen will not perform any subservicing of the loans subject to termination and will not earn any subservicing fee after loan deboarding, which is currently planned for September and October 2020, though is subject to various requirements that may delay the process.
As discussed in the COVID-19 section above, our servicing fees also decreasedbenefit expenses, as a result of the decline in our average servicing headcount. The decline in servicing headcount reflects the scaling down of our platform to the loans under forbearance that were not paying duringbeing serviced. In the secondfirst quarter of 2020. We did not recognize any servicing fees2021, we serviced 22% less loans, on GSE loans under forbearance and have a shortfall of one month of servicing fees for PLS loans under forbearance.
Ancillary income declined by $14.7 million primarily due to an $11.7 million, or 88%, decline in float incomeaverage, as compared to the secondfirst quarter of 2019 that was mainly due to lower2020.
Servicing Expense
Servicing expense primarily includes claim losses and interest rates, withcurtailments on government-insured loans and provision expense for advances and servicing representation and warranties. Servicing expense increased in the average 1-month LIBOR rate dropping more than 200 basis pointsfirst quarter of 2021 by
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$10.6 million, or 77%, as compared to the secondfourth quarter of 2019.2020, primarily due to provision releases recorded in the fourth quarter of 2020 associated with recoveries in excess of the allowance for losses, and recoveries of previously recognized expenses in connection with a settlement from a mortgage insurer. In addition, while servicing expense increased by $1.0 million due to higher satisfaction and interest of payoff expenses attributable to higher payoffs, other loan related expenses (e.g., credit report expenses) decreased in line with the lower serviced volume in the first quarter of 2021.
Servicing expense for the first quarter of 2021 increased $6.1 million, or 33%, as compared to the first quarter of 2020, primarily due to a $2.2 million increase in satisfaction and interest payoff expenses attributable to higher payoffs, a $2.1 million increase in provisions for non-recoverable servicing advances and receivables, and a $2.0 million increase in other servicer-related expenses driven by the favorable release of a legal accrual in the first quarter of 2020.
Other Operating Expenses
Other operating expenses (total operating expenses less compensation and benefit expense and servicer expense) remained mostly constant during the first quarter of 2021 as compared to the fourth quarter of 2020, with the exception of a $1.2 million reduction in Professional services expense. The combinedreduction in Professional services expense is mostly driven by higher legal fees and settlement expenses recorded in the fourth quarter of 2020.
Other operating expenses decreased by $5.7 million in the first quarter of 2021 as compared to the first quarter of 2020, mostly due to the effect of lower servicing volume, as discussed above, and the COVID-19 environmentcost saving initiatives with no late fees or collection fees on loans under forbearance also contributeda $5.6 million reduction of Corporate overhead allocations, attributable to the decline in ancillary income. Revenue recognized in connection with loan modifications, including servicing fees, late chargesoperating expenses of the Corporate segment, and HAMP fees, increased 22%the lower relative weight of Servicing headcount to $9.5 millionthe consolidated organization.
Other Income (Expense)
Other income (expense) includes primarily net interest expense and the pledged MSR liability expense.
Three Months Ended% ChangeThree Months Ended March 31, 2020% Change
March 31,December 31,
20212020
Interest Expense
Advance match funded liabilities$4.5 $4.6 (2)%$5.7 (21)%
Mortgage loan warehouse facilities1.7 1.5 13 %1.0 70 %
MSR financing facilities4.6 3.2 44 %5.0 (8)%
Corporate debt interest expense allocation7.9 9.5 (17)10.5 (25)
Escrow and other1.6 2.2 (24)2.4 (33)
Total interest expense$20.3 $20.9 (3)%$24.6 (17)%
Average balances
Average balance of advances$772.7 $793.0 (3)%$1,067.3 (28)%
 Advance match funded liabilities537.5 534.8 1 674.4 (20)
Mortgage loan warehouse facilities157.0 128.6 22 108.9 44 
MSR financing facilities408.0 284.1 44 352.0 16 
Effective average interest rate
Advance match funded liabilities3.35 %3.43 %(2)%3.36 %— %
Mortgage loan warehouse facilities4.41 4.54 (3)%3.77 17 %
MSR financing facilities4.48 4.55 (1)%5.72 (22)%
Average 1ML0.12 %0.15 %(20)%0.92 %(87)%
Interest expense for the secondfirst quarter of 2021 declined by $0.6 million, or 3%, as compared to the fourth quarter of 2020, primarily due to the $1.6 million decline in the amount of corporate debt allocated to fund servicing advances and other servicing assets. Offsetting this decline, interest expense on MSR financing facilities increased $1.3 million due to a 44% increase in average borrowings as we continue to grow our owned MSR portfolio.
As compared to $7.8 million in the secondfirst quarter of 2019.
We reported a $36.6 million loss in MSR valuation adjustments, net in2020, interest expense for the secondfirst quarter of 2020. This decline in MSR fair value is driven by $30.92021 declined $4.3 million, portfolio runoff and a $13.3or 17%. Interest expense allocated from the Corporate segment declined $2.6 million, lossprimarily due to the decline in interest rates and assumptions, partially offset by a $7.5 million favorable fair value gain from our MSR hedging strategy. The fair value loss reported in MSR valuation adjustments, net, decreased $110.6 million, or 75%, as compared to the second quarteramount of 2019, primarily due toderecognition of MSRs in connection with the notice of termination of the PMC agreement by NRZ on
70


February 20, 2020, the impact of interest ratescorporate debt and the effectsrelative increase of capital to finance the MSR hedging program implemented on September 1, 2019. The value of the MSRs under the PMC agreement with NRZ declined $63.6 milliongrowth in the second quarter of 2019. The 10-year swap rateOwned MSR portfolio. In addition, interest expense on advance match funded facilities declined 8 basis points in the second quarter of 2020, as compared to a 45 basis-point decline in the second quarter of 2019.
The $36.6 million loss reported in MSR valuation adjustments, net is partially offset by a $9.1 million gain reported in our statement of operations relating to the pledged MSR liability. MSRs have been sold under different agreements that did not qualify for sale accounting treatment and, therefore are reported as MSR assets together with an associated liability for the MSR failed-sale secured borrowing at fair value. Because both pledged MSRs and the associated MSR liability are measured at fair value, changes in fair value offset each other, although they are separately presented in our statement of operations, as MSR valuation adjustments, net and Pledged MSR liability expense, respectively. The following table summarizes the fair value change impact on our statement of operations of our total MSRs and the MSRs liability associated with the NRZ failed-sale accounting treatment during the second quarter of 2020:
In millionsTotal Change in Fair Value Runoff Rate and Assumption Change MSR Hedging
MSR valuation adjustments, net (1)$(36.6) $(30.9) $(13.3) $7.5
Pledged MSR liability expense - Fair value changes (2)9.1
 8.1
 1.0
 —
Total$(27.5) $(22.8) $(12.3) $7.5
(1)Excludes $13.2 million gain on the revaluation of MSR purchased in a disorderly market, that is recognized in the Originations segment.
(2)
Includes changes in fair value, including runoff and settlement, of the NRZ related MSR liability under the Original Rights to MSRs Agreements and PMC MSR Agreements. See Note 8 — Rights to MSRs for further information.
The notice of termination of the PMC servicing agreement with NRZ in February 2020 resulted in the derecognition of the associated MSR and pledged MSR liability. Accordingly, since February 2020, we have not recorded any fair value changes of the MSR and the pledged MSR liability relating to the NRZ PMC subservicing agreement, which resulted in lower runoff, and lower volatility due to rates and assumptions (due to lower UPB) in the above two individual line items of our statement of operations in the second quarter of 2020.
As described in the table above, Ocwen’s MSR portfolio, net of the pledged MSR liability, incurred a fair value loss due to interest rates and assumptions of $12.3 million in the second quarter of 2020, that was partially offset by a $7.5 million fair value gain on our MSR hedging strategy. Our macro-hedge strategy includes other financial instruments not presented in this table. Refer to Item 3 - Quantitative and qualitative disclosures about market risk for further detail on our hedge strategy and its effectiveness.
Operating expenses decreased $60.1 million, or 42%, as compared to the second quarter of 2019, mostly due to our integration and cost reduction initiatives that favorably and equally impacted our direct cost to service and our corporate overhead cost allocation, as discussed below.
Compensation and benefits expense declined $12.2 million, or 30%, as compared to the second quarter of 2019, due to our efforts to re-engineer our cost structure and align headcount in our servicing operations with the size of our servicing portfolio. Our average total servicing headcount decreased 24% compared to the second quarter of 2019. The decline in compensation and benefits is also due to the change in the composition of our headcount with relatively more offshore, and less U.S. resources. Offshore headcount, whose average compensation cost is relatively lower, increased from 71% to 80% of total headcount, compared to the second quarter of 2019.
Servicing and origination expense declined $4.3 million, or 25%, as compared to the second quarter of 2019, primarily due to a $3.7 million reduction in government-insured claim loss provisions on reinstated or modified loans in line with a decline in the volume of claims due to the COVID-19 moratorium and a general decline in other servicer-related expenses that was primarily driven by a 9% reduction in the average number of loans in our servicing portfolio. Government-insured claim loss provisions are generally offset by changes in the fair value of the corresponding MSRs, which are recorded in MSR valuation adjustments, net.
Occupancy and equipment expense decreased $3.5 million, or 30%, as compared to the second quarter of 2019, largely because of the effect of the decline in the size of the servicing portfolio on various direct and allocated expenses, and the decline in our overall occupancy and equipment expenses due to certain facility closures as part of the integration of PHH.
Professional services expense declined $2.2 million, or 20%, as compared to the second quarter of 2019, primarily due to a $4.2 million decline in legal fees largely due to declines in legal expenses relating to the PHH integration and litigation and a


decline in fees incurred in connection with the conversion of NRZ’s Rights to MSRs to fully-owned MSRs, partially offset by a $1.3 million increase in outsourcing expenses to manage the call center increased activity due to COVID-19.
Corporate overhead allocations declined $37.6$1.2 million as compared to the second quarter of 2019, primarily due to lower legal fees, technology expensesaverage advances and compensation and benefits. The relative weight of average headcount to the consolidated organization declined as compared to the second quarter of 2019. Furthermore, the allocation methodology of corporate overhead was updated in the first quarter 2020 and resulted in lower expenses being allocated to the Servicing segment. Refer to the Corporate Items and Other segment discussion.borrowings were lower.
Interest expense increased by $1.6 million, or 14%, as compared to the second quarter of 2019, primarily because of the new MSR financing facilities entered into during the third and fourth quarters of 2019.
Pledged MSR liability expense increased $38.8 million, as compared to second quarter of 2019, largely due to termination of the PMC servicing agreement by NRZ on February 20, 2020, final amortization of the 2017/2018 upfront cash payments in April 2020 and a lower UPB serviced. Fair value gains and runoff on the PMC MSR Agreements for the second quarter of 2019 were $47.8 million and $15.8 million, respectively, and the 2017/18 lump sum amortization gain was $20.7 million lower in the second quarter of 2020. The notice of termination of the PMC servicing agreement with NRZ in February 2020 resulted in the derecognition of the associated MSR and pledged MSR liability. Accordingly, since February 2020, we have not recorded any fair value changes of the MSR and the pledged MSR liability relating to the NRZ PMC subservicing agreement, which resulted in lower runoff, and lower volatility due to rates and assumptions (due to lower UPB) in the above two individual line items of our statement of operations in the second quarter of 2020. These increases in Pledged MSR liability expense were partially offset by a $42.3 million lower net servicing fee remittance to NRZ as compared to the second quarter of 2019. Pledged MSR liability expense relates to the MSR sale agreements with NRZ that do not achieve sale accounting and are presented on a gross basis in our financial statements. The $41.7 millionSee Note 8 — Rights to MSRs to the Unaudited Consolidated Financial Statements. Pledged MSR liability expense inincludes the second quarter of 2020 primarily includes a $62.9 million net servicing fee remittance to NRZ partiallyand the fair value changes of the pledged MSR liability.
Three Months Ended$ ChangeThree Months Ended March 31, 2020$ Change
March 31, 2021December 31, 2020
Net servicing fee remittance to NRZ (1)$56.4 $60.3 $(3.9)$90.3 $(33.9)
Pledged MSR liability fair value (gain) loss (2)(16.1)(11.3)(4.8)(56.9)40.8 
2017/2018 lump sum amortization gain— — — (24.2)24.2 
Other(2.5)(2.4)(0.1)(2.6)0.1 
Pledged MSR liability expense$37.8 $46.7 $(8.8)$6.6 $31.2 
(1)Offset by corresponding amount recorded in Servicing and subservicing fee. See table below.
(2)Offset by corresponding amount recorded in MSR valuation adjustments, net. See table below.
Pledged MSR liability expense for the first quarter of 2021 decreased $8.8 million, as compared to the fourth quarter of 2020, largely due to a $4.8 million favorable fair value adjustment and a $3.9 million decline in servicing fee remittance due to runoff of the portfolio. Refer to the above discussions of MSR valuation adjustments, net (Pledged MSR to NRZ) and Servicing and subservicing fees (NRZ).
Pledged MSR liability expense for the first quarter of 2021 increased $31.3 million, as compared to the first quarter of 2020, primarily due to a $40.8 million unfavorable fair value change on the Pledged MSR liability - as the offset byof a $10.0 million amortizationfair value gain related toon the pledged MSR asset. In addition, the lump-sum cash payments received from NRZ in connection with the 2017 Agreements and New RMSR Agreements in 2017 and 2018 were fully amortized as of the end of the second quarter of 2020 ($24.2 million in the first quarter of 2020). These increases were partially offset by a $33.9 million decline in servicing fee remittance, driven by the runoff of the portfolio and a $9.1 million fair value gain on the pledged MSR liability. See Note 8 — Rights to MSRstermination of the PMC agreement by NRZ in February 2020. Refer to the Unaudited Consolidated Financial Statements.above discussions of MSR valuation adjustments, net (Pledged MSR to NRZ) and Servicing and subservicing fees (NRZ).
 Three Months Ended June 30,Change
Amounts in millions2020 2019 2020 vs 2019
Net servicing fee remittance to NRZ (a)$62.9
 $105.2
 $(42.3)
2017/2018 lump sum amortization (gain)(10.0) (30.7) 20.7
Pledged MSR liability fair value (gain) loss (b)(9.1) (73.3) 64.2
Other(2.1) 1.7
 (3.8)
Pledged MSR liability expense$41.7
 $2.9
 $38.8
(a)Offset by corresponding amount recorded in Servicing and subservicing fee - See table below.
(b)Offset by corresponding amount recorded in MSR valuation adjustments, net - See table below.
The table below reflects the condensed consolidated statement of operations together with the included amounts related to the NRZ pledged MSRs that offset each other (nil impact on net income/loss). The table provides information related to the impact of the accounting for the NRZ relationship that did not achieve sale accounting treatment, and is not intended to reflect the profitability of the NRZ relationship. Net servicing fee remittance and pledged MSR fair value changes are presented on a gross basis and are offset by corresponding amounts presented in other statement of operations line items. In addition, because we record both our pledged MSRs and the associated pledged MSR liability at fair value, the changes in fair value of the pledged MSR liability were offset by the changes in fair value of the MSRs pledged, presented in MSR valuation adjustments, net. Accordingly, only the $10.0 million lump sum amortization gain and the $2.1 millionamount reported in “Other” in the table above affect our net earnings.
Three Months Ended
March 31, 2021December 31, 2020March 31, 2020
Statement of OperationsNRZ Pledged MSR-related Amounts (a)Statement of OperationsNRZ Pledged MSR-related Amounts (a)Statement of OperationsNRZ Pledged MSR-related Amounts (a)
Total revenue$207.6 $56.4 $231.0 $60.3 $253.8 $90.3 
MSR valuation adjustments, net21.2 (16.1)(20.6)(11.3)(174.1)(56.9)
Total operating expenses139.6 — 144.2 — 137.2 — 
Total other expense, net(77.5)(40.3)(67.1)(49.0)(29.9)(33.5)
Income (loss) before income taxes$11.6 $— $(0.8)$— $(87.3)$— 

71

 Three Months Ended June 30,
 2020 2019
Dollars in millionsStatement of Operations NRZ Pledged MSR-related Amounts (a) Statement of Operations NRZ Pledged MSR-related Amounts (a)
Total revenue$227.0
 $62.9
 $274.3
 $105.2
MSR valuation adjustments, net(23.4) (9.1) (147.3) (73.3)
Total operating expenses144.8
 —
 184.2
 —
Total other expense, net(64.9) (53.7) (27.2) (31.8)
Loss before income taxes$(6.1) $—
 $(84.4) $—
(a)Amounts included in the specific statement of operations line items.
Six Months Ended June 30, 2020 versus 2019
Servicing and subservicing fee revenue declined by $109.0 million, or 22%, as compared to the six months ended June 30, 2019, with a $88.9 million decline in NRZ servicing fees, mostly due to the decline in the UPB serviced for NRZ, the termination of the PMC agreement by NRZ on February 20, 2020, and to a lesser impact, the COVID-19 market environment. The average UPB of our portfolio declined 16% as compared to the six months ended June 30, 2019, mostly due to portfolio runoff, net of newly originated and acquired MSRs and certain servicing transfers in the second quarter of 2019.
While our servicing fees with NRZ decreased due to derecognition of MSRs in connection with the notice of termination of the PMC servicing agreement by NRZ on February 20, 2020, the net servicing fee retained by Ocwen was not materially impacted during the period by such termination as we continue to subservice the loans through deboarding. The notice of termination of the PMC servicing agreement by NRZ both reduced the amount of servicing fee collected on behalf of NRZ that is reported as Servicing and subservicing fees and the amount of servicing fee remitted to NRZ that is reported as Pledged MSR liability expense, without any impact on the net servicing fee retained, that is reported as subservicing fee after February 20, 2020. Ocwen will not perform any subservicing of the loans subject to termination and will not earn any subservicing fee after loan deboarding, which is currently planned for September and October 2020, though is subject to various requirements that may delay the process.
As discussed in the COVID-19 section above, our servicing fees also decreased as a result of the loans under forbearance that were not paying during the second quarter of 2020. We did not recognize any servicing fees on GSE loans under forbearance and have a shortfall of one month of servicing fees for PLS loans under forbearance.
Ancillary income declined by $24.5 million primarily due to the $17.5 million, or 69%, decline in float income as compared to the six months ended June 30, 2019 mainly due to the combined effect of lower custodial account balances and lower interest rates, with the average 1-month LIBOR rate dropping more than 150 basis points in the first half of 2020 as compared to the same period of 2019. The combined effect of lower servicing volume, as discussed above, and the COVID-19 environment with no late fees or collection fees on loans under forbearance also contributed to the decline. Revenue recognized in connection with loan modification HAMP fees decreased $2.9 million due to the expiration of the program.
We reported a $211.0 million loss in MSR valuation adjustments, net for the six months ended June 30, 2020. This decline in MSR fair value is driven by a $170.0 million loss due to the decline in interest rates and assumptions and $83.9 million portfolio runoff, partially offset by a $42.8 million favorable fair value gain from our MSR hedging strategy. The fair value loss reported in MSR valuation adjustments, net, decreased $45.1 million, or 18%, as compared to the six months ended June 30, 2019, primarily due to the notice of termination of the PMC agreement by NRZ on February 20, 2020 ($114.5 million decline in the MSRs during the six months ended June 30, 2019) and the effects of the MSR hedging program implemented on September 1, 2019, offset in part by the impact of interest rates with a 126 basis-point decline in the 10-year swap rate during six months ended June 30, 2020, as compared to the 75 basis-point decline for the six months ended June 30, 2019.
The $211.0 million loss reported in MSR valuation adjustments, net is partially offset by a $66.0 million gain reported in our statement of operations relating to the pledged MSR liability. The following table summarizes the fair value change impact on our statement of operations of our total MSRs and the MSRs liability associated with the NRZ failed-sale accounting treatment during the six months ended June 30, 2020:


