ONIT 10-K Fiscal year ended Dec. 31, 2019

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•	uncertainty related to the adequacy of our financial resources, including our sources of liquidity and ability to fund, sell and recover advances, originate, sell and securitize forward and reverse mortgage loans, fund forward and reverse mortgage loan buyouts, repay, renew and extend borrowings and borrow additional amounts as and when required;

•	uncertainty related to our ability to execute on our cost re-engineering initiatives and take the other actions we believe are necessary for us to improve our financial performance;

•	uncertainty related to our ability to acquire mortgage servicing rights (MSRs) or other assets or businesses at adequate risk-adjusted returns, including our ability to allocate adequate capital for such investments, negotiate and execute purchase documentation and satisfy closing conditions so as to consummate such acquisitions;

•	uncertainty related to our ability to grow our lending business and increase our lending volumes in a competitive market and uncertain interest rate environment;

•	uncertainty related to our long-term relationship and remaining agreements with New Residential Investment Corp. (NRZ), our largest servicing client;

•	our ability to execute an orderly and timely transfer of responsibilities in connection with the termination by NRZ of our legacy PHH Mortgage Corporation (PMC) subservicing agreement;

•	the reactions of regulators, lenders and other contractual counterparties, rating agencies, stockholders and other stakeholders to the announcement of the termination of the PMC subservicing agreement;

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uncertainty related to claims, litigation, cease and desist orders and investigations brought by government agencies and private parties regarding our servicing, foreclosure, modification, origination and other practices, including uncertainty related to past, present or future investigations, litigation, cease and desist orders and settlements with state regulators, the Consumer Financial Protection Bureau (CFPB), State Attorneys General, the Securities and Exchange Commission (SEC), the Department of Justice or the Department of Housing and Urban Development (HUD) and actions brought under the False Claims Act regarding incentive and other payments made by governmental entities;

•	adverse effects on our business as a result of regulatory investigations, litigation, cease and desist orders or settlements;

•	reactions to the announcement of such investigations, litigation, cease and desist orders or settlements by key counterparties, including lenders, the Federal National Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage Corporation (Freddie Mac) and the Government National Mortgage Association (Ginnie Mae);

•	our ability to comply with the terms of our settlements with regulatory agencies and the costs of doing so;

•	increased regulatory scrutiny and media attention;

•	any adverse developments in existing legal proceedings or the initiation of new legal proceedings;

•	our ability to effectively manage our regulatory and contractual compliance obligations;

•	our ability to interpret correctly and comply with liquidity, net worth and other financial and other requirements of regulators, Fannie Mae, Freddie Mac and Ginnie Mae, as well as those set forth in our debt and other agreements;

•	our ability to comply with our servicing agreements, including our ability to comply with our agreements with, and the requirements of, Fannie Mae, Freddie Mac and Ginnie Mae and maintain our seller/servicer and other statuses with them;

•	our servicer and credit ratings as well as other actions from various rating agencies, including the impact of prior or future downgrades of our servicer and credit ratings;

•	failure of our information technology or other security systems or breach of our privacy protections, including any failure to protect customers’ data;

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•	uncertainty related to the ability of our technology vendors to adequately maintain and support our systems, including our servicing systems, loan originations and financial reporting systems;

•	our ability to identify and address any issues arising in connection with the transfer of loans to the Black Knight Financial Services, Inc. (Black Knight) LoanSphere MSP® servicing system (Black Knight MSP) without incurring significant cost or disruption to our operations;

•	the loss of the services of our senior managers and key employees;

•	uncertainty related to the actions of loan owners and guarantors, including mortgage-backed securities investors, Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the GSEs), Government National Mortgage Association (Ginnie Mae) and trustees regarding loan put-backs, penalties and legal actions;

•	uncertainty related to the GSEs substantially curtailing or ceasing to purchase our conforming loan originations or the Federal Housing Administration (FHA) of the HUD or Department of Veterans Affairs (VA) ceasing to provide insurance;

•	uncertainty related to our ability to continue to collect certain expedited payment or convenience fees and potential liability for charging such fees;

•	uncertainty related to our reserves, valuations, provisions and anticipated realization of assets;

•	uncertainty related to the ability of third-party obligors and financing sources to fund servicing advances on a timely basis on loans serviced by us;

•	volatility in our stock price;

•	the characteristics of our servicing portfolio, including prepayment speeds along with delinquency and advance rates;

