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What changed in ONITY GROUP INC.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of ONITY GROUP INC.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+697 added−699 removedSource: 10-K (2024-02-27) vs 10-K (2023-02-28)

Top changes in ONITY GROUP INC.'s 2023 10-K

697 paragraphs added · 699 removed · 490 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

97 edited+23 added−22 removed106 unchanged
Biggest changeIf Rithm exercised its right to terminate all or some of the agreements for convenience at the end of the Second Term on December 31, 2023, we might need to right-size certain aspects of our servicing business as well as the related corporate support functions.
Biggest changeBecause of the relative size of the servicing agreements with Rithm, if Rithm exercises its right to terminate all or some of the agreements (for convenience by October 2024 or for cause at any time), we may need to right-size certain aspects of our servicing business as well as the related corporate support functions, and we may need to adjust our daily liquidity management due to the reduction of servicing float balances associated with the Rithm servicing agreements. 9 OAKTREE AND MAV RELATIONSHIP We established a strategic alliance with Oaktree in 2020 to support refinancing our corporate debt and help advance our growth initiatives.
Therefore, our ability to maintain or grow our servicing revenue or the size of our servicing portfolio depends on our ability to acquire the right to service or subservice additional mortgage loans at a rate that exceeds portfolio runoff and any client terminations. Our Originations segment is focused on profitably replenishing and growing our servicing and subservicing portfolios.
Therefore, our ability to maintain or grow our servicing revenue or the size of our servicing and subservicing portfolios depends on our ability to acquire the right to service or subservice additional mortgage loans at a rate that exceeds portfolio runoff and any client terminations. Our Originations segment is focused on profitably replenishing and growing our servicing and subservicing portfolios.
Termination of some or all of our subservicing rights due to sales by MAV or termination of the entire Subservicing Agreement for cause could result in the loss of a significant portion of Ocwen’s total subservicing portfolio and materially and adversely affect Ocwen’s business, liquidity, financial condition and results of operations.
Termination of some or all of our subservicing rights due to sales by MAV or termination of the entire Subservicing Agreement for cause could result in the loss of a significant portion of Ocwen’s total subservicing and subservicing portfolio and materially and adversely affect Ocwen’s business, liquidity, financial condition and results of operations.
The second line of defense is independent from the business and comprises a Risk Management function (including Third-Party Risk and Information Security) and a Compliance function, which are responsible for: • providing assurance, oversight, and credible challenge over the effectiveness of the risk and control activities conducted by the first line; • establishing frameworks to identify and measure the risks being taken by different parts of the business; • monitoring risk levels, through key indicators and oversight/assurance and testing programs; and • provide periodic reporting to Senior Management and the Board of Directors for transparency.
The second line of defense is independent from the business and comprises a Risk Management function (including Third-Party Risk and Information Security) and a Compliance function, which are responsible for: • providing assurance, oversight, and credible challenge over the effectiveness of the risk and control activities conducted by the first line; • establishing frameworks to identify and measure the risks being taken by different parts of the business; • monitoring risk levels, through key indicators and oversight/assurance and testing programs; and • providing periodic reporting to senior management and the Board of Directors for transparency.
Liquidity Risk We are exposed to liquidity risk through our ongoing needs to: originate, purchase, repurchase and finance mortgage loans; sell mortgage loans into secondary markets; retain, acquire and finance MSRs, make and finance advances; fund and sell additional future draws by borrowers under variable rate HECM loans; meet our HMBS issuer obligations with respect to MCA repurchases; repay maturing debt; meet our contractual obligations; and otherwise fund our operations.
Liquidity Risk We are exposed to liquidity risk through our ongoing needs to: originate, purchase, repurchase and finance mortgage loans; sell mortgage loans into secondary markets; retain, acquire, finance and hedge MSRs, make and finance advances; fund and sell additional future draws by borrowers under variable rate HECM loans; meet our HMBS issuer obligations with respect to MCA repurchases; repay maturing debt; meet our contractual obligations; and otherwise fund our operations.
While our servicing agreement with MAV is non-cancellable and provides us with exclusivity, MAV is permitted to sell the underlying MSR without Ocwen’s consent after May 3, 2024. 17 MAV has the right to terminate the Subservicing Agreement entirely in the event of certain events of default, including failure by Ocwen to meet financial or operational requirements, including service levels.
While our servicing agreement with MAV is non-cancellable and provides us with exclusivity, MAV is permitted to sell the underlying MSR without Ocwen’s consent after May 3, 2024. MAV has the right to terminate the Subservicing Agreement entirely in the event of certain events of default, including failure by Ocwen to meet financial or operational requirements, including service levels.
Strategic talent reviews to identify, develop and promote top talent are part of our performance management processes. The Aspire mentoring program provides aspiring women leaders at mid-level with a platform to build skill, knowledge and expertise while achieving professional development goals through focused guidance and insight from a network of mentors. Rewards .
Strategic talent reviews to identify, develop and promote top talent are part of our performance management processes. The Aspire mentoring program provides aspiring women leaders at mid-level with a platform to build skill, knowledge and expertise while achieving professional development goals through focused guidance and insight from a network of mentors. 11 Rewards .
Effective with the closing of the transaction on May 3, 2021, Oaktree and Ocwen hold 85% and 15% interests in MAV Canopy, and initially agreed to invest equity up to $250.0 million over three years. On November 2, 2022, Ocwen and Oaktree entered into an agreement modifying certain terms relating to the capitalization, management and operations of MAV Canopy.
Effective with the closing of the transaction on May 3, 2021, Oaktree and Ocwen hold 85% and 15% interests in MAV Canopy, respectively, and initially agreed to invest equity up to $250.0 million over three years. On November 2, 2022, Ocwen and Oaktree entered into an agreement modifying certain terms relating to the capitalization, management and operations of MAV Canopy.
Our ability to achieve our objectives is highly dependent on the success of our business relationships with our critical counterparties like the GSEs, FHFA, Ginnie Mae, our lenders, regulators, significant customers and our ability to attract new customers, all of which are impacted by our capability to adequately address the competitive challenges we face. Market Risk See Item 7A.
Our ability to achieve our objectives is highly dependent on the success of our business relationships with our critical counterparties like the GSEs, FHFA, Ginnie Mae, our lenders, regulators, significant customers and our ability to attract new customers, all of which are impacted by our capability to adequately address the competitive challenges we face. 14 Market Risk See Item 7A.
Our affinity groups like the Ocwen Global Women’s Network (OGWN), LEAP Black professionals network, FREE affinity group for LGBTQ+ employees and mentoring programs, when coupled with a culture of appreciation, help provide a comprehensive ecosystem for diversity to flourish. 11 We also take action to support the recruitment, development and retention of our diverse talent.
Our affinity groups like the Ocwen Global Women’s Network (OGWN), LEAP Black professionals network, FREE affinity group for LGBTQ+ employees and mentoring programs, when coupled with a culture of appreciation, help provide a comprehensive ecosystem for diversity to flourish. We also take action to support the recruitment, development and retention of our diverse talent.
To better serve our communities, Ocwen created a Community Advisory Council in 2014, consisting of 15 leaders from a diverse group of national non-profit organizations, consumer advocacy groups and civil rights organizations, as a platform to collaborate and share ideas on how to help homeowners.
To better serve our stakeholders and communities, Ocwen created a Community Advisory Council in 2014, consisting of 15 leaders from a diverse group of national non-profit organizations, consumer advocacy groups and civil rights organizations, as a platform to collaborate and share ideas on how to help homeowners.
Ocwen has adopted a “Three Lines of Defense” model to enable risks and controls to be properly managed on an on-going basis. The model delineates business line management's accountabilities and responsibilities over risk management and the control environment and includes mechanisms to assess the effectiveness of executing these responsibilities.
Ocwen has adopted a “Three Lines of Defense” model to enable risks and controls to be properly managed on an on-going basis. The model delineates business line management's accountabilities 15 and responsibilities over risk management and the control environment and includes mechanisms to assess the effectiveness of executing these responsibilities.
In both our servicing and originations business, new competitors continue to emerge, including companies that developed new technology around customer interactions and process automation. In our Servicing business, we compete based on price, operating performance, service quality and customer and client satisfaction.
In both our servicing and originations businesses, new competitors continue to emerge, including companies that developed new technology around customer interactions and process automation. In our Servicing business, we compete based on price, operating performance, service quality and customer and client satisfaction.
An increase in delinquencies and foreclosure rates generally results in increased advances for delinquent principal and interest, taxes and insurance, foreclosure costs and the upkeep of vacant property in foreclosure. Interest expense on advances and higher operating expenses decrease 16 the value of our servicing portfolio.
An increase in delinquencies and foreclosure rates generally results in increased advances for delinquent principal and interest, taxes and insurance, foreclosure costs and the upkeep of vacant property in foreclosure. Interest expense on advances and higher operating expenses decrease the value of our servicing portfolio.
FREE promotes a fully equitable environment that is free of judgment and strives for knowledge, challenges barriers, and seeks to help and empower LGBTQ+ employees and allies. Commitment to Ethics.
FREE promotes a fully equitable environment that is free of 12 judgment and strives for knowledge, challenges barriers, and seeks to help and empower LGBTQ+ employees and allies. Commitment to Ethics.
This joint venture is structured to provide Oaktree with MSR investment opportunities and returns, while providing PMC scale and incremental income through exclusive subservicing and recapture services. Additionally, PMC earns direct MSR investment income through its 15% ownership stake and would be entitled to carry interest on investment returns if exceeding certain thresholds upon liquidation (referred to as Promote Distribution).
This joint venture is structured to provide Oaktree with MSR investment opportunities and returns, while providing PHH scale and incremental income through exclusive subservicing and recapture services. Additionally, PHH earns direct MSR investment income through its 15% ownership stake and would be entitled to carry interest on investment returns if exceeding certain thresholds upon liquidation (referred to as Promote Distribution).
We believe that our competitive strengths flow from our ability to control and drive down delinquencies using proprietary processes, our superior operating performance, our lower cost to service non-performing loans, our deep know-how as a long-time operator of servicing loans and our long-standing and well established offshore operations.
We believe that our competitive strengths flow from our ability to control and drive down delinquencies using proprietary processes, our superior operating performance, our lower cost to service, our deep know-how as a long-time operator of servicing loans and our long-standing and well established offshore operations.
Under the arrangement, MAV has a non-compete to purchase certain GSE MSRs through specific channels in cooperation with PMC. In addition, PMC must offer MAV the first opportunity to purchase GSE MSRs sold by PMC or its affiliates that meet certain criteria, which we refer to as the right of first offer.
Under the arrangement, MAV has a non-compete to purchase certain GSE MSRs through specific channels in cooperation with PHH. In addition, PHH must offer MAV the first opportunity to purchase GSE MSRs sold by PHH or its affiliates that meet certain criteria, which we refer to as the right of first offer.
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 and local laws, and federal and local bankruptcy rules.
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 Home Mortgage Disclosure Act (HMDA), the Federal Trade Commission Act, the Fair Credit Reporting Act, the Equal Credit Opportunity Act, as well as individual state and local laws, and federal and local bankruptcy rules.
In 2022, Ocwen continued its commitment to operate through a primarily remote working model, reducing the percentage of employees commuting daily to the office. Fewer associates in the offices afforded the opportunity to reduce our office footprint in several markets.
In 2023, Ocwen continued its commitment to operate through a primarily remote working model, reducing the percentage of employees commuting daily to the office. Fewer associates in the offices afforded the opportunity to reduce our office footprint in several markets.
On December 21, 2020, we entered into a Transaction Agreement with Oaktree to form a joint venture for the purpose of investing in GSE MSRs exclusively subserviced by PMC.
On December 21, 2020, we entered into a Transaction Agreement with Oaktree to form a joint venture for the purpose of investing in GSE MSRs exclusively subserviced by PHH.
We also employ an ongoing monitoring and renewal process for participating lenders that includes an evaluation of the performance of the loans they have sold to us. We perform a variety of pre- and post-funding review procedures to ensure that the loans we purchase conform to our requirements and to the requirements of the investors to whom we sell loans.
We employ an ongoing monitoring and renewal process for participating lenders that includes an evaluation of the performance of the loans they have sold to us. We perform pre- and post-funding review procedures to ensure that the loans we purchase conform to our requirements and to the requirements of the investors to whom we sell loans.
We strive to develop a working environment and culture that fosters our company values: • Integrity : Do What’s Right – Always • Service Excellence : Consistently Delivering on Our Commitments • People : Develop, Grow and Value All Employees • Teamwork : Succeed Together as a Global Team • Embracing Change : Value Innovation and New Thinking We had a total of approximately 4,900 employees at December 31, 2022.
We strive to develop a working environment and culture that fosters our company values: • Integrity : Do What’s Right – Always • Service Excellence : Consistently Delivering on Our Commitments • People : Develop, Grow and Value All Employees • Teamwork : Succeed Together as a Global Team • Embracing Change : Value Innovation and New Thinking We had a total of approximately 4,500 employees at December 31, 2023.
The financial information of our segments is presented in our financial statements in Note 22 — Business Segment Reporting and discussed in the individual business operations sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The financial information of our segments is presented in our financial statements in Note 23 — Business Segment Reporting and discussed in the individual business operations sections of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Our servicing portfolio naturally decreases over time as homeowners make regularly scheduled mortgage payments, prepay loans prior to maturity, refinance with a mortgage loan not serviced by us or involuntarily liquidate through foreclosure or other liquidation process. In addition, existing clients may determine to terminate their servicing and subservicing arrangements with us and transfer the servicing to others.
Our servicing and subservicing portfolios naturally decrease over time as homeowners make regularly scheduled mortgage payments, prepay loans prior to maturity, refinance with a mortgage loan not serviced by us or involuntarily liquidate through foreclosure or other liquidation process. In addition, existing clients may determine to terminate their servicing and subservicing arrangements with us and transfer the servicing to others.
The mortgaged properties securing the residential loans that we service are geographically dispersed throughout all 50 states, the District of Columbia and two U.S. territories. The five largest concentrations of properties are located in California, Texas, Florida, New York and New Jersey, comprising 42% of the number of loans serviced at December 31, 2022.
The mortgaged properties securing the residential loans that we service are geographically dispersed throughout all 50 states, the District of Columbia and two U.S. territories. The five largest concentrations of properties are located in California, Texas, Florida, New York and New Jersey, comprising 40% of the number of loans serviced at December 31, 2023.
Finally, 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.
Finally, 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 satisfactory completion of examinations relating to the licensee’s compliance with applicable laws and regulations.
Both the non-compete and the right of first offer are subject to various restrictions and in effect until MAV has been fully funded, or, if earlier, in the case of the right of first offer, until May 3, 2024 (subject to extension by mutual consent).
Both the non-compete and the right of first offer are subject to various restrictions and in effect until MAV has been fully funded, or, if earlier, in the case of the right of first offer, until May 3, 2025 (subject to one annual extension by mutual consent).
During 2022, Rithm-related servicing fees retained by Ocwen represented approximately 13% of the total servicing and subservicing fees earned by Ocwen, net of servicing fees remitted to Rithm (excluding ancillary income). The current terms of our agreements with Rithm extend through December 2023.
During 2023, Rithm-related servicing fees retained by Ocwen represented approximately 12% of the total servicing and subservicing fees earned by Ocwen, net of servicing fees remitted to Rithm (excluding ancillary income). The current terms of our agreements with Rithm extend through December 2024.
MAV may also terminate the Subservicing Agreement in the event of a change of control of Ocwen or PMC.
MAV may also terminate the Subservicing Agreement in the event of a change of control of Ocwen or PHH.
To the extent Ocwen does not contribute its pro rata share of the additional capital commitment, the ownership percentages held by Ocwen and Oaktree will be adjusted based on the parties’ current percentage interests, capital contributions and book value. As of December 31, 2022, our investment in MAV Canopy amounted to $42.2 million.
To the extent Ocwen does not contribute its pro rata share of the additional capital commitment, the ownership percentages held by Ocwen and Oaktree will be adjusted based on the parties’ current percentage interests, capital contributions and book value. As of December 31, 2023, our investment in MAV Canopy amounted to $37.8 million.
The GSEs and their conservator, the Federal Housing Finance Agency (FHFA), Ginnie Mae, the United States Treasury Department, various investors, non-Agency securitization trustees and others also subject us to periodic reviews and audits. See Item 1A. Risk Factors – Legal and Regulatory Risks for further information.
The GSEs, Ginnie Mae, the United States Treasury Department, various investors, non-Agency securitization trustees and others also subject us to periodic reviews and audits. See Item 1A. Risk Factors – Legal and Regulatory Risks for further information.
AVAILABLE INFORMATION Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are made available free of charge through our website (www.ocwen.com) as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.
California has the largest concentration with 15% of the total loans serviced. 17 AVAILABLE INFORMATION Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports are made available free of charge through our website (www.ocwen.com) as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC.
We organize a variety of community outreach programs and events with local and national organizations around the country to assist homeowners, particularly in communities of color. Our outreach events began during the 2008 mortgage crisis and have continued since then. In 2022, we hosted 55 borrower outreach events across the country in partnership with the NAACP.
We organize a variety of community outreach programs and events with local and national organizations around the country to assist homeowners, particularly in communities of color. Our outreach events began during the 2008 mortgage crisis and have continued since then.
Originations The primary source of revenue of our Originations segment is our gain on sale of loans. We originate and purchase residential mortgage loans that we sell to Agencies or securitize on a servicing retained basis, thereby generating mortgage servicing rights.
Originations The primary source of revenue of our Originations segment is gain on loan sales. We originate and purchase residential mortgage loans that we promptly sell or securitize on a servicing retained basis, thereby generating mortgage servicing rights.
(formerly known as NEW RESIDENTIAL INVESTMENT CORP. or NRZ) RELATIONSHIP We service loans on behalf of Rithm under various agreements, including traditional subservicing agreements, where Rithm is the legal owner of the MSRs, and in connection with legacy MSR transfers, including Rights to MSRs, where Ocwen retains legal title to the underlying MSRs but Rithm has generally assumed risks and rewards consistent with an MSR owner.
RELATIONSHIP We service loans on behalf of Rithm under various agreements, including traditional subservicing agreements, where Rithm is the legal owner of the MSRs, and in connection with legacy MSR transfers, referred to as Rights to MSRs, where Ocwen retains legal title to the underlying MSRs but Rithm has generally assumed risks and rewards consistent with an MSR owner.
Approximately 1,200 of our employees were employed in the U.S. and USVI, and approximately 3,700 of our employees were employed in our operations in India and the Philippines.
Approximately 1,100 of our employees were employed in the U.S. and USVI, and approximately 3,400 of our employees were employed in our operations in India and the Philippines.
Our servicing clients include some of the largest financial institutions in the U.S., including the GSEs, Ginnie Mae, Rithm and non-Agency residential mortgage-backed securities (RMBS) trusts, MAV and MAM (RMS). As of December 31, 2022, our servicing portfolio consisted of approximately 1.4 million loans with a UPB of $289.8 billion.
Our servicing clients include some of the largest financial institutions in the U.S., including the GSEs, Ginnie Mae and non-Agency residential mortgage-backed securities (RMBS) trusts, and other large MSR investors, including Rithm, MAV and MAM (RMS). As of December 31, 2023, our servicing and subservicing portfolio consisted of approximately 1.3 million loans with a UPB of $288.4 billion.
We earn contractual monthly servicing fees (which are typically payable as a percentage of UPB) pursuant to servicing agreements as well as other ancillary fees relating to our servicing activities such as late fees and, in certain circumstances, REO referral commissions.
We earn contractual monthly servicing fees (which are typically payable as a percentage of UPB) pursuant to servicing agreements as well as other ancillary fees relating to our servicing activities such as late fees.
Ocwen utilizes affinity groups to help support employee development and drive inclusion, including: • The Ocwen Global Women’s Network (OGWN) supports recruitment, development and retention initiatives for women across the organization, and serves as a sounding board for business insights, and supports the attainment of company goals in diversity, inclusion and talent development.
Ocwen utilizes affinity groups, of which more than 2,200 employees are members, to help support employee development and drive inclusion, including 18 employee events globally: • The Ocwen Global Women’s Network (OGWN) supports recruitment, development and retention initiatives for women across the organization, and serves as a sounding board for business insights, and supports the attainment of company goals in diversity, inclusion and talent development.
Our training platform focuses not only on the technical domain skills essential to role success, but includes competency-based programs to develop leadership capabilities and skills needed for the future. Succession planning occurs annually and is reviewed by the CEO and the Compensation and Human Capital Committee.
Our most recent employee survey indicated strong engagement levels of 82% favorable. Our training platform focuses not only on the technical domain skills essential to role success, but includes competency-based programs to develop leadership capabilities and skills needed for the future. Succession planning occurs annually and is reviewed by the CEO and the Compensation and Human Capital Committee.
Under the terms of the agreement, Ocwen and Oaktree agreed to increase the aggregate capital contributions to MAV Canopy by up to $250.0 million through May 2, 2024 (in addition to the then contributed capital), subject to extension. Ocwen may elect to contribute its 15% pro rata share of the additional capital commitment.
