x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended March 31, 2011
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or
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from: _____________________to _____________________
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Ocwen Financial Corporation
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(Exact name of registrant as specified in its charter)
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Florida
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65-0039856
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(State or other jurisdiction
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(I.R.S. Employer
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of incorporation or organization)
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Identification No.)
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2002 Summit Boulevard, 6th Floor, Atlanta, Georgia 30319
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(Address of principal executive offices) (Zip Code)
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(561) 682-8000
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(Registrant’s telephone number, including area code)
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Large accelerated filer
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x |
Accelerated filer
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o |
Non-accelerated filer
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o (Do not check if a smaller reporting company) |
Smaller reporting company
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o |
PAGE
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·
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our sources of liquidity, our ability to fund and recover advances, repayment of borrowings, compliance with debt covenants and the adequacy of financial resources;
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·
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servicing portfolio characteristics, including prepayment speeds, float balances, delinquency and advances rates;
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·
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our
ability to grow or otherwise adapt our business, including the availability of new servicing opportunities and joint
ventures;
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·
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our ability to reduce our cost structure;
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·
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our ability to successfully modify delinquent loans, manage foreclosures and sell foreclosed properties;
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·
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our reserves, valuations, provisions and anticipated realization on assets;
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·
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our ability to effectively manage our exposure to interest rate changes and foreign exchange fluctuations;
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·
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our credit and servicer ratings and other actions from various rating agencies;
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·
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uncertainty related to general economic and market conditions, delinquency rates, home prices and real-estate owned disposition timelines;
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·
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uncertainty related to the actions of loan owners, including mortgage-backed securities investors, regarding loan putbacks or legal actions;
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·
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uncertainty related to the processes for judicial and non-judicial foreclosure proceedings, including potential additional costs or delays or moratoria in the future or claims pertaining to past practices;
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·
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uncertainty related to litigation or dispute resolution and inquiries from government agencies into past servicing and foreclosure practices; and
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·
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uncertainty related to legislation, regulations, regulatory agency actions, government programs and policies, industry initiatives and evolving best servicing practices.
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March 31,
2011
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December 31,
2010
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|||||||
Assets
|
||||||||
Cash
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$ | 129,087 | $ | 127,796 | ||||
Restricted cash – for securitization investors
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1,005 | 727 | ||||||
Loans held for resale, at lower of cost or fair value
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25,153 | 25,803 | ||||||
Advances
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174,842 | 184,833 | ||||||
Match funded advances
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1,639,811 | 1,924,052 | ||||||
Loans, net – restricted for securitization investors
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65,112 | 67,340 | ||||||
Mortgage servicing rights
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184,571 | 193,985 | ||||||
Receivables, net
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50,279 | 69,518 | ||||||
Deferred tax assets, net
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137,551 | 138,716 | ||||||
Goodwill
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12,810 | 12,810 | ||||||
Premises and equipment, net
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5,110 | 5,475 | ||||||
Investments in unconsolidated entities
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11,588 | 12,072 | ||||||
Other assets
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128,868 | 158,282 | ||||||
Total assets
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$ | 2,565,787 | $ | 2,921,409 | ||||
Liabilities and Equity
|
||||||||
Liabilities
|
||||||||
Match funded liabilities
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$ | 1,289,129 | $ | 1,482,529 | ||||
Secured borrowings – owed to securitization investors
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60,841 | 62,705 | ||||||
Lines of credit and other secured borrowings
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77,710 | 246,073 | ||||||
Servicer liabilities
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2,067 | 2,492 | ||||||
Debt securities
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82,554 | 82,554 | ||||||
Other liabilities
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123,019 | 140,239 | ||||||
Total liabilities
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1,635,320 | 2,016,592 | ||||||
Commitments and Contingencies (Note 20)
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||||||||
Equity
|
||||||||
Ocwen Financial Corporation stockholders’ equity
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||||||||
