(Mark One)
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x
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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 September 30, 2011
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or
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o
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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 |
(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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Large accelerated filer
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x
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Accelerated filer o
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Non-accelerated filer
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o (Do not check if a smaller reporting company)
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Smaller reporting company o
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PAGE
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34
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52
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53
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53
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53
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56
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57
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·
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our sources of liquidity; our ability to fund and recover advances, repay borrowings, and comply 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;
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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; and
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·
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uncertainty related to acquisitions.
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September 30,
2011 |
December 31,
2010 |
|||||||
Assets
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||||||||
Cash
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$ | 152,037 | $ | 127,796 | ||||
Restricted cash – for securitization investors
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910 | 727 | ||||||
Loans held for resale, at lower of cost or fair value
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21,933 | 25,803 | ||||||
Advances
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118,872 | 184,833 | ||||||
Match funded advances
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3,756,834 | 1,924,052 | ||||||
Loans, net – restricted for securitization investors
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60,389 | 67,340 | ||||||
Mortgage servicing rights
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299,717 | 193,985 | ||||||
Receivables, net
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53,141 | 69,518 | ||||||
Deferred tax assets, net
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138,483 | 138,716 | ||||||
Goodwill
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57,380 | 12,810 | ||||||
Premises and equipment, net
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28,376 | 5,475 | ||||||
Investments in unconsolidated entities
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23,364 | 12,072 | ||||||
Other assets
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185,739 | 158,282 | ||||||
Total assets
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$ | 4,897,175 | $ | 2,921,409 | ||||
Liabilities and Equity
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||||||||
Liabilities
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||||||||
Match funded liabilities
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$ | 3,080,228 | $ | 1,482,529 | ||||
Secured borrowings – owed to securitization investors
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55,323 | 62,705 | ||||||
Lines of credit and other secured borrowings
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555,110 | 246,073 | ||||||
Servicer liabilities
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4,417 | 2,492 | ||||||
Debt securities
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82,554 | 82,554 | ||||||
Other liabilities
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141,600 | 140,239 | ||||||
Total liabilities
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3,919,232 | 2,016,592 | ||||||
Commitments and Contingencies (Note 22)
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||||||||
Equity
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||||||||
Ocwen Financial Corporation stockholders’ equity
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||||||||
Common stock, $.01 par value; 200,000,000 shares authorized; 101,093,217 and 100,726,947 shares issued and outstanding at September 30, 2011 and December 31, 2010, respectively
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1,011 | 1,007 | ||||||
Additional paid-in capital
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470,862 | 467,500 | ||||||
Retained earnings
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514,136 | 445,456 | ||||||
Accumulated other comprehensive loss, net of income taxes
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(8,307 | ) | (9,392 | ) | ||||
Total Ocwen Financial Corporation (OCN) stockholders’ equity
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977,702 | 904,571 | ||||||
Non-controlling interest in subsidiaries
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241 | 246 | ||||||
Total equity
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977,943 | 904,817 | ||||||
Total liabilities and equity
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$ | 4,897,175 | $ | 2,921,409 |
For the periods ended September 30,
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Three months
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Nine months
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||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
Revenue
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||||||||||||||||
Servicing and subservicing fees
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$ | 112,611 | $ | 86,424 | $ | 310,953 | $ | 218,840 | ||||||||
Process management fees
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9,215 | 7,911 | 26,151 | 24,132 | ||||||||||||
Other revenues
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636 | 1,234 | 2,201 | 4,136 | ||||||||||||
Total revenue
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122,462 | 95,569 | 339,305 | 247,108 | ||||||||||||
Operating expenses
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||||||||||||||||
Compensation and benefits