In millionsTotal Change in Fair Value Runoff Rate and Assumption Change MSR Hedging
MSR valuation adjustments, net (1)$(211.0) $(83.9) $(170.0) $42.8
Pledged MSR liability expense - Fair value changes (2)66.0
 33.4
 32.6
 —
Total$(145.0) $(50.5) $(137.4) $42.8
(1)Excludes $13.5 million gain recognized in the Originations segment.
(2)
Includes changes in fair value, including runoff and settlement, of the NRZ related MSR liability under the Original Rights to MSRs Agreements and PMC MSR Agreements. See Note 8 — Rights to MSRs for further information.
As described in the table above, Ocwen’s MSR portfolio, net of the pledged MSR liability, incurred a fair value loss due to interest rates of $137.4 million during the six months ended June 30, 2020, that was partially offset by a $42.8 million fair value gain due to our MSR hedging strategy. Our macro-hedge strategy includes other financial instruments not presented in this table. Refer to Item 3 - Quantitative and qualitative disclosures about market risk for further detail on our hedge strategy and its effectiveness.
Operating expenses decreased $136.7 million, or 46%, as compared to the six months ended June 30, 2019, mostly due to our integration and cost reduction initiatives that favorably and equally impacted our direct cost to service and our corporate overhead cost allocation, as discussed below.
Compensation and benefits expense declined $25.8 million, or 32%, as compared to the six months ended June 30, 2019, due to our efforts to re-engineer our cost structure and align headcount in our servicing operations with the size of our servicing portfolio. Our average total servicing headcount decreased 26% compared to the six months ended June 30, 2019. The decline in compensation and benefits is also due to the change in the composition of our headcount with relatively more offshore, and less U.S. resources. Offshore headcount, whose average compensation cost is relatively lower, increased from 71% to 80% of total headcount, compared to the six months ended June 30, 2019.
Servicing and origination expense declined $14.3 million, or 34%, as compared to the six months ended June 30, 2019, primarily due to a $6.1 million reduction in government-insured claim loss provisions on reinstated or modified loans in line with a decline in the volume of claims and a general decline in other servicer-related expenses that was primarily driven by a 9% reduction in the average number of loans in our servicing portfolio.
Occupancy and equipment expense decreased $7.1 million, or 29%, as compared to the six months ended June 30, 2019, largely because of the effect of the decline in the size of the servicing portfolio on various direct and allocated expenses, including mailing services, and the decline in our overall occupancy and equipment expenses due to certain facility closures as part of the integration of PHH.
Professional services expense declined $8.6 million, or 38%, as compared to the six months ended June 30, 2019, primarily due to a $9.9 million decline in legal fees relating to the PHH integration and litigation and a decline in fees incurred in connection with the conversion of NRZ’s Rights to MSRs to fully-owned MSRs, partially offset by a $1.3 million increase in outsourcing expenses to manage the call center increased activity due to COVID-19 in the second quarter of 2020.
Technology and communication expense declined $3.2 million or 19%, as compared to the six months ended June 30, 2019, primarily because we no longer license the REALServicing servicing system from Altisource following our transition to Black Knight MSP in June 2019.
Corporate overhead allocations declined $77.4 million, as compared to the six months ended June 30, 2019, primarily due to lower legal fees, technology expenses and compensation and benefits. The relative weight of average headcount to the consolidated organization declined as compared to the six months ended June 30, 2019. Furthermore, the allocation methodology of corporate overhead was updated in the first quarter 2020 and resulted in lower expenses being allocated to the Servicing segments. Refer to the Corporate Items and Other segment discussion.
Interest expense increased by $4.6 million, or 21%, as compared to the six months ended June 30, 2019, primarily because of the new MSR financing facilities entered into during the third and fourth quarters of 2019, partially offset by a reduction in interest expense relating to servicing advances.
Pledged MSR liability expense increased $1.5 million, as compared to the six months ended June 30, 2019, primarily as a result of notice of termination of the PMC servicing agreement by NRZ on February 20, 2020, final amortization of the 2017/2018 upfront cash payments in April 2020 and a lower UPB serviced. Fair value gains and runoff on the PMC MSR Agreements declined $40.2 million and $26.1 million, respectively, and the 2017/18 lump sum amortization gain was $12.8 million lower, offset by $70.4 million lower net servicing fee remittance to NRZ. The $48.3 million expense in the six months


ended June 30, 2020 primarily includes a $153.2 million net servicing fee remittance to NRZ partially offset by a $34.2 million amortization gain related to the lump-sum cash payments and a $66.0 million fair value gain on the pledged MSR liability.
 Six Months Ended June 30,Change
Amounts in millions2020 2019 2020 vs 2019
Net servicing fee remittance to NRZ (a)$153.2
 $223.6
 $(70.4)
2017/2018 lump sum amortization (gain)(34.2) (47.0) 12.8
Pledged MSR liability fair value (gain) loss (b)(66.0) (133.4) 67.4
Other(4.7) 3.7
 (8.4)
Pledged MSR liability expense$48.3
 $46.9
 $1.4
(a)Offset by corresponding amount recorded in Servicing and subservicing fee - See table below.
(b)Offset by corresponding amount recorded in MSR valuation adjustments, net - See table below.
The table below reflects the condensed consolidated statement of operations together with the included amounts related to the NRZ pledged MSRs that offset each other (nil impact on net income/loss).
 Six Months Ended June 30,
 2020 2019
Dollars in millionsStatement of Operations NRZ Pledged MSR-related Amounts (a) Statement of Operations NRZ Pledged MSR-related Amounts (a)
Total revenue$480.9
 $153.2
 $578.2
 $223.6
MSR valuation adjustments, net(197.6) (66.0) (256.3) (133.4)
Total operating expenses282.0
 —
 355.3
 —
Total other expense, net(94.8) (87.2) (92.0) (90.3)
Loss before income taxes$(93.5) $—
 $(125.4) $—

ORIGINATIONS
We source our servicing portfoliooriginate and purchase loans and MSRs through multiple channels, including recapture, retail, wholesale, correspondent, flow MSR purchase agreements, the GSE Cash Window and Co-issue programs and bulk MSR purchases.
We originate sell and securitizepurchase conventional loans (conforming to the underwriting standards of Fannie Mae or Freddie Mac; collectively referred to as Agency loans) and government-insured (FHA or VA) forward mortgages, generally servicing retained.mortgage loans. The GSEs orand Ginnie Mae guarantee these mortgage securitizations. We originate HECM loans, or reverse mortgages, that are mostly insured by the FHA and we are an approved issuer of HMBS that are guaranteed by Ginnie Mae. In addition to our originated MSRs, we acquire MSRs through flow purchase agreements, the GSE Cash Window and Co-Issue programs and bulk MSR purchases, and we acquire new subservicing through our enterprise sales.
We originate and purchase conventional and government-insured forward mortgage loans through ourOur recapture and correspondent lending channels. Our forward lending efforts are principally focusedchannel focuses on targeting existing Ocwen customers by offering them competitive mortgage refinance opportunities (i.e., portfolio recapture), where permitted by the governing servicing and pooling agreement. In doing so, we generate revenues for our forward lending business and protect the servicing portfolio by retaining these customers. In addition, we re-entered the forward lending correspondent channel in the second quarter of 2019 to drive higher servicing portfolio replenishment.
A portion of our servicing portfolio is susceptible to refinance activity during periods of declining interest rates. Our recapture lending activity partially mitigates this risk. Origination volume and related gains are a natural economic hedge, to a certain degree, to the impact of declining MSR values as interest rates decline.
Effective June 1,We re-entered the forward lending correspondent channel in the second quarter of 2019 to drive higher servicing portfolio replenishment. We purchase closed loans from our network of correspondent sellers and sell and securitize them. As of March 31, 2021, we no longer perform any portfolio recapture on behalf of NRZ. Previously under the terms of our agreementshave relationships with NRZ, to the extent we refinanced a loan underlying the MSRs subject to these agreements, we were obligated to transfer such recaptured MSR to NRZ under the terms of a separate subservicing agreement.163 approved correspondent sellers, or 32 new sellers since December 31, 2020.
We originate and purchase reverse mortgagesmortgage loans through our retail, wholesale and correspondent lending channels under the guidelines of the HECM reverse mortgage insurance program of HUD. Loans originated under this program are generally


guaranteed insured by the FHA, which provides investors with protection against risk of borrower default. In the second half of 2019, we started originating proprietary reverse mortgage loans that are not FHA-guarantee eligible and are sold servicing-released to third parties. We retain the servicing rights to reverse HECM loans securitized through the Ginnie Mae HMBS program. We have originated HECM loans under which the borrowers have additional borrowing capacity of $1.6 billion at June 30, 2020. These draws are funded by the servicer and can be subsequently securitized or sold (Future Value). We do not incur any substantive underwriting, marketing or compensation costs in connection with any future draws, although we must maintain sufficient capital resources and available borrowing capacity to ensure that we are able to fund these future draws. For loans purchased or originated after December 31, 2018, we previously elected to fair value future draw commitments. We elected to recognize non-cancellable future draw commitments at fair value for loans purchased or originated before January 1, 2019 in conjunction with the adoption of the new credit loss accounting standard, and recognized a one-time adjustment of $47.0 million to stockholders’ equity on January 1, 2020. Accordingly, as of January 1, 2020, the non-cancellable future draw commitments related to all reverse loans are reported at fair value. See Note 1 - Organization and Basis of Presentation to the Unaudited Consolidated Financial Statements for additional information. On March 15, 2020, as part of Ocwen's legal entity restructuring, Liberty transferred substantially all of its assets, liabilities, contracts and employees to PMC. We continue to originate and service reverse mortgage loans under the brand name Liberty Reverse Mortgage.
For the three months ended June 30, 2020, our Originations business originated or purchased forward and reverse mortgage loans with a UPB of $978.3 and $213.9, respectively. Loans are originated or acquired through three primary channels: correspondent lender relationships, broker relationships (wholesale) and directly with mortgage customers (recapture for forward loans and retail for reverse loans). Loan margins vary by channel, with correspondent typically being the lowest margin and retail the highest.
After origination, we package and sell the loans in the secondary mortgage market, through GSE and Ginnie Mae securitizations on a servicing retained basis and through whole loan transactions on a servicing released basis. Origination revenues mostly include interest income earned for the period the loans are held by us, gain on sale revenue, which represents the difference between the origination value and the sale value of the loan including its MSR value, and fee income earned at origination. As the securitizations of reverse mortgage loans do not achieve sale accounting treatment and the loans are classified as loans held for investment, at fair value, reverse mortgage revenues include the fair value changes of the loan from lock date net of the fair value changes of the MBS-related borrowings.to securitization date.
We provide customary origination representations and warranties to investors in connection with our GSE loan sales and securitization activities. We receive customary origination representations and warranties from our network of approved correspondent lenders. We recognize the fair value of the liability for our representations and warranties at the time of the loan sale. In the event we cannot remedy a breach of a representation or warranty, we may be required to repurchase the loan or provide an indemnification payment to the mortgage loan investor. To the extent that we have recourse against a third-party originator, we may recover part or all of any loss we incur. We actively monitor our counterparty risk associated with our network of correspondent lenders-sellers.
We purchase MSRs through flow purchase agreements, the GSE Cash Window programs and bulk MSR purchases. The GSE Cash Window programs we participate in, and purchase MSR from, allow mortgage companies and financial institutions to sell whole loans to the respective agency and sell the MSR to the winning bidder servicing released. In addition, we partner with other originators to replenish our MSR through flow purchase agreements. We do not provide any origination representations and warranties in connection with our MSR acquisitionspurchases through MSR flow purchase agreements or GSE Cash Window programs. As of March 31, 2021, we have relationships with 378 sellers, including 215 MSR co-issue and flow sellers and 163 correspondent sellers.
As an HMBS issuer,We initially recognize our MSR origination with the associated economics in our Originations business, and subsequently transfer the MSR to our Servicing segment at fair value. Our Servicing segment reflects all subsequent performance associated with the MSR, including funding cost, run-off and other fair value changes.
We source additional servicing volume through our subservicing and interim servicing agreements and we assumeintend to grow our subservicing business through our enterprise sales. We do not report any revenue or gain associated with subservicing, as it is reported within the Servicing segment. However, sales efforts and certain obligations related to each security issued.costs - marginal compensation and benefits - are managed and reported within the Originations segment.
For the first quarter of 2021, our Originations business originated or purchased forward and reverse mortgage loans with a UPB of $3.2 billion and $263.1 million, respectively. In addition, to our obligation to fund tails, 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 real estate owned. State specific foreclosure and REO liquidation timelines have a significant impact on the timing and amount of our recovery. If we are unable to sell the property underlying an inactive reverse loan for an acceptable price within the timeframe established by HUD, we are required to make an appraisal-based claim to HUD. In such cases, HUD reimburses us for the loan balance, eligible expenses and interest, less the appraised value of the underlying property. Thereafter, all the risks and costs associated with maintaining and liquidating the property remains with us. We may incur additional losses on REO properties as they progress through the claims and liquidation processes. The significance of future losses associated with appraisal-based claims is dependent upon the volume of inactive loans, condition of foreclosed properties and the general real estate market.
We are actively managing the size and diversifying the sources of our servicing portfolio through our lending channels and through MSR acquisitions, including MSR flow purchases, GSE Cash Window and bulk acquisitions, based on our capital availability that are prudent and well-executed with appropriate financial return targets. We closed MSR flow acquisitions with $0.5 billion UPB and opportunistically purchased $2.3$4.5 billion UPB MSR through the GSE Cash Window during the three months ended June 30, 2020.first quarter of 2021.

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The following table presents the results of operations of our Originations segment. The amounts presented are before the elimination of balances and transactions with our other segments:
 Three Months Ended% ChangeThree Months Ended March 31, 2020% Change
March 31,December 31,
20212020
Revenue
Gain on loans held for sale, net$37.6$31.021 %$13.1187 %
Reverse mortgage revenue, net19.814.933 6.1223 
Other revenue, net (1)8.98.64 2.4264 
Total revenue66.354.522 21.7206 
MSR valuation adjustments, net8.515.4(45)0.3n/m
Operating expenses
Compensation and benefits21.519.89 12.573 
Servicing and origination2.82.513 1.2125 
Occupancy and equipment1.51.311 1.43 
Technology and communications1.62.0(20)0.7128 
Professional services3.13.6(13)1.1193 
Corporate overhead allocations5.04.610 4.414 
Other expenses1.82.3(22)1.69 
Total operating expenses37.336.04 23.063 
Other income (expense)
Interest income2.62.313 1.658 
Interest expense(3.6)(3.2)9 (2.4)46 
Other, net0.10.2(67)—(327)
Total other expense, net(0.9)(0.8)14 (0.8)13 
Income (loss) before income taxes$36.5$33.011 %$(1.8)n/m
n/m: not meaningful
 Three Months Ended June 30,   Six Months Ended June 30,  
2020 2019 % Change 2020 2019 % Change
Revenue           
Gain on loans held for sale, net$28,975
 $6,595
 339 % $41,464
 $14,352
 189 %
Reverse mortgage revenue, net13,759
 20,493
 (33) 36,556
 52,616
 (31)
Other revenue, net2,811
 1,706
 65
 5,172
 2,917
 77
Total revenue45,545
 28,794
 58
 83,192
 69,885
 19
            
MSR valuation adjustments, net13,170
 (69) n/m
 13,486
 (153) n/m
            
Operating expenses           
Compensation and benefits13,356
 11,501
 16
 26,273
 23,943
 10
Servicing and origination4,291
 3,996
 7
 8,997
 7,857
 15
Occupancy and equipment1,422
 1,665
 (15) 2,880
 3,521
 (18)
Technology and communications1,346
 1,121
 20
 2,066
 1,802
 15
Professional services1,881
 517
 264
 2,995
 862
 247
Corporate overhead allocations4,704
 1,661
 183
 9,128
 3,346
 173
Other expenses1,750
 496
 253
 3,369
 873
 286
Total operating expenses28,750
 20,957
 37
 55,708
 42,204
 32
            
Other income (expense)           
Interest income1,874
 1,546
 21
 4,140
 3,095
 34
Interest expense(2,399) (1,399) 71
 (5,260) (3,067) 72
Other, net(1) 444
 (100) (30) 663
 (105)
Total other income (expense), net(526) 591
 (189) (1,150) 691
 (266)
            
Income before income taxes$29,439
 $8,359
 252 % $39,820
 $28,219
 41 %
n/m: not meaningful           
(1)Includes $2.4 million, $2.9 million and $0.0 million ancillary fee income related to MSR acquisitions reported as Servicing and subservicing fees at the consolidated level for the three months periods ended March 31, 2021, December 31, 2020 and March 31, 2020, respectively.

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The following table provides selected operating statistics for our Originations segment:
Three Months Ended% ChangeThree Months Ended March 31, 2020% Change
March 31,December 31,
20212020
Originations by Channel
Forward loans
Correspondent$2,626.8 $2,585.3 2%$514.3 411%
Recapture563.4 425.9 32 %195.9 188 
$3,190.2 $3,011.2 6%$710.2 349%
% Purchase production15 %16 %(9)26 %(42)
% Refinance production85 84 1 74 15 
Reverse loans (1)
Correspondent$150.0 $134.0 12 %$116.2 29 %
Wholesale53.6 74.7 (28)79.0 (32)
Retail59.5 63.1 (6)30.8 93 
$263.1 $271.8 (3)%$226.0 16 %
MSR Purchases by Channel (Forward only)
GSE Cash Window / Flow MSR5,985.2 6,729.8 (11)%1,343.2 346%
Bulk MSR purchases— 15,024.8 (100)1,541.3 (100)
$5,985.2 $21,754.6 (72)$2,884.5 107
Total$9,438.5 $25,037.6 (62)$3,820.7 147
Short term loan commitment (at period end)
Forward loans$916.9 $619.7 48 %$357.2 157 %
Reverse loans50.2 11.7 329 25.6 96 
Average Employment
U.S.577 521 11 421 37 
India and other280 257 9 94 198 
Total857 778 10 515 66 
(1)Loan production excludes reverse mortgage loan draws by borrowers disbursed subsequent to origination.