Common stock, $.01 par value; 200,000,000 shares authorized; 100,937,283 and 100,726,947 shares issued and outstanding at March 31, 2011 and December 31, 2010, respectively
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1,009 | 1,007 | ||||||
Additional paid-in capital
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468,963 | 467,500 | ||||||
Retained earnings
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467,530 | 445,456 | ||||||
Accumulated other comprehensive loss, net of income taxes
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(7,281 | ) | (9,392 | ) | ||||
Total Ocwen Financial Corporation stockholders’ equity
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930,221 | 904,571 | ||||||
Non-controlling interest in subsidiaries
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246 | 246 | ||||||
Total equity
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930,467 | 904,817 | ||||||
Total liabilities and equity
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$ | 2,565,787 | $ | 2,921,409 |
For the three months ended March 31,
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2011
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2010
|
||||||
Revenue
|
||||||||
Servicing and subservicing fees
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$ | 102,505 | $ | 66,480 | ||||
Process management fees
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7,796 | 7,906 | ||||||
Other revenues
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705 | 1,200 | ||||||
Total revenue
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111,006 | 75,586 | ||||||
Operating expenses
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||||||||
Compensation and benefits
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14,787 | 12,777 | ||||||
Amortization of mortgage servicing rights
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8,923 | 6,375 | ||||||
Servicing and origination
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1,922 | 591 | ||||||
Technology and communications
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6,872 | 5,664 | ||||||
Professional services
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2,384 | 3,255 | ||||||
Occupancy and equipment
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4,130 | 4,446 | ||||||
Other operating expenses
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2,181 | 2,069 | ||||||
Total operating expenses
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41,199 | 35,177 | ||||||
Income from operations
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69,807 | 40,409 | ||||||
Other income (expense)
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||||||||
Interest income
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2,169 | 3,645 | ||||||
Interest expense
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(37,543 | ) | (12,471 | ) | ||||
Gain on trading securities
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— | 765 | ||||||
Loss on loans held for resale, net
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(904 | ) | (1,038 | ) | ||||
Equity in earnings of unconsolidated entities
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130 | 735 | ||||||
Other, net
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830 | (600 | ) | |||||
Other expense, net
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(35,318 | ) | (8,964 | ) | ||||
Income before income taxes
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34,489 | 31,445 | ||||||
Income tax expense
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12,425 | 10,574 | ||||||
Net income
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22,064 | 20,871 | ||||||
Net loss (income) attributable to non-controlling interest in subsidiaries
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10 | (11 | ) | |||||
Net income attributable to Ocwen Financial Corporation
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$ | 22,074 | $ | 20,860 | ||||
Earnings per share attributable to Ocwen Financial Corporation
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||||||||
Basic
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$ | 0.22 | $ | 0.21 | ||||
Diluted
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$ | 0.21 | $ | 0.20 | ||||
Weighted average common shares outstanding
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||||||||
Basic
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100,762,446 | 99,975,881 | ||||||
Diluted
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107,777,775 | 107,324,415 |
For the three months ended March 31,
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2011
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2010
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||||||
Net income
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$ | 22,064 | $ | 20,871 | ||||
Other comprehensive income (loss), net of income taxes:
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||||||||
Unrealized foreign currency translation income (loss ) arising during the period (1)
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20 | (70 | ) | |||||
Change in deferred loss on cash flow hedges arising during the period (2)
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1,945 | — | ||||||
Reclassification adjustment for losses on cash flow hedges included in net income (3)
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155 | — | ||||||
Net change in deferred loss on cash flow hedges
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2,100 | — | ||||||
Other (4)
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1 | — | ||||||
Total other comprehensive income (loss), net of income taxes
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2,121 | (70 | ) | |||||
Comprehensive income
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24,185 | 20,801 | ||||||
Comprehensive loss attributable to non-controlling interests
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— | 8 | ||||||
Comprehensive income attributable to Ocwen Financial Corporation
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$ | 24,185 | $ | 20,809 |
(1)
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Net of income tax (expense) benefit of $(13) and $30 for the three months ended March 31, 2011 and 2010, respectively.
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(2)
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Net of income tax expense of $1,073 for the three months ended March 31, 2011.
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(3)
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Net of income tax expense of $88 for the three months ended March 31, 2011.
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(4)
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Net of income tax expense of $1 for the three months ended March 31, 2011.
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OCN Shareholders
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||||||||||||||||||||||||||||
Common Stock
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Additional
Paid-in
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Retained
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Accumulated
Other
Comprehensive
Loss,
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Non-controlling Interest in
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||||||||||||||||||||||||