Under the terms of the agreement, Ocwen and Oaktree agreed to increase the aggregate capital contributions to MAV Canopy by up to $250.0 million through May 2, 2024 (in addition to the then contributed capital), subject to extension.
Ocwen provides grants and sponsorship funding to a number of local and national nonprofit organizations each year, in support of the work they do to help distressed communities and homeowners. Over the past three years, Ocwen has contributed approximately $6 million to these organizations, and over $27 million since 2012. Charitable activity.
Ocwen provides grants and sponsorship funding to local and national nonprofit organizations each year, in support of the work they do to help distressed communities and homeowners. Over the past four years, Ocwen has contributed over $6 million to these organizations, and nearly $28 million since 2012.
As of December 31, 2022, our servicing portfolio included significant client relationships with Rithm which represented 17% and 28% of our servicing portfolio UPB and loan count, respectively. The Rithm servicing portfolio accounts for approximately 68% of all delinquent loans that Ocwen services.
As of December 31, 2023, our servicing portfolio included significant client relationships with Rithm which represented 16% and 27% of our servicing and subservicing portfolio UPB and loan count, respectively. The Rithm servicing and subservicing portfolio accounts for approximately 67% of all delinquent loans that Ocwen services.
Operational risk includes the following key risks: • legal risk, as we can have legal disputes with borrowers or counterparties; • compliance risk, as we are subject to many federal and state rules and regulations; • third-party risk, as we have many processes that have been outsourced to third parties; • information technology risk, as we operate many information systems that depend on proper functioning of hardware and software; • information security risk, as our information systems and associates handle personal financial data of borrowers, and • business continuity risk, as natural disasters, pandemics, extreme weather, and other unexpected events can cause disruption to our operations. 15 The Board of Directors provides direction to senior executives by setting our organization’s risk appetite, and delegates to our Chief Executive Officer and senior executives the primary ownership and responsibility for operational risk management and control.
Operational risk includes the following key risks: • legal risk, as we can have legal disputes with borrowers or counterparties; • compliance risk, as we are subject to many federal and state rules and regulations; • third-party risk, as we have many processes that have been outsourced to third parties; • information technology risk, as we operate many information systems that depend on proper functioning of hardware and software; • information security risk, as our information systems and associates handle personal financial data of borrowers, and • business continuity risk, as natural disasters, pandemics, extreme weather, and other unexpected events can cause disruption to our operations.
We regularly evaluate our performance management, merit increase incentive award and promotion processes for race and gender equality, and remediate any identified compensation gaps. Ocwen supports several organizations focused on promoting diversity in the mortgage industry, including the American Mortgage Diversity Council.
We regularly evaluate our performance management, merit increase incentive award and promotion processes for race and gender equality, and remediate any identified compensation gaps. Ocwen supports several organizations focused on promoting diversity in the mortgage industry, including the Five Star Institute’s American Mortgage Diversity Council and the National Housing Conference’s Black Homeownership Collaborative Workstream. Talent Development .
We believe our competitive strengths flow from our existing customer relationships and from our focus on providing strong customer service, our brand recognition for our Liberty Reverse Mortgage business, our long-standing and well established offshore operations and our use of technology to produce higher levels of productivity to drive down per-loan costs.
We believe our competitive strengths flow from our existing client relationships and from our focus on providing strong customer service, our brand recognition for our Liberty Reverse Mortgage business, our long-standing and well established offshore operations and use of technology.
Ocwen’s information security plans are developed to meet or exceed Federal Financial Institutions Examination Council standards.
Ocwen’s information security plans are developed to meet or exceed Federal Financial Institutions Examination Council standards. See Item 1 C. “Cybersecurity” below.
In addition, as of December 31, 2022, our servicing portfolio also included a significant client relationship with MAV which represented 17% and 12% of our total servicing portfolio UPB and loan count, respectively.
In addition, as of December 31, 2023, our servicing and subservicing portfolio also included a significant client relationship with MAV which represented 19% of the UPB and 15% of the loan count in our total servicing and subservicing portfolio.
Our Originations success is built on our relationships with borrowers, lenders and other market participants. We purchase MSRs through bulk portfolio purchases, through flow purchase agreements with our network of mortgage companies and financial institutions, and through participation in the Agency Cash Window (or Co-Issue) programs.
We purchase MSRs through bulk portfolio purchases, through flow purchase agreements with our network of mortgage companies and financial institutions, and through participation in the Agency Cash Window (or Co-Issue) programs.
With our predecessors, we have been servicing residential mortgage loans since 1988. We have been originating forward mortgage loans since 2012 and reverse mortgage loans since 2013. We currently provide solutions through our primary operating, wholly-owned subsidiary, PHH Mortgage Corporation (PMC).
Ocwen Financial Corporation is a Florida corporation organized in February 1988. With our predecessors, we have been servicing residential mortgage loans since 1988. We have been originating forward mortgage loans since 2012 and reverse mortgage loans since 2013. We currently provide solutions through our primary operating, wholly-owned subsidiary, PHH Mortgage Corporation (PHH), formerly referred to as PMC.
We manage our reverse owned servicing activities consistent with our outright ownership of the associated HECM MSR (HMSR). Servicing advances are an important component of our business and are amounts that we, as MSR owner, are required to advance to, or on behalf of, investors if we do not receive such amounts from borrowers.
Servicing advances are an important component of our business and are amounts that we, as MSR owner, are required to advance to, or on behalf of, investors if we do not receive such amounts from borrowers.
Favorable ratings from these agencies are important to the conduct of our loan servicing and lending businesses. 8 The following table summarizes our latest key servicer ratings: PHH Mortgage Corporation (PMC) Moody’s S&P Fitch Forward Residential Prime Servicer SQ3 Average RPS3+ Residential Subprime Servicer SQ3 Average RPS3+ Residential Special Servicer SQ3 Average RSS3 Residential Second/Subordinate Lien Servicer SQ3 Average RPS3 Residential Home Equity Servicer — — RPS3 Residential Alt-A Servicer — — RPS3 Master Servicer SQ3+ Above Average RMS3 Ratings Outlook N/A Stable Positive / Stable Date of last action September 28, 2021 June 29, 2021 August 2, 2022 Reverse Residential Reverse Servicer — Above Average — Ratings Outlook — Stable — Date of initial rating — May 27, 2022 — 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.
The following table summarizes our latest key servicer ratings: PHH Moody’s S&P Fitch Forward Residential Prime Servicer SQ3+ Above Average RPS3+ Residential Subprime Servicer SQ3+ Above Average RPS3+ Residential Special Servicer SQ3+ Above Average RSS3 Residential Second/Subordinate Lien Servicer SQ3+ Above Average RPS3 Residential Home Equity Servicer — — RPS3 Residential Alt-A Servicer — — RPS3 Master Servicer SQ3+ Above Average RMS3 Ratings Outlook N/A Stable Stable Date of last action August 10, 2023 March 22, 2023 February 15, 2024 Reverse Residential Reverse Servicer — Above Average — Ratings Outlook — Stable — Date of initial rating — May 27, 2022 — 8 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.
We purchase MSRs through flow purchase agreements, the Agency Cash Window programs and bulk MSR purchases. The Agency Cash Window programs we participate in, and purchase MSRs 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.
The Agency Cash Window programs we participate in, and purchase MSRs 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. 6 New Servicing and Subservicing Acquisitions.
OAKTREE RELATIONSHIP We established a strategic alliance with Oaktree in 2020 to support refinancing our corporate debt and help advance our growth initiatives. The Oaktree relationship included the launch of an MSR investment vehicle (referred as MAV or MAV Canopy) to scale up our servicing business in a capital efficient manner and investments in our debt and equity.
The Oaktree relationship included the launch of an MSR investment vehicle (referred to as MAV or MAV Canopy) to scale up our servicing business in a capital efficient manner and investments in our debt and equity.
Information is aggregated and reports on risk matters are made to the Board of Directors, its Risk and Compliance Committee or its other committees, as applicable, to enable the Board of Directors and its committees to fulfill their governance and oversight responsibilities. 14 Strategic Risk We are exposed to risk with respect to the strategic initiatives we have taken to return to sustainable growth and profitability.
Information is aggregated and reports on risk matters are made to the Board of Directors, its Risk and Compliance Committee or its other committees, as applicable, to enable the Board of Directors and its committees to fulfill their governance and oversight responsibilities.
In addition, PMC achieved HUD’s Tier 1 servicer ranking for the second consecutive year. Community development. At Ocwen, we believe homeownership is an important part of achieving financial independence, and our philosophy in this regard is “helping homeowners is what we do.” This philosophy is what guides us in our commitment to the communities we serve.
At Ocwen, we believe homeownership is an important part of achieving financial independence, and our philosophy in this regard is “helping homeowners is what we do.” This philosophy is what guides us in our commitment to the communities we serve.
As of December 31, 2022, 48% of our employees globally are women, and 33% of our U.S. leadership roles (Director and above) are filled by women and 21% are people of color. 64% of our U.S. employees are women and 49% are people of color.
As of December 31, 2023, 48% of our employees globally are women, and 34% of our U.S. leadership roles (Director and above) are filled by women and 22% are people of color. 61% of our U.S. employees are women and 45% are people of color.
We originate forward mortgage loans directly with customers (consumer direct channel) as well as through correspondent lending arrangements. We originate reverse mortgage loans in all three channels, through our correspondent lending arrangements, broker relationships (wholesale) and retail channels. Per-loan margins vary by channel, with correspondent typically being the lowest margin and retail the highest, commensurate with fulfillment costs.
We originate forward mortgage loans directly with customers (consumer direct channel) as well as through correspondent lending arrangements. We originate reverse mortgage loans in all three channels, through our correspondent lending arrangements, broker relationships (wholesale) and retail channels.
Further, the CFPB promulgated certain amendments to RESPA (Regulation X) that became effective on August 31, 2021 and that impose certain additional COVID-19-related requirements with respect to loss mitigation, early intervention call requirements, and initiating new foreclosures.
Further, the CFPB promulgated certain amendments to RESPA (Regulation X) that became effective on August 31, 2021 and that impose certain 7 additional COVID-19-related requirements with respect to loss mitigation, early intervention call requirements, and initiating new foreclosures. COMPETITION The financial services markets in which we operate are highly competitive and fragmented, and we expect them to remain so.
We are headquartered in West Palm Beach, Florida with offices and operations in the U.S., in the United States Virgin Islands (USVI), in India and the Philippines. At December 31, 2022, approximately 75% of our workforce is located outside the U.S. Ocwen Financial Corporation is a Florida corporation organized in February 1988.
We are a leader in the reverse mortgage business with a strong brand and our reverse mortgage servicing platform. We are headquartered in West Palm Beach, Florida with offices and operations in the U.S., in the United States Virgin Islands (USVI), in India and the Philippines. At December 31, 2023, approximately 76% of our workforce is located outside the U.S.
Our servicing operations and customer interactions do not differentiate whether loans are serviced or subserviced. In 2021, we also expanded our capability in reverse subservicing by acquiring the Mortgage Assets Management, LLC (formerly known as Reverse Mortgage Solutions, Inc.) (MAM (RMS)) servicing platform. Our Originations business’ strategy is to provide self-sustained replenishment opportunities to our servicing portfolio and profitable growth.
In 2021, we also expanded our capability in reverse subservicing by acquiring the Mortgage Assets Management, LLC (formerly known as Reverse Mortgage Solutions, Inc.) (MAM (RMS)) servicing platform. Our Originations business’ strategy is to provide self-sustained replenishment opportunities to our servicing portfolio and profitable growth. Our Originations success is built on our relationships with borrowers, lenders and other market participants.
Also, MAV must provide Ocwen with reciprocal first offer rights prior to selling certain GSE MSRs originated by PMC after October 1, 2022 that are acquired by MAV under its own first offer rights. PMC has exclusive rights to subservice the MSR owned by MAV and is compensated with subservicing fees in accordance with the Subservicing Agreement.
Also, MAV must provide Ocwen with reciprocal first offer rights prior to selling certain GSE MSRs originated by PHH after October 1, 2022 that are acquired by MAV under its own first offer rights.
Our forward lending business benefits from our servicing portfolio by offering refinance options to qualified borrowers seeking to lower their mortgage payments. Depending on borrower eligibility, we refinance eligible customers into conforming or government-insured products. We are focused on increasing recapture rates on our existing servicing portfolio to grow this business.
We originate forward and reverse mortgage loans directly with borrowers through our retail lending business. Our forward lending business benefits from our servicing portfolio by offering rate and term refinance options to qualified borrowers seeking to lower their mortgage payments and cash-out refinance options. Depending on borrower eligibility, we refinance eligible customers into conforming or government-insured products.
The net proceeds before expenses from the issuance to Oaktree of the additional tranche of senior secured notes and the warrants was approximately $75.0 million (after $10.5 million of original issue discount) and was used to fund our investment in the MSR joint venture and for general corporate purposes, including to accelerate the growth of our Originations and Servicing businesses. 10 In 2021 as part of the launch of the MSR joint venture, PMC entered into a number of definitive agreements with MAV, the licensed mortgage subsidiary of MAV Canopy which govern the terms of their business relationship, including a Subservicing Agreement, Joint Marketing Agreement and Recapture Agreement, and Administrative Services Agreement.
The net proceeds before expenses from the issuance to Oaktree of the additional tranche of senior secured notes and the warrants was approximately $75.0 million (after $10.5 million of original issue discount) and was used to fund our investment in the MSR joint venture and for general corporate purposes, including to accelerate the growth of our Originations and Servicing businesses.
In limited circumstances, we may retain the full risk of loss on loans sold to the extent that the liquidation value of the asset collateralizing the loan is insufficient to cover the loan itself and associated servicing expenses.
In addition, we perform a comprehensive review of the loan files where we receive investor requests for repurchase and indemnification to establish the validity of the claims and determine our obligation. 16 In limited circumstances, we may retain the full risk of loss on loans sold to the extent that the liquidation value of the asset collateralizing the loan is insufficient to cover the loan itself and associated servicing expenses.
See Note 8 — Other Financing Liabilities, at Fair Value. 9 Rithm is our largest servicing client, accounting for $49.1 billion of UPB or 17% of the UPB of our total servicing portfolio as of December 31, 2022, approximately 68% of all delinquent loans that Ocwen serviced, and approximately 13% of our total servicing and subservicing fees in 2022, net of servicing fees remitted to Rithm (excluding ancillary income).
Rithm is one of our largest servicing clients, accounting for $45.0 billion of UPB or 16% of the UPB of our total servicing and subservicing portfolio as of December 31, 2023, approximately 67% of all delinquent loans that Ocwen serviced, and approximately 12% of our total servicing and subservicing fees in 2023, net of servicing fees remitted to Rithm (excluding ancillary income).
In addition to their traditional focus on licensing and examination matters, certain regulators make observations, recommendations or demands with respect to areas such as corporate governance, safety and soundness and risk and compliance management. 7 The CFPB and state regulators have also focused on the use and adequacy of technology in the mortgage servicing industry, privacy concerns and other topical issues, such as discontinuation of the London Interbank Offered Rate (LIBOR), communications from debt collectors, the ability of borrowers to repay mortgage loans, or servicer responses to the COVID-19 pandemic.
The CFPB and state regulators have also focused on the use and adequacy of technology in the mortgage servicing industry, privacy concerns and other topical issues, such as communications from debt collectors, the ability of borrowers to repay mortgage loans, or servicer responses to the COVID-19 pandemic.
In 2022, our Originations business generated total volume additions of $88.8 billion in UPB (refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview for further details). Retail Lending . We originate forward and reverse mortgage loans directly with borrowers through our retail lending business.
Our Originations business also includes the sourcing and acquisition of new subservicing clients. In 2023, our Originations business generated total volume additions of $50.4 billion in UPB (refer to Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview for further details). Retail Lending .
HUMAN CAPITAL RESOURCES We believe the success of our organization is highly dependent on the quality and engagement of our human capital resources. Our workforce is dedicated to creating positive outcomes for homeowners, communities and investors through caring service and innovative solutions.
Our workforce is dedicated to creating positive outcomes for homeowners, communities and investors through caring service and innovative solutions.
Strategic risk represents the risk to shareholder or enterprise value, current or future earnings, capital and liquidity from adverse business decisions and/or improper implementation of business strategies. Management is responsible for developing and implementing business strategies that leverage our core competencies and are appropriately structured, resourced and executed. Oversight for our strategic actions is provided by the Board of Directors.
Management is responsible for developing and implementing business strategies that leverage our core competencies and are appropriately structured, resourced and executed. Oversight for our strategic actions is provided by the Board of Directors. Our performance, relative to our business plans and our longer-term strategic plans, is reviewed by senior management and the Board of Directors.
More than 2,400 employees are OGWN members. • LEAP , which stands for L eading with E ducation A ction and P urpose, has the mission to educate Ocwen employees globally about Black culture and the Black experience to increase inclusion across the organization.
Integrating Diversity, Equity and Inclusion into Ocwen’s culture is critical for our success and allows us to make the most of the full range of our talent. • LEAP , which stands for L eading with E ducation A ction and P urpose, has the mission to educate Ocwen employees globally about Black culture and the Black experience to increase inclusion across the organization.
Because of the relative size of the servicing agreements with Rithm, if Rithm exercises its right to terminate all or some of the agreements for convenience at the end of the Second Term on December 31, 2023, we may need to right-size certain aspects of our servicing business as well as the related corporate support functions.
If Rithm exercises its right to terminate all or some of the agreements (for convenience by October 2024 or for cause at any time), we might need to right-size certain aspects of our servicing business as well as the related corporate support functions, and we may need to adjust our daily liquidity management due to the reduction of servicing float balances associated with the Rithm servicing agreements.
Our Diversity, Equity and Inclusion Council meets quarterly to review progress related to the Ocwen’s Diversity, Equity and Inclusion Roadmap. Diversity, Equity and Inclusion updates are provided to the Executive Leadership Team on a monthly basis and to the Board of Directors as necessary.
Diversity, Equity and Inclusion updates are provided to the Executive Leadership Team on a monthly basis and to the Board of Directors as necessary. Ocwen’s Global Diversity, Equity and Inclusion Policy is reviewed on an annual basis and diversity, equity and inclusion training is provided to all employees globally.
Our net return is impacted by fair value changes of our owned MSRs, net of hedging. that vary based on market conditions. Our subservicing portfolio generates a relatively stable source of revenue. While subservicing fees are relatively lower, we do not incur any significant capital utilization or funding of advances and are not exposed to fair value volatility.
Our net return includes servicing revenue net of servicing costs, less MSR portfolio runoff, and less MSR and advance funding cost. Our net return is impacted by fair value changes of our owned MSRs, net of hedging, that vary based on market conditions. Our subservicing portfolio generates a relatively stable source of revenue to enhance our returns.
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 September 28, 2021, Moody’s upgraded the servicer quality (SQ) assessment for PMC as a master servicer of residential mortgage loans from SQ3 to SQ3+, reflecting solid reporting and remitting processes and proactive servicer oversight.
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 August 10,2023, Moody’s upgraded the ratings for residential prime, subprime, special servicer and second lien servicer quality (SQ) assessments from SQ3 to SQ3+, and affirmed the master servicer assessment at SQ3+.
Our correspondent lending operation purchases forward and reverse mortgage loans that have been originated by a network of approved third-party lenders. All the lenders participating in our correspondent lending program are approved under our lending and risk management programs.
We are focused on increasing recapture rates on our existing servicing portfolio to grow this business. We also originate retail reverse loans to non-Ocwen servicing customers. Correspondent Lending . Our correspondent lending operation purchases forward and reverse mortgage loans that have been originated by a network of approved third-party lenders, under our lending and risk management programs.
Responsible information security management. We believe Ocwen has a robust information security program in place to ensure the confidentiality, integrity and availability of data and information systems. Ocwen’s Board of Directors is briefed regularly on information security risks, which are managed by a combination of strong policies, appropriate tools and technologies and continuous people awareness.
Responsible information security management. Ocwen maintains a comprehensive information security program designed to safeguard the confidentiality, integrity and availability of its data and information systems. Ocwen’s Board of Directors is consistently updated on information security risks, which are managed through a strategic blend of policies, advanced tools and technologies, and continuous staff awareness initiatives.
Similarly, origination margins are generally higher for reverse mortgages than forward mortgages. In addition to our originated MSRs, we acquire MSRs through multiple channels, including flow purchase agreements, the Agency Cash Window programs and bulk MSR purchases. Our Originations business also includes the sourcing and acquisition of new subservicing clients.
Per-loan gain on sale margins vary by channel, with correspondent typically being the lowest margin and retail the highest, commensurate with fulfillment costs. Similarly, margins are generally higher for reverse mortgages than forward mortgages. In addition to our originated MSRs, we acquire MSRs through multiple channels, including flow purchase agreements, the Agency Cash Window co-issue programs and bulk MSR purchases.
Our performance, relative to our business plans and our longer-term strategic plans, is reviewed by management and the Board of Directors. To achieve our near-term financial objectives, we believe we need to execute on the key business initiatives discussed above under “Overview”.