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29,067 | 43,886 | 59,107 | 69,752 | ||||||||||||
Amortization of mortgage servicing rights
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11,210 | 7,874 | 30,059 | 22,103 | ||||||||||||
Servicing and origination
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1,969 | 1,707 | 5,192 | 4,756 | ||||||||||||
Technology and communications
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8,529 | 6,727 | 21,774 | 18,582 | ||||||||||||
Professional services
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5,075 | 25,132 | 10,729 | 37,521 | ||||||||||||
Occupancy and equipment
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6,720 | 5,201 | 15,003 | 13,517 | ||||||||||||
Other operating expenses
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3,080 | 2,847 | 7,239 | 6,978 | ||||||||||||
Total operating expenses
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65,650 | 93,374 | 149,103 | 173,209 | ||||||||||||
Income from operations
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56,812 | 2,195 | 190,202 | 73,899 | ||||||||||||
Other income (expense)
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||||||||||||||||
Interest income
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2,186 | 2,962 | 6,644 | 8,507 | ||||||||||||
Interest expense
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(27,658 | ) | (24,187 | ) | (87,014 | ) | (50,017 | ) | ||||||||
Loss on trading securities
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— | (3,013 | ) | — | (3,958 | ) | ||||||||||
Loss on loans held for resale, net
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(1,011 | ) | (539 | ) | (3,531 | ) | (2,626 | ) | ||||||||
Equity in (loss) earnings of unconsolidated entities
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(140 | ) | 266 | (690 | ) | 1,344 | ||||||||||
Other, net
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(1,238 | ) | 1,604 | (1,135 | ) | (3,154 | ) | |||||||||
Other expense, net
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(27,861 | ) | (22,907 | ) | (85,726 | ) | (49,904 | ) | ||||||||
Income (loss) from continuing operations before taxes
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28,951 | (20,712 | ) | 104,476 | 23,995 | |||||||||||
Income tax expense (benefit)
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8,730 | (7,487 | ) | 35,808 | 310 | |||||||||||
Income (loss) from continuing operations
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20,221 | (13,225 | ) | 68,668 | 23,685 | |||||||||||
Income from discontinued operations, net of taxes
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— | 4,383 | — | 4,383 | ||||||||||||
Net income (loss)
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20,221 | (8,842 | ) | 68,668 | 28,068 | |||||||||||
Net loss (income) attributable to non-controlling interests
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7 | 7 | 12 | (5 | ) | |||||||||||
Net income (loss) attributable to OCN
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$ | 20,228 | $ | (8,835 | ) | $ | 68,680 | $ | 28,063 | |||||||
Basic earnings per share
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||||||||||||||||
Income (loss) from continuing operations
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$ | 0.20 | $ | (0.13 | ) | $ | 0.68 | $ | 0.24 | |||||||
Income from discontinued operations
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— | 0.04 | — | 0.04 | ||||||||||||
Net income (loss) attributable to OCN
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$ | 0.20 | $ | (0.09 | ) | $ | 0.68 | $ | 0.28 | |||||||
Diluted earnings per share
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||||||||||||||||
Income (loss) from continuing operations
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$ | 0.19 | $ | (0.13 | ) | $ | 0.64 | $ | 0.23 | |||||||
Income from discontinued operations
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— | 0.04 | — | 0.04 | ||||||||||||
Net income (loss) attributable to OCN
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$ | 0.19 | $ | (0.09 | ) | $ | 0.64 | $ | 0.27 | |||||||
Weighted average common shares outstanding
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||||||||||||||||
Basic
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101,016,777 | 100,329,915 | 100,908,473 | 100,159,547 | ||||||||||||
Diluted
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108,273,444 | 100,329,915 | 108,067,981 | 107,379,725 |
For the periods ended September 30,
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Three months
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Nine months
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||||||||||||||
2011
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2010
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2011
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2010
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|||||||||||||
Net income (loss)
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$ | 20,221 | $ | (8,842 | ) | $ | 68,668 | $ | 28,068 | |||||||
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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(16 | ) | 54 | 10 | (31 | ) | ||||||||||
Change in deferred loss on cash flow hedges arising during the period (2)
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460 | (5,835 | ) | 227 | (13,239 | ) | ||||||||||
Reclassification adjustment for losses on cash flow hedges included in net income (3)
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105 | 268 | 828 | 289 | ||||||||||||
Net change in deferred loss on cash flow hedges
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565 | (5,567 | ) | 1,055 | (12,950 | ) | ||||||||||
Other (4)
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24 | — | 27 | — | ||||||||||||
Total other comprehensive income (loss), net of income taxes
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573 | (5,513 | ) | 1,092 | (12,981 | ) | ||||||||||
Comprehensive income (loss)
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20,794 | (14,355 | ) | 69,760 | 15,087 | |||||||||||
Comprehensive income (loss) attributable to non-controlling interests
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10 | (11 | ) | 5 | 1 | |||||||||||
Comprehensive income (loss) attributable to Ocwen Financial Corporation
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$ | 20,804 | $ | (14,366 | ) | $ | 69,765 | $ | 15,088 |
(1)
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Net of income tax (expense) benefit of $2 and $(8) for the three months ended September 30, 2011 and 2010, respectively, and $(7) and $27 for the nine months ended September 30, 2011 and 2010, respectively.