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 June 30,    
UPB in millions2020 2019% Change December 31, 2019% Change
Short-term loan funding commitments       
Forward loans$477,471
 $95,823
398 % $204,021
134 %
Reverse loans30,161
 22,276
35
 28,545
6
        
Future Value (1)39,916
 59,953
(33)% 47,038
(15)
        
Future draw commitment (UPB) (2)1,597.0
 1,489.4
7 % 1,502.2
6
Gain on Loans Held for Sale
The following table provides information regarding Gain on loans held for sale by channel and the related forward loan origination volume and margins:
 Three Months Ended June 30,   Six Months Ended June 30,  
2020 2019 % Change 2020 2019 % Change
UPB in millions           
Originations by Channel           
Forward loans (3)           
Correspondent$659.8
 $3.3
 n/m
 $1,174.1
 $3.3
 n/m
Recapture318.6
 147.4
 116
 514.5
 358.6
 43
GSE Cash Window / Flow MSR2,841.0
 4.7
 n/m
 4,184.2
 4.7
 n/m
 $3,819.4
 $155.4
 n/m
 $5,872.8
 $366.6
 n/m
            
% Purchase loan production17
 10
 70
 21
 6
 250
% Refinance loan production83
 90
 (8) 79
 94
 (16)
 
 
 
      
Reverse loans (4)           
Correspondent$100.4
 $83.2
 21 % $216.6
 $171.8
 26 %
Wholesale81.7
 44.1
 85
 160.7
 86.4
 86
Retail31.8
 14.9
 113
 62.6
 25.3
 147
 $213.9
 $142.2
 50 % $439.9
 $283.5
 55 %
            
Average Employment           
U.S.442
 407
 9 % 433
 451
 (4)%
India and other146
 115
 27
 118
 123
 (4)
Total588
 522
 13 % 551
 574
 (4)%
Three Months Ended% ChangeThree Months Ended March 31, 2020% Change
March 31,December 31,
20212020
Gain on Loans Held for Sale (1)
Correspondent$3.5 $7.0 (49)%$1.6 119 %
Recapture34.1 24.0 42 11.5 196 
$37.6 $31.0 21 %$13.1 187 %
% Gain on Sale Margin (2)
Correspondent0.12 %0.30 %(60)0.26 %(54)
Recapture5.12 5.39 (5)4.54 13 
1.08 %1.12 %(4)1.52 %(29)%
Origination UPB (3)
Correspondent$2,822.3 $2,329.7 21.1$609.0 363%
Recapture665.6 445.7 49 253.2 163 
$3,487.9 $2,775.5 26 %$862.2 305 %
(1)Future Value represented the net present value of estimated future cash flows from customer draws of the reverse mortgage loans and projected performance assumptions based on historical experience and industry benchmarks discounted at 12% related to HECM loans originated prior to January 1, 2019. Prior to our adoption of the new credit loss accounting standard on January 1, 2020, we have recognized this Future Value over time as future draws were securitized or sold. Upon the adoption of the accounting standard and our irrevocable fair value election of tails, $47.0 million Future Value has been recognized through stockholders’ equity on January 1, 2020.
(2)Includes all future draw commitments.
(3)Includes the UPB of loans originated through the recapture channel, the UPB of loan acquired through the correspondent forward channel, and the UPB of loans for which MSRs were acquired through the GSE Cash Window and flow purchases.
(4)New loan production excludes reverse tail draws by borrowers disbursed subsequent to origination of $59.6 million and $73.7 million for the three months ended June 30, 2020 and 2019, and $138.3 million and $146.5 million for the six months ended June 30, 2020 and 2019, respectively.
Three Months Ended June 30, 2020 versus 2019(1)Includes realized gains on loan sales and related new MSR capitalization, changes in fair value of IRLCs, changes in fair value of loans held for sale and economic hedging gains and losses.
Total revenue increased $16.8(2)Ratio of gain on Loans held for sale to volume UPB. See (3) below. Note that the ratio differs from the day-one gain on sale margin upon lock.
(3)Defined as the UPB of loans funded in the period plus the change in the period in the pull-through adjusted UPB of IRLCs.
We recognized a $37.6 million or 58%, as compared to the second quarter of 2019, primarily due to a $22.4 million increase in gain on loans held for sale, net for the first quarter of 2021, a $6.6 million, or 21% increase as compared to the fourth quarter of 2020. The increase is due to higher loan production volume, partially offset by a $6.7 million decline in Reverse mortgage revenue, net.


our margins, for both channels. Margins were lower due to increased competition in the marketplace and rising interest rates. Despite a lower margin, our recapture channel generated a $10.1 million increase in our gain on loans held for sale with an increased pull-through of loan commitments to loan funding, as interest rates rose and our recapture performance strengthened.
Gain on loans held for sale, net for the first quarter of 2021 increased $22.4$24.5 million, or 339%187%, as compared to the second quarter of 2019, mostly due to the $827.7 million, or 549% increase in total forward loan production, partially offset by a lower average gain on sale margin. The volume increase is predominantly due to the $659.8 million production of the second quarter of 2020 from our correspondent channel that we re-started in the second quarter of 2019. Our pipeline, or lock commitments, significantly increased in the secondfirst quarter of 2020, mostly due to refinance opportunitiesthe increase in our total forward loan production volume. The $2.6 billion, or 305% new production volume increase in both our correspondent and recapture channels is due to favorable market conditions for borrower refinancing and the demonstrated capability of our Originations platform. We have expanded our correspondent seller network from 58 to 163, a 181% increase in twelve months. In addition, the increase in the market driven by the mortgage rate decrease. Thenew production volume increase resulted in a $9.1 million capitalization of originated MSRs (retained on transfers of forward mortgage loans) in the second quarter of 2020 as compared to a $0.8 million capitalization in the second quarter of 2019, despite a decline in the MSR capitalization prices in these periods. The lower average gain on sale margin is mainly due to the increased relative weight of our lower-margin correspondent production.recapture channel is the result of investments in staffing we made to develop the capabilities of our platform.
Reverse Mortgage Revenue, Net
The $6.7 million decrease infollowing table provides information regarding Reverse mortgage revenue, net of the Originations segment that comprises fair value changes of the pipeline and unsecuritized reverse mortgage loans held for investment, at fair value, together with volume and margin:
Three Months Ended% ChangeThree Months Ended March 31, 2020% Change
March 31,December 31,
20212020
Origination UPB (1)$296.8 $249.4 19 %$212.0 40 %
Origination margin (2)6.67 %5.99 %11 %2.89 %131 
Reverse mortgage revenue, net (Originations) (3)$19.8 $14.9 33 %$6.1 223 %
(1)Defined as the UPB of loans funded in the secondperiod plus the change in the period in the pull-through adjusted UPB of IRLCs.
(2)Ratio of origination gain and fees - see (3) below - to origination UPB - see (1) above.
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(3)Includes gain on new origination, and loan fees and other.
We reported $19.8 million Reverse mortgage revenue, net for the first quarter of 20202021, a $4.9 million, or 33% increase as compared to the secondfourth quarter of 2019 is primarily the result of a decline2020. As detailed in the portfolio fair valueabove table, the increase is driven by both a volume increase and a higher average margin. Our correspondent channel generated higher volumes at a higher margin and explains most of the revenue increase in the quarter. The higher margin is mostly due to ratesincreased investor demand and assumptions andtightening yield spreads observed in the fair value election on January 1, 2020market during first quarter of tail draws. Lower interest rates generally result in favorable2021.
Reverse mortgage revenue, net fair value impacts on our HECM reverse mortgage loans andfor the related HMBS-related borrowings. However, a decrease in tail gain assumptions more than offset the favorable impactfirst quarter of lower interest rates and margin improvement. The net fair value decline due to pricing conditions also more than offset the favorable impact of our volume growth. We2021 increased our reverse lending volume by $71.8$13.7 million, or 50%,223% as compared to the secondfirst quarter of 2019, and generated $4.4 million2020, primarily driven by a higher cash realized gain on securitization. We continued to execute on our growth strategymargin across all channels, and increased volume, to a lesser extent. Both retail and correspondent channels mostly contributed to the growth. The higher margin is mostly due to widening yield spreads observed in the market during the first quarter of 2020.
Other Revenue
Other revenue for the first quarter of 2021 increased $0.3 million and $6.5 million as compared to the fourth quarter of 2020 and the first quarter of 2020, respectively. The increase is primarily driven by increased loan production volumes in all channels, including purchases with former customersboth recapture and increased wallet share with existing customers. Our volume growth exceeds the increase in industry endorsements for the comparable period. According to the HUD HECM Endorsement Summary Report, industry endorsements, or the number of new HECM loans insured by the FHA, increased from 8,144 to 10,848, or 33%, when comparing the three months ended June 30, 2020 and 2019. During the second quarter 2019, we recorded gains on the securitization of tail draws. Since January 1, 2020, the fair value of tail draws is included in the fair value of the portfolio and the gains on securitization of tails draws is a component of the runoff of the portfolio.correspondent channels.
MSR Valuation Adjustments, Net
MSR valuation adjustments, net includes a gain of $13.2$8.5 million infor the secondfirst quarter of 2020is2021 due to the recognition of revaluation gains on certain MSRs opportunistically purchased through the GSE Cash Window programs, and to a lesser extent, certain MSR flow purchase agreements in a disorderly market.purchases. Due to the current market dislocation created by the COVID-19 environment, we seized the opportunity to purchase certain MSRs with a purchase price at a discount to fair value. In addition, as an aggregator of MSRs, we recognized valuation adjustments for differences in exit markets in accordance with the accounting fair value guidance. We record such valuation adjustments as MSR valuation adjustments, net within the Originations segment since the segment’s business objective is the sourcing of new MSRs at targeted returns. We transfer the MSR from the Originations segment to the Servicing segment at fair value upon closing.
MSR valuation adjustments, net for the first quarter of 2021 declined $6.9 million as compared to the fourth quarter of 2020. Opportunities for fair value discount or margins were larger in the early period of the pandemic and have reduced as markets start to normalize. We did not record any such gain prior to the pandemic in the first quarter of 2020.
Operating Expenses
Operating expenses for the first quarter of 2021 increased $7.8$1.3 million, or 37%4%, as compared to the secondfourth quarter of 2019,2020, primarily due to a $3.0$1.8 million, or 9% increase in Compensation and benefits. Originations average headcount increased 10% as compared to the fourth quarter of 2020, reflecting increases in staffing levels as part of our initiative to expand our origination platform and increase volumes. The net $0.4 million decrease in other operating expenses is driven by expenses recorded during the fourth quarter of 2020 related to our 2020 re-engineering initiatives and outsourced services to support the surge in our Originations business.
Operating expenses for the first quarter of 2021 increased $14.4 million, or 63%, as compared to the first quarter of 2020, primarily due to a $9.0 million, or 73% increase in Compensation and benefits. Originations average headcount increased 66% as compared to the first quarter of 2020, reflecting an increase in staffing levels as part of our initiative to expand our origination platform and increase volumes. Other operating expenses increased primarily due to a $2.1 million increase in corporate overhead allocationsProfessional Services and increasesa $1.5 million increase in our directorigination expenses. Certain other operating expenses are variable, and as a result, as origination volume increased so did the related expenses. Examples include commissions,credit reports included in origination expenses or certain outsourced services recorded in Compensation and benefits expense, and advertising expense, recorded in Professional services.
Other expenses. Total average headcount increased 13% as compared to the second quarter of 2019, reflecting increases in staffing levels as part of our initiative to increase volume, including our re-entry into the forward lending correspondent channel in the second quarter of 2019. Compensation expense as compared to the second quarter of 2019 increased by $1.9 million, or 16%, due to higher commissions on higher origination volume and despite a decrease in average higher-cost U.S. headcount to 75% of the total from 78% for the three months ended June 30, 2019. The $3.0 million increase in corporate overhead allocations is mostly attributed to the increase in our origination volume and the increase in the relative weight of average headcount to the consolidated organization, as compared to the second quarter of 2019. The increase in corporate overhead allocations due to the allocation drivers is partially offset by the effects of our cost re-engineering initiatives.Income (Expense)
Interest income consists primarily of interest earned on newly-originated and purchased loans prior to sale to investors. Interest expense is incurred to finance the mortgage loans. We finance originated and purchased forward and reverse mortgage loans with repurchase and participation agreements, commonly referred to as warehouse lines. The increasesincrease in interest income and interest expense as compared to the secondfourth quarter of 20192020 and first quarter of 2020, is primarily the result of the increase in loan production.
Six Months Ended June 30, 2020 versus 2019
Total revenue increased $13.3 million, or 19% as compared to the six months ended June 30, 2019, primarily due to a $27.1 million increase in gain on loansaverage held for sale net offset in part by a $16.1 million decrease in Reverse mortgage revenue, net.
Gain on loans held for sale, net increased $27.1 million, or 189%, as compared to the six months ended June 30, 2019, mostlyloan and warehouse debt balances due to the $1.3 billion, or 367% increase in total forwardincreased loan production partially offset by a lower average gain on sale margin. The volume increase is predominantly due to the $1.2 billion production in the first six months of 2020 from our correspondent channel. Our pipeline, or lock commitments, significantly increased in the first six months of 2020 mostly due to refinance opportunities in the market driven by the mortgage rate decrease. The volume increase resulted in a $15.7 millionvolumes.


capitalization of originated MSRs in the first six months of 2020 as compared to a $1.6 million capitalization in the six months ended June 30, 2019, despite a decline in the MSR capitalization prices in these periods. The lower average gain on sale margin is mainly due to the increased relative weight of our lower-margin correspondent production.
The $16.1 million decrease in Reverse mortgage revenue, net as compared to the six months ended June 30, 2019 is primarily due to the COVID-19 market conditions adversely impacting the portfolio fair value as of June 30, 2020, and the fair value election on January 1, 2020 of tail draws. Margin compression due to the COVID-19 market conditions and a decrease in tail gain assumptions more than offset the favorable impact of lower interest rates. The net fair value decline due to pricing conditions also more than offset the favorable impact of our volume growth. We increased our reverse lending volume by $156.5 million, or 55%, as compared to the six months ended June 30, 2019, and generated $6.7 million higher cash realized gain on securitization. According to the HUD HECM Endorsement Summary Report, industry endorsements, or the number of new HECM loans insured by the FHA, increased from 16,368 to 21,066, or 29%, when comparing the six months ended June 30, 2020 and 2019. During the six months ended June 30, 2019, we recorded gains on the securitization of tail draws. Since January 1, 2020, the fair value of tail draws is included in the fair value of the portfolio and the gains on securitization of tails draws is a component of the runoff of the portfolio.
MSR valuation adjustments, net gain of $13.5 million for the six months ended June 30, 2020 is due to the recognition of revaluation gains on certain MSRs opportunistically purchased through the GSE Cash Window and, to a lesser extent, certain MSR flow purchase agreements in a disorderly market. Due to the market dislocation created by the COVID-19 environment, we seized the opportunity to purchase certain MSRs with a purchase price at a discount to fair value. In addition, as an aggregator of MSRs, we recognized valuation adjustments for differences in exit markets in accordance with the accounting fair value guidance. We record such valuation adjustments as MSR valuation adjustments, net within the Originations segment since the segment’s business objective is the sourcing of new MSRs at targeted returns.
Operating expenses increased $13.5 million, or 32%, as compared to the six months ended June 30, 2019, primarily due to a $5.8 million increase in corporate overhead allocations and increases in our direct expenses. Total average headcount decreased 4% as compared to the six months ended June 30, 2019, reflecting reductions in staffing levels as part of our PHH integration and cost re-engineering initiative offset by an increase in headcount to support the increase in origination volume. Compensation expense as compared to the six months ended June 30, 2019 increased by $2.3 million, or 10%, largely due to higher commissions on higher origination volume. Average higher-cost U.S. headcount remained unchanged at 79% of the total compared to the six months ended June 30, 2019. The $5.8 million increase in corporate overhead allocations is mostly attributed to the increase in our origination volume and the increase in the relative weight of average headcount to the consolidated organization, despite a net reduction in our headcount, as compared to the six months ended June 30, 2019. The increase in corporate overhead allocations due to the allocation drivers is partially offset by the effects of our cost re-engineering plan.
CORPORATE ITEMS AND OTHER
Corporate Items and Other includes revenues and expenses of corporate support services, our reinsurance business CRL, discontinued operations and inactive entities, and our other business activities that are currently individually insignificant, revenues and expenses that are not directly related to other reportable segments, interest income on short-term investments of cash, gain or loss on repurchases of debt, interest expense on corporate debt and foreign currency exchange gains or losses. Interest expense on direct asset-backed financings are recorded in the respective Servicing and Originations segments, while interest expense on the
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SSTL and the Senior Notes is recorded in Corporate Items and Other and iswas not allocated. Beginning in the third quarter of 2020, we began allocating interest expense on such corporate debt used to fund servicing advances and other servicing assets from Corporate Items and Other to Servicing. The interest expense related to the corporate debt has been allocated to the Servicing segment for prior periods to conform to the current period presentation. Our cash balances are included in Corporate Items and Other.
Corporate support services include finance, facilities, human resources, internal audit, legal, risk and compliance and technology functions. Corporate support services costs, specifically compensation and benefits and professional services expense, have been, and continue to be, significantly impacted by regulatory actions against us and by significant litigation matters. As part of our need to return to sustainable profitability as soon as possible, we seek to reduce our corporate support services expenses while complying with our legal and regulatory obligations. We anticipate that our ability to return to sustainable profitability will be significantly impacted by the degree to which we can reduce these costs going forward. Corporate Items and Other also includes severance, retention, facility-related and other expenses incurred relatedin 2020related to our re-engineering plansinitiatives and have not been allocated to other segments.
CRL, our wholly-owned captive reinsurance subsidiary, provides re-insurance related to coverage on REO properties owned or serviced by us. CRL assumes a quota share of REO insurance coverage written by a third-party insurer under a blanket policy issued to PMC (formerly OLS).PMC. The underlying REO policy provides coverage for direct physical loss on commercial and residential properties, subject to certain limitations. Under the terms of the reinsurance agreement, CRL assumes a 40%50% quote share of premiums and all related losses and loss adjustment expenses incurred by the third-party insurer.insurer, effective June 2020, and 40% through May 2020. The initial term of the reinsurance agreement excludes properties located in the State of New York and the initial term expiresexpired December 31, 2020, although it


may be terminated by either party at any time with 30 days’ advance written notice. Subsequent to the initial term, the reinsurance agreement willand was automatically renewrenewed for an additional one-year term unless either party provides 60 days’ advance written notice prior to renewal. On April 28, 2020, the reinsurance agreement was amended to increase the quota share to 50% for both premiums and losses effective for the month of June 2020.term.
Certain expenses incurred by corporate support services that are not directly attributable to a segment are allocated to the Servicing and Originations segments. Beginning in 2020, we updated our methodology toWe allocate overhead costs incurred by corporate support services to the Servicing and Originations segments which now incorporates the utilization of various measurements primarily based on time studies, personnel volumes and service consumption levels. In 2019, corporate support services costs were primarily allocated based on relative segment size. Support servicesservice costs not allocated to the Servicing and Originations segments are retained in the Corporate Items and Other segment along with certain other costs including certain litigation and settlement related expenses or recoveries, costs related to our 2020 re-engineering plan,initiatives, and other costs related to operating as a public company.
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The following table presents selected results of operations of Corporate Items and Other. The amounts presented are before the elimination of balances and transactions with our other segments:
 Three Months Ended% ChangeThree Months Ended March 31, 2020% Change
March 31,December 31,
20212020
Revenue
Premiums (CRL)$1.2$1.3(3)%$2.5 (51)%
Other revenue0.10.1(26)0.1 (49)
Total revenue1.31.3(4)2.6 (51)
Operating expenses
Compensation and benefits21.722.3(3)21.0 3 
Professional services7.017.1(59)19.5 (64)
Technology and communications5.85.211 7.2 (20)
Occupancy and equipment0.91.8(51)1.5 (42)
Servicing and origination0.20.4(45)0.6 (62)
Other expenses1.32.3(46)2.2 (43)
Total operating expenses before corporate overhead allocations36.849.1(25)52.0 (29)
Corporate overhead allocations
Servicing segment(12.2)(12.7)(4)(17.8)(31)
Originations segment(5.0)(4.6)10 (4.4)14 
Total operating expenses19.531.8(38)29.8 (34)
Other income (expense), net
Interest income0.10.2(49)1.2 (91)
Interest expense(4.6)(1.6)179 (3.0)55 
Loss on extinguishment of debt(15.5)—n/m— n/m
Other, net(0.2)(0.5)(61)(2.3)(92)
Total other expense, net(20.1)(1.9)968 (4.0)403 
Loss before income taxes$(38.4)$(32.3)19 %$(31.1)23 %
n/m: not meaningful
 Three Months Ended June 30,   Six Months Ended June 30,  
2020 2019 % Change 2020 2019 % Change
Revenue    

     

Premiums (CRL)$990
 $3,016
 (67)% $3,618
 $6,427
 (44)%
Other revenue53
 18
 194
 65
 130
 (50)
Total revenue1,043
 3,034
 (66) 3,683
 6,557
 (44)
            
Operating expenses    

     

Compensation and benefits22,986
 29,948
 (23) 44,011
 71,799
 (39)
Professional services13,135
 25,582
 (49) 32,587
 17,255
 89
Technology and communications8,064
 11,231
 (28) 15,282
 25,485
 (40)
Occupancy and equipment6,369
 5,166
 23
 7,850
 7,292
 8
Servicing and origination259
 357
 (27) 875
 308
 184
Other expenses3,291
 3,479
 (5) 5,499
 5,780
 (5)
Total operating expenses before corporate overhead allocations54,104
 75,763
 (29) 106,104
 127,919
 (17)
Corporate overhead allocations    

     

Servicing segment(16,081) (53,721) (70) (33,874) (111,315) (70)
Originations segment(4,704) (1,661) 183
 (9,128) (3,346) 173
Total operating expenses33,319
 20,381
 63
 63,102
 13,258
 376
 

 

   

 

  
Other income (expense), net    

     

Interest income254
 419
 (39) 1,497
 1,135
 32
Interest expense(11,471) (15,981) (28) (24,925) (30,060) (17)
Other, net(2,487) (777) 220
 (4,763) (1,502) 217
Total other expense, net(13,704) (16,339) (16) (28,191) (30,427) (7)
            
Loss before income taxes$(45,980) $(33,686) 36 % $(87,610) $(37,128) 136 %
n/m: not meaningful           
Compensation and Benefits
Three Months Ended June 30, 2020 versus 2019
CRL premium revenueCompensation and benefits expense for the first quarter of 2021 declined $2.0$0.6 million, or 67%3%, as compared to the secondfourth quarter of 2019, primarily2020. Incentive compensation declined $2.1 million, mostly due to a 52% declinethe annual adjustment of incentives recorded in the numberfourth quarter of covered REO properties in our servicing portfolio. Factors contributing to the2020. Partially offsetting this decline, in covered properties include the effect of current moratoriasalaries and restrictions on foreclosure procedures due to COVID-19 which reduce the number of new REO properties, a declining servicing portfolio,benefit expenses increased $0.9 million and severance expense increased $0.5 million. The average corporate headcount and the GSE removal of REO coverage requirements.mix between onshore and offshore was mostly unchanged.