To achieve our near-term financial objectives, we believe we need to execute on the key business initiatives discussed under “Item 7. Management Discussion and Analysis-Overview-Business Initiatives”.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeWhile none of the cybersecurity incidents that we have experienced to date have had a material adverse impact on our business, financial condition or operations, a recent cybersecurity incident involving one of our vendors briefly impacted our operations, and we cannot assure that future incidents will not materially and adversely impact us. 35 Security breaches, computer viruses, phishing attacks, worms, cyberattacks, ransomware, hacking and other acts of vandalism are increasing in frequency and sophistication, and could result in a compromise or breach of the technology that we or our vendors use to protect our borrowers’ personal information and transaction data and other information that we must keep secure.
Biggest changeWhile none of the cybersecurity incidents that we have experienced to date have had a material adverse impact on our business, financial condition or operations, a recent cybersecurity incident involving one of our vendors briefly impacted our operations, and we cannot assure that future incidents will not materially and adversely impact us.
Legal and Regulatory Risks • Failure to operate our business in compliance with complex legal or regulatory requirements or contractual obligations • Adverse litigation outcomes with the CFPB or other legal matters • Adverse changes to GSE and Ginnie Mae business models, initiatives and other actions Risks Related to Our Financial Performance, Financing Our Business, Liquidity and Net Worth, and the Economy • Inability to execute our strategic plan to return to sustainable profitability or pursue business or asset acquisitions • Inability to access capital to meet the financing requirements of our business, or noncompliance with our debt agreements or covenants • Inability to obtain sufficient servicer advance financing necessary to meet the financing requirements due to increased delinquencies or forbearance plans • Inability to obtain sufficient warehouse financing necessary to meet the financing requirements for reverse mortgage loan repurchases or draws 18 • Failure to satisfy current or future minimum net worth and liquidity requirements established by regulators, GSEs, Ginnie Mae, lenders, or other counterparties • Policies or regulations adopted by the GSEs or Ginnie Mae that may be more advantageous to our competitors’ business models than our own • Inability to appropriately manage liquidity, interest rate and foreign currency exchange risks, including ineffective hedging strategies • Inability to control decisions made by the management of MSR Asset Vehicle LLC which potentially impact our subservicing portfolio, funding for growth in our originations business and the profitability of our investment • Economic slowdown or downturn, a capital market disruption, or a deterioration of the housing market, including but not limited to, in the states where we have some concentration of our business • Inability to acquire additional profitable client relationships • Inability to meet future advance financing obligations if Rithm were to fail to comply with its servicing advance obligations under the subservicing agreement Operational Risks and Other Risks Related to Our Business • Disruption in our operations or technology systems due to the failure or disagreements of our service providers to fulfill their obligations under their agreements with us, including but not limited to Black Knight Financial Services, Inc.
Legal and Regulatory Risks • Failure to operate our business in compliance with complex legal or regulatory requirements or contractual obligations • Adverse litigation outcomes • Adverse changes to GSE and Ginnie Mae business models, initiatives and other actions Risks Related to Our Financial Performance, Financing Our Business, Liquidity and Net Worth, and the Economy • Inability to execute our strategic plan to return to sustainable profitability or pursue business or asset acquisitions • Inability to access capital to meet the financing requirements of our business, or noncompliance with our debt agreements or covenants • Inability to obtain sufficient servicer advance financing necessary to meet the financing requirements due to increased delinquencies or forbearance plans • Inability to obtain sufficient warehouse financing necessary to meet the financing requirements for reverse mortgage loan repurchases or draws • Failure to satisfy current or future minimum net worth and liquidity requirements established by regulators, GSEs, Ginnie Mae, lenders, or other counterparties • Policies or regulations adopted by the GSEs or Ginnie Mae that may be more advantageous to our competitors’ business models than our own • Inability to appropriately manage liquidity, interest rate and foreign currency exchange risks, including ineffective hedging strategies • Inability to control decisions made by the management of MSR Asset Vehicle LLC which potentially impact our subservicing portfolio, funding for growth in our originations business and the profitability of our investment • Economic slowdown or downturn, a capital market disruption, or a deterioration of the housing market, including but not limited to, in the states where we have some concentration of our business • Inability to acquire additional profitable client relationships 18 • Inability to meet future advance financing obligations if Rithm were to fail to comply with its servicing advance obligations under the subservicing agreement Operational Risks and Other Risks Related to Our Business • Disruption in our operations or technology systems due to the failure or disagreements of our service providers to fulfill their obligations under their agreements with us, including but not limited to Black Knight Financial Services, Inc.
While the language in the purchase contracts varies, such contracts generally contain provisions that require us to indemnify purchasers of 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 39 • there is a failure to comply, at the individual loan level or otherwise, with regulatory requirements.
While the language in the purchase contracts varies, such contracts generally contain provisions that require us to indemnify purchasers of 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.
Our financial, accounting, data processing or other operating systems and facilities (or those of our vendors) may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, such as a cyberattack, a spike in transaction volume or unforeseen catastrophic events, potentially resulting in data loss and adversely affecting our ability to process transactions or otherwise operate our business.
Furthermore, our financial, accounting, data processing or other operating systems and facilities (or those of our vendors) may fail to operate properly or become disabled as a result of events that are wholly or partially beyond our control, such as a cyberattack, a spike in transaction volume or unforeseen catastrophic events, potentially resulting in data loss and adversely affecting our ability to process transactions or otherwise operate our business.
Failure or alleged failure to comply with the terms of our regulatory settlements or applicable federal, state and local consumer protection laws, regulations and licensing requirements could lead to any of the following: • administrative fines and penalties and litigation; • loss of our licenses and approvals to engage in our servicing and lending businesses; • governmental investigations and enforcement actions; • civil and criminal liability, including class action lawsuits and actions to recover incentive and other payments made by governmental entities; • breaches of covenants and representations under our servicing, debt or other agreements; • damage to our reputation; • inability to raise capital or otherwise secure the necessary financing to operate the business and refinance maturing liabilities; • changes to our operations that may otherwise not occur in the normal course, and that could cause us to incur significant costs; or 20 • inability to execute on our business strategy.
Failure or alleged failure to comply with the terms of our regulatory settlements or applicable federal, state and local consumer protection laws, regulations and licensing requirements could lead to any of the following: • administrative fines and penalties and litigation; • loss of our licenses and approvals to engage in our servicing and lending businesses; • governmental investigations and enforcement actions; • civil and criminal liability, including class action lawsuits and actions to recover incentive and other payments made by governmental entities; • breaches of covenants and representations under our servicing, debt or other agreements; • damage to our reputation; • inability to raise capital or otherwise secure the necessary financing to operate the business and refinance maturing liabilities; • changes to our operations that may otherwise not occur in the normal course, and that could cause us to incur significant costs; or • inability to execute our business strategy.
Failure to satisfy any of the requirements to which our licensed entities are subject could result in a variety of regulatory actions ranging from a fine, a directive requiring a certain step to be taken, a suspension or, ultimately, a revocation of a license, any of which could have a material adverse impact on our results of operations and financial condition.
Failure to satisfy any of the requirements to which our licensed entities are subject could result in a 21 variety of regulatory actions ranging from a fine, a directive requiring a certain step to be taken, a suspension or, ultimately, a revocation of a license, any of which could have a material adverse impact on our results of operations and financial condition.
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 obligations with respect to MCA repurchases are uncertain as repurchase is dependent largely on circumstances outside of our control.
The recovery timeline for inactive repurchased loans depends on various factors, 41 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 obligations with respect to MCA repurchases are uncertain as repurchase is dependent largely on circumstances outside of our control.
See the next risk factor below for additional detail concerning these regulatory settlements. 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.
See the next risk factor below for additional detail concerning these regulatory settlements. From time to time, we also receive 19 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.
If our captive reinsurance entity incurs losses from a severe catastrophe or series of catastrophes, particularly in areas where a significant portion of the insured properties are located, claims that result could substantially exceed our expectations, 38 which could adversely impact our results of operation and financial condition.
If our captive reinsurance entity incurs losses from a severe catastrophe or series of catastrophes, particularly in areas where a significant portion of the insured properties are located, claims that result could substantially exceed our expectations, which could adversely impact our results of operation and financial condition.
To the extent borrowers living in impacted areas experience a financial hardship and become unable to meet their mortgage obligations or choose to abandon severely damaged property, our servicing operations will become more costly due to the increased expense of servicing delinquent mortgages and managing REO property.
To the extent borrowers living in impacted areas experience a financial hardship and become unable to meet their mortgage obligations or choose to abandon severely damaged property, our servicing operations will become more costly due to the increased expense of servicing 39 delinquent mortgages and managing REO property.
We have in the past and may in the future experience delays in closing our acquisitions, or certain aspects of them. For example, we and the applicable seller are often required to obtain certain regulatory and contractual consents as a prerequisite to closing, such as the consents of GSEs, the FHFA, RMBS trustees or regulators.
We have in the past and may in the future experience delays in closing our acquisitions, or certain aspects of them. For example, we and the applicable seller are often required to obtain 40 certain regulatory and contractual consents as a prerequisite to closing, such as the consents of GSEs, the FHFA, RMBS trustees or regulators.
It is possible these interlocking ownership positions could cause these shareholders to take actions based on factors other than solely what is in the best interests of Ocwen. 43 Our board of directors may authorize the issuance of additional securities that may cause dilution and may depress the price of our securities.
It is possible these interlocking ownership positions could cause these shareholders to take actions based on factors other than solely what is in the best interests of Ocwen. Our board of directors may authorize the issuance of additional securities that may cause dilution and may depress the price of our securities.
In addition to the expense of responding to subpoenas and other requests for information 22 from such agencies, in the event that any of these engagements result in allegations of wrongdoing by us, we may incur fines or penalties or significant legal expenses defending ourselves against such allegations.
In addition to the expense of responding to subpoenas and other requests for information from such agencies, in the event that any of these engagements result in allegations of wrongdoing by us, we may incur fines or penalties or significant legal expenses defending ourselves against such allegations.
Covenants and defaults of this type are commonly found in debt agreements such as 27 ours. Certain of these covenants and defaults 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.
Covenants and defaults of this type are commonly found in debt agreements such as ours. Certain of these covenants and defaults 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.
However, under the 33 terms of our Subservicing Agreement, our subservicing rights terminate as to MSRs sold by MAV to any unaffiliated third party. Prior to May 3, 2024, MAV may sell MSRs, in one or more sales, constituting up to 20% of MAV’s total assets without our consent.
However, under the terms of our Subservicing Agreement, our subservicing rights terminate as to MSRs sold by MAV to any unaffiliated third party. Prior to May 3, 2024, MAV may sell MSRs, in one or more sales, constituting up to 20% of MAV’s total assets without our consent.
An unfavorable outcome to a tax audit could result in higher tax expense. 42 Any “ownership change” as defined in Section 382 of the Internal Revenue Code could substantially limit our ability to utilize our net operating losses carryforwards and other deferred tax assets.
An unfavorable outcome to a tax audit could result in higher tax expense. Any “ownership change” as defined in Section 382 of the Internal Revenue Code could substantially limit our ability to utilize our net operating losses carryforwards and other deferred tax assets.
As regulatory guidance and enforcement and the views of the GSEs and other market participants such as warehouse loan lenders evolve, we may need to 24 modify further our loan production processes and systems in order to adjust to evolution in the regulatory landscape and successfully operate our lending business.
As regulatory guidance and enforcement and the views of the GSEs and other market participants such as warehouse loan lenders evolve, we may need to modify further our loan production processes and systems in order to adjust to evolution in the regulatory landscape and successfully operate our lending business.
As a result of our servicing and loan origination activities, we are subject to minimum net worth and liquidity requirements established by state regulators, GSEs, Ginnie Mae, lenders, and other counterparties. Losses incurred in prior years have eroded our net worth.
As a result of our servicing and loan origination activities, we are subject to minimum net worth and liquidity requirements established by state regulators, GSEs, Ginnie Mae, lenders, and other counterparties. Losses incurred in prior years and in 2023 have eroded our net worth.
These regulatory requirements may discourage potential acquisition proposals or investments, may delay or prevent a change in control of us and may impact demand for, and the trading price of, our common stock. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 44
These regulatory requirements may discourage potential acquisition proposals or investments, may delay or prevent a change in control of us and may impact demand for, and the trading price of, our common stock. ITEM 1B. UNRESOLVED STAFF COMMENTS None.
While certain of these restrictions have been eased in connection with our resolution of state regulatory matters and acquisition of PHH, we are still restricted in our ability to grow our portfolio under the terms of our agreements with the NY DFS.
While certain of these restrictions have been eased in connection with our resolution of state regulatory matters and acquisition of PHH Corporation, we are still restricted in our ability to grow our portfolio under the terms of our agreements with the NY DFS.
To the extent Ocwen does not contribute its pro rata share of the additional capital commitment, the ownership percentages held by Ocwen and Oaktree will be adjusted based on the parties’ current percentage interests, capital contributions, and book value.
To the extent Ocwen does not contribute its pro rata share of the additional capital commitment, the ownership percentages 30 held by Ocwen and Oaktree will be adjusted based on the parties’ current percentage interests, capital contributions, and book value.
In addition, we could be subject to allegations of violations of the False Claims Act 25 asserting that we submitted claims for FHA insurance on loans that had not been underwritten in accordance with FHA underwriting guidelines.
In addition, we could be subject to allegations of violations of the False Claims Act asserting that we submitted claims for FHA insurance on loans that had not been underwritten in accordance with FHA underwriting guidelines.
In addition, we receive various escalated borrower complaints and inquiries from our state and federal regulators and state Attorneys 23 General and are required to respond within the time periods prescribed by such entities.
In addition, we receive various escalated borrower complaints and inquiries from our state and federal regulators and state Attorneys General and are required to respond within the time periods prescribed by such entities.
We continue to work with the NY DFS to address matters they raise with us as well as to fulfill our commitments under the 2017 NY Consent Order and PHH acquisition conditional approval.
We continue to work with the NY DFS to address matters they raise with us as well as to fulfill our commitments under the 2017 NY Consent Order and PHH Corporation acquisition conditional approval.
(Black Knight) • Failure by us or our vendors to adequately update technology systems and processes, interruption or delay in our or our vendors’ operations due to cybersecurity breaches or system failures, and resulting economic loss or regulatory penalties • Adverse changes in political or economic stability or government policies in the U.S., India, the Philippines or the USVI • Disruption in our operations and reduced profitability in our servicing operations as a result of severe weather or natural disaster events • Material increase in loan put-backs and related liabilities for breaches of representations and warranties regarding sold loans or MSRs • Heightened reputational risk due to media and regulatory scrutiny of companies that originate and securitize reverse mortgages • Incurrence of losses by our captive reinsurance entity from catastrophic events, particularly in areas where a significant portion of the insured properties are located • Incurrence of litigation costs and related losses if the validity of a foreclosure action is challenged by a borrower or if a court overturns a foreclosure • Failure to maintain minimum servicer ratings and impairment of our ability to sell or fund servicing advances, access financing, consummate future servicing transactions, and maintain our status as an approved servicer by the GSEs • Volatility of our earnings due to MSR valuation changes, financial instrument valuation changes and other factors • Loss of the confidence of investors and counterparties if we fail to reasonably estimate the fair value of our assets and liabilities or our internal controls over financial reporting are found to be inadequate • Uncertainty or adverse impacts resulting from the replacement of LIBOR with an alternative reference rate Tax Risks • Changes in tax law and interpretations and tax challenges • Failure to retain or collect the tax benefits provided by the USVI, or certain past income becoming subject to increased U.S. federal income taxation • Inability to utilize our net operating losses carryforwards and other deferred tax assets due to “ownership change” as defined in Section 382 of the Internal Revenue Code or other factors Risks Relating to Ownership of Our Common Stock • Substantial volatility in our common stock price • The vote by large shareholders of their shares to influence matters requiring shareholder approval in a way that management does not believe represents the best interests of all shareholders • The issuance of additional securities authorized by the board of directors that causes dilution and depresses the price of our securities 19 • Future offerings of debt securities that are senior to our common stock in liquidation, or equity securities that are senior to our common stock in respect of liquidation and distributions • Certain provisions in our organizational documents and regulatory restrictions may make takeovers more difficult, and significant investments in our common stock may be restricted Legal and Regulatory Risks The business in which we engage is complex and heavily regulated.
(Black Knight) • Failure by us or our vendors to adequately update technology systems and processes, interruption or delay in our or our vendors’ operations due to cybersecurity breaches or system failures, and resulting economic loss or regulatory penalties • Adverse changes in political or economic stability or government policies in the U.S., India, the Philippines or the USVI • Disruption in our operations and reduced profitability in our servicing operations as a result of severe weather or natural disaster events • Material increase in loan put-backs and related liabilities for breaches of representations and warranties regarding sold loans or MSRs • Heightened reputational risk due to media and regulatory scrutiny of companies that originate and securitize reverse mortgages • Incurrence of losses by our captive reinsurance entity from catastrophic events, particularly in areas where a significant portion of the insured properties are located • Incurrence of litigation costs and related losses if the validity of a foreclosure action is challenged by a borrower or if a court overturns a foreclosure • Failure to maintain minimum servicer ratings and impairment of our ability to sell or fund servicing advances, access financing, consummate future servicing transactions, and maintain our status as an approved servicer by the GSEs • Volatility of our earnings due to MSR valuation changes, financial instrument valuation changes and other factors • Loss of the confidence of investors and counterparties if we fail to reasonably estimate the fair value of our assets and liabilities or our internal controls over financial reporting are found to be inadequate Tax Risks • Changes in tax law and interpretations and tax challenges • Failure to retain or collect the tax benefits provided by the USVI, or certain past income becoming subject to increased U.S. federal income taxation • Inability to utilize our net operating losses carryforwards and other deferred tax assets due to “ownership change” as defined in Section 382 of the Internal Revenue Code or other factors Risks Relating to Ownership of Our Common Stock • Substantial volatility in our common stock price • The vote by large shareholders of their shares to influence matters requiring shareholder approval in a way that management does not believe represents the best interests of all shareholders • The issuance of additional securities authorized by the board of directors that causes dilution and depresses the price of our securities • Future offerings of debt securities that are senior to our common stock in liquidation, or equity securities that are senior to our common stock in respect of liquidation and distributions • Certain provisions in our organizational documents and regulatory restrictions may make takeovers more difficult, and significant investments in our common stock may be restricted Legal and Regulatory Risks The business in which we engage is complex and heavily regulated.
Failure to retain the tax benefits provided by the USVI would adversely affect our financial condition and results of operations. During 2019, in connection with our acquisition of PHH, overall corporate simplification and cost-reduction efforts, we executed a legal entity reorganization whereby OLS, through which we previously conducted a substantial portion of our servicing business, was merged into PMC.
Failure to retain the tax benefits provided by the USVI would adversely affect our financial condition and results of operations. During 2019, in connection with our acquisition of PHH Corporation, overall corporate simplification and cost-reduction efforts, we executed a legal entity reorganization whereby OLS, through which we previously conducted a substantial portion of our servicing business, was merged into PHH.
We have made representations, warranties and covenants relating to our past sales of Agency MSRs, including sales made by PHH before we acquired it.
We have made representations, warranties and covenants relating to our past sales of Agency MSRs, including sales made by PHH Corporation before we acquired it.
Our non-Agency servicing agreements generally contain detailed provisions regarding servicing practices, reporting and other matters. In addition, PMC is party to seller/servicer agreements and/or subject to guidelines and regulations (collectively, seller/servicer obligations) with one or more of the GSEs, HUD, FHA, VA and Ginnie Mae.
Our non-Agency servicing agreements generally contain detailed provisions regarding servicing practices, reporting and other matters. In addition, PHH is party to seller/servicer agreements and/or subject to guidelines and regulations (collectively, seller/servicer obligations) with one or more of the GSEs, HUD, FHA, VA and Ginnie Mae.
Under the terms of these settlements, PMC agreed to comply with certain servicing standards, to conduct testing of compliance with such servicing standards for a period of three years, and to report to the MMC regarding the same. We believe we complied with these obligations, and the three-year period has ended.
Under the terms of these settlements, PHH agreed to comply with certain servicing standards, to conduct testing of compliance with such servicing standards for a period of three years, and to report to the MMC regarding the same. We believe we complied with these obligations, and the three-year period has ended.
We are also exposed to liquidity risk due to potential accelerated repayment of our debt depending on the performance of the underlying collateral, including the fair value of MSRs, and certain covenants or trigger events, among other factors.
We are also exposed to liquidity risk due to margin calls or potential accelerated repayment of our debt depending on the performance of the underlying collateral, including the fair value of MSRs, and certain covenants or trigger events, among other factors.
In addition, MAV has the right to terminate the Subservicing Agreement entirely in the event of certain events of default, including failure by Ocwen to meet financial or operational requirements, including service levels. MAV may also terminate the Subservicing Agreement in the event of a change of control of Ocwen or PMC.
In addition, MAV has the right to terminate the Subservicing Agreement entirely in the event of certain events of default, including failure by Ocwen to meet financial or operational requirements, including service levels. MAV may also terminate the Subservicing Agreement in the event of a change of control of Ocwen or PHH.