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(2)
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Net of income tax (expense) benefit of $(260) and $3,428 for the three months ended September 30, 2011 and 2010, respectively, and $(102) and $7,775 for the nine months ended September 30, 2011 and 2010, respectively.
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(3)
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Net of income tax expense of $59 and $158 for the three months ended September 30, 2011 and 2010, respectively, and $468 and $169 for the nine months ended September 30, 2011 and 2010, respectively.
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(4)
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Net of income tax expense of $9 and $10 for the three and nine months ended September 30, 2011, respectively.
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OCN Shareholders
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||||||||||||||||||||||||||||
Common Stock
|
Additional Paid-in
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Retained
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Accumulated
Other Comprehensive Loss, |
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, 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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— | — | — | 68,680 | — | (12 | ) | 68,668 | ||||||||||||||||||||
Exercise of common stock options
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354,906 | 4 | 966 | — | — | — | 970 | |||||||||||||||||||||
Equity-based compensation
|
11,364 | — | 2,396 | — | — | — | 2,396 | |||||||||||||||||||||
Other comprehensive income, net of income taxes
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— | — | — | — | 1,085 | 7 | 1,092 | |||||||||||||||||||||
Balance at September 30, 2011
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101,093,217 | $ | 1,011 | $ | 470,862 | $ | 514,136 | $ | (8,307 | ) | $ | 241 | $ | 977,943 |
OCN Shareholders
|
||||||||||||||||||||||||||||
Common Stock
|
Additional Paid-in
|
Retained
|
Accumulated
Other Comprehensive Loss, |
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
|
||||||||||||||||||||||
Balance at December 31, 2009
|
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
|
— | — | — | 28,063 | — | 5 | 28,068 | |||||||||||||||||||||
Exercise of common stock options
|
502,026 | 5 | 2,495 | — | — | — | 2,500 | |||||||||||||||||||||
Issuance of common stock awards to employees
|
9,865 | — | — | — | — | — | — | |||||||||||||||||||||
Equity-based compensation
|
7,654 | — | 2,968 | — | — | — | 2,968 | |||||||||||||||||||||
Other comprehensive loss, net of income taxes
|
— | — | — | — | (12,975 | ) | (6 | ) | (12,981 | ) | ||||||||||||||||||
Balance at September 30, 2010
|
100,476,378 | $ | 1,005 | $ | 465,005 | $ | 435,535 | $ | (13,104 | ) | $ | 251 | $ | 888,692 |
For the nine months ended
September 30,
|
||||||||
2011
|
2010
|
|||||||
Cash flows from operating activities
|
||||||||
Net income
|
$ | 68,668 | $ | 28,068 | ||||
Adjustments to reconcile net income to net cash provided by operating activities
|
||||||||
Amortization of mortgage servicing rights
|
30,059 | 22,103 | ||||||
Amortization of debt discount
|
8,101 | 3,390 | ||||||
Amortization of debt issuance costs – senior secured term loan
|
8,888 | 497 | ||||||
Depreciation
|
1,974 | 1,434 | ||||||
Write-off of investment in commercial real estate property
|
— | 3,000 | ||||||
Reversal of valuation allowance on mortgage servicing assets