Total operating expenses before corporate overhead allocations decreased $21.7 million asAs compared to the secondfirst quarter of 2019 and the decrease is the result of multiple variances, as discussed below.
Compensation2020, compensation and benefits expense declined $7.0for the first quarter of 2021 increased $0.6 million, or 23%3%despite the reduction in the corporate headcount. Incentive compensation increased $1.3 million and benefit administration and recruitment expenses increased $0.9 million, offset by a $1.8 million decline in salaries and benefit expenses due to the effects of a 10% decline in average corporate headcount, including a 24% decrease in average onshore headcount from 343 to 259.
Professional Services
Professional services expense for the first quarter of 2021 declined $10.1 million, or 59%, as compared to the secondfourth quarter of 2019, primarily due to our cost re-engineering initiatives, resulting in a decline in average corporate headcount of 11% and a change in the mix of onshore/offshore. The decline in our headcount mostly affected our onshore resources whose average compensation cost is relatively higher. The average onshore headcount decreased from 456 to 330, as compared to the second quarter of 2019.
Professional services expense declined $12.4 million, or 49%, as compared to the second quarter of 2019, due to an $8.9 million decline in legal fees largely attributed to a decline in legal expenses relating to the PHH integration, legal entity reorganization and litigation. In addition, the second quarter of 2019 included other professional services of $3.3 million related to our 2019 cost re-engineering plan.
Technology and communications expense decreased $3.2 million, or 28%, as compared to the second quarter of 20192020, primarily due to a $1.2$5.9 million decrease in depreciation expense that is largely the result of a decline in capitalized technology investments and the closure of U.S. facilities in 2019, as well as the effects of a decline in average headcount and our other cost reduction efforts which included bringing technology services in-house and re-engineering initiatives.
Occupancy and equipment expense increased $1.2 million, or 23%, as compared to the second quarter of 2019. As disclosed in Note 2 - Cost Re-Engineering Plan to the Unaudited Consolidated Financial Statements, we partially abandoned one of our leased properties in the second quarter of 2020 resulting in the recognition of facility-related costs, mainly accelerated depreciation of the leased right-of-use asset and exit costs, totaling $4.9 million versus $3.3 million of similar costs recognized in the second quarter of 2019 in connection with our decision to vacate four leased properties prior to the contractual maturity date of the lease agreements. 
Interest expense declined $4.5 million, or 28%, as compared to the second quarter of 2019 primarily due to the $126.1 million prepayment of the outstanding SSTL balance in January 2020, the maturity of $97.5 million of our 7.375% senior unsecured notes in September 2019 and the repurchase of $39.4 million of our 8.375% senior secured notes in July and August 2019.
Other expense, net increased $1.7 million, or 220%, as compared to the second quarter of 2019, due to a $1.7 million loss on the sale of a vacant office facility.
Totallegal expenses after corporate overhead allocation, increased by $12.9 million, or 63%, as compared to the second quarter of 2019, primarily due toour updated methodology to allocate overhead costs which we implemented in 2020.
Six Months Ended June 30, 2020 versus 2019
CRL premium revenue declined $2.8 million, or 44%, as compared to the six months ended June 30, 2019, primarily due to a 39% decline in the number of covered REO properties in our servicing portfolio.
Total operating expenses before corporate overhead allocations decreased $21.8 million as compared to the six months ended June 30, 2019 as discussed below.
Compensation and benefits expense declined $27.8 million, or 39%, as compared to the six months ended June 30, 2019, primarily due to $24.2 million severance and retention expenses recognized in the six months ended June 30, 2019 in connection with our PHH integration and cost re-engineering plan. In addition, expense declined compared to the six months ended June 30, 2019 due to our cost re-engineering initiatives, resulting in a decline in average corporate headcount of 12% and a change in the mix of onshore/offshore. The decline in our headcount mostly affected our onshore resources. The average onshore headcount decreased from 475 to 336, compared to the six months ended June 30, 2019.
Professional services expense increased $15.3 million, or 89%, as compared to the six months ended June 30, 2019, primarily due to the $30.7 million recovery in 2019 of amounts previously recognized as expense from a service provider offset in part by a $9.9$3.3 million decline in legalother professional fees. In addition, the six months ended June 30, 2019 included $5.4 million of costs related to our 2019 cost re-engineering plan. The declinenet decrease in legal feesexpenses is largely due to a $14.3 million decline in legal expenses relating to the PHH integration, legal entity reorganization and litigation, partially offset by a $4.4$13.1 million increase toin our accrual related to the CFPB and Florida mattersmatter recorded in the fourth quarter of 2020, partially offset by the $8.5 million recovery of prior expenses also recorded in the fourth quarter of 2020 in connection with a settlement from a mortgage insurer. Nonrecurring costs recorded in the fourth quarter of
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2020, including costs related to 2020 reengineering activities, resulted in lower professional services expenses in the first quarter of 2020.2021.
As compared to the first quarter of 2020, professional services expense for the first quarter of 2021 declined $12.4 million, or 64%, primarily due to an $8.4 million decline in legal expenses and a $3.7 million decline in other professional services. The net decline in legal expenses is largely due to $6.6 million recorded in the first quarter of 2020 related to the CFPB matter. Cost reduction initiatives in 2020 resulted in lower other professional fees in the first quarter of 2021.
Other Operating Expenses
Technology and communications, expenseOccupancy and equipment, and Other expenses for the first quarter of 2021 decreased $10.2$1.4 million and $3.0 million as compared to the fourth quarter of 2020 and the first quarter of 2020, respectively. Cost re-engineering initiatives in 2020 resulted in lower other operating expenses in the first quarter of 2021, including the transition to a more cost-effective alternative telephone system and the rationalization of our office space.
Corporate overhead allocations remained mostly constant in the first quarter of 2021 as compared to the fourth quarter of 2020, and decreased $5.0 million as compared to the first quarter of 2020, mostly due to the reduction of the relative size of the Servicing segment and the cost savings discussed above.
Total expenses for the first quarter of 2021, after corporate overhead allocations decreased $12.2 million, or 40%38%, as compared to the six months ended June 30, 2019 primarily due to a $3.5fourth quarter of 2020, and decreased by $10.2 million, decrease in depreciation expense that is largely the result of a decline in capitalized technology investments and the closure of U.S. facilities in 2019, as well as the effects of a decline in average headcount and our other cost reduction efforts which included bringing technology services in-house and re-engineering actions.
Interest expense declined $5.1 million, or 17%34%, as compared to the six months ended June 30, 2019first quarter of 2020, primarily due todeclines in Professional services expenses, as discussed above, which were not allocated.
Other Income (Expenses)
Interest expense of the partial prepayment of our SSTL balance in January 2020 andCorporate segment relates to the reduction in our senior secured and unsecured notes inremaining corporate debt unallocated to other segments. Interest expense for the thirdfirst quarter of 2019 through maturity and repurchases, as disclosed above.


Other expense, net2021 increased $3.3$2.9 million, or 217%179%, as compared to the six months ended June 30, 2019, primarilyfourth quarter of 2020, and $1.6 million, or 55%, as compared to the first quarter of 2020. The increase is driven by a lower allocation of corporate debt to the servicing segment and a higher cost of corporate debt in the first quarter of 2021. In addition, the partial prepayment of the SSTL in January 2020 resulted in incremental expenses recorded during the first quarter of 2020. The higher effective rate of our corporate debt in the first quarter of 2021 is mostly due to the senior secured notes issued at a $1.0discount on March 4, 2021 together with warrants, resulting in an incremental discount that amortizes over the six-year life of the notes.
On March 4, 2021, we recognized a loss on debt extinguishment of $15.5 million increaseresulting from our early repayment of the SSTL due May 2022, 6.375% PHH senior unsecured notes due August 2021, and 8.375% PMC senior secured notes due November 2022. The loss on debt extinguishment includes the write-off of unamortized debt issuance costs and discount, as well as contractual prepayment premiums.
Other expense, net decreased $2.1 million, or 92% in the first quarter of 2021, as compared to the first quarter of 2020, mostly due to foreign currency losses related to our operations in India and the $1.7 million loss on the sale of a vacant office facility.
Total expenses, after corporate overhead allocation, increased by $49.8 million, or 376%, as compared to the six months ended June 30, 2019, primarily due to the $30.7 million recovery in 2019 of amounts previously recognized as expense from a service provider, which was not allocated, the $4.4 million increase to our accrual related to the CFPB and Florida mattersrecorded in the first quarter of 2020 and the effect of our updated methodology to allocate overhead costs which we implemented in 2020.

79

LIQUIDITY AND CAPITAL RESOURCES
Overview
At June 30, 2020,On March 4, 2021, we successfully completed a comprehensive refinancing of our unrestricted cash position was $313.7corporate debt and a capital contribution to our licensed entity PHH Mortgage Company, through the following transactions:
•We redeemed all of PHH’s outstanding 6.375% Senior Notes due August 2021 at a price of 100% of the $21.5 million compared to $428.3principal amount, plus accrued and unpaid interest, and all of PMC’s 8.375% Senior Secured Notes due November 2022 at a price of 102.094% of the $291.5 million at December 31, 2019. On January 27, 2020, we prepaid $126.1principal amount, plus accrued and unpaid interest.
•We repaid in full the $185.0 million outstanding principal balance of the SSTL to reducedue May 2022, with a 2% prepayment premium of the outstanding principal balance, or $3.7 million.
•PMC completed the issuance and sale of $400.0 million aggregate principal amount of 7.875% senior secured notes due March 15, 2026 (the PMC Senior Secured Notes).
•Ocwen Financial Corporation, completed the private placement of $199.5 million aggregate principal amount of senior secured notes due March 4, 2027 (the OFC Senior Secured Notes) together with the issuance of warrants to $200.0certain special purpose entities owned by funds and accounts managed by Oaktree Capital Management, L.P. (the Oaktree Investors).
•Ocwen Financial Corporation contributed the $175.0 million net proceeds from the issuance of the OFC Senior Secured Notes to its wholly owned subsidiary, PHH, and PHH contributed $153.4 million to its wholly owned subsidiary PMC, as permanent equity, after redeeming PHH’s 6.375% Senior Notes disclosed above.
With the completion of the corporate debt refinancing, we have reduced corporate indebtedness at the PHH and PMC level by approximately $100 million and executedextended overall corporate debt maturities by over three years resulting in a better alignment of the debt profile with our investments. We now have greater financial flexibility than with the prior capital structure, and we believe, an opportunity to negotiate better terms for our future financing needs.
In addition, in the normal course of business, we are actively engaged with our lenders and as a result, have successfully completed at market terms the following with respect to our current and anticipated financing needs:
•On March 29, 2021, we entered into a gestation repurchase agreement which provides borrowing at our discretion up to a certain amendmentsmaximum amount of capacity on a rolling 30-day committed basis. Under this facility, dry Agency mortgage loans are sold to a trust which issues a trust certificate that is pledged as the SSTL agreementcollateral for any borrowings.
•On March 30, 2021, the borrowing capacity on our $100.0 million reverse mortgage loan facility was temporarily increased to extend$150.0 million effective April 1, 2021 until May 30, 2021 when it will then be reduced to $100.0 million.
•On March 31, 2021, we extended the maturity date on a $275.0 million repurchase facility to May 15, 2022, reduce the contractual quarterly principal payment from $6.4 million to $5.0 million and modify the interest rate. June 30, 2022.
See Note 11 – Borrowings to the Unaudited Consolidated Financial Statements for additional information.
At June 30, 2020, we had totalA summary of borrowing capacity under our OMART and OFAF advance facilities, of $1.0 billion. mortgage warehouse facilities and MSR financing facilities is as follows at the dates indicated:
March 31, 2021December 31, 2020
Total Borrowing Capacity (1)Available Borrowing Capacity - Committed (1)Available Borrowing Capacity - Uncommitted (1)Total Borrowing Capacity (1)Available Borrowing Capacity - Committed (1)Available Borrowing Capacity - Uncommitted (1)
Advance facilities$795.0$244.6$—$795.0$213.7$—
Mortgage loan warehouse facilities1,088.7124.9354.31,037.0186.9398.4
MSR financing facilities375.0—25.2375.039.213.0
Total$2,258.7$369.5$379.5$2,207.0$439.8$411.4
(1)Total Borrowing Capacity represents the maximum amount which can be borrowed, subject to eligible collateral. Available Borrowing Capacity represents Total Borrowing Capacity less outstanding borrowings.
The available borrowing capacity under our advance financing facilities increased by $376.5$30.9 million from $50.9 million atas compared to December 31, 20192020 due to $427.4the $30.9 million at June 30, 2020. On May 7, 2020, we upsized and extended through June 2021 our OMART and OFAF variable funding advance financing facilities. The OMART variable funding capacity increased by $300.0 million to $500.0 million to accommodate forecasted advancing requirements and the amortization of $185.0 million in term notes that begins in August 2020. The OFAF facility increased by $10.0 million to a total capacity of $70.0 million. The $66.5 million declinedecrease in outstanding borrowings also contributed to the increase in available capacity.borrowings. At June 30, 2020, we had fully funded the amounts thatMarch 31, 2021, none could be funded under the available borrowing capacity based on the amount of eligible collateral that had been pledged to our advance financing facilities. On June 30, 2020, we amended and upsizedHowever, $17.0 million of uncommitted borrowing capacity was available to fund advances at March 31, 2021 under our Ginnie Mae MSR financing facility to include Ginnie Mae servicing advancesbased on the amount of eligible collateral as eligible collateral.disclosed below.
At June 30, 2020, we had total
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We may utilize committed borrowing capacity under our mortgage warehouse facilities and MSR financing facilities of $1.4 billion. Of the borrowing capacity extended on a committed basis, $346.7 million was available at June 30, 2020, with $201.7 million under our mortgage warehouse funding facilities and $144.9 million under our MSR financing facilities, which, in each case, we may utilize to the extent we have sufficient eligible collateral to borrow against and otherwise satisfy the applicable conditions to funding. At June 30, 2020,March 31, 2021, we had no additional amounts could be borrowed under the availablecommitted borrowing capacity, based on the amount of eligible collateral, that could be pledged.and an additional $17.0 million uncommitted borrowing capacity. Uncommitted amounts ($489.4 million available at June 30, 2020) can be advanced solely at the discretion of the lender, and there can be no assurance that any uncommitted amounts will be available to us at any particular time.
At June 30, 2020, none could be borrowed under the uncommitted borrowing capacity basedMarch 31, 2021, our unrestricted cash position was $259.1 million compared to $284.8 million at December 31, 2020. In addition, we had voluntarily paid down or foregone $17.0 million of borrowings on the amount of eligible collateral that could be pledged.
our facilities to reduce interest costs. We typically invest cash in excess of our immediate operating needs in deposit accounts and other liquid assets. A portion of our cash balances are held in our non-U.S. subsidiaries. Should we wish to utilize this cash in the U.S. we would have to repatriate the cash held by our non-U.S. subsidiaries, in compliance with applicable laws and, potentially with tax consequences.
We closely monitor our liquidity position and ongoing funding requirements, and we regularly monitor and project cash flows over various time horizons as a way to anticipate and mitigate liquidity risk. As uncertainties in market conditions decline, we will continue to seek to optimize our cash management and may reduce our unrestricted cash position to further fund our growth.
In assessing our liquidity outlook, our primary focus is on available cash on hand, unused available funding and the following six forecast measures:
•Financial projections for ongoing net income, excluding the impact of non-cash items, and working capital needs including loan repurchases;
•Requirements for amortizing and maturing liabilities compared to sources of cash;liabilities;
•The projected change in advances compared to the projected borrowing capacity to fund such advances under our facilities, including capacity for monthly peak needs;
•Projected funding requirements for acquisitions of MSRs and other investment opportunities;
Potential payments or recoveries related to legal and regulatory matters, insurance, taxes and MSR transactions; and
•Funding capacity for whole loans and tail draws under our reverse mortgage commitments subject to warehouse eligibility requirements.requirements;


COVID-19 Update and Outlook
The COVID-19 environment created unprecedented changes in the economy, volatility in the capital markets, and uncertainties in the mortgage industry. As of today, while market conditions have stabilized and our prior scenario planning has proven somewhat conservative, uncertainties•Potential payments or recoveries related to the duration, severitylegal and impact of the economic downturn remain. Two critical factors have the most effect onregulatory matters, insurance, taxes and others; and
•Margining requirements associated with our liquidity management in the current COVID-19 environment: our increased advancing requirements as servicer during each investor remittance period, and the uncertainties of daily margin calls on our collateralized debtborrowing facilities and derivative instruments.
First, as servicer, we are required to advance to investors the loan P&I installments not collected from borrowers for those delinquent loans, including those on forbearance. We also advance T&I and Corporate advances on properties that are in default or have been foreclosed. Our obligations to make these advances are governed by servicing agreements or guides, depending on investors or guarantor. Refer to Note 20 — Commitments to the Unaudited Consolidated Financial Statements for further description of servicer advance obligations.hedging program.
Second, we are generally subject to daily margining requirements under the terms of our MSR financing facilities and daily cash calls for our TBAs and interest rate swap futures. Declines in fair value of our MSRs due to declines in market interest rates, assumption updates or other factors require that we provide additional collateral to our lenders under MSR financing facilities. Similarly, declines in fair value of our derivative instruments require that we provide additional collateral to the clearing counterparties.
We are focused on ensuring that we have sufficient liquidity sources to continue to operate through the pandemic as well as after. As such on May 7, 2020, we upsized and extended through June 2021 our OMART and OFAF advance financing facilities. The OMART variable funding note capacity increased from $200.0 million to $500.0 million to accommodate forecasted advancing requirements and the amortization of $185.0 million in term notes beginning in August 2020. The OFAF facility increased to a total capacity of $70.0 million. In addition, we executed our MSR repurchase agreement and warehouse facilities with Barclays. On June 30, 2020, we amended our Ginnie Mae MSR facility to include servicing advances as eligible collateral and upsized the total borrowing capacity to $127.5 million. We continuously evaluate alternative financings to diversify our sources of funds, optimize maturities and reduce our funding cost. Given recent improvements in the securitization market, we are considering issuing new term notes under OMART to replace some of our recently upsized variable funding note capacity before year-end that may reduce our funding costs and extend maturities. 
Regarding the current maturities of our borrowings, as of June 30, 2020, we have approximately $900.1 million of debt outstanding that would either come due, begin amortizing or require partial repayment in the next 12 months. This amount is comprised of $20.0 million in contractual repayments of our SSTL, $325.3 million of borrowings under forward and reverse mortgage warehouse facilities, $327.7 million of variable funding and term notes under advance financing facilities that will enter their respective amortization periods, $202.1 million outstanding under our Agency and Ginnie Mae MSR financing facilities and $25.0 million of scheduled principal amortization on the PLS Notes secured by PLS MSRs.
We are actively engaged with our lenders and as a result, have successfully completed at market terms the following with respect to our current and anticipated financing needs:
•
On January 22,2020, we did not renew and let terminate a $50.0 million uncommitted warehouse facility used to fund reverse mortgage loan draws.
On January 27, 2020, we executed an amendment to the SSTL agreement which reduced the maximum borrowing capacity to $200.0 million, extended the maturity date to May 15, 2022, reduced the contractual quarterly principal payment from $6.4 million to $5.0 million and modified the interest rate.
On March 12, 2020, we entered into a mortgage loan warehouse agreement to fund reverse mortgage loan draws by borrowers subsequent to origination. Under this agreement, the lender provides financing for up to $100.0 million to PMC on an uncommitted basis. Concurrently, we reduced the maximum borrowing capacity of another reverse mortgage loan warehouse agreement from $100.0 million to $1.0 million in connection with Liberty’s transfer of substantially all of its assets, liabilities, contracts and employees to PMC effective March 15, 2020.
On May 7, 2020, we renewed the OMART variable funding advance financing facility through June 30, 2021 and increased the borrowing capacity from $200.0 million to $500.0 million.
On May 7, 2020, we renewed the OFAF advance financing facility through June 30, 2021and increased the borrowing capacity from $60.0 million to $70.0 million.
On May 7, 2020, we renewed a mortgage loan warehouse agreement with a maximum borrowing capacity of $175.0 million ($110.0 million of which is committed) through June 30, 2021.
On May 7, 2020 we renewed the Agency MSR financing facility through June 30, 2021 and reduced the borrowing capacity from $300.0 million to $250.0 million.