If changes to interest rates or other factors cause prepayment speeds to increase more than estimated, delinquency and default levels are higher than anticipated or financial market illiquidity is greater than anticipated, we may be required to adjust the value of certain assets or liabilities, which could adversely affect our business, financial condition and results of operations.
If changes to interest rates or other factors cause prepayment speeds to increase more than estimated, delinquency and default levels are higher than anticipated or financial market illiquidity is greater than anticipated, or other inputs or assumptions change, we may be required to adjust the value of certain assets or liabilities, which could adversely affect our business, financial condition and results of operations.
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 December 31, 2022.
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 December 31, 2023.
We believe our licensed entities were in compliance with all of their minimum net worth and liquidity requirements at December 31, 2022. However, it is possible that regulators could disagree with our calculations.
We believe our licensed entities were in compliance with all of their minimum net worth and liquidity requirements at December 31, 2023. However, it is possible that regulators could disagree with our calculations.
In March 2020, the CARES Act was signed into law, allowing borrowers affected by COVID-19 to request temporary loan forbearance for federally backed mortgage loans. Multiple forbearance programs, moratoria of foreclosure and eviction and other requirements to assist borrowers enduring financial hardship due to COVID-19 have been issued by states, agencies and regulators.
In March 2020, the CARES Act was signed into law, allowing borrowers affected by COVID-19 to request temporary loan forbearance for federally backed mortgage loans. Multiple forbearance programs, moratoria of foreclosure and eviction and other requirements to assist borrowers enduring financial hardship due to COVID-19 were issued by states, agencies and regulators.
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 that could result in further adverse regulatory action against us, including certain matters summarized below. See Note 23 — Regulatory Requirements and Note 25 — Contingencies to the Consolidated Financial Statements.
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 that could result in further adverse regulatory action against us, including certain matters summarized below. See Note 24 — Regulatory Requirements and Note 26 — Contingencies to the Consolidated Financial Statements.
If our confidential information is intercepted, stolen, misused, or mishandled while in possession of a third party, it could result in reputational harm to us, loss of customer business, and additional regulatory scrutiny, and it could expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our results of operations, financial condition and liquidity.
If our sensitive data is intercepted, stolen, misused, or mishandled while in possession of a third party, it could result in reputational harm to us, loss of customer business, and additional regulatory scrutiny, and it could expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our results of operations, financial condition and liquidity.
The updated minimum financial eligibility requirements modify the definitions of tangible net worth and eligible liquidity, modify their minimum standard measurement and include a new risk-based capital ratio, among other changes. The majority of the updated requirements will become effective on September 30, 2023.
The updated minimum financial eligibility requirements modify the definitions of tangible net worth and eligible liquidity, modify their minimum standard measurement and include a new risk-based capital ratio, among other changes. The majority of the updated requirements became effective on September 30, 2023.
The Fannie Mae/Freddie Mac and Ginnie Mae facilities terminate in June 2023 and April 2023, respectively, and the PLS MSR facility matures in February 2025. In 2021, we entered into a facility which includes a $135.0 million term loan and a $285.0 million revolving loan secured by a lien on our Agency MSRs.
The Fannie Mae/Freddie Mac and Ginnie Mae facilities terminate in June 2024 and April 2024, respectively, and the PLS MSR facility matures in February 2025. In 2021, we entered into a facility which included a $135.0 million term loan and a $285.0 million revolving loan secured by a lien on our Agency MSRs.
In January 2018, prior to our acquisition of PHH, PMC entered into a settlement agreement with the MMC and consent orders with certain state attorneys general to resolve and close out findings of an MMC examination of PMC’s legacy mortgage servicing practices.
In January 2018, prior to our acquisition of PHH Corporation, PHH entered into a settlement agreement with the MMC and consent orders with certain state attorneys general to resolve and close out findings of an MMC examination of PHH’s legacy mortgage servicing practices.
In our Originations business, we are exposed to interest rate risk and related price risk on our pipeline (i.e., interest rate loan commitments (IRLCs) and mortgage loans held for sale) from the commitment date up until the date the commitment is cancelled or expires, or the loan is sold into the secondary market.
Quantitative and Qualitative Disclosures about Market Risk. 29 In our Originations business, we are exposed to interest rate risk and related price risk on our pipeline (i.e., interest rate loan commitments (IRLCs) and mortgage loans held for sale) from the commitment date up until the date the commitment is cancelled or expires, or the loan is sold into the secondary market.
Accordingly, they could materially and adversely affect our business and our financial condition, liquidity and results of operations. Finally, the regulations and requirements to which we are subject have been changing rapidly as the GSEs, Ginnie Mae, the United States Treasury Department and state regulators have responded to the COVID-19 pandemic.
Accordingly, they could materially and adversely affect our business and our financial condition, liquidity and results of operations. Finally, the regulations and requirements to which we are subject changed especially rapidly as the GSEs, Ginnie Mae, the United States Treasury Department and state regulators responded to the COVID-19 pandemic.
Further, if the MSRs sold by MAV include MSRs previously sold by PMC, we may recognize additional losses on the associated MSR and Pledged MSR liability reported at fair value on our consolidated balance sheets (see Note 11 — Investment in Equity Method Investee and Related Party Transactions).
Further, if the MSRs sold by MAV include MSRs previously sold by PHH, we may recognize additional 33 losses on the associated MSR and Pledged MSR liability reported at fair value on our consolidated balance sheets (see Note 12 — Investment in Equity Method Investee and Related Party Transactions).
Our operations are vulnerable to disruptions resulting from severe weather events, including our operations in India, the Philippines, the USVI and Florida. Approximately 3,700, or 76%, of our employees as of December 31, 2022 are located in India or the Philippines.
Our operations are vulnerable to disruptions resulting from severe weather events, including our operations in India, the Philippines, the USVI and Florida. Approximately 3,400, or 76%, of our employees as of December 31, 2023 are located in India or the Philippines.
Any of these occurrences could have a material adverse effect on our business, financing activities, financial condition or results of operations. On August 17, 2022, the FHFA and Ginnie Mae announced updated minimum financial eligibility requirements for GSE seller/servicers and Ginnie Mae issuers.
Any of these occurrences could have a material adverse effect on our business, reputation, financing activities, liquidity, financial condition or results of operations. In 2022, the FHFA and Ginnie Mae announced updated minimum financial eligibility requirements for GSE seller/servicers and Ginnie Mae issuers.
However, as discussed below, there can be no assurance that our hedging strategy will be effective in partially mitigating our exposure to changes in fair value of our MSRs due to interest rate changes.
However, as discussed below, there can be no assurance that our hedging strategy will be effective in partially mitigating our exposure to changes in fair value of our MSRs due to interest rate changes. Also refer to Item 7A.
At December 31, 2022, we had outstanding representation and warranty repurchase demands related to 354 loans of $66.7 million total UPB. If home values decrease, our realized loan losses from loan repurchases and indemnifications may increase as well. As a result, our liability for repurchases may increase beyond our current expectations.
At December 31, 2023, we had outstanding representation and warranty repurchase demands related to 71 loans of $20.7 million total UPB. If home values decrease, our realized loan losses from loan repurchases and indemnifications may increase as well. As a result, our liability for repurchases may increase beyond our current expectations.
At December 31, 2022, such servicing advances made by Rithm were approximately $501.9 million. However, under the Rights to MSRs structure, we are contractually required under our servicing agreements with the RMBS trusts to make the relevant servicing advances even if Rithm does not perform its contractual obligations to fund those advances.
At December 31, 2023, such servicing advances made by Rithm were approximately $450.8 million. However, under the Rights to MSRs structure, we are contractually required under our servicing agreements with the RMBS trusts to make the relevant servicing advances even if Rithm does not perform its contractual obligations to fund those advances.
CFPB In April 2017, the CFPB filed a lawsuit in the federal district court for the Southern District of Florida against Ocwen, OMS and OLS alleging violations of federal consumer financial laws relating to our servicing business dating back to 2014.
CFPB We are subject to supervision by the CFPB. In April 2017, the CFPB filed a lawsuit in the federal district court for the Southern District of Florida against Ocwen, OMS and OLS alleging violations of federal consumer financial laws relating to our servicing business dating back to 2014.
Our ability to borrow money is affected by a variety of factors including: • limitations imposed on us by existing debt agreements that contain restrictive covenants that may limit our ability to raise additional debt; • credit market conditions; • the potential for ongoing disruption in the financial markets and in commercial activity generally related to changes in monetary and fiscal policy, international events including the conflict in Ukraine and other sources of instability; • the strength of the lenders from whom we borrow; • lenders’ perceptions of us or our sector; • changes in interest rates or other drivers that affect the value of pledged collateral; • corporate credit and servicer ratings from rating agencies; • limitations on borrowing under our MSR and advance facilities and mortgage loan warehouse facilities due to structural features in these facilities and the amount of eligible collateral that is pledged; and • revenue opportunities including products not currently supported in the financing market. 26 In addition, our advance facilities are revolving facilities, and in a typical monthly cycle, we repay a portion of the borrowings under these facilities from collections.
Our ability to borrow money is affected by a variety of factors including: • limitations imposed on us by existing debt agreements that contain restrictive covenants that may limit our ability to raise additional debt; • credit market conditions; • the potential for ongoing disruption in the financial markets and in commercial activity generally related to changes in monetary and fiscal policy, international events including conflicts or wars and other sources of instability; • the strength of the lenders from whom we borrow; • lenders’ perceptions of us or our sector; • changes in interest rates or other drivers that affect the value of pledged collateral; • corporate credit and servicer ratings from rating agencies; • limitations on borrowing under our MSR and advance facilities and mortgage loan warehouse facilities due to structural features in these facilities and the amount of eligible collateral that is pledged; and • revenue opportunities including products not currently supported in the financing market.
Any future settlements or other regulatory actions against us could have a material adverse impact on our business, reputation, operating results, liquidity and financial condition will be adversely affected.
Any future settlements or other regulatory actions against us could have a material adverse impact on our business, reputation, operating results, liquidity and financial condition.
We have operations in India and the Philippines that could be adversely affected by changes in the political or economic stability of these countries or by government policies in India, the Philippines or the U.S. Approximately 3,200, or 65%, of our employees as of December 31, 2022 are located in India.
We have operations in India and the Philippines that could be adversely affected by changes in the political or economic stability of these countries or by government policies in India, the Philippines or the U.S. Approximately 3,000, or 67%, of our employees as of December 31, 2023 are located in India.
If MAV Canopy’s business, operating or financial strategies are not successful, Ocwen’s 15% investment or returns on its investment, which as of December 31, 2022 30 amounted to $42.2 million, could be reduced or we may be requested to contribute additional capital. See the next risk factor below.
If MAV Canopy’s business, operating or financial strategies are not successful, Ocwen’s 15% investment or returns on its investment, which as of December 31, 2023 amounted to $37.8 million, could be reduced or we may be requested to contribute additional capital. See the next risk factor below.
At December 31, 2022, 87% and 71% of our consolidated total assets and liabilities are measured at fair value, respectively, on a recurring and nonrecurring basis, 95% and 100% of which are considered Level 3 valuations, including our MSR portfolio.
At December 31, 2023, 87% and 72% of our consolidated total assets and liabilities are measured at fair value, respectively, on a recurring and nonrecurring basis, 96% and 100% of which are considered Level 3 valuations, including our MSR portfolio.
Further, U.S. tax authorities may at any time clarify and/or modify by legislation, administration or judicial changes or interpretation the income tax treatment of corporations. Such changes could adversely affect us.
Further, U.S. tax authorities may at any time clarify and/or modify by legislation, administration or judicial changes or interpretation the income tax treatment of corporations.
As of December 31, 2022, Ocwen had U.S. federal and USVI net operating loss (NOL) carryforwards of approximately $510.4 million, which we estimate to be worth approximately $107.2 million to Ocwen under our present assumptions related to Ocwen’s various relevant jurisdictional tax rates as a result of recently passed tax legislation (which assumptions reflect a significant degree of uncertainty).
As of December 31, 2023, Ocwen had U.S. federal and USVI net operating loss (NOL) carryforwards of approximately $504.8 million, which we estimate to be worth approximately $106.0 million to Ocwen under our present assumptions related to Ocwen’s various relevant jurisdictional tax rates as a result of recently passed tax legislation (which assumptions reflect a significant degree of uncertainty).
Generally, the fair value of the pipeline will decline in value when interest rates increase and will rise in value when interest rates decrease. Effective May 2021, we separately hedge our pipeline interest rate risk with freestanding derivatives such as TBAs, futures, options and forward sale contracts.
Generally, the fair value of the pipeline will decline in value when interest rates increase and will rise in value when interest rates decrease. We economically hedge our pipeline interest rate risk with freestanding derivatives such as TBAs and forward sale contracts.
In the course of our business, we are sometimes subject to challenges from taxing authorities, including the Internal Revenue Service (IRS), individual states, municipalities, and foreign jurisdictions, regarding amounts due.
Such changes could adversely affect us. 42 In the course of our business, we are sometimes subject to challenges from taxing authorities, including the Internal Revenue Service (IRS), individual states, municipalities, and foreign jurisdictions, regarding amounts due.
If we are unable to identify and execute a cost-effective solution that allows us to continue these businesses and are unable to replace the lost income from these activities, or if we misjudge the magnitude of the costs and benefits and their impacts on our business, our financial results could be negatively impacted.
If we are unable to execute this solution in a timely and cost-effective manner that allows us to continue the Ginnie Mae related businesses and are unable to replace the lost income from these activities, or if we misjudge the magnitude of the costs and benefits and their impacts on our business, our financial results, liquidity, financing activities and reputation could be negatively impacted.
Damage to our reputation could adversely impact our financial results and ongoing operations. Our ability to serve and retain customers and conduct business transactions with our counterparties could be adversely affected to the extent our reputation is damaged.
Our ability to serve and retain customers and conduct business transactions with our counterparties could be adversely affected to the extent our reputation is damaged.
Earnings on float balances may partially offset these higher funding costs. 29 Our MSRs, which we carry at fair value, are subject to substantial interest rate risk, primarily because the mortgage loans underlying the servicing rights permit the borrowers to prepay the loans. A decrease in interest rates generally increases prepayment speeds and vice versa.
Our MSRs, which we carry at fair value, are subject to substantial interest rate risk, primarily because the mortgage loans underlying the servicing rights permit the borrowers to prepay the loans. A decrease in interest rates generally increases prepayment speeds and vice versa.
In addition, consumers generally are concerned with security breaches and privacy on the Internet, and Congress or individual states could enact new laws regulating the use of technology in our business that could adversely affect us or result in significant compliance costs.
In addition, consumers generally are concerned with security breaches and privacy on the Internet, and Congress or individual states could enact new laws regulating the use of technology in our business that could adversely affect us or result in significant compliance costs. As part of our business, we may share sensitive data with customers, vendors, service providers, and business partners.
The underperformance may be a result of various factors, including the following: available hedge instruments have a different profile than the underlying asset, the duration of the hedge is different from the MSR, the convexity of the hedge is not proportional to the valuation change of the MSR asset, the counterparty with which we have traded has failed to deliver under the terms of the contract, or we fail to renew or adjust the hedge position in a timely or efficient manner.
The underperformance may be a result of various factors, including but not limited to the following: available hedge instruments have a different profile than the underlying asset, the duration of the hedge is different from the MSR, the convexity of the hedge is not proportional to the valuation change of the MSR asset, the actual asset and hedge performance may differ from the model-expected asset and hedge instruments performance, transacting in certain TBA, swap futures and options hedges drives costs, the counterparty with which we have traded has failed to deliver under the terms of the contract, or we fail to renew or adjust the hedge position in a timely or efficient manner.
As of December 31, 2022, Ocwen had state NOL and state tax credit carryforwards which we estimate to be worth approximately $90.3 million, and foreign tax credit carryforwards of $0.1 million in the U.S. jurisdiction. As of December 31, 2022, Ocwen had disallowed interest under Section 163(j) of $296.2 million in the U.S. jurisdiction.
As of December 31, 2023, Ocwen had state NOL and state tax credit carryforwards which we estimate to be worth approximately $82.0 million, and capital loss carryforwards of $0.1 million in the U.S. jurisdiction. As of December 31, 2023, Ocwen had disallowed interest under Section 163(j) of $498.7 million in the U.S. jurisdiction.
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.
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.
An actual or alleged default under any of our debt agreements, negative ratings action by a rating agency (including as a result of our increased leverage or erosion of net worth), the perception of financial weakness, an adverse action by a regulatory authority or GSE, a lengthening of foreclosure timelines or a general deterioration in the economy that constricts the availability of credit may increase our cost of funds and make it difficult for us to renew existing credit facilities or obtain new lines of credit.
In addition to these covenants, certain agreements also include trigger events which may lead to adverse actions such as acceleration of outstanding obligations, step down in advance rates and termination of further funding. 27 An actual or alleged default under any of our debt agreements, negative ratings action by a rating agency (including as a result of our increased leverage or erosion of net worth), the perception of financial weakness, an adverse action by a regulatory authority or GSE, a lengthening of foreclosure timelines or a general deterioration in the economy that constricts the availability of credit may increase our cost of funds and make it difficult for us to renew existing credit facilities or obtain new lines of credit.
MAV is our second-largest subservicing client, accounting for 17% of the UPB and 12% of the loan count in our subservicing portfolio as of December 31, 2022. The Subservicing Agreement with MAV provides exclusivity rights to PMC as subservicer and will continue until terminated by mutual agreement of the parties or for cause, as defined.
MAV is one of our largest subservicing clients, accounting for 19% of the UPB and 15% of the loan count in our servicing and subservicing portfolio as of December 31, 2023. The Subservicing Agreement with MAV provides exclusivity rights to PHH as subservicer and will continue until terminated by mutual agreement of the parties or for cause, as defined.
In November, 2022, the term loan was paid off and the revolving loan capacity was upsized to $400.0 million. Any outstanding borrowings on the revolving loan will convert into a term loan upon the two-year anniversary of the closing of the November 2022 amendment. The final maturity date of the term loan is December 2025.
In November, 2022, the term loan was paid off and the revolving loan capacity was upsized to $400.0 million ($393.9 million outstanding at December 31, 2023). Any outstanding borrowings on the revolving loan will convert into a term loan in November 2024. The final maturity date of the term loan is December 2025.
As of December 31, 2022, MAV has exercised these rights to sell MSRs with a book value (at the time of sale) of approximately $120 million, or approximately 20% of the portfolio (at the time of sale).
During 2023 and 2022, MAV has exercised these rights to sell MSRs with a book value (at the time of sale) of approximately $80 million and $120 million, respectively, or approximately 12% and 20% of the portfolio.
Tax Risks Changes in tax laws and interpretation and tax challenges may adversely affect our financial condition and results of operations. The enactment of Federal Tax Reform has had, and is expected to continue to have, far reaching and significant effects.
To date, terminations as servicer as a result of a breach of any of these provisions have been minimal. Tax Risks Changes in tax laws and interpretation and tax challenges may adversely affect our financial condition and results of operations. The enactment of Federal Tax Reform has had, and is expected to continue to have, far reaching and significant effects.
If we had to curtail or cease our operations in India and transfer some or all of these operations to another geographic area, we could incur significant transition costs as well as higher future overhead costs that could materially and adversely affect our results of operations. 37 We may need to increase the levels of our employee compensation more rapidly than in the past to retain talent in India.
If we had to curtail or cease our operations in India and transfer some or all of these operations to another geographic area, we could incur significant transition costs as well as higher future overhead costs that could materially and adversely affect our results of operations.
In the event we are unable to renew, replace or extend the revolving period of one or more of these advance financing facilities, we would no longer have access to available borrowing capacity and repayment of the outstanding balances on the revolving notes must begin at the end of the applicable revolving period.
The revolving periods for our advance financing facilities end in August 2025, except for $0.9 million outstanding under a facility maturing in May 2026. 26 In the event we are unable to renew, replace or extend the revolving period of one or more of these advance financing facilities, we would no longer have access to available borrowing capacity and repayment of the outstanding balances on the revolving notes must begin at the end of the applicable revolving period.
We have significant exposure to third-party risks, as we are dependent on vendors, including Black Knight, Altisource and other vendors for a number of key services to operate our business effectively and in compliance with applicable regulatory and contractual obligations, and on banks and other financing sources to finance our business. 34 We use the Black Knight MSP servicing system pursuant to a seven-year agreement with Black Knight expiring in 2026, and we are highly dependent on the successful functioning of it to operate our loan servicing business effectively and in compliance with our regulatory and contractual obligations.
We have significant exposure to third-party risks, as we are dependent on vendors, including Black Knight, Altisource and other vendors for a number of key services to operate our business effectively and in compliance with applicable regulatory and contractual obligations, and on banks and other financing sources to finance our business.
An increase in delinquencies may delay the timing of revenue recognition because we recognize servicing fees as earned, which is generally upon collection of payments from borrowers or proceeds from REO liquidations.
An increase in delinquencies may delay the timing of revenue recognition because we recognize servicing fees as earned, which is generally upon collection of payments from borrowers or proceeds from REO liquidations. An increase in delinquencies also generally leads to lower balances in custodial and escrow accounts (float balances) and lower net earnings on custodial and escrow accounts (float earnings).