Shares
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Amount
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Capital
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Earnings
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Net of Taxes
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Subsidiaries
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Total
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||||||||||||||||||||||
Balance at December 31, 2010
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100,726,947 | $ | 1,007 | $ | 467,500 | $ | 445,456 | $ | (9,392 | ) | $ | 246 | $ | 904,817 | ||||||||||||||
Net income (loss)
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— | — | — | 22,074 | — | (10 | ) | 22,064 | ||||||||||||||||||||
Exercise of common stock options
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210,336 | 2 | 577 | — | — | — | 579 | |||||||||||||||||||||
Equity-based compensation
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— | — | 886 | — | — | — | 886 | |||||||||||||||||||||
Other comprehensive income, net of income taxes
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— | — | — | — | 2,111 | 10 | 2,121 | |||||||||||||||||||||
Balance at March 31, 2011
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100,937,283 | $ | 1,009 | $ | 468,963 | $ | 467,530 | $ | (7,281 | ) | $ | 246 | $ | 930,467 |
OCN Shareholders
|
||||||||||||||||||||||||||||
Common Stock
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Additional
Paid-in
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Retained
|
Accumulated
Other
Comprehensive
Loss,
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Non-controlling Interest in
|
||||||||||||||||||||||||
Shares
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Amount
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Capital
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Earnings
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Net of Taxes
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Subsidiaries
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Total
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||||||||||||||||||||||
Balance at December 31, 2009
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99,956,833 | $ | 1,000 | $ | 459,542 | $ | 405,198 | $ | (129 | ) | $ | 252 | $ | 865,863 | ||||||||||||||
Adoption of ASC 810 (FASB Statement No. 167), net of tax
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— | — | — | 2,274 | — | — | 2,274 | |||||||||||||||||||||
Net income
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— | — | — | 20,860 | — | 11 | 20,871 | |||||||||||||||||||||
Exercise of common stock options
|
207,775 | 2 | 959 | — | — | — | 961 | |||||||||||||||||||||
Equity-based compensation
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— | — | 948 | — | — | — | 948 | |||||||||||||||||||||
Other comprehensive loss, net of income taxes
|
— | — | — | — | (51 | ) | (19 | ) | (70 | ) | ||||||||||||||||||
Balance at March 31, 2010
|
100,164,608 | $ | 1,002 | $ | 461,449 | $ | 428,332 | $ | (180 | ) | $ | 244 | $ | 890,847 |
For the three months ended March 31,
|
2011
|
2010
|
||||||
Cash flows from operating activities
|
||||||||
Net income
|
$ | 22,064 | $ | 20,871 | ||||
Adjustments to reconcile net income to net cash provided by operating activities
|
||||||||
Amortization of mortgage servicing rights
|
8,923 | 6,375 | ||||||
Amortization of debt discount
|
6,046 | 1,146 | ||||||
Amortization of debt issuance costs – senior secured term loan
|
7,771 | — | ||||||
Depreciation
|
750 | 397 | ||||||
Reversal of valuation allowance on mortgage servicing assets
|
(214 | ) | (723 | ) | ||||
Gain on trading securities
|
— | (765 | ) | |||||
Loss on loans held for resale, net
|
904 | 1,038 | ||||||
Equity in earnings of unconsolidated entities
|
(130 | ) | (735 | ) | ||||
Gain on extinguishment of debt
|
(1,246 | ) | (146 | ) | ||||
(Increase) decrease in deferred tax assets, net
|
(10 | ) | 19,102 | |||||
Net cash provided by trading activities
|
— | 123,193 | ||||||
Net cash provided by loans held for resale activities
|
233 | 454 | ||||||
Changes in assets and liabilities:
|
||||||||
Decrease in advances and match funded advances
|
294,180 | 71,643 | ||||||
Decrease in receivables and other assets, net
|
38,393 | 13,033 | ||||||
Decrease in servicer liabilities
|
(425 | ) | (17,421 | ) | ||||
Decrease in other liabilities
|
(11,549 | ) | (14,826 | ) | ||||
Other, net
|
2,363 | 3,359 | ||||||
Net cash provided by operating activities
|
368,053 | 225,995 | ||||||
Cash flows from investing activities
|
||||||||
Distributions of capital from unconsolidated entities
|
1,458 | 1,201 | ||||||
Investment in unconsolidated entity – Correspondent One S.A.
|
(1,025 | ) | — | |||||
Additions to premises and equipment
|
(385 | ) | (1,600 | ) | ||||
Proceeds from sales of real estate
|
230 | 822 | ||||||
(Increase) decrease in restricted cash – for securitization investors
|
(278 | ) | 377 | |||||
Principal payments received on loans – restricted for securitization investors
|
1,501 | 1,324 | ||||||
Net cash provided by investing activities
|
1,501 | 2,124 | ||||||
Cash flows from financing activities
|
||||||||
(Repayment of) proceeds from match funded liabilities
|
(193,400 | ) | 90,794 | |||||
Repayment of secured borrowings – owed to securitization investors
|
(1,864 | ) | (3,055 | ) | ||||
Proceeds from lines of credit and other secured borrowings
|
— | 74,953 | ||||||
Repayment of lines of credit and other secured borrowings
|
(173,163 | ) | (13,400 | ) | ||||
Repayment of investment line
|
— | (156,968 | ) | |||||
Repurchase of debt securities
|
— | (11,589 | ) | |||||
Exercise of common stock options
|
836 | 871 | ||||||
Other
|
(672 | ) | (631 | ) | ||||
Net cash used by financing activities
|
(368,263 | ) | (19,025 | ) | ||||
Net increase in cash
|
1,291 | 209,094 | ||||||
Cash at beginning of period
|
127,796 | 90,919 | ||||||
Cash at end of period
|
$ | 129,087 | $ | 300,013 |
NOTE 1
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
1.
|
as the servicer we have the right to direct the activities that most significantly impact the economic performance of the trusts through our ability to manage the delinquent assets of the trusts, and
|
|
2.
|
as holder of all or a portion of the residual tranches of the securities issued by the trust, we have the obligation to absorb losses of the trusts, to the extent of the value of our investment, and the right to receive benefits from the trust, both of which could potentially be significant to the trusts.
|
For the three months ended March 31,
|
2011
|
2010
|
||||||
Total servicing and subservicing fee revenues
|
$ | 843 | $ | 951 | ||||
As of
|
||||||||
March 31,
2011
|
December 31,
2010 |
|||||||
Total servicing advances
|
$ | 14,996 | $ | 16,886 | ||||
Total mortgage servicing rights at amortized cost
|
1,289 | 1,330 |
March 31,
2011
|
December 31,
2010
|
|||||||
Match funded advances
|
$ | 1,639,811 | $ | 1,924,052 | ||||
Other assets
|
85,765 | 103,448 | ||||||
Total assets
|
$ | 1,725,576 | $ | 2,027,500 | ||||
Match funded liabilities
|
$ | 1,289,129 | $ | 1,482,529 | ||||
Due to affiliates (1)
|
236,512 | 262,900 | ||||||
Other liabilities
|
2,441 | 2,890 | ||||||
Total liabilities
|
$ | 1,528,082 | $ | 1,748,319 |
(1)
|
Amounts are payable to Ocwen and its consolidated affiliates and eliminated in consolidation.