On June 25, 2020, we renewed and amended a mortgage loan warehouse agreement with an original maximum borrowing capacity of $300.0 million through June 24, 2021 and reduced the borrowing capacity to $210.0 million (a $90 million committed repurchase agreement and a $120.0 million uncommitted participation agreement).
On June 30, 2020, we amended the Ginnie Mae MSR facility to include servicing advances as eligible collateral, upsized the borrowing capacity to $127.5 million from $100 million, and accelerated the maturity to December 20, 2020.
We have considered the impact of financial projections on our liquidity analysis and have evaluated the appropriateness of the key assumptions in our financial forecasts. As part of this analysis, we have also assessed the cash requirements to operate our business and service our financial obligations coming due. We have assessed the range of potential impacts of the COVID-19 pandemic on our financial projections and projected liquidity under base case, adverse and severely adverse scenarios. We believe the recent renewals and amendments we have executed will provide sufficient liquidity in all of these scenarios. We expect to renew, replace or extend our borrowings to the extent necessary to finance our business on or prior to their respective maturities consistent with our historical experience.
Use of Funds
Our primary near-term uses of funds in the normal course include:
•Payment of operating costs and corporate expenses;
•Payments for advances in excess of collections;
•Investing in our servicing and originations businesses, including MSR and other asset acquisitions;
•Originated and repurchased loans, including scheduled and unscheduled equity draws on reverse mortgage loans;
•Payment of margin calls under our MSR financing facilities and derivative instruments;
•Repayments of borrowings, including under our MSR financing, advance financing and warehouse facilities, and payment of interest expense; and
•Net negative working capital and other general corporate cash outflows.
UnderWe have originated floating-rate reverse mortgage loans under which the borrowers have additional borrowing capacity of $2.1 billion at March 31, 2021. This additional borrowing capacity is available on a scheduled or unscheduled payment basis. During the three months ended March 31, 2021, we funded 47.8 million out of this $2.0 billion borrowing capacity as of December 31, 2020. We also had short-term commitments to lend $916.9 million and $50.2 million in connection with our forward and reverse mortgage loan IRLCs, respectively, outstanding at March 31, 2021. We finance originated and purchased forward and reverse mortgage loans with repurchase and participation agreements, referred to as warehouse lines.
Regarding the current maturities of our borrowings, as of March 31, 2021, we have approximately $871.7 million of debt outstanding that would either come due, begin amortizing or require partial repayment in the next 12 months. This amount is comprised of $419.5 million of borrowings under forward and reverse mortgage warehouse facilities, $75.4 million of variable funding notes under advance financing facilities that will enter their respective amortization periods, $349.8 million outstanding under our Agency and Ginnie Mae MSR financing facilities and $26.9 million of scheduled principal amortization on the PLS Notes secured by PLS MSRs.
The COVID-19 environment created unprecedented changes in the economy, volatility in the capital markets, and uncertainties in the mortgage industry. In our liquidity management, we consider two factors more specifically as a result of COVID-19 and the volatile interest rate environment: our increased advancing requirements as servicer during each investor remittance period, and the uncertainties of daily margin calls on our collateralized debt facilities and derivative instruments.
First, as servicer, we are required to advance to investors the loan P&I installments not collected from borrowers for those delinquent loans, including those on forbearance plans. We also advance T&I and Corporate advances primarily on properties that are in default or have been foreclosed. Our obligations to make these advances are governed by servicing agreements or
81

guides, depending on investors or guarantor. Refer to Note 25 — Commitments to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2020 for further description of our servicer advance obligations. As subservicer, we are also required to make P&I, T&I and Corporate advances on behalf of servicers following the servicing agreements or guides. However, servicers are generally required to reimburse us within 30 days of our advancing under the terms of the subservicing agreements, and we are generally reimbursed by NRZ the same day we fund P&I advances, or within no more than three days for servicing advances and certain P&I advances under the Ocwen agreements.
Second, we are generally subject to daily margining requirements under the terms of our SSTL facilityMSR financing facilities and daily cash calls for our TBAs and interest rate swap futures. Declines in fair value of our MSRs due to declines in market interest rates, assumption updates or other factors require that we provide additional collateral to our lenders under MSR financing facilities. Similarly, declines in fair value of our derivative instruments require that we provide additional collateral to the clearing counterparties.
If we complete the MAV transaction with Oaktree, we have agreed to invest up to $37.5 million in MAV for use in connection with eligible MSR investments and operating expenses.
We recently signed non-binding letters of intent to purchase MSR portfolios in bulk, representing an aggregate UPB of approximately $54 billion, expected to close in the second quarter of 2021 and expected to transfer on our servicing platform in the third quarter of 2021. In addition, on April 20, 2021, we entered into an agreement with Texas Capital Bank (TCB) to purchase, in bulk, mortgage servicing rights and related servicing advances attributable to a mortgage loan portfolio approximating $13.6 billion as of March 31, 2021. The transaction is expected to close in the second quarter of 2021, subject to certain exceptions, we are requiredcustomary closing conditions, with approximately 60,000 loans expected to prepaytransfer to our servicing platform in the SSTL with certain percentage amountsthird quarter of excess2021 (subject to pay-offs occurring prior to transfer date). The purchase is expected to be funded from a combination of available cash flow as defined and 100% ofborrowings under our debt facilities. We intend to either assign the net cash proceeds from certain permitted asset sales,agreement in whole or in part to MAV, or sell MAV the MSRs acquired under the agreement when MAV becomes operational, subject to our abilityreceipt of any remaining regulatory approvals required for closing the MAV transaction.
We have also entered into a binding letter of intent with TCB pursuant to reinvest such proceedswhich we have agreed to offer employment to certain of TCB’s Correspondent Lending personnel and TCB will cooperate to transition to us related customers and vendors. The transition is expected to begin during the second quarter of 2021, with an expected increased volume in our business within 270 daysCorrespondent channel.
Our medium- and long-term requirements for cash include:
•Payment of receipt.interest and principal repayment of our corporate debt that matures in 2026 and 2027;
•Any payments associated with the confirmation of loss contingencies; and
•Any other payments required under contractual obligations discussed above that extend beyond one year, e.g., lease payments.
We are focused on ensuring that we have sufficient liquidity sources to continue to operate through the pandemic as well as after. We continuously evaluate alternative financings to diversify our sources of funds, optimize maturities and reduce our funding cost. See “Sources of Funds” below.
Sources of Funds
Our primary sources of funds for near-term liquidity in normal course include:
•Collections of servicing fees and ancillary revenues;
•Collections of advances in excess of new advances;
•Proceeds from match funded advance financing facilities;
•Proceeds from other borrowings, including warehouse facilities and MSR financing facilities;
•Proceeds from sales and securitizations of originated loans and repurchased loans; and
•Net positive working capital from changes in other assets and liabilities.
Servicing advances are an important component of our business and represent amounts that we, as servicer, are required to advance to, or on behalf of, our servicing clients if we do not receive such amounts from borrowers. Our use of advance financing facilities is integral to our servicing advance financingcash and liquidity management strategy. Revolving variable funding notes issued by our advance financing facilities to financial institutions typically have a have revolving period of 12 months. Term notes are generally issued to institutional investors with one-, two- or three-year revolving periods. Additionally, certain of our financing and subservicing agreements permit us to retain advance collections for a period ranging from one to two business days before remittance, thus providing a source of short-term liquidity.
We use mortgage loan repurchase and participation facilities (commonly called warehouse lines) to fund newly-originated loans on a short-term basis until they are sold to secondary market investors, including GSEs or other third-party investors, and to fund repurchases of certain Ginnie Mae forward loans, HECM loans, second-lien loans and other types of loans. Warehouse
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facilities are structured as repurchase or participation agreements under which ownership of the loans is temporarily transferred to the lender. These facilities contain eligibility criteria that include aging and concentration limits by loan type among other provisions. Currently, our master repurchase and participation agreements generally have maximum terms of 364-days.364 days. The funds are typically repaid using the proceeds from the sale of the loans to the secondary market investors, usually within 30 days.
We also rely on the secondary mortgage market as a source of consistent liquidity to support our lending operations. Substantially all of the mortgage loans that we originate or purchase are sold or securitized in the secondary mortgage market in the form of residential mortgage backed securities guaranteed by Fannie Mae or Freddie Mac and, in the case of mortgage backed securities guaranteed by Ginnie Mae, are mortgage loans insured or guaranteed by the FHA, VA or VA.United States Department of Agriculture (USDA).
We regularly evaluate financing structure options that we believe will most effectively provide the necessary capacity to support our investment plans, address upcoming debt maturities and accommodate our business needs. As noted above, we completed a significant refinancing on March 4, 2021. Our subsidiary PMC issued $400.0 million of senior secured notes maturing in 2026, and Ocwen Financial Corporation issued $199.5 million of senior secured notes maturing in 2027 and warrants to Oaktree. We used the proceeds received from these note issuances to prepay the $185.0 million outstanding balance of our SSTL and $313.1 million outstanding balance of senior notes maturing in 2021 and 2022, as well as the related prepayment premiums. The remainder of the proceeds were used for general corporate purposes. Our financing structure


actions are targeted at optimizing access to capital and debt financing, improving our cost of funds, enhancing financial flexibility, bolstering liquidity and reducing funding risk while maintaining leverage within our risk tolerances. Historical losses
Oaktree Investment and Strategic Relationship
In December 2020, we agreed to create a strategic alliance with Oaktree to launch MAV pursuant to which Oaktree has agreed to fund $212.5 million into MAV and we have significantly erodedagreed to invest $37.5 million into MAV. In addition, on February 9, 2021, Oaktree agreed to invest into Ocwen up to a $250.0 million investment. The investment by Oaktree facilitated the refinancing of our stockholders’ equitycorporate debt on March 4, 2021 and weakenedthe remainder is expected to accelerate the growth of our financial condition. ToOriginations and Servicing businesses.
The $250.0 million investment by Oaktree is structured as senior secured notes issued by Ocwen Financial Corporation, in two tranches, for an aggregate of $285.0 million principal, with $35.0 million of original issue discount (OID). The $175.0 million first tranche of the extentinvestment was completed on March 4, 2021 and resulted in the issuance of $199.5 million OFC Senior Secured Notes, with a $24.5 million OID, and warrants. The $75.0 million second investment ($85.5 million principal and $10.5 million OID) was completed following the launch of MAV on May 3, 2021.
As part of the first tranche investment on March 4, 2021, we are not successful in achievingissued 1,184,768 warrants to the Oaktree Investors to purchase shares of our objectivecommon stock equal to 12.0% of returningour then outstanding common stock at an exercise price of $26.82 per share, subject to profitability, funding continuing losses will limitanti-dilution adjustments.In addition, Oaktree purchased 4.9%, or 426,705 shares of our opportunitiesfully diluted outstanding common stock at the closing of the MAV transaction on May 3, 2021 at a purchase price of $23.15 per share, and Oaktree was issued 261,248 warrants to growpurchase additional common stock equal to 3% of our business through capital investment.then outstanding common stock at a purchase price of $24.31 per share, subject to anti-dilution adjustments. See Note 22 – Subsequent Events for additional information.
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Collateral
OurThe following table lists selected assets on our consolidated balance sheet held as collateral related tofor secured borrowings committed under sale orand other contractual obligations andunencumbered assets which may be subject to a secured lien under the SSTLvarious collateralized borrowings at March 31, 2021:
$ in millionsTotal Assets (Consolidated)Pledged
Assets		Collateralized BorrowingsNet (1)Unencumbered Assets (1)Total (1)
Cash$259.1———259.1$259.1
Restricted cash77.377.3077.3—77.3
Loans held for sale517.8490.1462.727.427.755.1
Loans held for investment - unsecuritized169.5131.7112.419.337.857.1
MSR (2)849.9849.9372.4477.5—477.5
Advances786.7657.3635.421.9129.4151.3
Receivables, net178.241.530.910.6136.7147.3
REO8.86.53.43.1—3.1
Total - Consolidated (3)$2,847.32,254.31,617.2637.1590.7$1,227.8
(1)Certain assets are as follows at June 30, 2020:
   Collateral for Secured Borrowings    
AssetsTotal Advance Match Funded Liabilities Financing Liabilities Mortgage Loan Warehouse/MSR Facilities Sales and Other Commitments Other
Cash$313,736
 $—
 $—
 $—
 $—
 $313,736
Restricted cash63,813
 14,742
 —
 4,015
 45,056
 —
MSRs (1)1,044,914
 —
 583,315
 460,869
 —
 43
Advances, net901,009
 726,856
 —
 61,081
 —
 113,072
Loans held for sale278,517
 —
 —
 244,015
 —
 34,502
Loans held for investment6,730,656
 —
 6,599,607
 98,590
 —
 32,459
Receivables, net247,616
 —
 —
 42,443
 —
 205,173
Premises and equipment, net29,695
 —
 —
 —
 —
 29,695
Other assets700,482
 —
 —
 5,575
 631,761
 63,146
Total Assets$10,310,438
 $741,598
 $7,182,922
 $916,588
 $676,817
 $791,826
            
Liabilities           
HMBS - related borrowings$6,477,616
 $—
 $6,477,616
 —
 $—
 $—
Other financing liabilities594,222
 —
 594,222
 —
 —
 —
Advance match funded liabilities612,650
 612,650
 —
 —
 —
 —
Other secured borrowings, net847,331
 —
 —
 607,001
 —
 240,330
Senior notes, net311,484
 —
 —
 —
 —
 311,484
Other liabilities1,034,366
 —
 —
 —
 631,761
 402,605
Total Liabilities$9,877,669
 $612,650
 $7,071,838
 $607,001
 $631,761
 $954,419
            
Total Equity$432,769
          
(1)Certain MSR cohorts with a net negative fair value of $0.7 million that would be presented as Other are excluded from the eligible collateral of the facilities and are comprised of $20.0 million of negative fair value related to RMBS and $20.7 million of positive fair value related to private EBO and PLS MSRs.
See Note 11 – Borrowings for information on assets heldpledged as collateral to the $400.0 million PMC Senior Secured Notes and $199.5 million OFC Senior Secured (second lien) Notes.
(2)Excludes MSR pledged to NRZ and associated pledged MSR liability recorded as sale accounting criteria are not met.
(3)The total of selected assets disclosed in the above table does not represent the total consolidated assets of Ocwen. For example, the total excludes reverse mortgage loans, premises and equipment and certain other assets.
In addition, as part of our reverse mortgage securitization activities, $6.9 billion in UPB of reverse mortgage loans and real estate owned was pledged as collateral to the HMBS beneficial interest holders, and are not available to satisfy the claims of our creditors. Ginnie Mae, as guarantor of the HMBS, is obligated to the holders of the HMBS in an instance of PMC’s default on its servicing obligations, or if the proceeds realized on HECMs are insufficient to repay all outstanding HMBS related obligations. Ginnie Mae has recourse to secured borrowings, committedPMC in connection with certain claims relating to the performance and obligations of PMC as both issuer of HMBS and servicer of HECMs underlying HMBS.
The OFC Senior Secured Notes due 2027 have a second lien priority on specified assets carried on PMC’s balance sheet, as defined under sale orthe OFC Senior Secured Note Agreement and listed in the table below, and have a priority lien on the following assets: Investments by our holding company in subsidiaries not guaranteeing the $400.0 million PMC Senior Secured Notes, including PHH Corporation and MAV; cash and investment accounts at the holding company; and certain other contractual obligations and which may beassets, including receivables.
$ in millionsAs of March 31, 2021
Specified net servicing advances$174.7
Specified deferred servicing fee—
Specified MSR value less borrowings608.9
Specified unrestricted cash balances (1)—
Specified advance facility reserves7.2
Specified loan value111.5
Specified residual value47.9
Specified fair value of marketable securities—
Total Value - PMC (1)$950.2
(1)Unrestricted cash was not subject to a securedpriority lien as of March 31, 2021 under the SSTL.PMC Senior Secured Note agreement.
Covenants
Our debt agreements contain various qualitative and quantitative covenants including financial covenants, covenants to operate in material compliance with applicable laws and regulations, monitoring and reporting obligations and restrictions on our ability to engage in various activities, including but not limited to incurring or guarantying additional debt, paying dividends or making distributions on or purchasing equity interests of Ocwen and its subsidiaries, repurchasing or redeeming capital stock or
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junior capital, repurchasing or redeeming subordinated debt prior to maturity, issuing preferred stock, selling or transferring assets or making loans or investments or acquisitions. Becauseother restricted payments, entering into mergers or consolidations or sales of all or substantially all of the assets of Ocwen and its subsidiaries, creating liens on assets to secure debt, and entering into transactions with affiliates. These covenants to which we are subject, we may be limited inlimit the manner in which we conduct our business and may be limited inlimit our ability to engage in favorable business activities or raise additional capital to finance future operations or satisfy future liquidity needs. In addition, breaches or events that may result in a default under our debt agreements include, among other things, nonpayment of principal or interest, noncompliance with our covenants, breach of representations, the occurrence of a material adverse change,