|
(868 | ) | (185 | ) | ||||
Loss on trading securities
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— | 3,958 | ||||||
Loss on loans held for resale, net
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3,531 | 2,626 | ||||||
Equity in loss (earnings) of unconsolidated entities
|
690 | (1,344 | ) | |||||
Unrealized losses on derivative financial instruments
|
4,743 | 442 | ||||||
Gain on extinguishment of debt
|
(3,651 | ) | (152 | ) | ||||
Increase in deferred tax assets, net
|
(354 | ) | (421 | ) | ||||
Net cash provided by trading activities
|
— | 168,853 | ||||||
Net cash provided by loans held for resale activities
|
1,050 | 1,163 | ||||||
Changes in assets and liabilities:
|
||||||||
Decrease in advances and match funded advances
|
699,516 | 204,343 | ||||||
Increase in receivables and other assets, net
|
(5,349 | ) | (20,382 | ) | ||||
Increase (decrease) in servicer liabilities
|
1,925 | (36,304 | ) | |||||
(Decrease) increase in other liabilities
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(23,341 | ) | 44,912 | |||||
Other, net
|
8,039 | 8,581 | ||||||
Net cash provided by operating activities
|
803,621 | 434,582 | ||||||
Cash flows from investing activities
|
||||||||
Cash paid to acquire Litton Loan Servicing LP
|
(2,646,486 | ) | — | |||||
Cash paid to acquire HomEq Servicing (a business within Barclays Bank PLC)
|
— | (1,167,122 | ) | |||||
Purchase of mortgage servicing rights
|
— | (23,425 | ) | |||||
Acquisition of advances and other assets in connection with the purchase of mortgage servicing rights
|
— | (528,882 | ) | |||||
Distributions of capital from unconsolidated entities – Ocwen Structured Investments, LLC, Ocwen Nonperforming Loans, LLC and Ocwen REO, LLC
|
2,415 | 3,542 | ||||||
Investment in unconsolidated entity – Correspondent One S.A.
|
(15,000 | ) | — | |||||
Additions to premises and equipment
|
(1,236 | ) | (3,261 | ) | ||||
Proceeds from sales of real estate
|
1,448 | 3,001 | ||||||
(Increase) decrease in restricted cash – for securitization investors
|
(183 | ) | 813 | |||||
Principal payments received on loans – restricted for securitization investors
|
4,610 | 3,558 | ||||||
Net cash used by investing activities
|
(2,654,432 | ) | (1,711,776 | ) | ||||
Cash flows from financing activities
|
||||||||
Proceeds from match funded liabilities
|
1,597,699 | 1,140,655 | ||||||
Repayment of secured borrowings – owed to securitization investors
|
(7,382 | ) | (7,487 | ) | ||||
Proceeds from lines of credit and other secured borrowings
|
563,500 | 448,316 | ||||||
Repayment of lines of credit and other secured borrowings
|
(266,275 | ) | (63,018 | ) | ||||
Payment of debt issuance costs – senior secured term loan
|
(12,070 | ) | — | |||||
Repayment of investment line
|
— | (156,968 | ) | |||||
Repurchase of debt securities
|
— | (11,659 | ) | |||||
Exercise of common stock options
|
1,285 | 2,381 | ||||||
Other
|
(1,705 | ) | (2,034 | ) | ||||
Net cash provided by financing activities
|
1,875,052 | 1,350,186 | ||||||
Net increase in cash
|
24,241 | 72,992 | ||||||
Cash at beginning of period
|
127,796 | 90,919 | ||||||
Cash at end of period
|
$ | 152,037 | $ | 163,911 | ||||
Supplemental business acquisition information
|
||||||||
Fair value of assets acquired
|
||||||||
Cash
|
$ | (23,791 | ) | $ | — | |||
Advances
|
(2,468,137 | ) | (1,062,873 | ) | ||||
Mortgage servicing rights
|
(135,341 | ) | (84,683 | ) | ||||
Premises and equipment
|
(24,224 | ) | (8,008 | ) | ||||
Goodwill
|