|
NOTE 2
|
RECENT ACCOUNTING PRONOUNCEMENTS
|
NOTE 3
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
March 31, 2011
|
December 31, 2010
|
|||||||||||||||
Carrying
Value
|
Fair
Value
|
Carrying
Value
|
Fair
Value
|
|||||||||||||
Financial assets:
|
||||||||||||||||
Loans held for resale
|
$ | 25,153 | $ | 25,153 | $ | 25,803 | $ | 25,803 | ||||||||
Loans, net – restricted for securitization investors
|
65,112 | 62,728 | 67,340 | 64,795 | ||||||||||||
Advances
|
1,814,653 | 1,814,653 | 2,108,885 | 2,108,885 | ||||||||||||
Receivables, net
|
50,279 | 50,279 | 69,518 | 69,518 | ||||||||||||
Financial liabilities:
|
||||||||||||||||
Match funded liabilities
|
$ | 1,289,129 | $ | 1,292,417 | $ | 1,482,529 | $ | 1,486,476 | ||||||||
Lines of credit and other secured borrowings
|
77,710 | 68,312 | 246,073 | 252,722 | ||||||||||||
Secured borrowings – owed to securitization investors
|
60,841 | 60,069 | 62,705 | 62,105 | ||||||||||||
Servicer liabilities
|
2,067 | 2,067 | 2,492 | 2,492 | ||||||||||||
Debt securities
|
82,554 | 80,245 | 82,554 | 75,325 | ||||||||||||
Derivative financial instruments, net
|
$ | (12,397 | ) | $ | (12,397 | ) | $ | (15,351 | ) | $ | (15,351 | ) |
Level 1:
|
Quoted prices in active markets for identical assets or liabilities.
|
|
Level 2:
|
Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
|
|
Level 3:
|
Unobservable inputs for the asset or liability.
|
Carrying
value |
Level 1
|
Level 2
|
Level 3
|
|||||||||||
At March 31, 2011:
|
||||||||||||||
Measured at fair value on a recurring basis:
|
||||||||||||||
Derivative financial instruments, net (1)
|
$ | (12,397 | ) | — | — | $ | (12,397 | ) | ||||||
Measured at fair value on a non-recurring basis:
|
||||||||||||||
Loans held for resale (2)
|
25,153 | — | — | 25,153 | ||||||||||
Mortgage servicing rights (3)
|
342 | — | — | 342 | ||||||||||
At December 31, 2010:
|
||||||||||||||
Measured at fair value on a recurring basis:
|
||||||||||||||
Derivative financial instruments, net (1)
|
$ | (15,351 | ) | — | — | $ | (15,351 | ) | ||||||
Measured at fair value on a non-recurring basis:
|
||||||||||||||
Loans held for resale (2)
|
25,803 | — | — | 25,803 | ||||||||||
Mortgage servicing rights (3)
|
334 | — | — | 334 |
(1)
|
The derivative financial instruments are not exchange-traded and therefore quoted market prices or other observable inputs are not available. Fair value is based on estimates provided by third-party pricing sources. See Note 14 for additional information on our derivative financial instruments.
|
(2)
|
Loans held for resale are reported at the lower of cost or fair value. The fair value of loans for which we do not have a firm commitment to sell is based upon a discounted cash flow analysis with the expected future cash flows discounted at a rate commensurate with the risk of the estimated cash flows. Significant assumptions include collateral and loan characteristics, prevailing market conditions and the creditworthiness of the borrower. All loans held for resale were measured at fair value because the cost exceeded the estimated fair value. At March 31, 2011 and December 31, 2010, the carrying value of loans held for resale is net of a valuation allowance of $14,528 and $14,611, respectively. Current market illiquidity has reduced the availability of observable pricing data. Consequently, we classify loans within Level 3 of the fair value hierarchy.
|
(3)
|
Balances represent the carrying value of the impaired stratum of MSRs, net of a valuation allowance of $2,650 and $2,864 at March 31, 2011 and December 31, 2010, respectively. The estimated fair value exceeded amortized cost for all other strata. See Note 7 for additional information on MSRs, including significant assumptions used in their valuation.
|
Three months ended March 31, 2011:
|
Derivative Financial Instruments
|
|||
Beginning balance
|
$ | (15,351 | ) | |
Purchases, issuances, sales and settlements:
|
||||
Purchases
|
— | |||
Issuances
|
— | |||
Sales
|
— | |||
Settlements
|
46 | |||
46 | ||||
Total realized and unrealized gains and (losses) (1):
|
||||
Included in Other, net
|
(353 | ) | ||
Included in Other comprehensive income
|
3,261 | |||
2,908 | ||||
Transfers in and / or out of Level 3
|
— | |||
Ending balance
|
$ | (12,397 | ) |
Trading Securities
|
||||||||||||||||
Three months ended March 31, 2010:
|
Derivative
Financial Instruments |
Auction Rate
Securities |
Subordinates
and Residuals |
Total
|
||||||||||||
Beginning balance
|
$ | (45 | ) | $ | 247,464 | $ | 59 | $ | 247,478 | |||||||
Purchases, issuances, sales and settlements:
|
||||||||||||||||
Purchases
|
— | — | — | — | ||||||||||||
Issuances
|
— | — | — | — | ||||||||||||
Sales
|
— | (29,848 | ) | — | (29,848 | ) | ||||||||||
Settlements
|
— | (93,345 | ) | — | (93,345 | ) | ||||||||||
— | (123,193 | ) | — | (123,193 | ) | |||||||||||
Total realized and unrealized gains and (losses) (1):
|
||||||||||||||||
Included in Gain on trading securities
|
— | 765 | — | 765 | ||||||||||||
Included in Other, net
|
(435 | ) | — | — | (435 | ) | ||||||||||
(435 | ) | 765 | — | 330 | ||||||||||||
Transfers in and / or out of Level 3
|
— | — | — | — | ||||||||||||
Ending balance
|
$ | (480 | ) | $ | 125,036 | $ | 59 | $ | 124,615 |
(1)
|
Total net gains on trading securities for the first three months of 2010 include unrealized gains of $1,022 on auction rate securities held at March 31, 2010. The total net losses attributable to derivative financial instruments for three months ended March 31, 2011 and March 31, 2010 were comprised exclusively of losses on derivatives held at March 31, 2011 and March 31, 2010.