insolvency, bankruptcy, certain material judgments and litigation and changes of control. See Note 11 – Borrowings for additional information regarding our covenants.
Covenants and default provisions of this type are commonly found in debt agreements such as ours. Certain of these covenants and default provisions are open to subjective interpretation and, if our interpretation were contested by a lender, a court may ultimately be required to determine compliance or lack thereof. In addition, our debt agreements generally include cross default provisions such that a default under one agreement could trigger defaults under other agreements. If we fail to comply with our debt agreements and are unable to avoid, remedy or secure a waiver of any resulting default, we may be subject to adverse action by our lenders, including termination of further funding, acceleration of outstanding obligations, enforcement of liens against the assets securing or otherwise supporting our obligations, and other legal remedies, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations. We believe that we are in compliance with the qualitative and quantitative covenants in our debt agreements as of the date this Quarterly Report on Form 10-Q is filed with the SEC. Given the current market conditions created by the COVID-19 pandemic, there are no assurances we will be able to maintain compliance with our covenants.
Credit Ratings
Credit ratings are intended to be an indicator of the creditworthiness of a company’s debt obligations. Lower ratings generally result in higher borrowing costs and reduced access to capital markets. The following table summarizes our current ratings and outlook by the respective nationally recognized rating agencies. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.
Rating AgencyLong-term Corporate RatingReview Status / OutlookDate of last action
Moody’sCaa1StableFebruary 24, 2021
S&PB-StableFebruary 24, 2021
Rating AgencyLong-term Corporate RatingReview Status / OutlookDate of last action
Moody’sCaa1NegativeSeptember 11, 2019
S&PB –NegativeJuly 23, 2020
On July 23, 2020,February 24, 2021, concurrent with the launch of the $400.0 million PMC Senior Secured Notes offering, both Moody’s and S&P removedreaffirmed the CreditWatch with negative implications that was placed on ourcorporate ratings on April 3, 2020 as a result of uncertainty around the financial impacts resulting from COVID-19. S&Pat Caa1 and B-, respectively. In addition, both agencies revised the ratingoutlook of the corporate ratings to a Negative Outlook based on our reported preliminary results forStable from Negative. This change in outlook was driven by the second quarter that showed sufficient liquidity to manage servicing advance requirements from COVID-19-related forbearances, including nearly $314 millionelimination of cashthe short debt maturity runway and over $750 millionrefinancing risk, which was listed as an area of credit availability on our servicing advance, MSR,concern by both Moody’s and mortgage warehouse lines. In addition, Ocwen has been able to maintain cushion on its tangible net worth debt covenants.S&P. It is possible that additional actions by credit rating agencies could have a material adverse impact on our liquidity and funding position, including materially changing the terms on which we may be able to borrow money.
Cash Flows
Our operating cash flow is primarily impacted by operating results, including Originations gains on loan sales, changes in our servicing advance balances, the level of mortgage loan production, the timing of sales and securitizations of mortgage loans, and the margin calls required under our MSR financing facilities or derivative instruments. We classify proceeds from the sale of servicing advances, including advances sold in connection with the sale of MSRs, purchase of MSRs through flow purchase agreements, GSE Cash Window and bulk acquisitions as investing activity. MSR investments represent a key indicator of our ability to generate future income in our Servicing business, together with originated MSR. We classify changes in HECM loans held for investment as investing activity, and changes in the related HMBS borrowings as financing activity.
Our NRZ agreements have a significant impact on our consolidated statements of cash flows. Because the lump-sum payments we received in connection with our 2017 Agreements and New RMSR Agreements were recorded as secured financings, additions to, and reductions in, the balance of those secured financings were recognized as financing activity in our consolidated statements of cash flows through April 2020. Excluding the impact of changes to the secured financings attributed to changes in fair value, changes in the balance of these secured financings are reflected in cash flows from operating activities despite having no impact on our consolidated cash balance. Net cash provided by operating activities for the six months ended June 30,first quarter of 2020 and 2019 includes $35.1$25.1 million and $49.4 million, respectively, of such cash flows and they were offset by corresponding amounts in net cash used in financing activities in the same periods.
Cash flows for the six months ended June 30, 2020first quarter of 2021
Our operating activities used $130.3 million of cash largely due to the growth of our new Originations production with net cash paid on loans held for sale of $154.5 million for the first quarter of 2021, partially offset by $38.7 million of net collections of servicing advances, mostly P&I advances.
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Our investing activities used $52.8 million of cash. The primary uses of cash in our investing activities include $41.6 million to purchase MSRs and net cash outflows in connection with our HECM reverse mortgages of $11.6 million.
Our financing activities provided $224.8$162.3 million of cash. Cash inflows include $572.9 million from the issuance of the PMC Senior Secured Notes and the OFC Senior Secured Notes and warrants, $287.8 million received in connection with our reverse mortgage securitizations, which are accounted for as secured financings, offset by repayments on the related financing liability of $311.6 million, and a $177.2 million net increase in borrowings under our mortgage warehouse and MSR financing facilities. Cash outflows include $319.2 million to repay our 6.375% senior unsecured notes and 8.375% senior secured notes, $188.7 million repayment of the SSTL, $30.9 million of net repayments on advance match funded liabilities and $50.4 million of net payments on the financing liabilities related to MSRs pledged. In addition, we paid debt issuance costs of $6.8 million in connection with the issuance of the PMC Senior Secured Notes and OFC Senior Secured Notes.
Cash flows for the fourth quarter of 2020
Our operating activities provided $12.9 million of cash including $233.5 million net collections of servicing and ancillary income and $144.0$9.1 million of net collections of servicing advances, mostly P&I advances, partiallyand offset in part by net cash paid on loans held for sale of $12.8$1.6 million for the six months ended June 30,fourth quarter of 2020.
Our investing activities used $243.4$199.8 million of cash. The primary uses of cash in our investing activities include $190.2 million to purchase MSRs and net cash outflows in connection with our HECM reverse mortgages of $10.7 million.
Our financing activities provided $161.1 million of cash. Cash inflows include $148.8 million net cash received in connection with our MSR financing facilities, net cash received of $10.0 million on warehouse facilities and $346.7 million reverse mortgage securitizations, less repayments on the related financing liability of $322.8 million. Cash outflows include the quarterly payment of $5.0 million on the SSTL and $17.6 million of payments on the financing liabilities related to MSRs pledged.
Cash flows for the first quarter of 2020
Our operating activities provided $171.0 million of cash including $121.1 million net collections for servicing and ancillary income, $29.4 million of net collections of servicing advances, and net cash received on loans held for sale of $11.7 million for the first quarter of 2020..
Our investing activities used $147.3 million of cash. The primary uses of cash in our investing activities include net cash outflows in connection with our HECM reverse mortgages of $198.0$119.8 million. Cash outflows also include $48.0$29.8 million to purchase MSRs.


Our financing activities used $96.2$199.3 million of cash. Cash outflows include repaymentsthe partial prepayment of $131.1$126.1 million on the SSTL, $66.5$53.2 million of net repayments on advance match funded liabilities, a $43.8$97.2 million decrease in borrowings under our mortgage warehouse and MSR financing facilities, and $68.5$50.4 million of net payments on the financing liabilities related to MSRs pledged. In addition, we also paid $7.3 million of debt issuance costs related to our SSTL facility amendment and repurchased 5.7 million shares of our common stock for $4.6 million. Cash inflows include $590.6$312.2 million received in connection with our reverse mortgage securitizations which are accounted for as secured financings, less repayments on the related financing liability of $365.2$172.4 million.
Cash flows for the six months ended June 30, 2019
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Our operating activities provided $128.8 million of cash largely due to $91.7 million of net collections of servicing advances. Net cash received on loans held for sale during the six months ended June 30, 2019 was $12.0 million.
Our investing activities used $287.8 million of cash. The primary uses of cash in our investing activities include net cash outflows in connection with our HECM reverse mortgages of $194.5 million. Cash outflows also include $99.4 million to purchase MSRs.
Our financing activities provided $110.4 million of cash. Cash inflows include $425.1 million received in connection with our reverse mortgage securitizations, which are accounted for as secured financings, less repayments on the related financing liability of $228.0 million. We increased borrowings under the SSTL through the issuance of an additional term loan of $120.0 million (before a discount of $0.9 million), less $12.7 million quarterly repayments. In addition, we increased borrowings under our mortgage loan warehouse facilities by $27.2 million. Cash outflows include $106.5 million of net repayments on advance match funded liabilities as a result of advance recoveries and $103.4 million of net payments on the financing liabilities related to MSRs pledged.

CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
Contractual Obligations
We have certain contractual obligations which require us to make future cash payments. At June 30, 2020, such contractual obligations were primarily comprised of secured and unsecured borrowings, interest payments, leases and commitments to originate or purchase loans, including equity draws on reverse mortgages. There were no material changes to the table of specified contractual obligations contained in our Annual Report on Form 10-K during the six months ended June 30, 2020, other than changes related to our secured borrowings.
During the six months ended June 30, 2020, we executed an amendment to the SSTL agreement which reduced the maximum borrowing capacity to $200.0 million, extended the maturity date to May 15, 2022, reduced the contractual quarterly principal payment from $6.4 million to $5.0 million and modified the interest rate. See Note 11 – Borrowings to the Unaudited Consolidated Financial Statements and “Liquidity and Capital Resources - Outlook” for additional information.
In addition to the contractual obligations described above, our obligations to make future cash payments include our commitments related to off-balance-sheet and other arrangements, which are excluded from the table of specified contractual obligations contained in our Annual Report on Form 10-K, including but not limited to servicing advance obligations, margin calls associated with our asset-backed financing facilities and margin calls associated with our derivative instruments. See Note 20 — Commitments to the Unaudited Consolidated Financial Statements for additional information.
Our forecasting with respect to our ability to satisfy our contractual obligations, including but not limited to our servicing advance obligations, requires management to use judgment and estimates and includes factors that may be beyond our control, such as the conditions created by the COVID-19 pandemic. Our actual results could differ materially from our estimates, and if this were to occur, it could have a material adverse effect on our business, financial condition, liquidity and results of operations.
Off-Balance Sheet Arrangements
In the normal course of business, we engage in transactions with a variety of financial institutions and other companies that are not reflected on our balance sheet. We are subject to potential financial loss if the counterparties to our off-balance sheet transactions are unable to complete an agreed upon transaction. We manage counterparty credit risk by entering into financial instrument transactions through national exchanges, primary dealers or approved counterparties and through the use of mutual margining agreements whenever possible to limit potential exposure. We regularly evaluate the financial position and creditworthiness of our counterparties. Our off-balance sheet arrangements include mortgage loan repurchase and indemnification obligations, unconsolidated SPEs (a type of VIE) and notional amounts of our derivatives.
Mortgage Loan Repurchase and Indemnification Liabilities. We have exposure to representation, warranty and indemnification obligations in our capacity as a loan originator and servicer. We recognize the fair value of representation and


warranty obligations in connection with originations upon sale of the loan or upon completion of an acquisition. Thereafter, the estimation of the liability considers probable future obligations based on industry data of loans of similar type segregated by year of origination and estimated loss severity based on current loss rates for similar loans. Our historical loss severity considers the historical loss experience that we incur upon sale or liquidation of a repurchased loan as well as current market conditions. See Note 3 – Securitizations and Variable Interest Entities, Note 12 – Other Liabilities and Note 21 – Contingencies to the Unaudited Consolidated Financial Statements for additional information.
Unfunded Lending Commitments. We have originated floating-rate reverse mortgage loans under which the borrowers have additional borrowing capacity of $1.6 billion at June 30, 2020. This additional borrowing capacity is available on a scheduled or unscheduled payment basis. See Note 20 — Commitments to the Unaudited Consolidated Financial Statements for additional information.
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. See Note 20 — Commitments to the Unaudited Consolidated Financial Statements for additional information.
Involvement with VIEs. We use SPEs and VIEs for a variety of purposes but principally in the financing of our servicing advances, in the securitization of mortgage loans and in the financing of our MSRs. We include VIEs in our consolidated financial statements if we determine we are the primary beneficiary. See Note 3 – Securitizations and Variable Interest Entities to the Unaudited Consolidated Financial Statements for additional information.
We generally use match funded securitization facilities to finance our servicing advances. The SPEs to which the receivables for servicing advances are transferred in the securitization transaction are included in our consolidated financial statements either because we have the majority equity interest in the SPE or because we are the primary beneficiary where the SPE is a VIE. Holders of the debt issued by the SPEs have recourse only to the assets of the SPEs for satisfaction of the debt.
Derivatives. We record all derivatives at fair value on our consolidated balance sheets. We use these derivatives primarily to manage our interest rate risk. The notional amounts of our derivative contracts do not reflect our exposure to credit loss. Generally, our derivative instruments require daily margin calls. See Note 14 – Derivative Financial Instruments and Hedging Activities to the Unaudited Consolidated Financial Statements for additional information.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our ability to measure and report our financial position and operating results is influenced by the need to estimate the impact or outcome of future events based on information available at the date of the financial statements. An accounting estimate is considered critical if it requires that management make assumptions about matters that were highly uncertain at the time the accounting estimate was made. If actual results differ from our judgments and assumptions, then it may have an adverse impact on the results of operations and cash flows. We have processes in place to monitor these judgments and assumptions, and management is required to review critical accounting policies and estimates with the Audit Committee of the Board of Directors. The following is a summary of certain accounting policies and estimates involving significant judgments. Our significant accounting policies and critical accounting estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 20192020 in Note 1 to the Consolidated Financial Statements and in Management’s Discussion and Analysis of Financial Condition and Results of Operations under “Critical Accounting Policies and Estimates.” There have not been any material changes to our critical accounting policies and estimates as disclosed in the Annual Report on Form 10-K.
Fair Value Measurements
We use fair value measurements to record fair value adjustments to certain instruments in our statement of operations and to determine fair value disclosures. Refer to Note 4 – Fair Value to the Unaudited Consolidated Financial Statements for theAs of March 31, 2021, 83% of our assets and 71% of our liabilities were reported at fair value, hierarchy, descriptionswith fair value changes reported in our statement of valuation methodologies used to measure significantoperations. Substantially all our assets and liabilities at fair value and details of the valuation models, key inputs to those models, and significant assumptions utilized. We follow the fair value hierarchy to prioritize the inputs utilized to measure fair value. We review and modify,were classified as necessary, our fair value hierarchy classifications on a quarterly basis. As such, there may be reclassifications between hierarchy levels.


The following table summarizes assets and liabilities measured at fair value on a recurring and nonrecurring basis and the amounts measured using Level 3 inputs:
 June 30, 2020 December 31, 2019
Loans held for sale$278,517
 $275,269
Loans held for investment - Reverse mortgages6,718,992
 6,269,596
Loans held for investment - Restricted for securitization investors11,664
 23,342
MSRs1,044,914
 1,486,395
Derivative assets22,852
 6,007
Mortgage-backed securities1,726
 2,075
Corporate bonds211
 441
Assets at fair value$8,078,876
 $8,063,125
As a percentage of total assets78% 77%
Financing liabilities   
HMBS-related borrowings6,477,616
 6,063,435
Financing liability - MSRs pledged582,558
 950,593
Financing liability - Owed to securitization investors11,664
 22,002
 7,071,838
 7,036,030
Derivative liabilities1,033
 100
Liabilities at fair value$7,072,871
 $7,036,130
As a percentage of total liabilities72% 70%
Assets at fair value using Level 3 inputs$7,846,544
 $7,847,925
As a percentage of assets at fair value97% 97%
Liabilities at fair value using Level 3 inputs$7,071,838
 $7,036,030
As a percentage of liabilities at fair value100% 100%
Assets at fair value using Level 3 inputs decreased during the six months ended June 30, 2020 primarily due to the derecognition of the MSR related to the PMC servicing agreement terminated by NRZ and a decline in the fair value of MSRs, offset in part by reverse mortgage originations. Liabilities at fair value using Level 3 inputs remained mostly flat due to the increase of reverse mortgage securitizations, which we account for as secured financings, partially offset by the derecognition of the pledged MSR financing liability related to PMC servicing agreement terminated by NRZ, which we accounted for as secured financings. Our net economic exposure to Loans held for investment - Reverse mortgages and the related Financing liabilities (HMBS-related borrowings) is limited to the residual value we retain. Changes in inputs used to value the loans held for investment are largely offset by changes in the value of the related secured financing. In addition, we have no net fair value exposure to the MSR pledged to NRZ and the related pledged MSR financing liability, both reported at fair value.
We have various internal controls in place to ensure the appropriateness of fair value measurements. Significant fair value measures are subject to analysis and management review and approval. Additionally, we utilize a number of operational controls to ensure the results are reasonable, including comparison, or “back testing,” of model results against actual performance and monitoring the market for recent trades, including our own price discovery in connection with potential and completed sales, and other market information that can be used to benchmark inputs or outputs. Considerable judgment is used in forming conclusions about Level 3 inputs such as interest rate movements, prepayment speeds, delinquencies, credit losses and discount rates. Changes to these inputs could have a significant effect on fair value measurements.
Valuation of MSRs
MSRs are assets that represent the right to service a portfolio of mortgage loans. We originate MSRs from our multi-channel lending activities and source MSRs through flow purchase agreements, GSE Cash Window, or bulk acquisitions. We elected to account for MSRs using the fair value measurement method.
instruments. The determination of the fair value of these Level 3 financial assets and liabilities and MSRs requires significant management judgment and estimation. See Part I., Item 3. Quantitative and Qualitative Disclosures about Market Risk below for a sensitivity analysis reflecting the estimated change in the fair value of our MSRs, HECM loans held for investment and loans held for sale carried at fair value as well as any related derivatives at March 31, 2021, given hypothetical instantaneous parallel shifts in the yield curve.
Valuation of Reverse Mortgage Loans Held for Investment
During the first quarter of 2021, we recorded a net $2.0 million fair value gain in reverse mortgage revenue in our Servicing segment. The fair value of both reverse mortgage loans held for investment and corresponding HMBS-related borrowings is based primarily on discounted cash flow methodologies. Inputs to the discounted cash flows of these assets include future draws and tail spread gains, voluntary prepayments, defaults and discount rate.The determination of fair value requires management judgment due to the numbersignificant unobservable assumptions, including voluntary prepayment speeds, defaults and discount rate.
We engage third-party valuation experts to support our valuation and provide observations and assumptions related to market activities. We evaluate the reasonableness of our fair value estimate and assumptions using historical experience, or cash flow backtesting, adjusted for prevailing market conditions and benchmarks with third-party expert valuations. We believe that our back-testing and benchmarking procedures provide reasonable assurance that the fair value used in our consolidated financial statements comply with the accounting guidance for fair value measurements and disclosures and reflect the assumptions that underliea market participant would use.
Valuation of MSRs
During the valuation.first quarter of 2021, we recorded a $34.9 million fair value gain on the revaluation of our MSRs. We determine the fair value of MSRs primarily using discounted cash flow methodologies. The significant components of the estimated future cash inflows for MSRs include servicing fees, late fees, float earnings and other ancillary fees. Significantfees, and cash outflows include the cost of servicing, the cost of financing servicing advances and compensating interest payments. The determination of the fair value of MSRs requires management judgment relating to the significant unobservable assumptions that underlie the valuation, including prepayment speed, delinquency rates, cost to service and discount rate. Our judgement is informed by the transactions we observe in the market, by our actual portfolio performance and by the advice and information we obtain from our valuation experts, amongst other factors.


WeTo assist in the determination of fair value, we engage third-party valuation experts who generally utilize: (a) transactions involving instruments with similar collateral and risk profiles, adjusted as necessary based on specific characteristics of the asset or liability being valued; and/or (b) industry-standard modeling, such as a discounted cash flow model and a prepayment model, in arriving at their estimate of fair value. The prices provided by the valuation experts reflect their observations and assumptions related to market activity, incorporating available industry survey results, and client feedback, and including risk premiums and liquidity adjustments. While the models and related assumptions used by the valuation experts are proprietary to them, we understand the methodologies and assumptions used to develop the prices based on our ongoing due diligence, which includes regular discussions with the valuation experts.experts, and we perform additional verification and analytical procedures. We evaluate the reasonableness of our third-party experts’ assumptions using historical experience adjusted for prevailing market conditions and benchmarks with third-party expert valuation and market participant surveys. We believe that theour procedures executed by the valuation experts, supported by our verification and analytical procedures, provide
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reasonable assurance that the pricesfair value used in our consolidated financial statements comply with the accounting guidance for fair value measurements and disclosures and reflect the assumptions that a market participant would use.
We evaluate the reasonableness of our third-party experts’ assumptions using historical experience adjusted for prevailing market conditions. The following table provides the range and weighted average of key assumptions used as of June 30, 2020:
 Conventional Government-Insured Non-Agency
Prepayment speed     
Range12.8% to 26.4% 10.9% to 24.5% 9.0% to 15.2%
Weighted average19.3% 17.1% 11.7%
Delinquency     
Range1.5% to 6.9% 7.0% to 20.2% 27.8% to 32.1%
Weighted average2.3% 9.5% 28.8%
Cost to service     
Range$67 to $71 $111 to $141 $233 to $276
Weighted average$68 $118 $265
Discount rate9.1% 10.3% 11.4%
Changes in these assumptions are generally expected to affect our results of operations as follows:
Increases in prepayment speeds generally reduce the value of our MSRs as the underlying loans prepay faster which causes accelerated MSR portfolio runoff, higher compensating interest payments and lower overall servicing fees, partially offset by a lower overall cost of servicing, increased float earnings on higher float balances and lower interest expense on lower servicing advance balances.
Increases in delinquencies generally reduce the value of our MSRs as the cost of servicing increases during the delinquency period, and the amounts of servicing advances and related interest expense also increase.
Increases in the discount rate reduce the value of our MSRs due to the lower overall net present value of the net cash flows.
Increases in interest rate assumptions will increase interest expense for financing servicing advances although this effect is partially offset because rate increases will also increase the amount of float earnings that we recognize.
Allowance for Losses on Servicing Advances and Receivables
Advances are generally fully reimbursed. However,During the first quarter of 2021, we recorded a $1.5 million provision expense for losses on servicing advances may include claimable (with investors) but non-recoverable expenses, for example due to servicer error, such as lackadvances. At March 31, 2021, the allowance was $6.2 million, which represented 0.8% of reasonable documentation as to the type and amount oftotal servicing advances. We record an allowance for losses on servicing advances as a charge to earnings to the extent we believe that a portion of advances are uncollectible under the provisions of each servicing contract taking into consideration, among other factors, our historical collection rates, probability of default, cure or modification, length of delinquency and the amount of the advance. We continually assess collectability using proprietary cash flow projection models that incorporatedincorporate a number of different factors, depending on the characteristics of the mortgage loan or pool, including, for example, the probable loan liquidation path, estimated time to a foreclosure sale, estimated costs of foreclosure action, estimated future property tax payments and the estimated value of the underlying property net of estimated carrying costs, commissions and closing costs.
During the first quarter of 2021, we recorded a $5.0 million provision expense on receivables related to government-insured claims. At June 30, 2020,March 31, 2021, the allowance for losses on servicing advancesreceivables related to government-insured claims was $7.8$40.4 million, which represents 0.9%31% of advances.
We record antotal government-insured claims receivables. The allowance for losses on receivables in our Servicing business, including relatedrelates to defaulted FHA or VA insured loans repurchased from Ginnie Mae guaranteed securitizations (government-insured loan claims).securitizations. This allowance represents management’s estimate of expected lifetime credit losses and is maintained at a level that management considers adequate based upon continuing assessments of collectability, current trends, historical loss experience, and reasonable and supportable