•	our ability to successfully modify delinquent loans, manage foreclosures and sell foreclosed properties;

•	uncertainty related to the processes for judicial and non-judicial foreclosure proceedings, including potential additional costs or delays or moratoria in the future or claims pertaining to past practices;

•	our ability to adequately manage and maintain real estate owned (REO) properties and vacant properties collateralizing loans that we service;

•	uncertainty related to legislation, regulations, regulatory agency actions, regulatory examinations, government programs and policies, industry initiatives and evolving best servicing practices;

•	our ability to realize anticipated future gains from future draws on existing loans in our reverse mortgage portfolio;

•	our ability to effectively manage our exposure to interest rate changes and foreign exchange fluctuations;

•	our ability to effectively transform our operations in response to changing business needs, including our ability to do so without unanticipated adverse tax consequences;

•	uncertainty regarding regulatory restrictions on our ability to repurchase our own stock and limitations under our debt agreements on stock repurchases;

•	uncertainty related to the political or economic stability of the United States and of the foreign countries in which we have operations; and

•	our ability to maintain positive relationships with our large shareholders and obtain their support for management proposals requiring shareholder approval.

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ITEM 1.	BUSINESS

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•	loss of our licenses and approvals to engage in our servicing and lending businesses;

•	governmental investigations and enforcement actions;

•	administrative fines and penalties and litigation;

•	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;

•	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 on our business strategy.

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•	We are currently in litigation with the CFPB after the CFPB filed a lawsuit in the federal district court for the Southern District of Florida against Ocwen, Ocwen Mortgage Servicing, Inc. (OMS) and Ocwen Loan Servicing, LLC (OLS) alleging violations of federal consumer financial laws relating to our servicing business

•	We are currently in litigation with the Florida Attorney General and the Florida Office of Financial Regulation after they filed a lawsuit in the federal district court for the Southern District of Florida against Ocwen, OMS and OLS alleging violations of federal and state consumer financial laws relating to our servicing business

•	We have settled state regulatory actions against us by 29 states and the District of Columbia after these states and the District of Columbia alleged deficiencies in our compliance with laws and regulations relating to our servicing and lending activities

•	We have entered into regulatory settlements with the New York Department of Financial Services (NY DFS) and the California Department of Business Oversight (CA DBO) relating to our servicing practices and other aspects of our business

•	We have 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

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ITEM 1A.	RISK FACTORS

•	Legal and Regulatory Related Risks

•	Risks Related to Our Financial Performance, Financing Our Business, Liquidity and Net Worth and the Economy

•	Operational Risks and Other Risks Related to Our Business

•	Tax Risks

•	Risks Relating to Ownership of Our Common Stock

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•	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 on our business strategy.

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•	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 strength of the lenders from whom we borrow;

•	lenders’ perceptions of us or our sector;

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•	corporate credit and servicer ratings from rating agencies; and

•	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.

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Revenue. If prepayment speeds increase, our servicing fees will decline more rapidly than anticipated because of the greater decrease in the UPB on which those fees are based. The reduction in servicing fees would be somewhat offset by increased float earnings because the faster repayment of loans will result in higher float balances that generate the float earnings. Conversely, decreases in prepayment speeds result in increased servicing fees but lead to lower float balances and float earnings.

•	Expenses. Faster prepayment speeds result in higher compensating interest expense, which represents the difference between the full month of interest we are required to remit in the month a loan pays off and the amount of interest we collect from the borrower for that month. Slower prepayment speeds also lead to lower compensating interest expense.

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Valuation of MSRs. The fair value of MSRs is based on, among other things, projection of the cash flows from the related pool of mortgage loans. The expectation of prepayment speeds is a significant assumption underlying those cash flow projections from the perspective of market participants. Increases or decreases in interest rates have an impact on prepayment rates. If prepayment speeds were significantly greater than expected, the fair value of our MSRs, which we carry at fair value, could decrease. When the fair value of these MSRs decreases, we record a loss on fair value, which also has a negative impact on our financial results.

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•	negative news about Ocwen or the mortgage industry generally;

•	allegations of non-compliance with legal and regulatory requirements;

•	ethical issues, including alleged deceptive or unfair servicing or lending practices;

•	our practices relating to collections, foreclosures, property preservation, modifications, interest rate adjustments, loans impacted by natural disasters, escrow and insurance;

•	consumer privacy concerns;

•	consumer financial fraud;

•	data security issues related to our customers or employees;

•	cybersecurity issues and cyber incidents, whether actual, threatened, or perceived;

•	customer service or consumer complaints;

•	legal, reputational, credit, liquidity and market risks inherent in our businesses;

•	a downgrade of or negative watch warning on any of our servicer or credit ratings; and

•	alleged or perceived conflicts of interest.