|
NOTE 4
|
ADVANCES
|
March 31,
2011
|
December 31,
2010
|
|||||||
Servicing:
|
||||||||
Principal and interest
|
$ | 77,889 | $ | 82,060 | ||||
Taxes and insurance
|
55,089 | 49,785 | ||||||
Foreclosure and bankruptcy costs
|
23,000 | 27,163 | ||||||
Other
|
14,746 | 21,701 | ||||||
170,724 | 180,709 | |||||||
Corporate Items and Other
|
4,118 | 4,124 | ||||||
$ | 174,842 | $ | 184,833 |
NOTE 5
|
MATCH FUNDED ADVANCES
|
March 31,
2011
|
December 31,
2010
|
|||||||
Principal and interest
|
$ | 736,178 | $ | 947,990 | ||||
Taxes and insurance
|
623,553 | 684,928 | ||||||
Foreclosure and bankruptcy costs
|
128,721 | 140,181 | ||||||
Real estate servicing costs
|
118,148 | 116,064 | ||||||
Other
|
33,211 | 34,889 | ||||||
$ | 1,639,811 | $ | 1,924,052 |
NOTE 6
|
LOANS – RESTRICTED FOR SECURITIZATION INVESTORS
|
March 31,
2011
|
December 31,
2010
|
|||||||
Single family residential loans (1)
|
$ | 67,649 | $ | 69,718 | ||||
Allowance for loans losses
|
(2,537 | ) | (2,378 | ) | ||||
$ | 65,112 | $ | 67,340 |
(1)
|
Includes nonperforming loans of $13,773 and $12,933 at March 31, 2011 and December 31, 2010, respectively.
|
NOTE 7
|
MORTGAGE SERVICING RIGHTS
|
Balance at December 31, 2010
|
$ | 193,985 | ||
Purchases
|
— | |||
Servicing transfers and adjustments
|
(4 | ) | ||
Decrease in impairment valuation allowance
|
214 | |||
Amortization (1)
|
(9,624 | ) | ||
Balance at March 31, 2011
|
$ | 184,571 |
(1)
|
During the first three months of 2011 and 2010, amortization of servicing liabilities exceeded the amount of charges we recognized to increase servicing liability obligations by $701 and $400, respectively. Amortization of mortgage servicing rights of $8,923 and $6,375 for these periods is reported net of these amounts in our Consolidated Statement of Operations.
|
Residential
|
Commercial
|
Total
|
||||||||||
UPB of Assets Serviced:
|
||||||||||||
March 31, 2011:
|
||||||||||||
Servicing
|
$ | 48,874,298 | $ | — | $ | 48,874,298 | ||||||
Subservicing (1)
|
21,668,663 | 388,514 | 22,057,177 | |||||||||
$ | 70,542,961 | $ | 388,514 | $ | 70,931,475 | |||||||
December 31, 2010:
|
||||||||||||
Servicing
|
$ | 51,252,380 | $ | — | $ | 51,252,380 | ||||||
Subservicing (1)
|
22,634,011 | 434,305 | 23,068,316 | |||||||||
$ | 73,886,391 | $ | 434,305 | $ | 74,320,696 |
(1)
|
Residential subservicing includes non-performing loans serviced for Freddie Mac.
|
NOTE 8
|
RECEIVABLES
|
Receivables
|
Allowance for Credit Losses
|
Net
|
||||||||||
March 31, 2011
|
||||||||||||
Servicing (1)
|
$ | 46,984 | $ | (242 | ) | $ | 46,742 | |||||
Affordable housing (2)
|
6,893 | (5,877 | ) | 1,016 | ||||||||
Due from Altisource (3)
|
996 | — | 996 | |||||||||
Other
|
2,812 | (1,287 | ) | 1,525 | ||||||||
$ | 57,685 | $ | (7,406 | ) | $ | 50,279 | ||||||
December 31, 2010
|
||||||||||||
Servicing (1)
|
$ | 59,436 | $ | (262 | ) | $ | 59,174 | |||||
Income taxes receivable
|
3,620 | — | 3,620 | |||||||||
Affordable housing (2)
|
6,882 | (5,866 | ) | 1,016 | ||||||||
Due from Altisource (3)
|
2,445 | — | 2,445 | |||||||||
Other
|
4,586 | (1,323 | ) | 3,263 | ||||||||
$ | 76,969 | $ | (7,451 | ) | $ | 69,518 |
(1)
|
The balances at March 31, 2011 and December 31, 2010 arise from our Servicing business and primarily include reimbursable expenditures due from investors and amounts to be recovered from the custodial accounts of the trustees.
|
(2)
|
The balances at March 31, 2011 and December 31, 2010 primarily represent annual payments to be received through June 2014 for proceeds from sales of investments in affordable housing properties. None of these receivables are delinquent.
|
(3)
|
See Note 19 for additional information regarding our relationship with Altisource.