forecasts. At June 30, 2020, the allowance for losses on receivables related to government-insured claims was $53.3 million, which represents 43% of the total balance of government-insured claims receivables.
We adopted ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, as amended, on January 1, 2020. The ASU requires the measurement and recording of expected lifetime credit losses on loans and other financial instruments measured at amortized cost and replaces the existing incurred loss model for credit losses. The new guidance requires an organization to measure all current expected credit losses (CECL) for financial assets held and certain off-balance sheet credit exposures at the reporting date based on historical experience, current conditions and reasonable and supportable forecasts.
We applied the guidance at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings on January 1, 2020. As permitted by this standard, we made an irrevocable fair value election for certain financial instruments within the scope of the standard. The transition adjustment related to financial instruments for which we are not electing the fair value option did not result in any significant adjustment to the opening balance of retained earnings. Our measurement of lifetime expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect collectability.
Determining an allowance for losses involves degrees ofmanagement judgment and assumptions that, given similar information at any given point, may result in a different but reasonable estimate.
Income Taxes
We record a tax provision for the anticipated tax consequences of the reported results of operations. We compute the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. We measure deferred tax assets and liabilities using the currently enacted tax rates in each jurisdiction that applies to taxable income in effect for the years in which those tax assets are expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
We conduct periodic evaluations of positive and negative evidence to determine whether it is more likely than not that the deferred tax asset can be realized in future periods. In these evaluations, we gave more significant weight to objective evidence, such as our actual financial condition and historical results of operations, as compared to subjective evidence, such as projections of future taxable income or losses.
For the three-year periods ended December 31, 2019 and 2018, the USVI filing jurisdiction was in a material cumulative loss position. The U.S. jurisdiction was also in a three-year cumulative loss position as of December 31, 2019 and 2018. We recognize that cumulative losses in recent years is an objective form of negative evidence in assessing the need for a valuation allowance and that such negative evidence is difficult to overcome. Other factors considered in these evaluations are estimates of future taxable income, future reversals of temporary differences, tax character and the impact of tax planning strategies that may be implemented, if warranted.
As a result of these evaluations, we recognized a full valuation allowance of $199.5 million and $46.3 million on our U.S. deferred tax assets at December 31, 2019 and 2018, respectively, and a full valuation allowance of $0.4 million and $21.3 million on our USVI deferred tax assets at December 31, 2019 and 2018, respectively. The U.S. and USVI jurisdictional deferred tax assets are not considered to be more likely than not realizable based on all available positive and negative evidence. We intend to continue maintaining a full valuation allowance on our deferred tax assets in both the U.S. and USVI until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period in which the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change based on the profitability that we achieve.
We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
NOL carryforwards may be subject to annual limitations under Internal Revenue Code Section 382 (Section 382) (or comparable provisions of foreign or state law) in the event that certain changes in ownership were to occur. In addition, tax credit carryforwards may be subject to annual limitations under Internal Revenue Code Section 383 (Section 383). We periodically evaluate our NOL and tax credit carryforwards and whether certain changes in ownership have occurred as measured under Section 382 that would limit our ability to utilize a portion of our NOL and tax credit carryforwards. If it is determined that an ownership change(s) has occurred, there may be annual limitations on the use of these NOL and tax credit carryforwards under Sections 382 and 383 (or comparable provisions of foreign or state law).


We have evaluated whether we experienced an ownership change under these provisions, and determined that an ownership change did occur in January 2015 and in December 2017 in the U.S. jurisdiction, which also results in an ownership change under Section 382 in the USVI jurisdiction. In addition, a Section 382 ownership change occurred at PHH when Ocwen acquired the stock of PHH in October 2018. PHH was a loss corporation as defined under Section 382 at the date of the acquisition. PHH also had an existing Section 382 ownership change on March 31, 2018. For certain states, an additional Section 382 ownership change occurred on August 9, 2017. These Section 382 ownership changes may limit our ability to fully utilize NOLs, tax credit carryforwards, deductions and/or certain built-in losses that existed as of each respective ownership change date in the various jurisdictions
Due to the Section 382 and 383 limitations and the maximum carryforward period for our NOLs and tax credits, we will be unable to fully recognize certain deferred tax assets. Accordingly, as of December 31, 2018, we had reduced our gross deferred tax asset related to our U.S. federal and USVI NOLs by $160.9 million, our foreign tax credit deferred tax asset by $29.5 million and corresponding valuation allowance by $55.7 million. The realization of all or a portion of our deferred income tax assets (including NOLs and tax credits) is dependent upon the generation of future taxable income during the statutory carryforward periods. In addition, the limitation on the utilization of our NOL and tax credit carryforwards could result in Ocwen incurring a current tax liability in future tax years. Our inability to utilize our pre-ownership change NOL carryforwards, Section 163(j) disallowed interest carryforwards, any future recognized built-in losses or deductions, and tax credit carryforwards could have an adverse effect on our financial condition, results of operations and cash flows. Finally, any future changes in our ownership or sale of our stock could further limit the use of our NOLs and tax credits in the future.
As part of our Section 382 evaluation and consistent with the rules provided within Section 382, Ocwen relies strictly on the existence or absence, as well as the information contained in certain publicly available documents (e.g., Schedule 13D, Schedule 13G or other documents filed with the SEC) to identify shareholders that own a 5-percent or greater interest in Ocwen stock throughout the period tested. Further, Ocwen relies on such public filings to identify dates in which such 5-percent shareholders acquired, disposed, or otherwise transacted in Ocwen common stock. As the requirement for filing such notices of ownership from the SEC is to report beneficial ownership, as opposed to actual economic ownership of the stock of Ocwen, certain SEC filings may not represent ownership in Ocwen stock that should be considered in determining whether Ocwen experienced an ownership change under the Section 382 rules. Notwithstanding the preceding sentences (regarding Ocwen’ s ability to rely on the existence and absence of information in publicly filed Schedules 13D and 13G), the rules prescribed in Section 382 and the regulations thereunder provide that Ocwen may (but is not required to) seek additional clarification from shareholders filing such Schedules 13D and 13G if there are questions or uncertainty regarding the true economic ownership of shares reported in such filing (whether due to ambiguity in the filing, an overly complex ownership structure, the type of instruments owned and reported in the filings, etc.) (often referred to “actual knowledge” questionnaires). Such information can be sought on a filer by filer basis (i.e., there is no requirement that if actual knowledge is sought with respect to one shareholder, actual knowledge must be sought with respect to all shareholders that filed schedules 13D or 13G). While the seeking of actual knowledge can be beneficial in some instances it may be detrimental in others. Once such actual knowledge is received, Section 382 requires the inclusion of such actual knowledge, even if such inclusion is detrimental to the conclusion reached.
Ocwen has performed its analysis of the rules under Section 382 and, based on all currently available information, identified it experienced an ownership change for Section 382 purposes in January 2015 and December 2017. Prior to 2018, Ocwen was aware of shareholder activity in 2015 and 2017 that may have caused a Section 382 ownership change(s), but determined that additional information could potentially be obtained from certain shareholders that would indicate a Section 382 ownership change had not occurred. In completing this analysis, Ocwen identified several shareholders that filed a schedule 13G during the period disclosing a greater than 5-percent interest in Ocwen stock where beneficial versus economic ownership of the stock was unclear, and Ocwen therefore requested further details. As of the date of this Form 10-Q, Ocwen has not received all requested responses from selected shareholders, and will continue to consider such shareholders as economic owners of Ocwen’s stock until actual knowledge is otherwise received.
Ocwen is continuing to monitor the ownership in its stock to evaluate information that will become available later in 2020 and that may result in a different outcome for Section 382 purposes and our future cash tax obligations. As part of this monitoring, Ocwen periodically evaluates whether it is appropriate and beneficial to retroactively seek actual knowledge on certain previously identified and included 5-percent shareholders, whereby, depending on the responses received, Ocwen may conclude that either the January 2015 or December 2017 Section 382 ownership changes may have instead occurred on a different date, or did not occur at all. As such, our analysis regarding the amount of tax attributes that may be available to offset taxable income in the future without restrictions imposed by Section 382 may continue to evolve.
Indemnification Obligations
During the first quarter of 2021, we recorded a $0.6 million provision expense for indemnification. As of March 31, 2021, we have recorded a liability for representation and warranty obligations, and similar indemnification obligations of $41.7 million. We have exposure to representation, warranty and indemnification obligations because of our lending, sales and securitization activities, our acquisitions to the extent we assume one or more of these obligations, and in connection with our servicing practices. We initially recognize these obligations at fair value. Thereafter, the estimation of the liability considers


probable future obligations based on industry data of loans of similar type segregated by year of origination, to the extent applicable, and estimated loss severity based on current loss rates for similar loans, our historical rescission rates and the current pipeline of unresolved demands. Our historical loss severity considers the historical loss experience that we incur upon sale or liquidation of a repurchased loan as well as current market conditions. We monitor the adequacy of the overall liability and make adjustments, as necessary, after consideration of other qualitative factors including ongoing dialogue and experience with our counterparties. As of June 30, 2020, we have recorded a liability for representation and warranty obligations, and similar indemnification obligations of $44.4 million. See Note 21 – Contingencies to the Unaudited Consolidated Financial Statements for additional information.
Litigation
During the first quarter of 2021, we recorded a $0.7 million provision expense for loss contingencies. Our total accrual for probable and estimable legal and regulatory matters, including accrued legal fees, was $40.4 million as of March 31, 2021. It is possible that we will incur losses relating to threatened and pending litigation that materially exceed the amount accrued. We cannot currently estimate the amount, if any, of reasonably possible losses above amounts that have been recorded as of March 31, 2021. In the ordinary course of business, we are a defendant in, or a party or potential party to, many threatened and pending litigation matters. We monitor our litigation matters, including advice from external legal counsel, and regularly perform assessments of these matters for potential loss accrual and disclosure. We establish liabilities for settlements, judgments on appeal and filed and/or threatened claims for which we believe it is probable that a loss has been or will be incurred and the amount can be reasonably estimated.estimated 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. Management’s assessment involves the use of estimates, assumptions, and judgments, including progress of the matter, prior experience, available defenses, and the advice of legal counsel and other experts. Accruals are adjusted as more information becomes available or when an event occurs requiring a change.
Going ConcernIncome Taxes
We record a tax provision for the anticipated tax consequences of the reported results of operations. We compute the provision for income taxes using the asset and liability method, under which deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating losses and tax credit carryforwards. We measure deferred tax assets and liabilities using the currently enacted tax rates in each jurisdiction that applies to taxable income in effect for the years in which those tax assets are
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expected to be realized or settled. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
We conduct periodic evaluations of positive and negative evidence to determine whether it is more likely than not that the deferred tax asset can be realized in future periods. In accordance with ASC 205-40, Presentationthese evaluations, we gave more significant weight to objective evidence, such as our actual financial condition and historical results of Financial Statements - Going Concern,operations, as compared to subjective evidence, such as projections of future taxable income or losses.
For the three-year periods ended December 31, 2020 and 2019, the US and USVI filing jurisdictions were in material cumulative loss positions. We recognize that cumulative losses in recent years is an objective form of negative evidence in assessing the need for a valuation allowance and that such negative evidence is difficult to overcome. Other factors considered in these evaluations are estimates of future taxable income, future reversals of temporary differences, tax character and the impact of tax planning strategies that may be implemented, if warranted.
As a result of these evaluations, we recognized a full valuation allowance of $182.7 million and $199.5 million on our U.S. deferred tax assets at December 31, 2020 and 2019, respectively, and a full valuation allowance of $0.4 million on our USVI deferred tax assets at both December 31, 2020 and 2019. The U.S. and USVI jurisdictional deferred tax assets are not considered to be more likely than not realizable based on all available positive and negative evidence. We intend to continue maintaining a full valuation allowance on our deferred tax assets in both the U.S. and USVI until there is sufficient evidence to support the reversal of all or some portion of these allowances. Release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense for the period in which the release is recorded. However, the exact timing and amount of the valuation allowance release are subject to change based on the profitability that we achieve.
We recognize tax benefits from uncertain tax positions only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement.
NOL carryforwards may be subject to annual limitations under Internal Revenue Code Section 382 (Section 382) (or comparable provisions of foreign or state law) in the event that certain changes in ownership were to occur. In addition, tax credit carryforwards may be subject to annual limitations under Internal Revenue Code Section 383 (Section 383). We periodically evaluate our NOL and tax credit carryforwards and whether there are conditionscertain changes in ownership have occurred as measured under Section 382 that are known or reasonably knowable that raise substantial doubt aboutwould limit our ability to continue asutilize a going concern within one year afterportion of our NOL and tax credit carryforwards. If it is determined that an ownership change(s) has occurred, there may be annual limitations on the dateuse of these NOL and tax credit carryforwards under Sections 382 and 383 (or comparable provisions of foreign or state law).
Ocwen and PHH have both experienced historical ownership changes that have caused the use of certain tax attributes to be limited and have resulted in the write-off of certain of these attributes based on our financial statements are issued. We perform a detailed review andinability to use them in the carryforward periods defined under the tax laws. Ocwen continues to monitor the ownership in its stock to evaluate whether any additional ownership changes have occurred that would further limit its ability to utilize certain tax attributes. As such, our analysis regarding the amount of relevant quantitative and qualitative information from across our organization in connection with this evaluation. To support this effort, senior management from key business units reviews and assesses the following information:
our current financial condition, including liquidity sources at the date that the financial statements are issued (e.g., available liquid funds and available access to credit, including covenant compliance);
our conditional and unconditional obligations due or anticipated within one year after the date that the financial statements are issued (regardless of whether those obligations are recognized in our financial statements);
funds necessary to maintain operations considering our current financial condition, obligations and other expected cash flows within one year after the date that the financial statements are issued (i.e., financial forecasting); and
other conditions and events, when considered in conjunction with the above items,tax attributes that may adversely affect our abilitybe available to meet obligations within one year after the date that the financial statements are issued (e.g., negative financial trends, indications of possible financial difficulties, internal matters such as a need to significantly revise operations and external matters such as adverse regulatory or legal proceedings, adverse counterparty actions or rating agency decisions, and our client concentration).
Our evaluation of whether it is probable that we will be unable to meet our obligations as they become due within one year after the date that our financial statements are issued involves a degree of judgment, including about matters that are, to different degrees, uncertain.
If such conditions exist, management evaluates its plans that when implemented would mitigate the condition(s) and alleviate the substantial doubt about our ability to continue as a going concern. Such plans are considered only if information available as of the date that the financial statements are issued indicates both of the following are true:
it is probable management’s plans will be implemented within the evaluation period; and
it is probable management’s plans, when implemented individually oroffset taxable income in the aggregate, will mitigate the condition(s) that raise substantial doubt about our abilityfuture without restrictions imposed by Section 382 may continue to continue as a going concern in the evaluation period.evolve.
Our evaluation of whether it is probable that management’s plans will be effectively implemented within the evaluation period is based on the feasibility of implementation of management’s plans in light of our specific facts and circumstances.
Our evaluation of whether it is probable that our plans, individually or in the aggregate, will be implemented in the evaluation period involves a degree of judgment, including about matters that are, to different degrees, uncertain.
In March 2020, the WHO categorized COVID-19 as a pandemic and the COVID-19 outbreak was declared a national emergency in the U.S. The COVID-19 pandemic is adversely affecting economic conditions, including an increase in unemployment, and is creating significant uncertainty about the duration and magnitude of the downturn in the economy.
Based on our evaluation, we have determined that there are no conditions that are known or reasonably knowable that raise substantial doubt about our ability to continue as a going concern within one year after the date that our Unaudited Consolidated Financial Statements for the three and six months ended June 30, 2020 are issued.


RECENT ACCOUNTING DEVELOPMENTS
Recent Accounting Pronouncements
We adopted the new current expected credit loss guidance (ASU 2016-13, as amended) on January 1, 2020 by applying the guidance at the adoption date with a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The transition adjustment resulted in an adjustment to the opening balance of retained earnings of $47.0 million and we increased our loans held for investment by $47.0 million, representing the recognition of the fair value of certain non-cancellable draw commitments (tails) associated with our reverse mortgage loans. See Note 1 –- Organization Business Environment and Basis of Presentation to the Unaudited Consolidated Financial Statements for additional information.
Our adoption of the standards listed below on January 1, 2020 did not have a material impact on our unaudited 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)
Fair Value Measurement: Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13)
See Note 1 - Organization and Basis of Presentation to the Unaudited Consolidated Financial Statements for information related to recently issuedrecent accounting pronouncements and the expected impact on our consolidated financial statements.standards updates.
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in thousands unless otherwise indicated)
ITEM 3.     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK (Dollars in millions unless otherwise indicated)
Interest Rates
Our principal market risk exposure is the impact of interest rate changes on our mortgage-related assets and commitments, including MSRs, loans held for sale, loans held for investment and IRLCs. In addition, changes in interest rates could materially and adversely affect our volume of mortgage loan originations or result in MSR fair value changes. We also have exposure to the effects of changes in interest rates on our floating-rate borrowings, including advance financing facilities.
Interest rate risk is a function of (i) the timing of re-pricing and (ii) the dollar amount of assets and liabilities that re-price at various times. We are exposed to interest rate risk to the extent that our interest rate-sensitive liabilities mature or re-price at different speeds, or on different bases, than interest-earning assets.
Our management-level Market Risk Committee establishes and maintains policies that govern our hedging program, including such factors as market volatility, duration and interest rate sensitivity measures, targeted hedge ratios, the hedge instruments that we are permitted to use in our hedging activities and the counterparties with whom we are permitted to enter
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into hedging transactions and our liquidity risk profile. See Note 14 – Derivative Financial Instruments and Hedging Activities to the Unaudited Consolidated Financial Statements for additional information regarding our use of derivatives.
Our market risk exposure may also be affected by the phase-outreplacement of LIBOR, which is expected to occurbe phased out and completely replaced by the end ofJune 30, 2023. The LIBOR administrator has advised that no new contracts using U.S. dollar LIBOR should be entered into after December 31, 2021. Many of our debt facilities incorporate LIBOR. These facilities either mature prior to the end of 2021 or have terms in place that provide for an alternative to LIBOR upon its phase-out. As we renew or replace these debt facilities, we will need to workare working with our counterparties to incorporate alternative benchmarks. There is presently substantial uncertainty relating to the process and timeline for developing LIBOR alternatives, how widely any given alternative will be adopted by parties in the financial markets, and the extent to which alternative benchmarks may be subject to volatility or present risks and challenges that LIBOR does not. Consequently, it is difficult to predict what effect, if any, the phase-out of LIBOR and the use of alternative benchmarks may have on our business or on the overall financial markets. If LIBOR alternatives re-allocate risk among parties in a way that is disadvantageous to market participants such as Ocwen, or if uncertainty relating to the LIBOR phase-out disrupts financial markets, it could have a material adverse effect on our financial position, results of operations, and liquidity.
MSR Hedging Strategy
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. Beginning in September 2019, managementManagement implemented a hedging strategy to partially offset the changes in fair value of our net MSR portfolio attributable to interest rate changes. As a general matter, the impact of interest rates on the fair value of our MSR portfolio is naturally offset by other exposures, including our loan pipeline and our economic MSR value embedded in our reverse mortgage loan portfolio. Our hedging strategy is targeted at mitigating the residual exposure, which we refer to as our net MSR portfolio exposure. 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 8 — Rights to MSRs),
•Note 8 — Rights to MSRs),
less the unsecuritized reverse mortgage loans and tails classified as held-for-investment,held for investment,
•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 lock commitments (pipeline).
In the first quarter of 2021, we have included in our MSR portfolio exposure to be hedged the exposure related to expected future MSR bulk acquisitions subject to letters of intent.
We determine and monitor daily the hedge coverage based on the duration and interest rate sensitivity measures of our net MSR portfolio exposure, considering market and liquidity conditions. During the secondfirst quarter of 2020,2021, and consistent with prior periods, our hedging strategy provided for awas targeted to provide partial coverage of our net MSR portfolio exposure of approximately 70%between 40% and 60%. The changes in fair value of our hedging instruments may not fully offset the changes in fair value of our net MSR portfolio exposure attributable to interest rate changes due to the partial hedge coverage and other factors.
The following table illustrates the composition of our net MSR portfolio exposure and its hedge at June 30, 2020March 31, 2021 with the associated interest rate sensitivity for a hypothetical, instantaneous decreasechanges in interest rate of 25 basis points assuming a parallel shift in interest rate yield curves (refer to the description below under Sensitivity Analysis). The amounts based on market risk sensitive measures are hypothetical and presented for illustrative purposes only. Changes in fair value cannot be extrapolated because the relationship to the change in fair value may not be linear. The amounts based on market risk sensitive measures are hypothetical and presented for illustrative purposes only.
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Fair value at March 31, 2021Hypothetical change in fair value due to 25 bps rate decreaseHypothetical change in fair value due to 25 bps rate increase
Dollars in millionsFair value at June 30, 2020 Hypothetical change in fair value due to 25 bps rate decrease
Agency MSR - interest rate sensitive$305.1
 $(21.3)
Agency MSRs - interest rate sensitiveAgency MSRs - interest rate sensitive$708.7$(33.7)$31.9 
Expected MSR bulk acquisitions under LOI (2)Expected MSR bulk acquisitions under LOI (2)(33.2)39.9 
Total Agency MSRs - interest rate sensitive (2)Total Agency MSRs - interest rate sensitive (2)(66.9)71.8 
   