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•	unanticipated issues in integrating servicing, information, communications and other systems;

•	unanticipated incompatibility in servicing, lending, purchasing, logistics, marketing and administration methods;

•	unanticipated liabilities assumed from the acquired business;

•	not retaining key employees; and

•	the diversion of management’s attention from ongoing business concerns.

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•	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.

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•	authorize the issuance of additional common stock or preferred stock in connection with future equity offerings or acquisitions of securities or other assets of companies; and

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classify or reclassify any unissued common stock or preferred stock and to set the preferences, rights and other terms of the classified or reclassified shares, including the issuance of shares of preferred stock that have preference rights over the common stock and existing preferred stock with respect to dividends, liquidation, voting and other matters or shares of common stock that have preference rights over common stock with respect to voting.

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ITEM 1B.	UNRESOLVED STAFF COMMENTS

ITEM 2.	PROPERTIES

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(1)	The Mt. Laurel facility includes two buildings, one with 376,122 square feet of space supporting our servicing and lending operations, as well as our corporate functions. We ceased using 124,795 square feet as a result of the reduction in headcount. The second building has 107,774 square feet of space, all of which is subleased.

(2)	Primarily supports reverse lending operations.

(3)	Primarily supports commercial operations.

(4)	Primarily supports servicing operations.

(5)	We ceased using approximately half of the Pune facility as a result of a reduction in headcount. We did not renew our lease for 44,355 square feet of space on January 1, 2020.

(6)	We ceased operations in these facilities during 2019 and the space is currently unoccupied. We have listed the Waterloo property for sale. The Fort Washington lease expires in June 2020. The Addison lease, which expires in 2025, is currently being marketed for sublease.

(7)	The Westampton and Bannockburn facilities are former PHH facilities. The Westampton lease, which expires in December 2021 is currently subleased and the Bannockburn lease expires in March 2020.

ITEM 3.	LEGAL PROCEEDINGS

ITEM 4.	MINE SAFETY DISCLOSURES

ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

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(1)

Copyright © 2017 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC. S&P 500® and S&P® are registered trademarks of Standard & Poor's Financial Services LLC, a division of S&P Global (S&P); DOW JONES is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones); and these trademarks have been licensed for use by S&P Dow Jones Indices LLC. S&P Dow Jones Indices LLC, Dow Jones, S&P and their respective affiliates (S&P Dow Jones Indices) makes no representation or warranty, express or implied, as to the ability of any index to accurately represent the asset class or market sector that it purports to represent and S&P Dow Jones Indices and its third-party licensors shall have no liability for any errors, omissions, or interruptions of any index or the data included therein. All data and information is provided by S&P DJI "as is". Past performance is not an indication or guarantee of future results.

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ITEM 6.	SELECTED FINANCIAL DATA (Dollars in thousands, except per share data and unless otherwise indicated)

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(1)

In the consolidated balance sheets at December 31, 2018, 2017, 2016 and 2015, we reclassified borrowings with an outstanding balance of $65.5 million , $72.6 million , $81.1 million and $96.5 million , respectively, from Other financing liabilities to Other secured borrowings to conform to the current year presentation. See the Reclassifications section of Note 1 — Organization, Business Environment, Basis of Presentation and Significant Accounting Policies for additional information.

(2)	Certain amounts in the consolidated statements of operations for 2015 - 2018 have been reclassified to conform to the current year presentation, including presentation of the MSR valuation adjustments, net line item separately from Operating expenses and adding new line items for Reverse mortgage revenue, net (without any impact on total Revenue) and Pledged MSR liability expense (previously

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(3)	Recognized in connection with the acquisition of PHH on October 4, 2018. See Note 2 — Business Acquisition to the Consolidated Financial Statements for additional information.

(4)	During 2019 , 2018 , 2017 , 2016 and 2015 , we sold certain of our MSRs relating to loans with a UPB of $140.8 million , $901.3 million , $219.4 million , $3.7 billion and $87.6 billion , respectively.

(5)	Income tax expense for 2015 includes a $97.1 million provision to establish valuation allowances relating to deferred tax assets in our U.S. and USVI tax jurisdictions. See Note 20 — Income Taxes to the Consolidated Financial Statements for additional information.