|
Affordable Housing
|
Other
|
Total
|
||||||||||
Beginning allowance for credit losses balance
|
$ | 5,866 | $ | 1,323 | $ | 7,189 | ||||||
Charge offs
|
— | — | — | |||||||||
Recoveries
|
— | (36 | ) | (36 | ) | |||||||
Provision
|
11 | — | 11 | |||||||||
Ending allowance for credit losses balance
|
$ | 5,877 | $ | 1,287 | $ | 7,164 | ||||||
Ending receivables balance
|
$ | 6,893 | $ | 2,812 | $ | 9,705 |
NOTE 9
|
OTHER ASSETS
|
March 31,
2011
|
December 31,
2010
|
|||||||
Debt service accounts (1)
|
$ | 69,566 | $ | 86,234 | ||||
Interest earning collateral deposits (2)
|
23,510 | 25,738 | ||||||
Prepaid lender fees and debt issuance costs, net (3)
|
14,806 | 22,467 | ||||||
Term note (4)
|
5,600 | 5,600 | ||||||
Real estate, net
|
4,153 | 4,682 | ||||||
Other
|
11,233 | 13,561 | ||||||
$ | 128,868 | $ | 158,282 |
(1)
|
Under our four advance funding facilities, we are contractually required to remit collections on pledged advances to the trustee within two days of receipt. The collected funds are not applied to reduce the related match funded debt until the payment dates specified in the indenture. The balance also includes amounts that have been set aside from the proceeds of our four match funded advance facilities to provide for possible shortfalls in the funds available to pay certain expenses and interest. These funds are held in interest earning accounts.
|
(2)
|
Includes $14,908 and $18,684 of cash collateral held by the counterparties to certain of our interest rate swap agreements as at March 31, 2011 and December 31, 2010, respectively.
|
(3)
|
Costs at March 31, 2011 and December 31, 2010 relate to match funded liabilities and other secured borrowings of the Servicing segment, including the $350,000 senior secured term loan facility. We amortize these costs to the earlier of the scheduled amortization date, contractual maturity date or prepayment date of the debt.
|
(4)
|
In March 2009, we issued a $7,000 note receivable, maturing on April 1, 2014, in connection with advances funded by the Ocwen Servicer Advance Funding, LLC (OSAF) term note pledged as collateral, as described in Note 12. We receive 1-Month LIBOR plus 300 basis points (bps) under the terms of this note receivable. Under the terms of the note, repayments of $1,400 per year are required beginning April 1, 2010. We are obligated to pay 1-Month LIBOR plus 350 bps under the terms of a five-year note payable to the same counterparty. We do not have a contractual right to offset these payments. This note is performing in accordance with its terms and we have not recognized an allowance for credit allowances at March 31, 2011 or December 31, 2010.
|
NOTE 10
|
MATCH FUNDED LIABILITIES
|
Unused
|
Balance Outstanding
|
|||||||||||||||||
Amortization | Borrowing |
March 31,
|
December | |||||||||||||||
Borrowing Type
|
Interest Rate
|
Maturity (1)
|
Date (1) | Capacity (2) |
2011
|
31, 2010
|
||||||||||||
Advance Receivable Backed Note Series 2009-3 (3)
|
4.14% |
Jul. 2023
|
Jul. 2012
|
$ | — | $ | 210,000 | $ | 210,000 | |||||||||
Variable Funding Note Series 2009-2 (4)
|
1-Month LIBOR + 350 bps
|
Nov. 2023
|
Nov. 2012
|
88,000 | — | — | ||||||||||||
Variable Funding Note Series 2009-1 (5)
|
Commercial paper rate + 200 bps
|
Feb. 2022
|
Feb. 2012
|
249,456 | 50,544 | 1,095 | ||||||||||||
Advance Receivable Backed Note Series 2010-1 (3)(6)
|
3.59% |
Sep. 2023
|
Feb. 2011
|
— | 160,000 | 200,000 | ||||||||||||
Class A-1 Term Note
|
Commercial paper rate + 350 bps
|
Aug. 2043
|
Aug. 2013
|
— | 555,919 | 721,000 | ||||||||||||
Class A-2 Variable Funding Note
|
Commercial paper rate + 350 bps
|
Aug. 2043
|
Aug. 2013
|
200,000 | — | — | ||||||||||||
Class B Term Note
|
Commercial paper rate + 525 bps
|
Aug. 2043
|
Aug. 2013
|
— | 25,872 | 33,500 | ||||||||||||
Class C Term Note
|
Commercial paper rate + 625 bps
|
Aug. 2043
|
Aug. 2013
|
— | 24,617 | 31,900 | ||||||||||||
Class D Term Note
|
1-Month LIBOR + 750 bps
|
Aug. 2043
|
Aug. 2013
|
— | 18,991 | 24,600 | ||||||||||||
Advance Receivable Backed Notes (7)
|
1-Month LIBOR + 400 bps
|
Mar. 2020
|
May 2011
|
91,141 | 8,859 | 10,315 | ||||||||||||
Advance Receivable Backed Notes (7)(8)
|
1-Month LIBOR + 200 bps
|
May 2012
|
May 2011
|
265,673 | 234,327 | 250,119 | ||||||||||||
$ | 894,270 | $ | 1,289,129 | $ | 1,482,529 |
(1)
|
The amortization date of our facilities is the date on which the revolving period ends under each advance facility note and repayment of the outstanding balance must begin if the note is not renewed or extended. The maturity date is the date on which all outstanding balances must be repaid. In all but two advance facilities, there is a single note outstanding. For each of these facilities, after the amortization date, all collections that represent the repayment of advances pledged to the facility must be applied to reduce the balance of the note outstanding, and any new advances are ineligible to be financed.