Asset value of securitized HECM loans, net of HMBS-related borrowing$241.4
 3.8
Asset value of securitized HECM loans, net of HMBS-related borrowing96.73.7 (3.7)
Loans held for investment - Unsecuritized HECM loans and tails0.1
 0.1
Loans held for investment - Unsecuritized HECM loans and tails169.50.1 (0.1)
Loans held for sale253.0
 2.9
Loans held for sale500.812.2 (14.1)
Pipeline IRLCs17.8
 (0.5)
IRLCsIRLCs14.6(0.7)0.9 
Natural hedges (sum of the above)
 6.3
Natural hedges (sum of the above)15.2 (17.0)
Hypothetical 30% offset by hedging instruments (1)
 4.5
Total hedge position (2) (3)  $10.8
Derivative instrumentsDerivative instruments$(9.1)17.3 (15.6)
Total hedge position (1)Total hedge position (1)$32.5 $(32.6)
Hypothetical hedge coverage ratio (2)(3)Hypothetical hedge coverage ratio (2)(3)49 %45 %
   
Hypothetical residual exposure to changes in interest rates
 $(10.5)Hypothetical residual exposure to changes in interest rates(34.4)39.2 
(1)Hypothetical 30% offset is calculated in the above table as a percentage of the net MSR exposure, that is, the Agency MSR less natural hedges, i.e., pipeline and economic MSR of reverse mortgage loans.
(2)Total hedge position is defined as the sum of the fair value changes of hedging derivatives and the fair value changes of natural hedges due to interest rate risks, i.e., pipeline and economic MSR of reverse mortgage loans.
(3)We define our hedge coverage ratio as the total hedge position (derivatives and natural hedges) as a percentage of the Agency MSR exposure, or 51% in the above table.
(1)Total hedge position is defined as the sum of the fair value changes of hedging derivatives and the fair value changes of natural hedges due to interest rate risks, i.e., pipeline and economic MSR of reverse mortgage loans.
(2)Includes the hedged exposure related to the expected future MSR bulk acquisitions subject to letters of intent (UPB of $68 billion as of March 31, 2021 for which the MSR purchase price is indicated in the letter of intent).
(3)Hedge coverage ratio is calculated as the total hedge position divided by total Agency MSRs - interest rate sensitive.
We use forward trades of MBS or Agency TBAs with different banking counterparties and exchange-traded interest rate swap futures as hedging instruments. These derivative instruments 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 consolidated statements of operations.
The TBAs and Interest rate swap futures 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.
MSRs and MSR Financing Liabilities
Our entire portfolio of MSRs is accounted for using the fair value measurement method. MSRs are subject to interest rate risk as the mortgage loans underlying the MSRs permit borrowers to prepay their loans. The fair value of MSRs generally decreases in periods where interest rates are declining, as prepayments increase, and generally increases in periods where interest rates are increasing, as prepayments decrease.
While the majority of our non-Agency MSRs have been sold to NRZ, these transactions did not initially qualify as sales and are accounted for as secured financings until such time as the transactions meet the requirements for sale accounting treatment and are derecognized from our consolidated balance sheet. We have elected fair value accounting for these MSR financing liabilities. Through these transactions, the majority of the risks and rewards of ownership of the MSRs transferred to


NRZ, including interest rate risk. Changes in the fair value of the MSRs sold to NRZ are offset by a corresponding change in the fair value of the MSR financing liabilities, which are recognized as a component of interestpledged MSR liability expense in our consolidated statements of operations.
Loans Held for Sale, Loans Held for Investment and IRLCs
In our Originations business, newly-originated forward mortgage loans held for sale and newly originated reverse mortgage loans held for investment that we have elected to carry at fair value and IRLCs are subject to the effects of changes in mortgage interest rates from the date of the commitment through the sale of the loan into the secondary market. IRLCs represent an agreement to purchase loans from a third-party originator or an agreement to extend credit to a mortgage loan applicant, whereby the interest rate on the loan is set prior to funding. We are exposed to interest rate risk and related price risk during the period from the date of the lock commitment through (i) the lock commitment cancellation or expiration date or (ii) through the date of sale of the resulting loan into the secondary mortgage market. Loan commitments for forward loans generally range from 5 to 90 days, but the majority of our commitments are for 60 days. Our holding period for forward mortgage loans from funding to sale is typically less than 30 days. Loan commitments for reverse mortgage loans range from 10 to 30 days. The majority of our
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reverse loans are variable-rate loan commitments. This interest rate exposure had historically been economically hedged with freestanding derivatives, including forward sales of agency TBAs and forward mortgage-backed securities (Forward MBS). 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.
We elected fair value accounting for newly repurchased loans from securitization trusts or investors after January 1, 2020. We may repurchase loans that have been modified, to facilitate loss reduction strategies, or as otherwise obligated as a Ginnie Mae servicer.
Loans Held for Investment and HMBS-related Borrowings
We elected fair value accounting for the entire reverse mortgage HECM loans, which are held for investment, together with the HMBS-related borrowings. We also elected fair value accounting for non-cancellable draw commitments (tails) of our HECM loans. The fair value of our HECM loan portfolio generally decreases as market interest rates rise and increases as market rates fall. As our HECM loan portfolio is predominantly comprised of ARMs, higher interest rates cause the loan balance to accrue and reach a 98% maximum claim amount liquidation event more quickly, with lower interest rates extending the timeline to liquidation.
The fair value of our HECM loan portfolio net of the fair value of the HMBS-related borrowings comprise the fair value of reverse mortgage loans and tails that are unsecuritized at the balance sheet date (reverse pipeline) and the fair value of securitized HECM loans net of the corresponding HMBS-related borrowings that represent the reverse mortgage economic MSR (HMSR) for risk management purposes. Both reverse assets (reverse pipeline and HMSR) act as a partial hedge for our forward MSR value sensitivity. Due to this characteristic, beginning in September 2019, thisThis exposure is used as an offset to our MSR exposure and managed as part of our MSR hedging strategy described above.
Advance Match Funded Liabilities
We monitor the effect of increases in interest rates on the interest paid on our variable-rate advance financing debt. Earnings on cash and float balances are a partial offset to our exposure to changes in interest expense. We purchase interest rate caps as economic hedges (not designated as a hedge for accounting purposes) when required by our advance financing arrangements.
Interest Rate-Sensitive Financial Instruments
The tables below present the notional amounts of our financial instruments that are sensitive to changes in interest rates and the related fair value of these instruments at the dates indicated. We use certain assumptions to estimate the fair value of these instruments. See Note 43 – Fair Value to the Unaudited Consolidated Financial Statements for additional information regarding fair value of financial instruments.
March 31, 2021December 31, 2020
BalanceFair Value (1)BalanceFair Value (1)
Rate-Sensitive Assets:
Interest-earning cash$231.4$231.4$261.5$261.5
Loans held for sale, at fair value500.8500.8366.4366.4
Loans held for sale, at lower of cost or fair value (2)17.017.021.521.5
Loans held for investment, at fair value7,044.47,044.46,997.16,997.1
Debt service accounts and time deposits16.516.520.720.7
Total rate-sensitive assets$7,810.1$7,810.1$7,667.2$7,667.2
Rate-Sensitive Liabilities:
Advance match funded liabilities$550.4$550.9$581.3$582.0
HMBS-related borrowings, at fair value6,778.26,778.26,772.76,772.7
SSTL and other secured borrowings (3) (4)1,066.81,037.21,075.31,043.2
Senior notes (4)599.5579.9313.1320.9
Total rate-sensitive liabilities$8,994.9$8,946.2$8,742.4$8,718.8
March 31, 2021December 31, 2020
Notional
Balance		Fair
Value		Notional
Balance		Fair
Value
Rate-Sensitive Derivative Financial Instruments:
Derivative assets (liabilities):
IRLCs$967.1$14.6$631.4$22.7
Forward trades105.0(0.1)50.0(0.1)
Interest rate swap futures1,400.0(9.5)593.50.5
TBA / Forward MBS trades600.00.5400.0(4.6)
Derivatives, net$5.5$18.6
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(1)See Note 3 – Fair Value to the Unaudited Consolidated Financial Statements for additional fair value information on financial instruments.
(2)Net of valuation allowances and including non-performing loans.
 June 30, 2020 December 31, 2019
 Balance Fair Value (1) Balance Fair Value (1)
Rate-Sensitive Assets:       
Interest-earning cash$310,357
 $310,357
 $433,224
 $433,224
Loans held for sale, at fair value253,037
 253,037
 208,752
 208,752
Loans held for sale, at lower of cost or fair value (2)25,480
 25,480
 66,517
 66,517
Loans held for investment, at fair value6,718,992
 6,718,992
 6,269,596
 6,269,596
Debt service accounts and time deposits19,126
 19,126
 23,666
 23,666
Total rate-sensitive assets$7,326,992
 $7,326,992
 $7,001,755
 $7,001,755
(3)Excludes financing liabilities that result from sales of assets that do not qualify as sales for accounting purposes and, therefore, are accounted for as secured financings, which have no contractual maturity and are amortized over the life of the related assets.


 June 30, 2020 December 31, 2019
 Balance Fair Value (1) Balance Fair Value (1)
        
Rate-Sensitive Liabilities:       
Advance match funded liabilities$612,650
 $617,950
 $679,109
 $679,507
HMBS-related borrowings, at fair value6,477,616
 6,477,616
 6,063,435
 6,063,435
SSTL and other secured borrowings (3) (4)855,425
 801,426
 1,030,306
 1,010,789
Senior notes (4)313,052
 235,041
 313,052
 270,022
Total rate-sensitive liabilities$8,258,743
 $8,132,033
 $8,085,902
 $8,023,753
 June 30, 2020 December 31, 2019
 
Notional
Balance
 
Fair
Value
 
Notional
Balance
 
Fair
Value
Rate-Sensitive Derivative Financial Instruments:       
Derivative assets (liabilities):       
Interest rate caps$—
 $—
 $27,083
 $—
IRLCs507,632
 17,818
 232,566
 4,878
Forward trades80,000
 (1,017) 60,000
 (92)
Interest rate swap futures395,000
 5,019
 —
 —
TBA / Forward MBS trades—
 —
 1,200,000
 1,121
Derivatives, net

 $21,820
 

 $5,907
(1)
See Note 4 – Fair Value to the Unaudited Consolidated Financial Statements for additional fair value information on financial instruments.(4)Balances are exclusive of any related discount or unamortized debt issuance costs.
(2)Net of valuation allowances and including non-performing loans.
(3)Excludes financing liabilities that result from sales of assets that do not qualify as sales for accounting purposes and, therefore, are accounted for as secured financings, which have no contractual maturity and are amortized over the life of the related assets.
(4)Balances are exclusive of any related discount or unamortized debt issuance costs.
Sensitivity Analysis
Fair Value MSRs, Loans Held for Sale, Loans Held for Investment and Related Derivatives
The following table summarizes the estimated change in the fair value of our MSRs, HECM loans held for investment and loans held for sale that we have elected to carry at fair value as well as any related derivatives at June 30, 2020,March 31, 2021, given hypothetical instantaneous parallel shifts in the yield curve. We used June 30, 2020March 31, 2021 market rates to perform the sensitivity analysis. The estimates are based on the interest rate risk sensitive portfolios described in the preceding paragraphs and assume instantaneous, parallel shifts in interest rate yield curves. These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship to the change in fair value may not be linear.
 Change in Fair Value
Down 25 bpsUp 25 bps
Asset value of securitized HECM loans, net of HMBS-related borrowing$3.7 $(3.7)
Loans held for investment - Unsecuritized HECM loans and tails0.1 (0.1)
Loans held for sale12.2 (14.1)
Derivative instruments17.3 (15.6)
Total MSRs - Agency and non-Agency (1)(33.3)31.9 
Interest rate lock commitments (2)(0.7)0.9 
Total, net$(0.7)$(0.7)
 Change in Fair Value
Dollars in millionsDown 25 bps Up 25 bps
Asset value of securitized HECM loans, net of HMBS-related borrowing$3.8
 $(3.3)
Loans held for investment - Unsecuritized HECM loans and tails0.1
 (0.1)
Loans held for sale2.9
 (3.8)
TBA / Forward MBS trades / Interest rate swap futures7.6
 (7.6)
Total14.4
 (14.8)
    
MSRs (1)(20.7) 23.6
MSRs, embedded in pipeline(0.5) 0.4
Total MSRs (2)(21.2) 24.0
    
Total, net$(6.8) $9.2
(1)Primarily reflects the impact of market interest rate changes on projected prepayments on the Agency MSR portfolio and on advance funding costs on the non-Agency MSR portfolio carried at fair value. Fair value adjustments to our MSRs are offset, in part, by fair value adjustments related to the NRZ financing liabilities, which are recorded in Pledged MSR liability expense.

(2)Forward mortgage loans only.

(1)Primarily reflects the impact of market interest rate changes on projected prepayments on the Agency MSR portfolio and on advance funding costs on the non-Agency MSR portfolio carried at fair value. Fair value adjustments to our MSRs are offset, in part, by fair value adjustments related to the NRZ financing liabilities, which are recorded in Pledged MSR liability expense.
(2)Forward mortgage loans only.
Borrowings
The majority of the debt used to finance much of our operations is exposed to interest rate fluctuations. We may purchase interest rate swaps and interest rate caps to minimize future interest rate exposure from increases in interest rates, or when required by the financing agreements.
Based on June 30, 2020March 31, 2021 balances, if interest rates were to increase by 1% on our variable-rate debt and interest earning cash and float balances, we estimate a net positive impact of approximately $13.5$17.9 million resulting from an increase of $24.5$28.6 million in annual interest income and an increase of $11.1$10.6 million in annual interest expense.
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. Depending on the magnitude and risk of our positions we may enter into forward exchange contracts to hedge against the effect of changes in the value of the India Rupee or Philippine Peso.
Home Prices
Inactive reverse mortgage loans for which the maximum claim amount has not been met are generally foreclosed upon on behalf of Ginnie Mae with the REO remaining in the related HMBS until liquidation. Inactive MCA repurchased loans are generally foreclosed upon and liquidated by the HMBS issuer. Although active and inactive reverse mortgage loans are insured by FHA, we may incur expenses and losses in the process of repurchasing and liquidating these loans that are not reimbursable by FHA in accordance with program guidelines. In addition, in certain circumstances, we may be subject to real estate price risk to the extent we are unable to liquidate REO within the FHA program guidelines. As our reverse mortgage portfolio seasons, and the volume of MCA repurchases increases, our exposure to this risk will increase.
ITEM 4. CONTROLS AND PROCEDURES
Our management, under the supervision of and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), as of June 30, 2020.March 31, 2021.
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Based on such evaluation, management concluded that our disclosure controls and procedures as of June 30, 2020March 31, 2021 were (1) designed and functioning effectively to ensure that material information relating to Ocwen, including its consolidated subsidiaries, is made known to our principal executive officer and principal financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) operating effectively in that they provided reasonable assurance that information required to be disclosed by Ocwen in the reports that it files or submits under the


Securities Exchange Act of 1934 (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including our principal executive officer or principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.
There have not been any changes in our internal control over financial reporting that occurred during the fiscal quarter ended June 30, 2020March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
ITEM 1.    LEGAL PROCEEDINGS
See Note 19 – Regulatory Requirements and Note 2121 – Contingencies to the Unaudited Consolidated Financial Statements. That information is incorporated into this item by reference.
ITEM 1A.RISK FACTORS
ITEM 1A.    RISK FACTORS
An investment in our common stock involves significant risk. We describe the most significant risks that management believes affect or could affect us under Part I of our Annual Report on Form 10-K for the year ended December 31, 20192020 and in Item 1A. Risk Factors under Part II of our Quarterly Report on Form 10-Q for the period ended March 31, 2020.2021. Understanding these risks is important to understanding any statement in such reports and in our subsequent SEC filings (including this Form 10-Q) and to evaluating an investment in our common stock. You should carefully read and consider the risks and uncertainties described therein together with all the other information included or incorporated by reference in such Annual Report and in our subsequent SEC filings before you make any decision regarding an investment in our common stock. You should also consider the information set forth under “Forward-Looking Statements.” If any of the risks actually occur, our business, financial condition, liquidity and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could significantly decline, and you could lose some or all of your investment.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
All unregistered sales of equity securities during the period have been previously disclosed.

ITEM 6.     EXHIBITS
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Purchases of Equity Securities by the Issuer and Affiliates
On February 3, 2020, Ocwen’s Board of Directors authorized a share repurchase program for an aggregate amount of up to $5.0 million of Ocwen’s issued and outstanding shares of common stock. Repurchases may be made in open market transactions at prevailing market prices. The timing and execution of any related share repurchases is subject to market conditions, among other factors. Unless we amend the share repurchase program or repurchase the full $5.0 million amount by an earlier date, the share repurchase program will continue through February 3, 2021. No assurances can be given as to the amount of shares, if any, that we may repurchase in any given period.
Information regarding repurchases of our common stock during the first quarter of 2020 is as follows:
PeriodTotal number of shares purchased Average price paid per share (1) Total number of shares purchased as part of a publicly announced repurchase program Approximate dollar value of shares that may yet be purchased under the repurchase program
January 1 - January 31—
 $—
 —
 $5.0 million
February 1 - February 29—
 $—
 —
 $5.0 million
March 1 - March 315,662,257
 $0.7933
 5,662,257
 $0.5 million
Total5,662,257
 $0.7933
 5,662,257
  
(1)Price paid per share does not reflect payment of commissions totaling $0.1 million.
We did not repurchase any shares of our common stock under this program during the second quarter of 2020.


ITEM 6.EXHIBITS
3.1
3.2
4.1The Company agrees to furnish to the Securities and Exchange Commission upon request a copy of each instrument with respect to the issuance of long-term debt of the Company and its subsidiaries, the authorized principal amount of which does not exceed 10% of the consolidated assets of the Company and its subsidiaries.
10.1*

10.2*10.2†

31.110.3†


10.4
10.5


10.6
10.7†




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10.8†
10.9
10.10†
10.11*
10.12*
10.13*
10.14*
31.1
31.2
32.1
32.2
101
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020March 31, 2021 were formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Operations, (iii) Consolidated Statements of Comprehensive Income (Loss), (iv) Consolidated Statements of Changes in Equity, (v) Consolidated Statements of Cash Flows, and (v) the Notes to Unaudited Consolidated Financial Statements, tagged as blocks of text and including detailed tags.

104
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2020,March 31, 2021, formatted in Inline XBRL (Included as Exhibit 101).


*
*    Management contract or compensatory plan or agreement.
(1)Incorporated by reference to the similarly described exhibit to the Registrant’s Form 10-Q for the quarter ended June 30, 2017 filed on August 3, 2017.
(2)Incorporated by reference to the similarly described exhibit to the Registrant’s Form 8-K filed on February 25, 2019.


†Certain schedules and exhibits have been omitted in accordance with Item 601(a)(5) of Regulation S-K. A copy of any referenced schedules will be furnished supplementally to the SEC upon request.

(1)Incorporated by reference to the similarly described exhibit to the Registrant’s Form 10-Q for the period ended September 30, 2020.

(2)Incorporated by reference to the similarly described exhibit to the Registrant’s Form 8-K filed on February 25, 2019.






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Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Ocwen Financial Corporation
By:/s/ June C. Campbell
Executive Vice President and Chief Financial Officer

(On behalf of the Registrant and as its principal financial officer)
Date: AugustMay 4, 20202021



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