(6)	For 2015 - 2019, we have excluded the effect of all dilutive or potentially dilutive shares from the computation of diluted earnings per share because of the anti-dilutive effect of our reported net loss.

ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, unless otherwise indicated)

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•	Managing the size of our servicing portfolio through expanding our lending business to grow sustainable channels of MSR replenishment;

•	Reengineering our cost structure;

•	Effectively managing our balance sheet to fund our ongoing business needs and growth; and,

•	Fulfilling our regulatory commitments and resolving remaining legacy matters.

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(a)	Offset by corresponding amount recorded in Servicing and subservicing fee - See below table.

(b)	Offset by corresponding amount recorded in MSR valuation adjustments, net - See below table.

(a)	Amounts included in the specific statement of operations line items.

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(1)	Performing loans include those loans that are less than 90 days past due and those loans for which borrowers are making scheduled payments under loan modification, forbearance or bankruptcy plans. We consider all other loans to be non-performing.

(2)	Conventional loans at December 31, 2019 include 111,246 prime loans with a UPB of $20.4 billion which we service or subservice. This compares to 115,299 prime loans with a UPB of $19.6 billion at December 31, 2018 . Prime loans are generally good credit quality loans that meet GSE underwriting standards.

(3)	Loans serviced or subserviced pursuant to our agreements with NRZ.

(4)	Excludes the financing liability that we recognized in connection with the sales of Rights to MSRs to NRZ.

(1)	Additions in 2019 include purchased MSRs on portfolios consisting of 12,515 loans with a UPB of $2.7 billion that have not yet transferred to the Black Knight MSP servicing system. These loans are scheduled to transfer onto Black Knight MSP by April 1, 2020.

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(2)	Servicing transfers in 2019 include the termination of a subservicing client relationship consisting of 33,626 loans with a UPB of $21.4 billion. For 2019, total servicing fee revenue for this client was $1.3 million which was earned through May 31, 2019 when the loans were released.

(1)	Includes $0.3 million recognized in the Lending segment.

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

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(1)	Future Value represents the net present value of estimated future cash flows from customer draws of the reverse mortgage loans and projected performance assumptions based on historical experience and industry benchmarks discounted at 12% related to HECM loans originated prior to January 1, 2019. We have recognized this Future Value over time as future draws were securitized or sold.

(2)	Excludes the fair value of future draw commitments related to HECM loans purchased or originated after December 31, 2018 that we elected to carry at fair value.

(3)	Includes all future draw commitments.

(4)	New loan production excludes reverse mortgage loan draws by borrowers disbursed subsequent to origination of $293.6 million and $301.9 million in 2019 and 2018 , respectively.

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•	Financial projections for ongoing net income, excluding the impact of non-cash items, and working capital needs including loan repurchases;

•	Requirements for amortizing and maturing liabilities compared to sources of cash;

•	The projected change in advances and match funded advances compared to the projected borrowing capacity to fund such advances under our facilities, including capacity for monthly peak needs;

•	Projected funding requirements for acquisitions of MSRs and other investment opportunities;

•	Potential payments or recoveries related to legal and regulatory matters, insurance, taxes and MSR transactions; and

•	Funding capacity for whole loans and tail draws under our reverse mortgage commitments subject to warehouse eligibility requirements.

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•	Collections of servicing fees and ancillary revenues;

•	Collections of advances in excess of new advances;

•	Proceeds from match funded advance financing facilities;

•	Proceeds from other borrowings, including warehouse facilities and MSR financing facilities;

•	Proceeds from sales and securitizations of originated loans and repurchased loans; and

•	Net positive working capital from changes in other assets and liabilities.

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•	Payment of operating costs and corporate expenses;

•	Payments for advances in excess of collections;

•	Investing in our servicing and lending businesses, including MSR and other asset acquisitions;

•	Originated and repurchased loans, including scheduled and unscheduled equity draws on reverse mortgage loans;

•	Repayments of borrowings, including under our MSR financing, advance financing and warehouse facilities, and payment of interest expense; and

•	Net negative working capital and other general corporate cash outflows.

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•	On February 4, 2019, we entered into a mortgage loan warehouse agreement under which the lender will provide $300.0 million of borrowing capacity on an uncommitted basis for forward mortgage loan originations. On January 27, 2020, we renewed this facility through April 3, 2020.