|
(2)
|
Our unused borrowing capacity is available to us provided that we have additional eligible collateral to pledge. Collateral may only be pledged to one facility.
|
(3)
|
These notes were issued under the Term Asset-Backed Securities Loan Facility (TALF) program administered by the Federal Reserve Bank of New York.
|
(4)
|
Under the terms of the note purchase agreement, the maximum funding obligation will increase from $88,000 to $100,000 in November 2011.
|
(5)
|
The interest rate for this note is determined using a commercial paper rate that reflects the borrowing costs of the lender plus a margin of 200 bps. In February 2011, the amortization date was extended to February 2012.
|
(6)
|
This note entered into its amortization period in February 2011. The 2010-1 Indenture Supplement provides for scheduled amortization of $40,000 per quarter through January 2012.
|
(7)
|
In
May 2011, the amortization date was extended to June 30, 2011.
|
(8)
|
Under the terms of the facility, we pay interest on drawn balances at 1-Month LIBOR plus 200 bps. In addition, we pay, in twelve monthly installments, a facility fee of 1.30% of the maximum borrowing capacity of $500,000.
|
NOTE 11
|
SECURED BORROWINGS – OWED TO SECURITIZATION INVESTORS
|
NOTE 12
|
LINES OF CREDIT AND OTHER SECURED BORROWINGS
|
Unused |
Balance Outstanding
|
|||||||||||||||||||||
Borrowing | March 31, | December | ||||||||||||||||||||
Borrowings
|
Collateral
|
Interest Rate
|
Maturity
|
Capacity
|
2011
|
31, 2010
|
||||||||||||||||
Servicing:
|
||||||||||||||||||||||
Senior secured term loan (1)
|
1-Month LIBOR + 700 bps with a LIBOR floor of 2% (1)
|
June 2015
|
$ | — | $ | 26,250 | $ | 197,500 | ||||||||||||||
Fee reimbursement advance
|
Term note (2)
|
Zero coupon
|
March 2014
|
— | 46,754 | 48,000 | ||||||||||||||||
Term note (3)
|
Advances
|
1-Month LIBOR + 350 basis points
|
March 2014
|
— | 4,200 | 5,600 | ||||||||||||||||
— | 77,204 | 251,100 | ||||||||||||||||||||
Corporate Items and Other
|
||||||||||||||||||||||
Securities sold under an agreement to repurchase (4)
|
Ocwen Real Estate Asset Liquidating Trust 2007-1 Notes
|
(4) | (4) | — | 7,261 | 7,774 | ||||||||||||||||
84,465 | 258,874 | |||||||||||||||||||||
Discount (1) (2)
|
— | (6,755 | ) | (12,801 | ) | |||||||||||||||||
$ | — | $ | 77,710 | $ | 246,073 |
(1)
|
On July 29, 2010, we entered into a senior secured term loan facility agreement and borrowed $350,000. The loan was issued with an original issue discount of $7,000 that we are amortizing over the expected life of the loans. The unamortized balance of the discount at March 31, 2011 is $545. Borrowings bear interest, at the election of Ocwen, at a rate per annum equal to either (a) the greatest of (i) the prime rate of Barclays Bank PLC in effect on such day, (ii) the federal funds effective rate in effect on such day plus 0.50% and (iii) the one-month Eurodollar rate (1-Month LIBOR), in each case plus the applicable margin of 6.00% and a floor of 3.00% or (b) 1-Month LIBOR, plus the applicable margin of 7.00% with a 1-Month LIBOR floor of 2.00%. We are required to repay the principal amount in consecutive quarterly installments of $8,750 commencing September 30, 2010, with the balance becoming due on July 29, 2015. Payments in excess of the mandatory quarterly installments also serve to reduce borrowing capacity under this facility, so that capacity always equals the amount outstanding. We have pledged otherwise unencumbered cash, MSRs, advances, receivables, premises and equipment and other assets, excluding interest earning collateral and debt service accounts, as collateral for this loan.
|
(2)
|
We have pledged our interest in a $60,000 term note issued by OSAF on March 31, 2009 as collateral for this advance. In turn, we have pledged advances on loans serviced for others as collateral for the OSAF note, similar to match funded advances and liabilities. The fee reimbursement advance is payable annually no later than April 30 in five installments of $12,000. However, under the service agreement that governs this advance, a portion of the annual installment is forgiven if the net written premium by the lender for insurance on serviced loans and real estate exceeds $100,000 during the contract year that ends each March 31. Based on the net written premium for the contract year ended March 31, 2011, the lender forgave $1,246 of the outstanding debt balance. We recognized this gain on the extinguishment of debt in Other income (expense), net. We repaid the remainder of the annual $12,000 installment in April 2011. The advance does not carry a stated rate of interest. However, we are compensating the lender for the advance of funds by forgoing the receipt of fees due from the lender over the five-year term of the advance. Accordingly, we recorded the advance as a zero-coupon bond issued at an initial implied discount of $14,627. We used an implicit market rate of 10.1% to compute the discount that we are amortizing to interest expense over the five-year term of the advance. The unamortized balance of the discount at March 31, 2011 is $6,210.