The Fannie Mae/Freddie Mac and Ginnie Mae facilities were provided through bank financing and had total capacity of $450.0 million and $175.0 million and borrowed amounts of $309.8 million and $157.9 million, respectively at December 31, 2022.
The Fannie Mae/Freddie Mac and Ginnie Mae facilities were provided through bank financing and had total capacity of $365.0 million and $250.0 million and borrowed amounts of $242.9 million and $212.5 million, respectively at December 31, 2023.
In addition to their traditional focus on licensing and examination matters, certain regulators make observations, recommendations or demands with respect to areas such as corporate governance, safety and soundness, and risk and compliance management. We must endeavor to work cooperatively with our regulators to understand all their concerns if we are to be successful in our business.
In addition to their traditional focus on licensing and examination matters, certain regulators make observations, recommendations or demands with respect to areas such as corporate governance, safety and soundness, and risk and compliance management.
The CFPB and state regulators have also increasingly focused on the use, and adequacy, of technology in the mortgage servicing industry, privacy concerns and other topical issues, such as the discontinuation of LIBOR, communications from debt collectors and the ability of borrowers to repay mortgage loans, including in relation to COVID-19.
We must endeavor to work cooperatively with our regulators to understand all their concerns if we are to be successful in our business. 20 The CFPB and state regulators have also increasingly focused on the use, and adequacy, of technology in the mortgage servicing industry, privacy concerns and other topical issues, such as communications from debt collectors and the ability of borrowers to repay mortgage loans, including in relation to COVID-19.
At December 31, 2022, we had total advances of $718.9 million. We are also exposed to interest rate risk because a portion of our advance financing and other outstanding debt at December 31, 2022 is at variable rates. Rising interest rates may increase our interest expense.
At December 31, 2023, we had total advances of $678.8 million. We are also exposed to interest rate risk because a portion of our advance financing and other outstanding debt at December 31, 2023 is at variable rates. Rising interest rates may increase our interest expense. Earnings on float balances may partially offset these higher funding costs.
Currently, our master repurchase and participation agreements for financing new loan originations generally have maximum terms of 364 days, and similar to the revolving notes in the advance financing facilities, they are typically renewed, replaced or extended annually. At December 31, 2022, we had $702.7 million outstanding under these warehouse financing arrangements, all under agreements maturing in 2023.
Currently, our master repurchase and participation agreements for financing new loan originations generally have maximum terms of 364 days, and similar to the revolving notes in the advance financing facilities, they are typically renewed, replaced or extended annually.
To the extent that we (including PHH prior to its acquisition by us) made inaccurate representations or warranties or if we fail otherwise to comply with our sale agreements, we could incur liability to the purchasers of these MSRs pursuant to the contractual provisions of these agreements. 40 We may incur litigation costs and related losses if the validity of a foreclosure action is challenged by a borrower or if a court overturns a foreclosure.
To the extent that we (including PHH Corporation prior to its acquisition by us) made inaccurate representations or warranties or if we fail otherwise to comply with our sale agreements, we could incur liability to the purchasers of these MSRs pursuant to the contractual provisions of these agreements.

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Item 2. Properties

Properties — owned and leased real estate

4 edited+3 added−5 removed1 unchanged
Biggest changeCroix, USVI Leased 6,096 Offshore facilities Bangalore, India (6) Leased 68,050 Mumbai, India Leased 25,665 Pune, India Leased 3,826 Manila, Philippines (7) Leased 13,134 Former operations and support offices no longer utilized Addison, Texas (8) Leased 39,646 Houston, Texas - Richmond Avenue (9) Leased 9,653 (1) We reduced the leased space by 9,688 square feet in March 2022 and extended the lease term through July 2028.
Biggest changeCroix, USVI (4) Leased 6,096 Offshore facilities (1) Bangalore, India (5) Leased 22,325 Mumbai, India (6) Leased 15,218 Pune, India Leased 3,826 Manila, Philippines Leased 13,134 Former operations and support offices no longer utilized Houston, Texas - Walters Road (7) Leased 29,901 (1) Supports our servicing and lending operations, as well as our corporate functions.
The following table sets forth information relating to our principal facilities at December 31, 2022: Location Owned/Leased Square Footage Principal executive offices West Palm Beach, Florida (1) Leased 41,858 Document storage and imaging facility West Palm Beach, Florida (2) Leased 51,931 Business operations and support offices U.S. facilities: Houston, Texas - Walters Road (3) Leased 45,579 Rancho Cordova, California (4) Leased 17,157 Mt.
The following table sets forth information relating to our principal facilities at December 31, 2023: Location Owned/Leased Square Footage Principal executive offices West Palm Beach, Florida Leased 41,858 Document storage and imaging facility West Palm Beach, Florida Leased 51,931 Business operations and support offices U.S. facilities: Mt.
We operate through a hybrid workforce model which combines in-office and remote work for substantially all of our global workforce. During 2022, we exited a total of 561,287 of leased square footage.
We operate through a hybrid workforce model which combines remote work for substantially all of our global workforce and in-office when required. During 2023, we exited a total of 105,471 of leased square feet. ITEM 3. LEGAL PROCEEDINGS See Note 26 — Contingencies to the Consolidated Financial Statements for a description of our material legal proceedings.
(8) This lease expires in 2025 and is currently being marketed for sublease. (9) The lease of this facility, which expires in July 2023, was abandoned during 2022. We regularly evaluate current and projected space requirements, considering the constraints of our existing lease agreements and the expected scale of our businesses.
(6) Effective March 2023, we reduced the office space by 10,447 square feet. (7) The lease of this facility, which expires on January 31, 2025, was partially abandoned as of December 31, 2023. We regularly evaluate current and projected space requirements, considering the constraints of our existing lease agreements and the expected scale of our businesses.
Removed
(2) On February 1, 2022, we extended the lease through February 2028. (3) Primarily supports reverse servicing operations. This lease was assumed in connection with the MAM (RMS) transaction completed in October 2021 and expired in February 2022. On February 1, 2022, we entered into new agreements to lease 45,579 square feet for a term of five years.
Added
Laurel, New Jersey (1) Leased 18,270 Rancho Cordova, California (2) Leased 17,157 Houston, Texas - Walters Road (3) Leased 15,678 St.
Removed
(4) Primarily supports reverse lending operations. We downsized the existing facility to 17,157 square feet in 2021 and extended the lease through August 2024. (5) The original Mt. Laurel facility included two buildings, one with 376,122 square feet of space, of which we ceased using 243,927 square feet as of the end of 2020.
Added
(2) Primarily supports reverse lending operations. (3) Primarily supports our reverse servicing operations. We exercised the early termination option to terminate the lease by January 31, 2025 (original lease term extended through January 2027). (4) Primarily supports our forward servicing operations. (5) Effective January 2023, we terminated the lease on 45,725 square feet of space.
Removed
The space in the second building was 107,774 square feet, all of which was subleased. Following the expiration of the original lease and exit of the Mt. Laurel facility in December 2022, we leased a smaller facility at a different location in Mt.
Added
That information is incorporated into this item by reference. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 47 PART II
Removed
Laurel with 18,270 square feet space that supports our servicing and lending operations, as well as our corporate functions. (6) We terminated the lease on 41,508 square feet of space in June 2022, and an additional 45,725 square feet effective January 2023.
Removed
During October 2022, we relocated to a managed service office with 22,325 square feet and a lease term expiring in October 2027. (7) During December 2022, we partially terminated the lease for 26,195 square feet. The lease for the remaining 13,134 square feet was extended through October 2027, with a committed lock-in period until October 2024.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

11 edited+5 added−11 removed6 unchanged
Biggest changeThe returns of each peer group company are weighted according to their respective stock market capitalization at the beginning of the period. 46 Period Ending Index / Peer Group 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Ocwen Financial Corporation $ 100.00 $ 42.81 $ 43.77 $ 61.58 $ 85.13 $ 65.13 S&P 500 $ 100.00 $ 93.76 $ 120.84 $ 140.49 $ 178.27 $ 143.61 S&P 500 Diversified Financials $ 100.00 $ 88.98 $ 109.30 $ 119.99 $ 161.12 $ 140.86 Russell 2000 $ 100.00 $ 87.82 $ 108.66 $ 128.61 $ 146.23 $ 114.70 Peer Group $ 100.00 $ 78.50 $ 106.03 $ 103.54 $ 129.89 $ 107.94 (1) © 2023 S&P Dow Jones Indices.
Biggest changeThe returns of each peer group company are weighted according to their respective stock market capitalization at the beginning of the period. 48 Period Ending Index / Peer Group 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Ocwen Financial Corporation $ 100.00 $ 102.24 $ 143.83 $ 198.86 $ 152.14 $ 153.03 Russell 2000 $ 100.00 $ 123.72 $ 146.44 $ 166.50 $ 130.60 $ 150.31 Current Peer Group $ 100.00 $ 130.48 $ 134.35 $ 157.67 $ 129.27 $ 168.76 2022 Peer Group $ 100.00 $ 133.55 $ 132.48 $ 161.83 $ 133.03 $ 171.59 (1) © 2023 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”).
MGIC Investment Corporation Webster Financial Corporation The cumulative TSR performance of current peer group companies Finance of America Companies, Inc., Guild Holdings Company, Home Point Capital Inc., loanDepot Inc. and UWM Holdings is not included in the weighted average cumulative TSR calculation because they were publicly listed after the beginning of the five-year measurement period.
Webster Financial Corporation MGIC Investment Corporation WSFS Financial Corporation The cumulative TSR performance of peer group companies Finance of America Companies, Inc., Guild Holdings Company, Home Point Capital Inc., loanDepot Inc. and UWM Holdings is not included in the weighted average cumulative TSR calculation because they were publicly listed after the beginning of the five-year measurement period.
“FTSE®”, “Russell®”, “FTSE Russell®”, “MTS®”, “FTSE4Good®”, “ICB®”, “Mergent®”, “The Yield Book®” and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, FTSE Canada, Mergent, FTSE FI, YB.
“FTSE®”, “Russell®”, “FTSE Russell®”, “MTS®”, “FTSE4Good®”, “ICB®”, “Mergent®”, “The Yield Book®” and all other trademarks and service marks used herein (whether registered or unregistered) are trademarks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under license, by FTSE, Russell, MTSNext, FTSE Canada, Mergent, FTSE FI, YB.
The graph assumes that $100 was invested in our common stock, each index listed below, and each company in the peer group (except as described above) on December 31, 2017, and the reinvestment of all dividends.
The graph assumes that $100 was invested in our common stock, each index listed below, and each company in the peer group (except as described above) on December 31, 2018, and the reinvestment of all dividends.
The Compensation and Human Capital Committee of Ocwen’s Board of Directors selected the following peer group as the comparator for benchmarking, including competitors in the mortgage finance industry and mortgage real estate investment trusts. Associated Banc-Corp Mr. Cooper Group Inc. BankUnited, Inc. Navient Corporation Finance of America Companies, Inc. PennyMac Financial Services, Inc. Guild Holdings Company Radian Group Inc.
The Compensation and Human Capital Committee selected the following peer group (Current Peer Group) as the comparator for benchmarking, including competitors in the mortgage finance industry and mortgage real estate investment trusts. Associated Banc-Corp Mr. Cooper Group Inc. Axos Financial, Inc. PennyMac Financial Services, Inc. BankUnited, Inc. Radian Group Inc. Finance of America Companies, Inc.
We have chosen to present the Russell 2000 and our peer group for comparison purposes because we believe the Russell 2000 is comprised of companies which more closely resemble Ocwen in terms of market capitalization.
We have chosen to present the Russell 2000 for comparison purposes because we believe the Russell 2000 is comprised of companies which more closely resemble Ocwen in terms of market capitalization than other indices.
Number of Holders of Common Stock On February 24, 2023, 7,527,443 shares of our common stock were outstanding and held by approximately 64 holders of record. Such number of stockholders does not reflect the number of individuals or institutional investors holding our stock in nominee name through banks, brokerage firms and others.
Number of Holders of Common Stock On February 22, 2024, 7,684,401 shares of our common stock were outstanding and held by approximately 47 holders of record. Such number of stockholders does not reflect the number of individuals or institutional investors holding our stock in nominee name through banks, brokerage firms and others.
All information is provided for information purposes only and data is provided "as is" without warranty of any kind. 47 This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing by us under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or incorporated by reference into any filing by us under the Securities Act of 1933, as amended, except as shall be expressly set forth by specific reference in such filing.
Home Point Capital Inc. South State Corporation loanDepot, Inc. UWM Holdings Corporation LendingTree, Inc. Walker & Dunlop, Inc.
South State Corporation Guild Holdings Company UWM Holdings Corporation LendingTree, Inc. Walker & Dunlop, Inc. loanDepot, Inc.
Stock Return Performance The following graph compares the cumulative total shareholder return (TSR) on the common stock of Ocwen Financial Corporation since December 31, 2017, with the cumulative TSR on the stocks included in (i) the Russell 2000 Index and (ii) a group of peer companies Ocwen has selected for the purposes of measuring TSR-based comparative performance metrics which form the basis of Ocwen’s performance-based equity compensation awards.
Stock Return Performance The following graph compares the cumulative total shareholder return (TSR) on the common stock of Ocwen Financial Corporation since December 31, 2018, with the cumulative TSR on the stocks included in (i) the Russell 2000 Index, (ii) the current peer group of companies Ocwen uses to inform compensation decisions, and (iii) the peer group used to inform compensation decisions in 2022.
FTSE International Limited is authorised and regulated by the Financial Conduct Authority as a benchmark administrator.
FTSE International Limited is authorized and regulated by the Financial Conduct Authority as a benchmark administrator. All information is provided for information purposes only and data is provided "as is" without warranty of any kind.
Removed
In prior years, Ocwen presented comparisons to Standard & Poor’s 500 Market Index and Standard & Poor’s Diversified Financials Market Index in lieu of the Russell 2000 Index and Ocwen peer group, respectively, and the TSR of those indices is also presented below for comparison purposes.
Added
We have selected our peer groups for comparison purposes because Ocwen’s management uses information about the peer groups to make compensation decisions and we believe that information is relevant to our shareholders.
Removed
In addition, since the TSR of the peer group presented below is information Ocwen’s management uses to benchmark its own performance for the purposes of granting equity awards, it provides relevant information to our shareholders.
Added
The Compensation and Human Capital Committee of Ocwen’s Board of Directors determines the constitution of our peer groups after considering the recommendations of our independent compensation consultant, who identifies potential peers based on a number of metrics including industry classification, revenues, assets and number of employees.
Removed
All rights reserved. S&P, S&P 500, S&P 500 LOW VOLATILITY INDEX, S&P 100, S&P COMPOSITE 1500, S&P 400, S&P MIDCAP 400, S&P 600, S&P SMALLCAP 600, S&P GIVI, GLOBAL TITANS, DIVIDEND ARISTOCRATS, S&P TARGET DATE INDICES, S&P PRISM, S&P STRIDE, GICS, SPIVA, SPDR and INDEXOLOGY are registered trademarks of S&P Global, Inc. (“S&P Global”) or its affiliates.
Added
Our Compensation and Human Capital Committee modified the peer group in 2023 on the recommendation of our independent compensation consultant in order to ensure the constituent companies remain aligned with Ocwen in key metrics.
Removed
DOW JONES, DJ, DJIA, THE DOW and DOW JONES INDUSTRIAL AVERAGE are registered trademarks of Dow Jones Trademark Holdings LLC (“Dow Jones”). These trademarks together with others have been licensed to S&P Dow Jones Indices LLC. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC.
Added
Compared to the 2022 peer group, the Current Peer Group reflects the addition of Axos Financial, Inc. and WSFS Financial Corporation and the removal of Home Point Capital Inc. and Navient Corporation.
Removed
This document does not constitute an offer of services in jurisdictions where S&P Dow Jones Indices LLC, S&P Global, Dow Jones or their respective affiliates (collectively “S&P Dow Jones Indices”) do not have the necessary licenses.
Added
Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the quarter ended December 31, 2023. Purchases of Equity Securities by the Issuer and Affiliates We did not repurchase any shares of our common stock during the quarter ended December 31, 2023. 49 ITEM 6. [RESERVED]
Removed
Except for certain custom index calculation services, all information provided by S&P Dow Jones Indices is impersonal and not tailored to the needs of any person, entity or group of persons. S&P Dow Jones Indices receives compensation in connection with licensing its indices to third parties and providing custom calculation services.
Removed
Past performance of an index is not an indication or guarantee of future results. (2) © 2023 London Stock Exchange Group plc and its applicable group undertakings (the “LSE Group”).
Removed
Unregistered Sales of Equity Securities and Use of Proceeds All unregistered sales of equity securities during the year ended December 31, 2022 have been previously reported.
Removed
Purchases of Equity Securities by the Issuer and Affiliates On May 20, 2022, Ocwen’s Board of Directors authorized a share repurchase program for an aggregate amount of up to $50.0 million of Ocwen’s issued and outstanding shares of common stock.
Removed
Prior to the expiration of the program on November 20, 2022, Ocwen completed the repurchase of 1,750,557 shares of our common stock in the open market under this program at prevailing market prices for a total purchase price of $50.0 million (including commissions). The repurchased shares were retired in tranches throughout the term of the program.
Removed
Information regarding repurchases of our common stock during the fourth quarter of 2022 is as follows: Period Total 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 October 1 - October 31 344,246 $ 26.1311 344,246 $ 2.3 million November 1 - November 30 67,813 $ 32.7866 67,813 $ — million December 1 - December 31 — $ — — $ — million Total 412,059 $ 27.2264 412,059 (1) Average price paid per share does not reflect payment of commissions totaling $12,362 (twelve thousand three hundred sixty-two dollars).

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

226 edited+116 added−120 removed75 unchanged
Biggest changeNo such gains were recognized in 2020. 74 The following table provides selected operating statistics for our Originations segment: Years Ended December 31, % Change UPB in billions 2022 2021 2020 2022 vs 2021 2021 vs 2020 Loan Production by Channel Forward loans Correspondent $ 15.6 $ 16.6 $ 5.7 (6) % 192 Consumer Direct 1.2 2.4 1.3 (49) 84 $ 16.8 $ 19.0 $ 7.0 (12) 171 % Purchase production 71 32 20 122 63 % Refinance production 29 68 80 (58) (15) Reverse loans (1) Correspondent $ 0.7 $ 0.8 $ 0.5 (14) % 72 % Wholesale 0.3 0.3 0.3 22 (8) Retail 0.4 0.4 0.2 (8) 161 $ 1.4 $ 1.5 $ 0.9 (8) 62 MSR Purchases by Channel Agency Cash Window / Flow MSR 11.3 20.4 15.1 (45) 35 Bulk MSR purchases 4.3 55.1 16.6 (92) 233 Bulk reverse purchases 0.2 — — n/m n/m $ 15.8 $ 75.6 $ 31.7 (79) 138 Total $ 34.0 $ 96.1 $ 39.6 (65) 143 Short-term loan commitment (at year end) Forward loans $ 540.1 $ 1,022.0 619.7 (47) % 65 % Reverse loans 13.8 63.3 11.7 (78) 442 Average Employment U.S. 523 653 461 (20) % 42 % India and other 470 400 177 18 126 Total Originations 993 1,053 638 (6) 65 (1) Loan production excludes reverse mortgage loan draws by borrowers disbursed subsequent to origination that are reported within the Servicing segment. 75 Gain on Loans Held for Sale, Net The following table provides information regarding Gain on loans held for sale by channel and the related forward loan origination volume and margins (excluding fees that are presented in Other revenue, net): Years Ended December 31, % Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Gain on Loans Held for Sale (1) Correspondent $ 24.6 $ 18.5 $ 20.8 33 % (11) % Consumer Direct 28.3 106.0 84.4 (73) 26 $ 52.9 $ 124.5 $ 105.2 (58) % 18 % % Gain on Sale Margin (2) Correspondent 0.16 % 0.11 % 0.37 % 45 % (69) % Consumer Direct 2.30 4.39 6.44 % (48) (32) 0.31 % 0.66 % 1.50 % (52) % (56) % Origination UPB (3) (in billions) Correspondent $ 15.6 $ 16.6 $ 5.7 (6) % 192 % Consumer Direct 1.2 2.4 1.3 (50) 84 $ 16.8 $ 19.0 $ 7.0 (12) % 171 % (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.