(44,570 | ) | (19,457 | ) | ||||
Receivables
|
— | (1,423 | ) | |||||
Other assets
|
(5,829 | ) | — | |||||
(2,701,892 | ) | (1,176,444 | ) | |||||
Fair value of liabilities assumed
|
||||||||
Other liabilities
|
31,615 | 9,322 | ||||||
Cash paid
|
(2,670,277 | ) | (1,167,122 | ) | ||||
Less: Cash acquired
|
23,791 | — | ||||||
Net cash paid
|
$ | (2,646,486 | ) | $ | (1,167,122 | ) |
For the periods ended September 30,
|
Three months
|
Nine months
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Total servicing and subservicing fee revenues
|
$ | 772 | $ | 947 | $ | 2,342 | $ | 2,820 |
As of
|
||||||||
September 30, 2011
|
December 31, 2010
|
|||||||
Total servicing advances
|
$ | 13,015 | $ | 16,886 | ||||
Total MSRs at amortized cost
|
1,200 | 1,330 |
September 30, 2011
|
December 31, 2010
|
|||||||
Match funded advances
|
$ | 3,756,832 | $ | 1,924,052 | ||||
Other assets
|
134,121 | 103,448 | ||||||
Total assets
|
$ | 3,890,953 | $ | 2,027,500 | ||||
Match funded liabilities
|
$ | 3,080,228 | $ | 1,482,529 | ||||
Due to affiliates (1)
|
865,159 | 262,900 | ||||||
Other liabilities
|
2,665 | 2,890 | ||||||
Total liabilities
|
$ | 3,948,052 | $ | 1,748,319 |
(1)
|
Amounts are payable to Ocwen and its consolidated affiliates and eliminated in consolidation.
|
·
|
reclassified the components of Depreciation and other amortization to the Amortization of debt discount and the Depreciation line items;
|
|
·
|
reclassified Amortization of debt issuance costs – senior secured term loan from Increase in receivables and other assets, net; and
|
|
·
|
reclassified Gain on extinguishment of debt and Unrealized losses on derivative financial instruments from Other, net.
|
Cash
|
$ | 23,791 | ||
Advances
|
2,468,137 | |||
MSRs
|
135,341 | |||
Premises and equipment, net
|
24,224 | |||
Other assets
|
5,829 | |||
Other liabilities
|
(31,615 | ) | ||
Total identifiable net assets
|
2,625,707 | |||
Goodwill
|
44,570 | |||
Total consideration
|
2,670,277 | |||
Litton debt repaid to Goldman Sachs at closing
|
(2,423,123 | ) | ||
Base purchase price
|
$ | 247,154 |
Revenues
|
$ | 14,560 | ||
Net loss (1)
|
$ | (10,107 | ) |
(1)
|
Net loss includes non-recurring transaction related expenses of $18,431, including severance and other compensation of $12,933 related to Litton employees and $304 of fees for professional services related to the acquisition. Net loss also includes $2,276 of amortization of the acquired MSRs. Net loss does not include an allocation of costs related to the servicing of the Litton loans on Ocwen’s platform. We computed income taxes using a combined statutory rate of 36.12% for federal and state income taxes.
|
·
|
conforming revenues to the revenue recognition policy followed by Ocwen rather than the policy followed by Litton;
|
|
·
|
conforming the accounting for MSRs to the valuation and amortization policy of Ocwen rather than the policy followed by Litton;
|
|
·
|
reversing Litton depreciation and reporting depreciation based on the estimated fair values and remaining lives of the acquired premises and equipment at the date of acquisition;
|
|
·
|
adjusting interest expense to eliminate the pre-acquisition interest expense of Litton and to recognize interest expense as if the acquisition-related debt of Ocwen had been outstanding at January 1, 2010; and
|
|
·
|
reporting acquisition-related charges, including severance paid to Litton employees and fees for professional services related to the acquisition as if they had been incurred in 2010 rather than 2011.