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On March 18, 2019, we amended the SSTL to provide an additional term loan of $120.0 million subject to the same maturity, interest rate and other material terms of existing borrowings under the SSTL. The required quarterly principal payment was increased from $4.2 million to $6.4 million beginning March 31, 2019. On January 27, 2020, we executed another amendment to the SSTL which reduced the maximum borrowing capacity to $200.0 million, extended the maturity date to May 15, 2022, reduced the quarterly principal payment to $5.0 million and modified the interest rate. See Note 28 — Subsequent Events for additional information.

•	On June 6, 2019, we renewed our OFAF advance financing facility through June 5, 2020 and reduced the borrowing capacity from $65.0 million to $60.0 million .

•	On July 1, 2019, we entered into a committed financing facility that is secured by certain Fannie Mae and Freddie Mac MSRs. The maximum amount which we may borrow is $300.0 million . This facility will terminate in June 2020 unless the parties mutually agree to renew or extend.

•	On August 13, 2019, we renewed a reverse mortgage loan warehouse agreement with a maximum borrowing capacity of $100.0 million (all of which is uncommitted) through August 14, 2020.

•	On August 14, 2019, we issued two fixed-rate term notes (Series 2019 T-1 and Series 2019-T2) totaling $470.0 million and repaid Series 2016-T2, 2018-T1 and 2018-T2 fixed-rate term notes on August 15, 2019. The amortization period for the Series 2019 T-1 and Series 2019-T2 notes begin on August 17, 2020 and August 16, 2021, respectively.

•	On September 2, 2019, we redeemed all of the $97.5 million outstanding of our 7.375% Senior unsecured notes due in September 2019, at a redemption price of 100.0% of the outstanding principal balance plus accrued and unpaid interest.

•	On September 27, 2019, we renewed a mortgage loan warehouse agreement with a maximum borrowing capacity of $175.0 million ( $100.0 million of which is committed) through September 25, 2020.

•	On November 26, 2019, we entered into a committed financing facility that is secured by certain Ginnie Mae MSRs. The maximum amount which we may borrow is $100.0 million . This facility will terminate in November 2021 unless the parties mutually agree to renew or extend.

•	On November 26, 2019, PMC issued notes secured by certain of PMC’s non-Agency or private label MSRs (PLS MSRs) pursuant to a credit agreement. The Class A Notes issued pursuant to the credit agreement have an initial principal amount of $100.0 million and amortize in accordance with a pre-determined schedule subject to modification under certain events.

•	On December 6, 2019, we renewed a reverse mortgage loan warehouse agreement with a maximum borrowing capacity of $250.0 million ( $200.0 million of which is committed) through December 5, 2020.

•	On December 12, 2019, we renewed OMART advance financing facility through December 11, 2020 and reduced the borrowing capacity from $225.0 million to $200.0 million .

•	On December 26, 2019, we entered into a mortgage loan warehouse agreement to fund reverse mortgage loan draws by borrowers subsequent to origination. Under this agreement, the lender provides financing for up to $50.0 million on a committed basis.

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•	On January 27, 2020, as discussed above, we prepaid $126.1 million of the outstanding SSTL balance and executed certain amendments to the SSTL agreement. See Note 28 — Subsequent Events for additional information.

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•	our more interest rate-sensitive Agency MSR portfolio,

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

•	less the unsecuritized reverse mortgage loans and tails classified as held-for-investment,

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

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

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(1)

Primarily reflects the impact of market interest rate changes on projected prepayments on the Agency MSR portfolio and on advance funding costs on the non-Agency MSR portfolio carried at fair value. Fair value adjustments to our MSRs are offset, in part, by fair value adjustments related to the NRZ financing liabilities, which are recorded in Pledged MSR liability expense. Approximately 54% of the above change in fair value would be offset by Pledged MSR liability expense on the NRZ financing liabilities.

(2)	Forward mortgage loans only.

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(1)	See Note 5 — Fair Value to the Consolidated Financial Statements for additional fair value information on financial instruments.

(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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(4)	Amounts are exclusive of any related discount or unamortized debt issuance costs.

(5)	Average 1-Month LIBOR for the periods indicated.

•	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.

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•	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.