Biggest changeThe amounts presented are before the elimination of balances and transactions with our other segments: Years Ended December 31, % Change 2023 2022 2021 2023 vs 2022 2022 vs 2021 Revenue Gain on loans held for sale, net $ 30.3 $ 52.9 $ 124.5 (43) % (58) % Gain on reverse loans held for investment and HMBS-related borrowings, net 23.2 61.2 82.0 (62) (25) Other revenue, net (1) 18.6 27.0 43.4 (31) (38) Total revenue 72.1 141.1 249.9 (49) (44) MSR valuation adjustments, net 11.7 9.9 19.6 18 (50) Operating expenses Compensation and benefits 43.0 85.1 101.6 (49) (16) Origination expense 2.7 11.1 15.0 (76) (26) Technology and communications 7.0 9.2 9.8 (24) (5) Professional services 1.9 4.8 10.2 (60) (53) Occupancy, equipment and mailing 2.2 4.5 6.9 (52) (35) Corporate overhead allocations 18.7 21.6 20.0 (13) 8 Other expenses 5.3 12.2 9.4 (56) 30 Total operating expenses 80.8 148.5 172.8 (46) (14) Other income (expense) Interest income 51.8 31.2 17.7 66 76 Interest expense (56.6) (29.0) (22.3) 95 30 Other, net (0.2) (1.8) (2.3) (89) (21) Other income (expense), net (5.0) 0.4 (6.9) n/m (106) Income (loss) before income taxes $ (2.0) $ 2.9 $ 89.8 (168) (97) (1) Includes $2.1 million, $2.1 million and $8.5 million ancillary fee income related to MSR acquisitions reported as Servicing and subservicing fees at the consolidated level for 2023, 2022 and 2021, respectively. 73 The following table provides selected statistics for our Originations segment: Years Ended December 31, % Change 2023 2022 2021 2023 vs 2022 2022 vs 2021 Loan Production by Channel (in billions) Forward loans Correspondent $ 12.2 $ 15.6 $ 16.6 (22) % (6) % Consumer Direct 0.4 1.2 2.4 (71) (49) $ 12.5 $ 16.8 $ 19.0 (26) (12) % Purchase production 85 71 32 19 122 % Refinance production 15 29 68 (48) (58) Reverse loans (1) Correspondent $ 0.4 $ 0.7 $ 0.8 (38) % (14) % Wholesale 0.2 0.3 0.3 (52) 22 Retail 0.1 0.4 0.4 (77) (8) $ 0.7 $ 1.4 $ 1.5 (51) (7) MSR Purchases by Channel (in billions) Agency Cash Window / Flow MSR 9.1 11.3 20.4 (20) (45) Bulk purchases 0.4 4.3 55.1 (91) (92) Bulk reverse purchases 0.1 0.2 — (62) n/m $ 9.6 $ 15.8 $ 75.6 (39) (79) Total $ 22.8 $ 34.0 $ 96.1 (33) (65) Short-term loan commitment (at year end; in millions) Forward loans $ 592.5 $ 540.1 1,022.0 10 % (47) % Reverse loans 22.1 13.8 63.3 60 (78) Average Headcount - Originations 501 993 1,053 (50) (6) (1) Loan production excludes reverse mortgage loan draws by borrowers disbursed subsequent to origination that are reported within the Servicing segment. 74 Gain on Loans Held for Sale, Net The following table provides information regarding Gain on loans held for sale by channel and the related forward loan origination volumes and margins (excluding fees that are presented in Other revenue, net): Years Ended December 31, % Change 2023 2022 2021 2023 vs 2022 2022 vs 2021 Origination UPB (1) (in billions) Correspondent $ 12.2 $ 15.6 $ 16.6 (22) % (6) % Consumer Direct 0.4 1.2 2.4 (71) (49) $ 12.5 $ 16.8 $ 19.0 (26) % (11) % % Gain on Sale Margin (2) Correspondent 0.15 % 0.16 % 0.11 % (2) % 45 % Consumer Direct 3.22 2.30 4.39 % 40 (48) 0.24 % 0.31 % 0.66 % (23) % (52) % Gain on Loans Held for Sale Correspondent $ 18.8 $ 24.6 $ 18.5 (24) % 33 % Consumer Direct 11.5 28.3 106.0 (59) (73) $ 30.3 $ 52.9 $ 124.5 (43) % (58) % (1) Defined as the UPB of loans funded in the period.
The financial performance of our servicing segment is impacted by the changes in fair value of the MSR portfolio due to changes in market interest rates, among other factors. Our MSR portfolio is carried at fair value, with changes in fair value recorded in earnings, within MSR valuation adjustments, net.
MSR Valuation Adjustments The financial performance of our Servicing segment is impacted by the changes in fair value of the MSR portfolio due to changes in market interest rates, among other factors. Our MSR portfolio is carried at fair value, with changes in fair value recorded in earnings, within MSR valuation adjustments, net.
The Agency 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 MSRs through flow purchase agreements.
The Agency Cash Window programs we participate in, and purchase MSR from, allow mortgage companies and financial institutions to sell whole loans servicing released to the respective agency and sell the MSR to the winning bidder. In addition, we partner with other originators to replenish our MSRs through flow purchase agreements.
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 or securitized 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.
We use mortgage loan repurchase and participation facilities (commonly called warehouse lines) to fund newly-originated or purchased loans on a short-term basis until they are sold or securitized 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.
There is no assurance that actual results in 2023 will be in line with the outlook information set forth below, and Ocwen does not undertake to update any forward-looking statements. Also refer to the Segment results of operations section for further detail, the description of our business environment, initiatives and risks.
There is no assurance that actual results will be in line with the outlook information set forth below, and Ocwen does not undertake to update any forward-looking statements. Also refer to the Segment results of operations section for further detail, the description of our business environment, initiatives and risks.
We record an allowance for losses on servicing advances 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 record an allowance for losses on servicing advances to the extent 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.
The fair value of the net reverse servicing asset is expected to continue to follow market conditions, with fair value gains or losses generally associated with declining or increasing interest rates, respectively, and is part of our forward MSR hedging strategy. MSR valuation adjustments, net - Our net MSR fair value changes include multiple components.
The fair value of the net reverse servicing asset is expected to continue to follow market conditions, with fair value gains or losses generally associated with declining or increasing interest rates and spread, respectively, and is part of our forward MSR hedging strategy. MSR valuation adjustments, net - Our net MSR fair value changes include multiple components.
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 Rithm 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.
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 Rithm the same day we fund P&I advances, or within no more than three days for certain servicing advances.
We determine the fair value of MSRs and pledged MSR liabilities primarily using discounted cash flow methodologies. The significant estimated future cash inflows for MSRs include servicing fees, late fees, float earnings and other ancillary fees and cash outflows include the cost of servicing, the cost of financing servicing advances and compensating interest payments.
We determine the fair value of MSRs, pledged MSR liabilities and ESS financing liabilities primarily using discounted cash flow methodologies. The significant estimated future cash inflows for MSRs include servicing fees, late fees, float earnings and other ancillary fees, and significant cash outflows include the cost of servicing, the cost of financing servicing advances and compensating interest payments.
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 89 amount can be reasonably estimated based on current information regarding these matters.
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 based on current information regarding these matters.
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 inability to use them in the carryforward periods defined under the tax laws.
Ocwen and PHH Corporation 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 inability to use them in the carryforward periods defined under the tax laws.
The following table summarizes our current 83 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.
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.
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 88 liabilities, and for operating losses and tax credit carryforwards.
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.
Indemnification Obligations 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.
Indemnification Obligations We have exposure to representation, warranty and indemnification obligations because of our lending, loan 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.
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 sale.
We provide customary origination representations and warranties to investors in connection with our loan sales and securitization activities. We receive customary origination representations and warranties from our network of approved correspondent lenders. We recognize the fair value of the liability for our representations and warranties at the time of sale.
We may utilize committed borrowing capacity under our mortgage loan warehouse facilities and MSR financing facilities to the extent we have sufficient eligible collateral to borrow against and otherwise satisfy the applicable conditions to funding.
We may utilize committed borrowing capacity under our mortgage loan financing facilities and MSR financing facilities to the extent we have sufficient eligible collateral to borrow against and otherwise satisfy the applicable conditions to funding.
Considerable judgment is used in forming conclusions about Level 3 inputs such as prepayment speeds and discount rates. Changes to these inputs could have a significant effect on fair value measurements. Valuation of Reverse Mortgage Loans Held for Investment Reverse mortgage loans are insured by the FHA and transferred into Ginnie Mae guaranteed securities (or HMBS).
Considerable judgment is used in forming conclusions about Level 3 inputs such as prepayment speeds and discount rates. Changes to these inputs could have a significant effect on fair value measurements. Valuation of Reverse Mortgage Loans Held for Investment and HMBS-related Borrowings Reverse mortgage loans are insured by the FHA and transferred into Ginnie Mae guaranteed securities (or HMBS).
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 evaluate the reasonableness of our third-party experts’ assumptions using historical experience adjusted for 84 prevailing market conditions and benchmarks with third-party expert valuation and market participant surveys.
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, 2022 and 2021, the U.S. filing jurisdiction was in a material cumulative loss position.
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, 2023 and 2022, the U.S. filing jurisdiction was in a material cumulative loss position.
We continually assess collectability using proprietary cash flow projection models that incorporate 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.
We also assess collectability using proprietary cash flow projection models that incorporate 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.
In addition, we received earnings distributions of $18.5 million from our equity method investee MAV Canopy. 84 Our investing activities used $149.1 million of cash.
In addition, we received earnings distributions of $18.5 million from our equity method investee MAV Canopy. Our investing activities used $149.1 million of cash.
Loan transfers in these Ginnie Mae securitizations do not qualify for sale accounting and are recorded as secured borrowings. We record both loans held for investment and the corresponding HMBS borrowings at fair value. Our net exposure to reverse mortgages and the HMBS-related borrowings is limited to the residual value we retain, including future draw commitments.
Loan transfers in these Ginnie Mae securitizations do not qualify for sale accounting and are recorded as secured financings. We record both loans held for investment and the corresponding HMBS borrowings at fair value. Our net exposure to reverse mortgages and the HMBS-related borrowings is limited to the residual value we retain, including future draw commitments and servicing value.
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 guides, depending on investors or guarantor. Refer to Note 24 — Commitments to the Consolidated Financial Statements for further description of our servicer advance obligations.
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 guides, depending on investors or guarantor. Refer to Note 25 — Commitments to the Consolidated Financial Statements for further description of our servicer advance obligations.
We cannot currently estimate the amount, if any, of reasonably possible losses above amounts that have been recorded at December 31, 2022. RECENT ACCOUNTING DEVELOPMENTS Recent Accounting Pronouncements For additional information, see Note 1 — Organization, Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements for additional information.
We cannot currently estimate the amount, if any, of reasonably possible losses above amounts that have been recorded at December 31, 2023. RECENT ACCOUNTING DEVELOPMENTS Recent Accounting Pronouncements For additional information, see Note 1 — Organization, Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements for additional information.
In its change in PMC’s outlook to Positive from Stable, Moody’s cited the progress the company is making in transitioning its strategy to focus on originations and servicing of non-delinquent forward and reverse mortgages from the servicing of seriously delinquent loans, which should lead to a more resilient business model and more stable earnings profile.
In its change in PHH’s outlook to Positive from Stable, Moody’s cited the progress the company is making in transitioning its strategy to focus on originations and servicing of non-delinquent forward and reverse mortgages from the servicing of seriously delinquent loans, which should lead to a more resilient business model and more stable earnings profile.
We believe that we are in compliance with the covenants in our debt agreements as of December 31, 2022. 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.
We believe that we are in compliance with the covenants in our debt agreements as of December 31, 2023. 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 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 17 years, exhibiting little response to movements in market interest rates.
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 18 years, exhibiting little response to movements in market interest rates.
(2) Includes MSRs sold to an unrelated third party in the first quarter of 2022 consisting of 38,850 loans with a UPB of $11.1 billion, with the remaining active loans transferred out of the PMC servicing system in the third quarter of 2022, and for which PMC performed interim subservicing.
(2) Includes MSRs sold to an unrelated third party in the first quarter of 2022 consisting of 38,850 loans with a UPB of $11.1 billion, with the remaining active loans transferred out of the PHH servicing system in the third quarter of 2022, and for which PHH performed interim subservicing.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in millions, except per share amounts and unless otherwise indicated) The Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Form 10-K generally discusses 2022 and 2021 items and provides year-to-year comparisons between 2022 and 2021.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in millions, except per share amounts and unless otherwise indicated) The Management’s Discussion and Analysis of Financial Condition and Results of Operations section of this Form 10-K generally discusses 2023 and 2022 items and provides year-to-year comparisons between 2023 and 2022.
The Positive outlook also reflects Moody's expectation that PMC will maintain stable financial metrics in the next 12-18 months with respect to capitalization and liquidity, continue to strengthen its servicing and origination franchises and make progress with respect to its strategic plan to improve profitability.
The Positive outlook also reflects Moody's expectation that PHH will maintain stable financial metrics in the next 12-18 months with respect to capitalization and liquidity, continue to strengthen its servicing and origination franchises and make progress with respect to its strategic plan to improve profitability.
OVERVIEW We are a leading non-bank mortgage servicer and originator providing solutions through our primary brands, PHH Mortgage and Liberty Reverse Mortgage. PHH Mortgage is one of the largest servicers in the country, focused on delivering a variety of servicing and lending programs.
OVERVIEW We are a leading non-bank mortgage servicer and originator providing solutions through our primary brands, PHH Mortgage and Liberty Reverse Mortgage. PHH is one of the largest non-bank servicers in the country based on UPB, focused on delivering a variety of servicing and lending programs.
We initially recognize our MSR origination with the associated economics in our Originations segment, and transfer the MSR to our Servicing segment once the MSR is initially recognized on our balance sheet with all subsequent performance associated with the MSR, including funding cost, run-off and other fair value changes reflected in our Servicing segment.
We initially recognize our MSR originations and purchases with the associated economics in our Originations segment, and transfer the MSR to our Servicing segment once the MSR is initially recognized on our balance sheet with all subsequent performance associated with the MSR, including funding cost, run-off and other fair value changes reflected in our Servicing segment.
Available Borrowing Capacity represents Total Borrowing Capacity less outstanding borrowings. At December 31, 2022, none of the available borrowing capacity under our advance financing facilities could be funded based on the amount of eligible collateral that had been pledged to such facilities.
Available Borrowing Capacity represents Total Borrowing Capacity less outstanding borrowings. At December 31, 2023, none of the available borrowing capacity under our advance financing facilities could be funded based on the amount of eligible collateral that had been pledged to such facilities.
Accordingly, the financing cost of the Servicing and Originations segments reflects and is consistent with the financing structure of the licensed entity PMC that carries out these businesses and does not depend on the financing structure strategy of its parent, as a holding company.
Accordingly, the financing cost of the Servicing and Originations segments reflects and is consistent with the financing structure of the licensed entity PHH that carries out these businesses and does not depend on the financing structure strategy of its parent, as a holding company.
Corporate Items and Other Corporate Items and Other includes revenues and expenses of corporate support services, our reinsurance business CRL, inactive entities, and our other business activities that are currently individually insignificant, revenues and expenses that are 77 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 unallocated corporate debt and foreign currency exchange gains or losses.
Corporate Items and Other Corporate Items and Other includes revenues and expenses of corporate support services, 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 unallocated corporate debt and foreign currency exchange gains or losses.
The determination of the fair value of MSRs and pledged MSR liabilities requires management judgment relating to the significant unobservable assumptions that underlie the valuation, including prepayment speed, delinquency rates, cost to service and discount rate.
The determination of the fair value of MSRs, pledged MSR liabilities and ESS financing liabilities requires management judgment relating to the significant unobservable assumptions that underlie the valuation, including prepayment speed, delinquency rates, cost to service and discount rate.
Also, none of our uncommitted borrowing capacity was available to fund advances at December 31, 2022 under our Ginnie Mae MSR financing facility based on the amount of eligible collateral.
Also, none of our uncommitted borrowing capacity was available to fund advances at December 31, 2023 under our Ginnie Mae MSR financing facility based on the amount of eligible collateral.
Pledged MSR liability expense includes the servicing fee remittance related to the MSR transfers that do not meet sale accounting criteria and are presented on a gross basis in our consolidated financial statements and the servicing spread remittance associated with our ESS financing liability at fair value.
Pledged MSR liability expense includes the servicing fee remittance related to the MSR sales or transfers that do not meet sale accounting criteria and are presented on a gross basis in our consolidated financial statements, together with the servicing spread remittance associated with our ESS financing liability at fair value.
Once a reverse mortgage loan is securitized, our activities are generally consistent with other loan servicing as described above, with the following variations. Under the terms of ARM-based HECM loan agreements, the borrowers have additional borrowing capacity of $1.8 billion at December 31, 2022. These draws or tails are funded by the servicer and can be subsequently securitized.
Once a reverse mortgage loan is securitized, our activities are generally consistent with other loan servicing as described above, with the following variations. Under the terms of ARM-based HECM loan agreements, the borrowers have additional borrowing capacity of $1.8 billion at December 31, 2023. These draws or tails are funded by the servicer and are subsequently securitized.
Discussions of year-to-year comparisons between 2021 and 2020 are not included in this Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 25, 2022.
Discussions of year-to-year comparisons between 2022 and 2021 are not included in this Form 10-K and can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on February 28, 2023.
Cost to Service and Operating Efficiency . Our operating results for our Servicing segment are heavily dependent on our ability to scale our operations to cost-effectively and efficiently perform servicing activities in accordance with our servicing agreements. Delinquencies . Delinquencies impact our financial results and operating cash flows for our Servicing segment.
Our operating results for our Servicing segment are heavily dependent on our ability to scale our operations to cost-effectively and efficiently perform servicing activities in accordance with our servicing agreements. 60 Delinquencies . Delinquencies impact our financial results and operating cash flows for our Servicing segment.
The Rithm servicing fee includes the total servicing fees collected on behalf of Rithm relating to the MSR sold but not derecognized from our balance sheet. Under GAAP, we separately present servicing fees collected and remitted on a gross basis, with the servicing fees remitted to Rithm reported as Pledged MSR liability expense.
The Rithm servicing fee includes the total servicing fees collected on behalf of Rithm relating to the MSR sold but not derecognized from our balance sheet. Under GAAP, we separately present servicing fees collected and remitted on a gross basis, with the servicing fees remitted to Rithm reported as Pledged MSR liability expense. (2) Excludes ancillary income.
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.
Cash Flows Our operating cash flow is primarily impacted by operating results, 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.
Cash outflows include a $327.1 million net repayments of borrowings under our mortgage warehouse and MSR financing facilities due to the decline in loans held for sale and $111.9 million of net payments on the financing liabilities related to MSRs transferred due to runoff.
Cash outflows include a $327.1 million net repayment of borrowings under our mortgage loan financing and MSR financing facilities due to decline in loans held for sale and $111.9 million of net payments on the financing liabilities related to MSRs transferred due to runoff.
We actively monitor our counterparty risk associated with our network of correspondent lenders-sellers. We purchase MSRs through flow purchase agreements, the Agency Cash Window programs and bulk MSR purchases.
We actively monitor our counterparty risk associated with our network of correspondent sellers. We purchase MSRs through flow purchase agreements, the Agency Cash Window co-issue programs and bulk MSR purchases.
Regarding the current maturities of our borrowings, as of December 31, 2022, we have approximately $1.7 billion of debt outstanding that would either come due, begin amortizing or require partial repayment in the next 12 months.
Regarding the current maturities of our borrowings, as of December 31, 2023, we have approximately $1.0 billion of debt outstanding that would either come due, begin amortizing or require partial repayment in the next 12 months.
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, conditional prepayment rate (including voluntary and involuntary prepayments) and discount rate.
The fair value of both reverse mortgage loans held for investment and 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 securitization spreads, conditional prepayment rate (including voluntary and involuntary prepayments) and discount rate.
In 2022 , we recorded a $12.5 million provision expense on receivables related to government-insured claims. Determining an allowance for losses involves management 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.
In 2023 , we recorded a $17.1 million provision expense on receivables related to government-insured claims. Determining an allowance for losses involves management 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 are focused on ensuring that we have sufficient liquidity sources to continue to operate and support our business initiatives. We continuously evaluate alternative financings to diversify our sources of funds, optimize maturities and reduce our funding cost. See “Sources of Funds” below.
We are focused on ensuring that we have sufficient liquidity sources to continue to operate and support our business initiatives. We continuously evaluate alternative financings to diversify our sources of funds, optimize maturities and reduce our funding cost.
As a result of these evaluations, we recognized a full valuation allowance of $177.5 million and $171.1 million on our U.S. deferred tax assets at December 31, 2022 and 2021, respectively. The U.S. jurisdictional deferred tax assets are not considered to be more likely than not realizable based on all available positive and negative evidence.
As a result of these evaluations, we recognized a full valuation allowance of $183.9 million and $177.5 million on our U.S. deferred tax assets at December 31, 2023 and 2022, respectively. The U.S. jurisdictional deferred tax assets are not considered to be more likely than not realizable based on all available positive and negative evidence.
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 represents a component of our compensation for servicing the portfolio, that is a percentage of the outstanding UPB.
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 represents a key component of our compensation for servicing the portfolio, which is generally a fixed percentage of the outstanding UPB.
Valuation of MSRs and Other Financing Liabilities We originate MSRs from our lending activities and acquire MSRs through flow purchase agreements, Agency Cash Window programs, bulk purchases, asset acquisitions or business combinations. We account for MSRs and pledged MSR liabilities at fair value (reported within Other financing liabilities, at fair value).
Valuation of MSRs and Other Financing Liabilities, at Fair Value We originate MSRs from our lending activities and acquire MSRs through flow purchase agreements, Agency Cash Window programs or bulk purchases. We account for MSRs, pledged MSR liabilities and ESS financing liabilities at fair value (reported within Other financing liabilities, at fair value).