|
Periods ended September 30,
|
Three months
|
Nine months
|
||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenues
|
$ | 155,420 | $ | 160,308 | $ | 485,408 | $ | 455,016 | ||||||||
Net income (loss)
|
$ | 6,792 | $ | (28,468 | ) | $ | 10,019 | $ | (16,770 | ) |
September 30, 2011
|
December 31, 2010
|
|||||||||||||||
Carrying Value
|
Fair Value
|
Carrying Value
|
Fair Value
|
|||||||||||||
Financial assets:
|
||||||||||||||||
Loans held for resale
|
$ | 21,933 | $ | 21,933 | $ | 25,803 | $ | 25,803 | ||||||||
Loans, net – restricted for securitization investors
|
60,389 | 56,789 | 67,340 | 64,795 | ||||||||||||
Advances
|
3,875,706 | 3,875,706 | 2,108,885 | 2,108,885 | ||||||||||||
Receivables, net
|
53,141 | 53,141 | 69,518 | 69,518 | ||||||||||||
Financial liabilities:
|
||||||||||||||||
Match funded liabilities
|
$ | 3,080,228 | $ | 3,096,522 | $ | 1,482,529 | $ | 1,486,476 | ||||||||
Lines of credit and other secured borrowings
|
555,110 | 566,353 | 246,073 | 252,722 | ||||||||||||
Secured borrowings – owed to securitization investors
|
55,323 | 54,280 | 62,705 | 62,105 | ||||||||||||
Servicer liabilities
|
4,417 | 4,417 | 2,492 | 2,492 | ||||||||||||
Debt securities
|
82,554 | 89,534 | 82,554 | 75,325 | ||||||||||||
Derivative financial instruments, net
|
$ | (18,389 | ) | $ | (18,389 | ) | $ | (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 September 30, 2011:
|
||||||||||||||||
Measured at fair value on a recurring basis:
|
||||||||||||||||
Derivative financial instruments, net (1)
|
$ | (18,389 | ) | — | — | $ | (18,389 | ) | ||||||||
Measured at fair value on a non-recurring basis:
|
||||||||||||||||
Loans held for resale (2)
|
21,933 | — | — | 21,933 | ||||||||||||
MSRs (3)
|
741 | — | — | 741 | ||||||||||||
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 | ||||||||||||
MSRs (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 certain assumptions provided by third-party pricing sources. See Note 15 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 September 30, 2011 and December 31, 2010, the carrying value of loans held for resale is net of a valuation allowance of $14,407 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 $1,996 and $2,864 at September 30, 2011 and December 31, 2010, respectively. The estimated fair value exceeded amortized cost for all other strata. See Note 8 for additional information on MSRs, including significant assumptions used in their valuation.