|
(3)
|
This note that was issued by OSAF is secured by advances on loans serviced for others, similar to match funded advances and liabilities. The lender has pledged its interest in this note to us as collateral against the $5,600 term note receivable from the lender that we hold. See Note 9 additional information.
|
(4)
|
In August 2010, we obtained financing under a repurchase agreement for the Class A-2 and A-3 notes issued by Ocwen Real Estate Asset Liquidating Trust 2007-1 with a face value of $33,605. This agreement has no stated credit limit and lending is determined for each transaction based on the acceptability of the securities presented as collateral. Borrowings mature and are renewed monthly. The borrowings secured by the Class A-2 notes bear interest at 1-Month LIBOR + 200 basis points and borrowings secured by the Class A-3 notes bear interest at 1-Month LIBOR + 300 basis points.
|
NOTE 13
|
OTHER LIABILITIES
|
March 31,
2011
|
December 31,
2010
|
|||||||
Accrued expenses (1)(2)
|
$ | 51,065 | $ | 55,816 | ||||
Checks held for escheat
|
18,091 | 18,087 | ||||||
Derivatives, at fair value
|
12,497 | 15,670 | ||||||
Deferred income
|
9,622 | 10,394 | ||||||
Accrued interest payable
|
3,559 | 4,830 | ||||||
Liability for selected tax items
|
2,913 | 2,913 | ||||||
Payable to Altisource (3)
|
2,899 | 3,877 | ||||||
Income taxes payable
|
2,793 | — | ||||||
Servicing liabilities
|
2,714 | 3,415 | ||||||
Other (4)
|
16,866 | 25,237 | ||||||
$ | 123,019 | $ | 140,239 |
(1)
|
The balances at March 31, 2011 and December 31, 2010 include $22,690 and $24,366, respectively, of litigation reserves established primarily in connection with the settlement of one legal proceeding and a judgment in another case. See Note 20 for additional information regarding these cases.
|
(2)
|
During 2010, in connection with the HomEq Acquisition, we accrued facility closure costs of $7,794 for the termination of the HomEq office leases effective in 2013 and $32,954 for employee termination benefits. The balances at March 31, 2011 and December 31, 2010 include $7,158 and $7,794, respectively, of lease termination accruals and $232 and $1,332, respectively, of employee termination benefit accruals. The change in the accrual balances is due to payments made, net of $8 of amortization of the discount recorded at the time that the lease termination accrual was established.
|
(3)
|
See Note 19 for additional information regarding our relationship with Altisource.
|
(4)
|
The balances at March 31, 2011 and December 31, 2010 include $7,645 and $14,943, respectively, due to investors in connection with loans we service under subservicing agreements.
|
NOTE 14
|
DERIVATIVE FINANCIAL INSTRUMENTS
|
Foreign Exchange Forwards
|
Interest Rate Swaps
|
|||||||
Notional balance at December 31, 2010
|
$ | 6,400 | $ | 846,888 | ||||
Additions
|
— | — | ||||||
Maturities
|
(4,800 | ) | (40,861 | ) | ||||
Terminations
|
— | — | ||||||
Notional balance at March 31, 2011
|
$ | 1,600 | $ | 806,027 | ||||
Fair value of derivative assets (liabilities) at (1):
|
||||||||
March 31, 2011
|
$ | 100 | $ | (12,497 | ) | |||
December 31, 2010
|
$ | 319 | $ | (15,670 | ) | |||
Maturity
|
April 2011
|
November 2011 to August 2013
|
(1)
|
Derivatives are reported at fair value in Other assets or in Other liabilities.
|
NOTE 15
|
SERVICING AND SUBSERVICING FEES
|
2011
|
2010
|
|||||||
Loan servicing and subservicing fees
|
$ | 77,437 | $ | 45,913 | ||||
Home Affordable Modification Program (HAMP) fees
|
8,638 | 6,453 | ||||||
Late charges
|
8,544 | 8,180 | ||||||
Loan collection fees
|
2,554 | 2,143 | ||||||
Custodial accounts (float earnings) (1)
|
539 | 488 | ||||||
Other
|
4,793 | 3,303 | ||||||
$ | 102,505 | $ | 66,480 |
(1)
|
For the three months ended March 31, 2010, float earnings included $431 of interest income from our investment in auction rate securities.
|
NOTE 16
|
INTEREST EXPENSE
|
2011
|
2010
|
|||||||
Match funded liabilities
|
$ | 20,784 | $ | 10,001 | ||||
Lines of credit and other secured borrowings
|
15,238 | 521 | ||||||
Secured borrowings – owed to securitization investors
|
196 | 190 | ||||||
Investment line
|
— | 376 | ||||||
Debt securities:
|
||||||||
3.25% Convertible Notes
|
459 | 459 | ||||||
10.875% Capital Trust Securities
|
710 | 822 | ||||||
Other
|
156 | 102 | ||||||
$ | 37,543 | $ | 12,471 |
NOTE 17
|
BASIC AND DILUTED EARNINGS PER SHARE
|
2011
|
2010
|
|||||||
Basic EPS:
|
||||||||
Net income attributable to Ocwen Financial Corporation
|
$ | 22,074 | $ | 20,860 | ||||
Weighted average shares of common stock
|
100,762,446 | 99,975,881 | ||||||
Basic EPS
|
$ | 0.22 | $ | 0.21 | ||||
Diluted EPS:
|
||||||||
Net income attributable to Ocwen Financial Corporation
|
$ |