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. In 2022, we recorded a $6.6 million provision expense for loss contingencies.
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. In 2023, we recorded a $30.0 million provision reversal for loss contingencies.
The prices provided by the valuation experts reflect their observations and assumptions related to market activity, incorporating available industry survey results, and including risk premiums and liquidity adjustments.
The prices provided by the valuation experts reflect their observations and assumptions related to market activity, generally the bulk market, incorporating available industry survey results and client feedback, and including risk premiums and liquidity adjustments.
Rating Agency Long-term Corporate Rating Review Status / Outlook Date of last action Moody’s Caa1 Positive August 15, 2022 S&P B- Stable January 24, 2023 On August 15, 2022, Moody’s reaffirmed their ratings of Caa1 and revised their outlook to Positive from Stable. In its affirmation of PMC’s ratings, Moody’s referenced currently weak but improving profitability and modest capital levels.
Rating Agency Long-term Corporate Rating Review Status / Outlook Date of last action Moody’s Caa1 Positive August 15, 2022 S&P B- Stable January 25, 2024 On August 15, 2022, Moody’s reaffirmed their ratings of Caa1 and revised their outlook to Positive from Stable. In its affirmation of PHH’s ratings, Moody’s referenced weak but improving profitability and modest capital levels.
Our total accrual for probable and estimable legal and regulatory matters, including accrued legal fees, was $42.2 million at December 31, 2022. It is possible that we will incur losses relating to threatened and pending litigation that materially exceed the amount accrued.
Our total accrual for probable and estimable legal and regulatory matters, including accrued legal fees, was $8.3 million at December 31, 2023. It is possible that we will incur losses relating to threatened and pending litigation that materially exceed the amount accrued.
The government-insured claims that do not exceed HUD, VA, FHA or USDA insurance limits are not subject to any allowance for losses as guaranteed by the U.S. government. At December 31, 2022, the allowance for losses on receivables related to government-insured claims was $33.8 million, which represented 24% of total government-insured claims receivables.
The government-insured claims that do not exceed HUD, VA, FHA or USDA insurance limits are not subject to any allowance for losses as guaranteed by the U.S. government. At December 31, 2023, the allowance for losses on receivables related to 85 government-insured claims was $24.6 million, which represented 23% of total government-insured claims receivables.
The Gain on reverse loans held for investment and HMBS-related borrowings, net reported within the Servicing segment includes the net fair value changes of securitized reverse mortgage loans held for investment and HMBS-related borrowings. We elected the fair value accounting election for both our reverse mortgage loans held for investment and the HMBS-related borrowings.
The Gain on reverse loans held for investment and HMBS-related borrowings, net reported within the Servicing segment includes the net fair value changes of securitized reverse mortgage loans held for investment and HMBS-related borrowings, for which we elected the fair value accounting option.
Gain on Reverse Loans Held for Investment and HMBS-Related Borrowings, Net The following table provides information regarding Gain on reverse loans held for investment and HMBS-related borrowings, 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 related volume and margin: Years Ended December 31, % Change 2022 2021 2020 2022 vs 2021 2021 vs 2020 Origination UPB (1) (in billions) $ 1.4 $ 1.5 $ 0.9 (6) % 62 % Origination margin (2) 4.25 % 5.37 % 5.64 % (21) (5) % Gain on reverse loans held for investment and HMBS-related borrowings, net (Originations) (3) $ 61.2 $ 82.0 $ 53.1 (25) % 54 % (1) Defined as the UPB of loans funded in the period.
Gain on Reverse Loans Held for Investment and HMBS-Related Borrowings, Net The following table provides information regarding Gain on reverse loans held for investment and HMBS-related borrowings, 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 (including loan fees): Years Ended December 31, % Change 2023 2022 2021 2023 vs 2022 2022 vs 2021 Origination UPB (1) (in billions) $ 0.7 $ 1.4 $ 1.5 (53) % (6) % Origination margin (2) 3.41 % 4.25 % 5.37 % (20) (21) % Gain on reverse loans held for investment and HMBS-related borrowings, net (Originations) $ 23.2 $ 61.2 $ 82.0 (62) % (25) % (1) Defined as the UPB of loans funded in the period.
In 2022, we added $88.8 billion of new volume, with $4.3 billion MSR bulk acquisitions, $54.8 billion of new subservicing and $29.5 billion of non-bulk Originations volume, as further detailed in the below table. $ In billions UPB $ Change Year Ended December 31st 2022 vs 2021 2021 vs 2020 2022 2021 2020 Mortgage servicing originations Retail - Consumer Direct MSR (1) $ 1.2 $ 2.4 $ 1.3 $ (1.2) $ 1.1 Correspondent MSR (1) 15.6 16.6 5.7 (1.0) 10.9 Flow and Agency Cash Window MSR purchases (2) 11.3 20.4 15.1 (9.1) 5.3 Reverse mortgage servicing (3) 1.4 1.5 0.9 (0.1) 0.6 Total servicing 29.5 41.0 23.0 (11.5) 17.9 Bulk MSR purchases (2) (5) 4.3 55.1 16.6 (50.8) 38.6 Bulk purchases - reverse (2) 0.2 — — 0.2 — Total servicing additions 34.0 96.1 39.6 (62.1) 56.5 Interim forward subservicing 12.6 14.7 17.8 (2.1) (3.0) Other new forward subservicing 29.0 26.9 — 2.1 26.9 Reverse subservicing 13.2 14.3 — (1.1) 14.3 Total subservicing additions (4) 54.8 55.9 17.8 (1.1) 38.1 Total servicing and subservicing UPB additions $ 88.8 $ 152.0 $ 57.4 $ (63.2) $ 94.6 (1) Represents the UPB of loans that have been originated or purchased (funded) during the respective periods and for which we recognize a new MSR on our consolidated balance sheets upon sale or securitization.
In 2023, we added $50.4 billion of new volume, mainly $27.6 billion of new subservicing and $22.3 billion of non-bulk new servicing, as further detailed in the below table. $ In billions UPB $ Change Years Ended December 31, 2023 vs 2022 2022 vs 2021 2023 2022 2021 Mortgage servicing originations Retail - Consumer Direct MSR (1) $ 0.4 $ 1.2 $ 2.4 $ (0.9) $ (1.2) Correspondent MSR (1) 12.2 15.6 16.6 (3.4) (1.0) Flow and Agency Cash Window MSR purchases (2) 9.1 11.3 20.4 (2.3) (9.1) Reverse mortgage servicing (3) 0.7 1.4 1.5 (0.8) (0.1) Total servicing 22.3 29.5 41.0 (7.2) (11.5) Bulk purchases (2) 0.5 4.5 55.1 (4.1) (50.6) Total servicing additions 22.8 34.0 96.1 (11.3) (62.1) Interim forward subservicing 6.8 12.6 14.7 (5.8) (2.1) Other new forward subservicing 19.4 29.0 26.9 (9.5) 2.1 Reverse subservicing 1.4 13.2 14.3 (11.9) (1.1) Total subservicing additions (4) 27.6 54.8 55.9 (27.2) (1.1) Total servicing and subservicing UPB additions $ 50.4 $ 88.8 $ 152.0 $ (38.4) $ (63.2) (1) Represents the UPB of loans that have been originated or purchased (funded) during the respective periods and for which we recognize a new MSR on our consolidated balance sheets upon sale or securitization.
We consider all other loans to be non-performing. (2) Conventional loans at December 31, 2022 include 66,796 prime loans with a UPB of $13.2 billion which we service or subservice. This compares to 73,340 prime loans with a UPB of $13.7 billion at December 31, 2021. Prime loans are generally good credit quality loans that meet GSE underwriting standards.
We consider all other loans to be non-performing. (2) Conventional loans at December 31, 2023 include 37,893 prime loans with a UPB of $9.7 billion that we service or subservice. This compares to 66,796 prime loans with a UPB of $13.2 billion at December 31, 2022. Prime loans are generally good credit quality loans that meet GSE underwriting standards.
Note that the fair value changes of the net asset value between securitized HECM loans and HMBS (referred to as our reverse MSR) attributable to interest rate changes are effectively used as a hedge of our forward MSR portfolio. See further description of our hedging strategy in Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Note that the fair value changes of the net asset value between securitized HECM loans and HMBS (referred to as our reverse MSR) attributable to interest rate changes are effectively used as a hedge of our forward MSR portfolio. See further description of our hedging strategy and its effectiveness in Item 7A.
Other 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 prior to sale or securitization, which is generally within 20 days.
Other Income (Expense) Interest income consists primarily of interest earned on newly-originated and purchased loans during the pipeline period prior to securitization or sale to investors. Interest expense is incurred to finance the mortgage loans during the same pipeline period, which is generally approximately 20 days.
Income Tax Benefit (Expense) Years Ended December 31, 2022 2021 2020 Income tax expense (benefit) $ (0.8) $ (22.4) $ (65.5) Income (loss) before income taxes 24.9 (4.4) (105.7) Effective tax rate (3.2) % 509.1 % 62.0 % Our effective tax rate for the periods indicated in the table above differs from the federal statutory income tax rate primarily due to the full valuation allowance recorded on our net U.S. federal and state deferred tax assets.
Income Tax Benefit (Expense) Years Ended December 31, 2023 2022 2021 Income tax expense (benefit) $ 5.6 $ (0.8) $ (22.4) Income (loss) before income taxes (58.1) 24.9 (4.4) Effective tax rate (10) % (3) % 509 % Our effective tax rate for the periods indicated in the table above differs from the 21% federal statutory income tax rate primarily due to the full valuation allowance recorded on our net U.S. federal and state deferred tax assets.
See Note 15 — Stockholders’ Equity for additional information. Key Trends The following discussion provides information regarding certain key drivers of our financial performance and includes certain forward-looking statements that are based on the current beliefs and expectations of Ocwen’s management and are subject to significant risks and uncertainties.
Key Trends The following discussion provides information regarding certain key drivers of our financial performance and includes certain forward-looking statements that are based on the current beliefs and expectations of Ocwen’s management and are subject to significant risks and uncertainties.
MSR valuation adjustments, net include the fair value gain and losses of the MSR portfolio, the MSR pledged liability associated with the MSR transfers that do not meet sale accounting and the ESS financing liabilities for which we elected the fair value option and that is collateralized by MSRs.
Included in MSR valuation adjustments, net are fair value gains and losses of the MSR pledged liability associated with the MSR transfers that do not meet sale accounting and the ESS financing liabilities for which we elected the fair value option and that is collateralized by MSRs.
Changes in the fair value of the loans held for investment are largely offset by changes in the value of the related secured financing. As of December 31, 2022, we reported $7.4 billion securitized loans held for investment at fair value and $7.3 billion HMBS-related borrowings at fair value, with a residual, net asset value of $65.8 million.
Changes in the fair value of the loans held for investment are largely offset by changes in the value of the related secured financing. As of December 31, 2023, we reported $7.9 billion securitized loans held for investment at fair value and $7.8 billion HMBS-related borrowings at fair value, with a residual, net asset value of $71.2 million.
Servicing and subservicing 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 modestly grow our servicing portfolio through our multi-channel Originations platform and through MAV and other capital partners.
Servicing and subservicing 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 grow our servicing and subservicing portfolio through our multi-channel Originations platform and through MSR capital partners, with an emphasis on subservicing.
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.
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.
Changes in mortgage rates directly impact the demand for both purchase and refinance forward mortgages and therefore can impact the financial results of our Originations segment. Small changes in mortgage rates directly impact housing affordability for both first-time and move-up home buyers and affect their ability to purchase a home.
Changes in mortgage rates, primarily the 30-year fixed rate mortgage, directly impact the demand for both purchase and refinance forward mortgages and therefore impact the production volumes and financial results of our 71 Originations segment. Small changes in mortgage rates directly impact housing affordability for both first-time and move-up home buyers and affect their ability to purchase a home.
Gain on reverse loans held for investment and HMBS-related borrowings, net - The reverse mortgage origination 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.
We expect continued competitive pressure on margins across all channels. Gain on reverse loans held for investment and HMBS-related borrowings, net - The reverse mortgage origination 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.
In 2022, we recorded a net $25.1 million loss on change in fair value of securitized loans held for investment and HMBS-related borrowings reported in Gain (loss) on reverse loans held for investment and HMBS-related borrowings, net in our Servicing segment.
In 2023, we recorded 83 a net $23.5 million gain on change in fair value of securitized loans held for investment and HMBS-related borrowings reported in Gain (loss) on reverse loans held for investment and HMBS-related borrowings, net in our Servicing segment.
(3) Additions include purchased MSRs on portfolios consisting of 79 loans with a UPB of $24.1 million that have not yet transferred to the PMC servicing system as of December 31, 2022. Because we have legal title to the MSRs, the UPB and count of the loans are included in our reported servicing portfolio.
(3) Additions include purchased MSRs on portfolios consisting of 49 loans with a UPB of $14.9 million that have not yet transferred to the PHH servicing system as of December 31, 2023. Because we have legal title to the MSRs, the UPB and count of the loans are included in our reported servicing portfolio.
We purchase closed loans that have been underwritten to investor guidelines from our network of correspondent sellers and sell and securitize them, on a servicing retained basis.
Our forward lending correspondent channel drives higher servicing portfolio replenishment. We purchase closed loans that have been underwritten to investor guidelines from our network of correspondent sellers and sell and securitize them, on a servicing retained basis.
(2) Ratio of gain on Loans held for sale to Origination UPB. 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.
(2) Ratio of gain on Loans held for sale to funded UPB. Note that the ratio differs from the day-one gain on sale margin upon lock.
See Note 13 — Borrowings to the Consolidated Financial Statements for additional information regarding our covenants. The most restrictive liquidity requirement under our debt agreements is for a minimum of $75.0 million in consolidated liquidity, as defined, under certain of our advance match funded debt and MSR financing facilities agreements.
See Note 14 — Borrowings to the Consolidated Financial Statements for additional information regarding our covenants. The most restrictive liquidity requirement under our debt agreements, excluding additional Agency minimum liquidity requirements, is for a minimum of $75.0 million in consolidated liquidity, as defined, under certain of our mortgage loan financing and MSR financing facilities agreements.
Changes in GSE or HUD guidelines and costs and the availability of alternative financing sources, such as non-Agency proprietary loans and traditional home equity loans, impact borrower demand for forward and reverse mortgages and therefore can impact the volume of mortgage originations. Investor Demand.
Changes in GSE or HUD guidelines and costs and the availability of alternative financing sources, such as non-Agency proprietary loans and traditional home equity loans, impact borrower demand for forward and reverse mortgages and therefore can impact the volume of mortgage originations. Margins. Changes in pricing margin for mortgages are closely correlated with changes in market size for mortgage loans.
Reverse Mortgage The activities and financial performance related to reverse mortgage loans that are securitized and classified as held for investment, at fair value, together with the HMBS-related borrowings, at fair value (internally identified as our Reverse Owned Servicing business) are reflected in the Servicing segment, consistent with how the activities are managed and internally reported.
The activities and financial performance related to our owned portfolio of reverse mortgage loans that are securitized and classified as held for investment, at fair value, together with the HMBS-related borrowings, at fair value are reflected in the Servicing segment.
The financial performance associated with the subservicing of reverse mortgage loans associated with the MAM (RMS) transaction is primarily reflected within Servicing and subservicing fees, net since Gain (loss) on reverse loans held for investment and HMBS-related borrowings, net strictly reflects the financial performance of owned loans/servicing.
Gain (loss) on reverse loans held for investment and HMBS-related borrowings, net strictly reflects the financial performance of owned loans/servicing and excludes any subservicing activity. The financial performance associated with the subservicing of reverse mortgage loans on behalf of investors is primarily reflected within Servicing and subservicing fees, net.
The fair value of our MSRs is typically correlated to changes in market interest rates; as interest rates decrease, the value of the servicing portfolio typically decreases as a result of higher anticipated prepayment speeds, and the reverse is true.
The fair value of our MSRs is typically correlated to changes in market interest rates; as interest rates decrease, the value of the MSR portfolio typically decreases as a result of higher anticipated prepayment speeds. Conversely, as interest rates increase, the value of the servicing portfolio typically increases as a result of lower anticipated prepayment speeds.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

32 edited+11 added−11 removed9 unchanged
Biggest changeWe 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. 92 Based on December 31, 2022 balances, if interest rates were to increase by 100 bps on our variable rate debt and cash and float balances, we estimate a net negative impact of approximately $3.2 million resulting from an increase of $20.6 million in annual interest expense and an increase of $17.4 million in annual interest income and other credits on deposits.
Biggest changeBased on December 31, 2023 balances, if interest rates were to increase by 100 bps on our variable rate debt and cash and float balances, we estimate a net positive impact of approximately $0.8 million resulting from an increase of $18.3 million in annual interest income and other credits on deposits and an increase of $17.5 million in annual interest expense.
TBAs, or To-Be-Announced securities are actively traded, forward contracts to purchase or sell Agency MBS on a specific future date. From time-to-time, we enter into exchange-traded options contracts with purchased put options financed by written call options. These derivative instruments are not designated as accounting hedges.
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. From time to time, we enter into exchange-traded options contracts with purchased put options financed by written call options.
Our management-level Market Risk Committee establishes and maintains policies that govern our risk appetite and associated hedging programs, including such factors as market volatility, duration and interest rate sensitivity measures, limits, 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 into hedging transactions and our liquidity risk profile.
Our management-level Market Risk Committee establishes and maintains policies that govern our risk appetite and associated hedging programs, including such factors as duration and interest rate sensitivity measures, limits, targeted hedge coverage ratios, the hedge instruments that we are permitted to use in our hedging activities and the counterparties with whom we are permitted to enter into hedging transactions and our liquidity risk profile.
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.
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 8.
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 December 31, 2022, given hypothetical instantaneous parallel shifts in the yield curve.
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 December 31, 2023, given hypothetical instantaneous parallel shifts in the yield curve.
The net daily market risk position of net pull-though adjusted locks and loans held for sale, less the offsetting hedges of the forward and reverse pipelines, is monitored daily and its daily limit is the greater of +/- 5% or +/- $15 million.
The net daily market risk position of net pull-though adjusted locks and loans held for sale, less the offsetting hedges of the forward and reverse pipelines, is monitored daily and its daily limit is +/- 5%.
We report changes in fair value of these derivative instruments in MSR valuation adjustments, net in our consolidated statements of operations, within the Servicing segment. We may, from time to time, establish inter-segment derivative instruments between the MSR and pipeline hedging strategies to minimize the use of third-party derivatives. Such inter-segment derivatives are eliminated in our consolidated financial statements.
We report changes in fair value of these derivative instruments in MSR valuation adjustments, net in our consolidated statements of operations, within the Servicing segment. We may, from time to time, establish inter-segment derivative instruments between the MSR and pipeline hedging strategies to minimize the use of third-party derivatives (none in 2023).
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. We did not enter into any foreign currency hedging derivative instruments during 2022.
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. We did not enter into any foreign currency hedging derivative instruments during the three year period ended December 31, 2023.
We periodically evaluate the hedge coverage ratio at the intended shock 90 interval to determine if it is relevant or warrants adjustment based on market conditions, symmetry of interest rate risk exposure, and liquidity impacts of both the hedge and asset profile under shock scenarios.
We regularly evaluate the hedge coverage ratio at the intended shock interval to determine if it is relevant or warrants adjustment based on market conditions, symmetry of interest rate risk exposure, liquidity impacts under shock scenarios, and other factors.
Loan commitments for forward loans generally range from 5 to 90 days, with the majority of our commitments to borrowers for 55 to 75 days and our commitments to correspondent sellers for 7 days. Loans held for sale are generally funded and sold within 3 to 20 days.
Loan commitments for forward loans generally range from 5 to 75 days, with the majority of our commitments to borrowers for 40 to 60 days and our commitments to correspondent sellers for 5 to 30 days. Loans held for sale are generally funded and sold within 5 to 30 days.
The interest-rate sensitive MSR portfolio exposure is defined as follows: • Agency MSR portfolio, • expected Agency MSR bulk transactions subject to letters of intent (LOI), • less the Agency MSRs subject to our sale agreements with Rithm (formerly NRZ), MAV and others (See Note 8 — Other Financing Liabilities, at Fair Value), • less the asset value for securitized HECM loans, net of the corresponding HMBS-related borrowings (Reverse).
The interest-rate sensitive MSR portfolio exposure is defined as follows: • Agency MSR portfolio, • expected Agency MSR bulk transactions subject to letters of intent (LOI), • less the Agency MSRs subject to our sale agreements with MAV, Rithm and others, also referred to as Pledged MSR liabilities (See Note 8 — Other Financing Liabilities, at Fair Value), • less the asset value for securitized HECM loans, net of the corresponding HMBS-related borrowings • other interest-rate sensitive exposures, including our ESS financing liabilities, as deemed appropriate by the Market Risk Committee.
The derivative instruments are subject to margin requirements, posted as either initial or variation margin. Ocwen may be required to post or may be entitled to receive cash collateral with its counterparties through margin calls, based on daily value changes of the instruments.
Such inter-segment derivatives are eliminated in our consolidated financial statements. 89 The derivative instruments are subject to margin requirements, posted as either initial or variation margin. Ocwen may be required to post or may be entitled to receive cash collateral with its counterparties through margin calls, based on daily value changes of the instruments.