|
Derivative Financial Instruments
|
||||||||
For the periods ended September 30, 2011:
|
Three months
|
Nine months
|
||||||
Beginning balance
|
$ | (15,787 | ) | $ | (15,351 | ) | ||
Purchases, issuances, sales and settlements:
|
||||||||
Purchases
|
— | — | ||||||
Issuances
|
— | — | ||||||
Sales
|
— | — | ||||||
Settlements
|
9 | 80 | ||||||
9 | 80 | |||||||
Total realized and unrealized gains and (losses) (1):
|
||||||||
Included in Other, net
|
(2,722 | ) | (3,970 | ) | ||||
Included in Other comprehensive income (loss)
|
111 | 852 | ||||||
(2,611 | ) | (3,118 | ) | |||||
Transfers in and / or out of Level 3
|
— | — | ||||||
Ending balance
|
$ | (18,389 | ) | $ | (18,389 | ) |
Trading Securities
|
||||||||||||||||
Three months ended September 30, 2010:
|
Derivative Financial Instruments
|
Auction Rate Securities
|
Subordinates and Residuals
|
Total
|
||||||||||||
Beginning balance
|
$ | (12,278 | ) | $ | 78,073 | $ | 52 | $ | 65,847 | |||||||
Purchases, issuances, sales and settlements:
|
||||||||||||||||
Purchases
|
— | — | — | — | ||||||||||||
Issuances
|
— | — | — | — | ||||||||||||
Sales
|
— | (400 | ) | — | (400 | ) | ||||||||||
Settlements
|
58 | — | — | 58 | ||||||||||||
58 | (400 | ) | — | (342 | ) | |||||||||||
Total realized and unrealized gains and (losses) (1) (2):
|
||||||||||||||||
Included in Loss on trading securities
|
— | (2,961 | ) | (52 | ) | (3,013 | ) | |||||||||
Included in Other, net
|
(362 | ) | — | — | (362 | ) | ||||||||||
Included in Other comprehensive income (loss)
|
(8,837 | ) | — | — | (8,837 | ) | ||||||||||
(9,199 | ) | (2,961 | ) | (52 | ) | (12,212 | ) | |||||||||
Transfers in and / or out of Level 3
|
— | — | — | — | ||||||||||||
Ending balance
|
$ | (21,419 | ) | $ | 74,712 | $ | — | $ | 53,293 |
Trading Securities
|
||||||||||||||||
Nine months ended September 30, 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
|
— | (75,508 | ) | — | (75,508 | ) | ||||||||||
Settlements
|
134 | (93,345 | ) | — | (93,211 | ) | ||||||||||
134 | (168,853 | ) | — | (168,719 | ) | |||||||||||
Total realized and unrealized gains and (losses) (1) (2):
|
||||||||||||||||
Included in Loss on trading securities
|
— | (3,899 | ) | (59 | ) | (3,958 | ) | |||||||||
Included in Other, net
|
(952 | ) | — | — | (952 | ) | ||||||||||
Included in Other comprehensive income (loss)
|
(20,556 | ) | — | — | (20,556 | ) | ||||||||||
(21,508 | ) | (3,899 | ) | (59 | ) | (25,466 | ) | |||||||||
Transfers in and / or out of Level 3
|
— | — | — | — | ||||||||||||
Ending balance
|
$ | (21,419 | ) | $ | 74,712 | $ | — | $ | 53,293 |
(1)
|
Total net losses attributable to derivative financial instruments for the three and nine months ended September 30, 2011 include losses of $2,611 and $2,900, respectively, on derivatives held at September 30, 2011. Net losses attributable to derivative financial instruments for the three and nine months ended September 30, 2010 include losses of $9,140 and $21,373, respectively, on derivatives held at September 30, 2010.
|
(2)
|
Total net losses on trading securities for the three and nine months ended September 30, 2010 include unrealized gains (losses) of $(2,417) and $13,298, respectively, on auction rate securities held at September 30, 2010.
|
September 30,
2011 |
December 31,
2010 |
|||||||
Servicing:
|
||||||||
Principal and interest
|
$ | 45,133 | $ | 82,060 | ||||
Taxes and insurance
|
32,049 | 49,785 | ||||||
Foreclosure and bankruptcy costs
|
12,588 | 27,163 | ||||||
Other
|
25,177 | 21,701 | ||||||
114,947 | 180,709 | |||||||
Corporate Items and Other
|
3,925 | 4,124 | ||||||
$ | 118,872 | $ | 184,833 |
September 30,
2011 |
December 31,
2010 |
|||||||
Principal and interest
|
$ | 1,841,536 | $ | 947,990 | ||||
Taxes and insurance
|
1,388,320 | 684,928 | ||||||
Foreclosure and bankruptcy costs
|
299,243 | 140,181 | ||||||
Real estate servicing costs
|
111,710 | 116,064 | ||||||
Other
|
116,025 | 34,889 | ||||||
$ | 3,756,834 | $ | 1,924,052 |
September 30,
2011 |
December 31,
2010 |
|||||||
Single family residential loans (1)
|
$ | 62,673 | $ | 69,718 | ||||
Allowance for loans losses
|
(2,284 | ) | (2,378 | ) | ||||
$ | 60,389 | $ | 67,340 |
(1)
|
Includes nonperforming loans of $12,671 and $12,933 at September 30, 2011 and December 31, 2010, respectively.
|
Balance at December 31, 2010
|
$ | 193,985 | ||
Purchases (1)
|
135,341 | |||
Decrease in impairment valuation allowance
|
868 | |||
Amortization (2)
|
(30,477 | ) | ||
Balance at September 30, 2011
|
$ | 299,717 |
(1)
|
Purchases represent the MSRs acquired as a part of the Litton Acquisition.
|
(2)
|
In the Consolidated Statement of Operations, Amortization of mortgage servicing rights is reported net of the amortization of servicing liabilities and includes the amount of charges we recognized to increase servicing liability obligations.
|
Residential | Commercial | Total | ||||||||||
UPB of Assets Serviced:
|
||||||||||||
September 30, 2011:
|
||||||||||||
Servicing
|
$ | 80,518,944 | $ | — | $ | 80,518,944 | ||||||
Subservicing
|
25,607,224 | 311,624 | 25,918,848 | |||||||||
$ | 106,126,168 | $ | 311,624 | $ | 106,437,792 | |||||||
December 31, 2010:
|
||||||||||||
Servicing
|
$ | 51,252,380 | $ | — | $ | 51,252,380 | ||||||
Subservicing
|
22,634,011 | 434,305 | 23,068,316 | |||||||||
$ | 73,886,391 | $ | 434,305 | $ | 74,320,696 |
Receivables
|
Allowance for Credit Losses
|
Net
|
||||||||||
September 30, 2011
|
||||||||||||
Servicing (1)
|
$ | 43,308 | $ | (1,084 | ) | $ | 42,224 | |||||
Income taxes receivable
|
5,969 | — | 5,969 | |||||||||
Affordable housing (2)
|
5,617 | (5,067 | ) | 550 | ||||||||
Due from Altisource (3)
|
2,199 | — | 2,199 | |||||||||
Other
|
3,496 | (1,297 | ) | 2,199 | ||||||||
$ | 60,589 | $ | (7,448 | ) | $ | 53,141 | ||||||
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 September 30, 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 September 30, 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 is delinquent.
|
(3)
|
See Note 20 for additional information regarding our relationship with Altisource.
|
Affordable Housing
|
Other
|
Total
|
||||||||||
Allowance for credit losses balance at December 31, 2010
|
$ | 5,866 | $ | 1,323 | $ | 7,189 | ||||||
Charge offs
|
— | (7 | ) | (7 | ) | |||||||
Recoveries
|
— | (105 | ) | (105 | ) | |||||||
Provision (reversal), net
|
(799 | ) | 86 | (713 | ) | |||||||
Allowance for credit losses balance at September 30, 2011
|
$ | 5,067 | $ | 1,297 | $ | 6,364 | ||||||
Receivables balance at September 30, 2011
|
$ | 5,617 | $ | 3,496 | $ | 9,113 |
September 30,
2011 |
December 31,
2010 |
|||||||
Debt service accounts (1)
|
$ | 120,484 | $ | 86,234 | ||||
Interest earning collateral deposits (2)
|
29,023 | 25,738 | ||||||
Prepaid lender fees and debt issuance costs, net (3)
|
21,436 | 22,467 | ||||||
Real estate, net
|
3,440 | 4,682 | ||||||
Term note (4)
|
— | 5,600 | ||||||
Other
|
11,356 | 13,561 | ||||||
$ | 185,739 | $ | 158,282 |