Accordingly, 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.
With a partial hedge coverage ratio, 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.
Hypothetical change in values of the MSR and hedges are presented under a set instantaneous +/- 25 basis point parallel move in rates. Refer to the description below under Sensitivity Analysis for more details. Changes in fair value cannot be extrapolated because the relationship to the change in fair value may not be linear.
Hypothetical change in values of the MSR and hedges are presented under a set instantaneous +/- 25 basis point parallel move in rates. Refer to the description below under Sensitivity Analysis for more details.
We continuously evaluate the use of hedging instruments to strive to enhance the effectiveness and efficiency of our interest rate hedging strategy. The following table illustrates the interest rate sensitivity of our MSR portfolio exposure and associated hedges at December 31, 2022.
We continuously evaluate the use of hedging instruments with the objective of enhancing the effectiveness of our interest rate hedging strategy. 88 The following table illustrates the interest rate sensitivity of our MSR portfolio exposure and associated hedges at December 31, 2023.
This HMSR exposure is used as a partial offset to our forward MSR exposure and managed as part of our MSR hedging strategy described above. 91 Pipeline Hedging Strategy - Loans Held for Sale and IRLCs In our Originations business, we are exposed to interest rate risk and related price risk during the period from the date of the interest rate 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.
Pipeline Hedging Strategy - Loans Held for Sale and IRLCs In our Originations business, we are exposed to interest rate risk and related price risk during the period from the date of the interest rate lock commitment through (i) the lock commitment cancellation or expiration date or (ii) through the date of sale or securitization of the resulting loan into the secondary mortgage market.
Fair value at December 31, 2022 Hypothetical change in fair value due to 25 bps rate decrease (1) Hypothetical change in fair value due to 25 bps rate increase (1) Agency MSRs - interest rate sensitive (excluding Rithm and MAV) $ 1,584.8 $ (38.4) $ 36.3 Asset value of securitized HECM loans, net of HMBS-related borrowing 65.8 4.0 (4.0) MSR hedging derivative instruments (14.3) 9.9 (9.8) Total hedge position 13.9 (13.8) Hypothetical hedge coverage ratio (2) 36 % 38 % Hypothetical residual exposure to changes in interest rates $ (24.5) $ 22.5 (1) The baseline for the hypothetical change in fair value is based on a 10-year Treasury Rate of 3.80% at December 31, 2022.
Fair value at December 31, 2023 Hypothetical change in fair value due to 25 bps rate decrease (1) Hypothetical change in fair value due to 25 bps rate increase (1) Agency MSRs - interest rate sensitive (excluding MAV, Rithm and others) $ 1,496 $ (37) $ 37 Asset value of securitized HECM loans, net of HMBS-related borrowing (Reverse MSR) 71 4 (4) MSR hedging derivative instruments 15 35 (33) Total hedge position 39 (37) Hypothetical hedge coverage ratio (2) 104 % 102 % Hypothetical residual exposure to changes in interest rates $ 2 $ (1) (1) The baseline for the hypothetical change in fair value is based on a 10-year swap rate of 3.76% at December 31, 2023.
Change in Fair Value Down 25 bps Up 25 bps Asset value of securitized HECM loans, net of HMBS-related borrowing $ 4.0 $ (4.0) Loans held for investment - Unsecuritized HECM loans and tails 0.04 (0.04) Loans held for sale 7.5 (8.5) Derivative instruments 2.6 (1.8) Total MSRs - Agency and non-Agency (1) (39.5) 37.3 IRLCs (0.7) 0.5 Total, net $ (26.1) $ 23.5 (1) Primarily reflects the impact of market interest rate changes on projected prepayments on the Agency MSR portfolio, Rithm and MAV pledged MSR financing liabilities and ESS financing liabilities.
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, among other factors. 90 Change in Fair Value Down 25 bps Up 25 bps Asset value of securitized HECM loans, net of HMBS-related borrowing $ 4 $ (4) Loans held for investment - Unsecuritized HECM loans and tails — — Loans held for sale 5 (6) Derivative instruments 31 (28) Total MSRs - Agency and non-Agency (1) (38) 37 IRLCs (1) 1 Total, net $ 1 $ — (1) Primarily reflects the impact of market interest rate changes on projected prepayments on the Agency MSR portfolio, Rithm and MAV pledged MSR financing liabilities and ESS financing liabilities.
(4) Amounts are exclusive of any related discount or unamortized debt issuance costs. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this section is contained in the Consolidated Financial Statements of Ocwen Financial Corporation and Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm, beginning on Page F-1. ITEM 9.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this section is contained in the Consolidated Financial Statements of Ocwen Financial Corporation and Report of Deloitte & Touche LLP, Independent Registered Public Accounting Firm, beginning on Page F-1. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
As the market dictates, management may choose to maintain hedge coverage ratio levels at or beyond the above thresholds, with approval of the Market Risk Committee, in order to preserve liquidity and/or optimize asset returns.
As the market dictates, management may choose to maintain the hedge coverage ratio at different thresholds, with approval of the Market Risk Committee, in order to preserve liquidity and/or optimize asset returns. Prior to September, 2022, the hedge coverage ratio was required to remain within a minimum of 40% and maximum of 60%.
Changes in market factors, including interest rates, and our credit rating may require us to post additional cash collateral and could have a material adverse impact on our financial condition and liquidity. Loans Held for Investment and HMBS-related Borrowings The fair value of our HECM loan portfolio generally decreases as market interest rates rise and increases as market rates fall.
Changes in market factors, including interest rates, and our credit rating may require us to post additional cash collateral and could have a material adverse impact on our financial condition and liquidity.
The fair value of our HECM loan portfolio net of the fair value of the HMBS-related borrowings comprises the fair value of reverse mortgage loans, tails that are unsecuritized as of the balance sheet date 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.
The fair value of our securitized HECM loan portfolio net of the fair value of the HMBS-related borrowings represent a reverse mortgage economic MSR (HMSR) for risk management purposes. The fair value of our HMSR generally decreases as market interest rates rise and increases as market rates fall.
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.
Changes in fair value cannot be extrapolated because the relationship to the change in fair value may not be linear and other factors may apply, such as change in yield, spreads or other assumptions.
Borrowings The majority of the debt used to finance much of our operations is exposed to interest rate fluctuations.
Borrowings The majority of the collateralized debt used to finance our operations is based on variable rates, but remains exposed to interest rate fluctuations between repricing dates. Our corporate debt is based on fixed interest rates.
The interest rate exposure of loans held for sale and IRLCs is economically hedged with derivative instruments, including forward sales of Agency TBAs. The objective of our pipeline hedging strategy is to provide hedge coverage of locks and loans within certain tolerance levels.
This interest rate exposure of loans and IRLCs is economically hedged with derivative instruments, including forward sales of Agency TBAs. The objective of our pipeline hedging strategy is to reduce the volatility of the fair value of IRLCs and loans due to market interest rates, thus preserving the initial gain on sale margin at lock date.
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, among other inputs and assumptions.
See Note 17 — Derivative Financial Instruments and Hedging Activities to the Consolidated Financial Statements for additional information regarding our use of derivatives. 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 decrease in our net sensitivity from December 31, 2021 to December 31, 2022 (from approximately $35.0 - $38.6 million to $23.5 - $26.1 million for a 25 basis point parallel shift in the yield curve) is primarily driven by the effect of the increase in interest rates on our MSR portfolio (due to convexity), the sale of MSRs and the change in our hedging instruments in 2022.
The decrease in our net sensitivity from December 31, 2022 to December 31, 2023 (from approximately $24 - $26 million to nil - $1 million for a 25 basis point parallel shift in the yield curve, up and down, respectively) is primarily due to our raising of the hedge coverage ratio to 100% at December 31, 2023.
The objective of our risk management MSR policy is to provide partial hedge coverage of interest-rate sensitive MSR portfolio exposure, considering market and liquidity conditions.
The fair value of MSRs is subject to changes in market interest rates, among other inputs and assumptions. 87 The objective of our MSR interest rate risk management and hedging policy is to protect shareholders’ equity and earnings against the fair value volatility of interest-rate sensitive MSR portfolio exposure, considering market, liquidity, cost and other conditions.
The amounts based on market risk sensitive measures are hypothetical and presented for illustrative purposes only.
These sensitivities are hypothetical and presented for illustrative purposes only.
(2) The hypothetical hedge coverage ratio above is calculated as the change in fair value of the total hedge position divided by the change in value of the Agency MSR position. Our derivative instruments include forward trades of MBS or Agency TBAs with different banking counterparties, exchange-traded interest rate swap futures and interest rate options.
(2) The hypothetical hedge coverage ratio above is calculated as the change in fair value of the total hedge position divided by the change in value of the Agency MSR position. The above hypothetical hedge coverage ratio reflects the instrument sensitivities as of December 31, 2023 .
The hedge coverage ratio, defined as the ratio of hedge and asset rate sensitivity (referred to as DV01) at the time of measurement, is subject to lower and upper thresholds, as modeled. A minimum 25% and 30% hedge coverage ratios were required for interest rate declines less than, and more than 50 basis points, respectively.
The hedge coverage ratio, defined as the ratio of hedge and asset rate sensitivity (referred to as DV01) is subject to lower and upper target thresholds under our policy.
We report changes in fair value of these derivative instruments in gain on loans held for sale in our consolidated statements of operations, within the Originations segment. We establish inter-segment derivative instruments between the MSR and pipeline hedging strategies to minimize the use of third-party derivatives. Such inter-segment derivatives are eliminated in our consolidated financial statements.
We report changes in fair value of these derivative instruments as gain or loss on economic hedge instruments within either Gain on loans held for sale, net or Gain on reverse loans held for investment and HMBS-related borrowings, net in our consolidated statements of operations.
Removed
Prior to September 30, 2022, the hedge coverage ratio was required to remain within a minimum of 40% and maximum of 60%. MSRs subject to LOI may be covered under a separate hedge coverage ratio requirement sufficient to preserve the economics of the intended transactions.
Added
Effective September 2022, a minimum 25% and 30% hedge coverage ratios were required for interest rate declines less than, and more than 50 basis points, respectively. During the second quarter of 2023, management raised its minimum hedge coverage ratio to 60%. Effective December 2023, we established a targeted hedge coverage ratio range between 95% and 105%.
Removed
The HMSR acts as a partial hedge for our forward MSR value sensitivity.
Added
Changes in fair value cannot be extrapolated because the relationship to the change in fair value may not be linear and other factors may apply, such as change in yield, spreads or other assumptions. The amounts based on market risk sensitive measures are hypothetical and presented for illustrative purposes only.
Removed
Reverse origination pipeline is hedged under the same principles as described above, for unsecuritized loans held for investment.
Added
The actual hedge coverage ratio during the three months ended December 31, 2023, as monitored by Risk Management, may be summarized as follows: Fair value changes for the three months ended December 31, 2023 Change in 10-year swap (basis points) (79) Agency MSRs - interest rate sensitive (excluding MAV, Rithm and others) $ (145) Asset value of securitized HECM loans, net of HMBS-related borrowing (Reverse MSR) 13 MSR hedging derivative instruments 87 Total hedge position $ 100 Actual hedge coverage ratio during the period 69 % Residual (unhedged) fair value changes due to changes in interest rates $ (45) Our derivative instruments include forward trades of MBS or Agency TBAs with different banking counterparties, exchange-traded interest rate swap futures and interest rate options.
Removed
We purchase interest rate caps as economic hedges (not designated as a hedge for accounting purposes) when required by our advance financing arrangements.
Added
The fair value gains and losses of such inter-segment derivatives effectively reclassify certain derivative gains and losses between MSR valuation adjustments, net within the Servicing segment and Gain on loans held for sale, net within the Originations segment to reflect the performance of these economic hedging strategies in the appropriate segments (see Note 23 — Business Segment Reporting for the amount of such reclassification).
Removed
We used December 31, 2022 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.
Added
Loans Held for Investment and HMBS-related Borrowings The fair value of our securitized HECM loan portfolio generally decreases as market interest rates rise and increases as market rates fall.
Removed
Interest Rate Sensitive Financial Instruments The tables below present the notional amounts of our financial instruments that are sensitive to changes in interest rates categorized by expected maturity and the related fair value of these instruments at December 31, 2022 and 2021. We use certain assumptions to estimate the expected maturity and fair value of these instruments.
Added
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.
Removed
We base expected maturities upon contractual maturity and projected repayments and prepayments of principal based on our historical experience. The actual maturities of these instruments could vary substantially if future prepayments differ from our historical experience.
Added
HECM loans have a longer duration than HMBS-related borrowings as a result of the future draw commitments, and our obligations as issuer of HMBS to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECM loan is equal to 98% of the maximum claim amount.
Removed
Average interest rates are based on the contractual terms of the instrument and, in the case of variable rate instruments, reflect estimates of applicable forward rates. The averages presented represent weighted averages.
Added
This HMSR exposure is used as a partial offset to our forward MSR exposure and managed as part of our MSR hedging strategy described above.
Removed
Expected Maturity Date at December 31, 2022 2023 2024 2025 2026 2027 Thereafter Total Balance Fair Value (1) Rate-Sensitive Assets: Interest-earning cash $ 186.1 $ — $ — $ — $ — $ — $ 186.1 $ 186.1 Average interest rate 3.58 % — % — % — % — % — % 3.58 % Loans held for sale, at fair value 617.8 — — — — — 617.8 617.8 Average interest rate 6.19 % — % — % — % — % — % 6.19 % Loans held for sale, at lower of cost or fair value (2) 1.0 0.3 — — 3.5 4.9 4.9 Average interest rate 3.92 % 5.50 % — % — % — % 2.94 % 3.31 % Loans held for investment 662.9 799.4 860.7 657.0 969.4 3,554.8 7,504.1 7,504.1 Average interest rate 5.58 % 5.30 % 5.20 % 5.25 % 5.04 % 6.65 % 2.23 % Debt service accounts and interest-earning time deposits 22.3 — — 0.12 — 0.4 22.8 22.8 Average interest rate 0.32 % — % — % 3.96 % — % 5.40 % 0.33 % Total rate-sensitive assets $ 1,490.1 $ 799.7 $ 860.7 $ 657.1 $ 969.4 $ 3,558.8 $ 8,335.7 $ 8,335.7 Percent of total 17.88 % 9.59 % 10.33 % 7.88 % 11.63 % 42.69 % 100.00 % Rate-Sensitive Liabilities (3): Match funded liabilities $ 512.5 $ — $ — $ 1.2 $ — $ — $ 513.7 $ 513.7 Average interest rate 7.09 % — % — % 7.30 % — % — % 7.09 % Senior notes (4) — — — 375.0 285.0 — 660.0 555.2 Average interest rate — % — % — % 7.88 % 12.00 % — % 9.66 % Mortgage loan warehouse facilities 702.7 — — — — — 702.7 702.7 Average interest rate 5.74 % — % — % — % — % — % 5.74 % MSR financing facilities (4) 485.2 13.8 422.2 — — 33.4 954.6 932.1 Average interest rate 7.74 % 5.11 % 6.89 % — % — % — % 7.31 % Total rate-sensitive liabilities $ 1,700.4 $ 13.8 $ 422.2 $ 376.2 $ 285.0 $ 33.4 $ 2,831.0 $ 2,703.7 Percent of total 60.06 % 0.49 % 14.91 % 13.29 % 10.07 % 1.18 % 100.00 % 93 Expected Maturity Date at December 31, 2022 (Notional Amounts) 2023 2024 2025 2026 2027 There- after Total Balance Fair Value (1) Rate-Sensitive Derivative Financial Instruments: Derivative assets (liabilities) Forward sales of loans 140.0 — — — — — $ 140.0 $ 0.5 Average coupon 4.87 % — % — % — % — % — % 4.87 % TBA / Forward MBS trades - MSRs 75.0 — — — — — 75.0 (0.7) Average coupon 5.27 % — % — % — % — % — % 5.27 % Interest rate swap futures 670.0 — — — — — 670.0 (13.6) Average coupon 4.00 % — % — % — % — % — % 4.00 % IRLCs 553.9 — — — — — 553.9 (0.7) Average coupon 5.52 % — % — % — % — % — % 5.52 % TBA / forward MBS trades - Pipeline 814.0 — — — — — 814.0 6.6 Average coupon 5.38 % — % — % — % — % — % 5.38 % Others 56.4 — — — — — 56.4 (0.1) Average coupon 5.11 % — % — % — % — % — % 5.11 % Total derivatives, net $ 2,309.3 $ — $ — $ — $ — $ — $ 2,309.3 $ (8.0) Expected Maturity Date at December 31, 2021 2022 2023 2024 2025 2026 There- after Total Balance Fair Value (1) Rate-Sensitive Assets: Interest-earning cash $ 136.7 $ — $ — $ — $ — $ — $ 136.7 $ 136.7 Average interest rate 0.27 % — % — % — % — % — % 0.27 % Loans held for sale, at fair value 917.5 — — — — — 917.5 917.5 Average interest rate 3.59 % — % — % — % — % — % 3.59 % Loans held for sale, at lower of cost or fair value (2) 6.1 0.4 — — — 4.5 11.0 11.0 Average interest rate 4.19 % 5.51 % — % — % — % 3.59 % 3.98 % Loans held for investment 414.3 628.4 899.7 1,152.8 761.6 3,342.9 7,199.8 7,199.8 Average interest rate 3.13 % 3.23 % 3.23 % 2.96 % 2.93 % 2.74 % 2.78 % Debt service accounts and interest-earning time deposits 10.0 0.1 — — 0.1 0.5 10.6 10.6 Average interest rate 0.03 % 4.00 % — % — % 4.00 % 5.40 % 0.30 % Total rate-sensitive assets $ 1,484.5 $ 628.9 $ 899.7 $ 1,152.8 $ 761.7 $ 3,347.9 $ 8,275.5 $ 8,275.5 Percent of total 17.94 % 7.60 % 10.87 % 13.93 % 9.20 % 40.46 % 100.00 % Rate-Sensitive Liabilities (3): Match funded liabilities $ 512.3 $ — $ — $ — $ — $ — $ 512.3 $ 512.0 Average interest rate 1.54 % — % — % — % — % — % 1.54 % Senior notes (4) — — — — 400.0 285.0 685.0 674.9 Average interest rate — % — % — % — % 7.88 % 12.00 % 9.59 % Mortgage loan warehouse facilities 1,085.1 — — — — — $ 1,085.1 1,085.1 Average interest rate 2.61 % — % — % — % — % — % 2.61 % MSR financing facilities (4) 490.9 94.2 — — 277.1 39.5 901.7 873.8 Average interest rate 3.94 % 2.69 % — % — % 2.69 % — % 3.71 % Total rate-sensitive liabilities $ 2,088.3 $ 94.2 $ — $ — $ 677.1 $ 324.5 $ 3,184.1 $ 3,145.8 Percent of total 65.59 % 2.96 % — % — % 21.27 % 10.19 % 100.00 % 94 Expected Maturity Date at December 31, 2021 (Notional Amounts) 2022 2023 2024 2025 2026 There- after Total Balance Fair Value (1) Rate-Sensitive Derivative Financial Instruments: Forward sales of Reverse loans 175.0 — — — — — $ 175.0 $ 0.4 Average coupon 2.07 % — % — % — % — % — % 2.07 % TBA / Forward MBS trades - MSRs 550.0 — — — — — 550.0 (0.3) Average coupon 2.00 % — % — % — % — % — % 2.00 % Interest rate swap futures 792.5 — — — — — 792.5 1.7 Average coupon 1.53 % — % — % — % — % — % 1.53 % IRLCs 1,085.3 — — — — — 1,085.3 18.1 Average coupon 2.40 % — % — % — % — % — % 2.40 % TBA / forward MBS trades - Pipeline 1,232.0 — — — — — 1,232.0 — Average coupon 2.44 % — % — % — % — % — % 2.44 % Interest rate option contracts 575.0 — — — — — 575.0 (0.3) Average coupon — % — % — % — % — % — % — % Total derivatives, net $ 4,409.8 $ — $ — $ — $ — $ — $ 4,409.8 $ 19.7 (1) See Note 3 — Fair Value to the Consolidated Financial Statements for additional fair value information on financial instruments.
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Sensitivity Analysis Fair Value MSRs, Loans Held for Sale, Loans Held for Investment and Related Derivatives We assess and manage our interest rate risk on a daily basis primarily using sensitivity analyses. We develop sensitivity analyses to determine the impact on our earnings and financial condition across various interest rate scenarios that could be expected over different time horizons.
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(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.
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Our interest rate exposure spans from overnight rates to 30-year rates, with increased sensitivity related to the 5-, 10-, and 30-year rates. Sensitivity analyses are based on hypothetical change in values of different interest-rate sensitive assets and liabilities together with our hedges and are presented under a set instantaneous +/- 25 basis point parallel move in rates.
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.
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As servicer, we are also exposed to the impact of interest rate fluctuations on the float income we earn on balances held in trust from the date a loan payment is received from borrowers to the date funds are forwarded to investors.

Other ONIT 10-K year-over-year comparisons