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(1)

Amounts are exclusive of any related discount, unamortized debt issuance costs or fair value adjustment. Excludes match funded liabilities as these represent debt where the holders only have recourse to the assets that collateralize the debt and such assets are not available to satisfy general claims against Ocwen. Also 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. See Note 14 — Borrowings to the Consolidated Financial Statements for additional information related to these excluded borrowings. On January 27, 2020, we executed an amendment to the SSTL which reduced the maximum borrowing capacity to $200.0 million (requiring a $126.1 million paydown of the outstanding balance), extended the maturity date to May 15, 2022, reduced the quarterly principal payment from $6.4 million to $5.0 million and modified the interest rate. See Note 28 — Subsequent Events to the Consolidated Financial Statements for additional information.

(2)	Represents estimated future interest payments on MSR financing facilities, warehouse lines, senior notes and the SSTL, based on applicable interest rates as of December 31, 2019 .

(3)	Represents additional equity draw obligations in connection with reverse mortgage loans originated or purchased by Liberty. Because these draws can be made in their entirety, we have classified them as due in less than one year at December 31, 2019 .

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•	Increases in prepayment speeds generally reduce the value of our MSRs as the underlying loans prepay faster which causes accelerated MSR portfolio runoff, higher compensating interest payments and lower overall servicing fees, partially offset by a lower overall cost of servicing, increased float earnings on higher float balances and lower interest expense on lower servicing advance balances.

•	Increases in delinquencies generally reduce the value of our MSRs as the cost of servicing increases during the delinquency period, and the amounts of servicing advances and related interest expense also increase.

•	Increases in the discount rate reduce the value of our MSRs due to the lower overall net present value of the net cash flows.

•	Increases in interest rate assumptions will increase interest expense for financing servicing advances although this effect is partially offset because rate increases will also increase the amount of float earnings that we recognize.

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•	our current financial condition, including liquidity sources at the date that the financial statements are issued (e.g., available liquid funds and available access to credit, including covenant compliance);

•	our conditional and unconditional obligations due or anticipated within one year after the date that the financial statements are issued (regardless of whether those obligations are recognized in our financial statements);

•	funds necessary to maintain operations considering our current financial condition, obligations and other expected cash flows within one year after the date that the financial statements are issued (i.e., financial forecasting); and

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other conditions and events, when considered in conjunction with the above items, that may adversely affect our ability to meet obligations within one year after the date that the financial statements are issued (e.g., negative financial trends, indications of possible financial difficulties, internal matters such as a need to significantly revise operations and external matters such as adverse regulatory or legal proceedings, adverse counterparty actions or rating agency decisions, and our client concentration).

•	it is probable management’s plans will be implemented within the evaluation period; and

•	it is probable management’s plans, when implemented individually or in the aggregate, will mitigate the condition(s) that raise substantial doubt about our ability to continue as a going concern in the evaluation period.

•	ASU 2016-02: Leases

•	ASU 2017-08: Receivables: Nonrefundable Fees and Other Costs

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

•	ASU 2018-09: Codification Improvements

ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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ITEM 9A.	CONTROLS AND PROCEDURES

ITEM 9B.	OTHER INFORMATION

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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ITEM 11.	EXECUTIVE COMPENSATION

ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES

ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES

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*	Management contract or compensatory plan or agreement.

†	Certain schedules and exhibits have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any referenced schedules will be furnished supplementally to the SEC upon request.

††	Portions of this exhibit have been omitted pursuant to a request for confidential treatment.

†††	Certain confidential information contained in this agreement has been omitted because it is not material and would be competitively harmful if publicly disclosed.

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

(1)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Form 8-K filed on October 5, 2012.

(2)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Annual Report on Form 10-K filed for the year ended December 31, 2018 filed on February 27, 2019.

(3)	Incorporated by reference to the similarly described exhibit included with the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2018 filed on May 2, 2018.

(4)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Form 8-K filed on April 4, 2013.

(5)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2017 filed on August 3, 2017.

(6)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2013 filed on March 3, 2014.

(7)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2019 filed on May 7, 2019.

(8)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Quarterly Report on Form 10-Q for the period ended June 30, 2019 filed on August 6, 2019.

(9)	Incorporated by reference to the similarly described exhibit to the Registrant’s Form 8-K filed on March 18, 2019.

(10)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Form 8-K filed on August 12, 2009.

(11)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 16, 2005.

(12)	Incorporated by reference from the similarly described exhibit to our definitive Proxy Statement with respect to our 2007 Annual Meeting of Shareholders as filed on March 30, 2007.

(13)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Form 8-K filed on April 18, 2013.

(14)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Form 8-K filed on July 8, 2013.

(15)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2013 filed on November 5, 2013.

(16)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Form 8-K filed on April 6, 2015.

(17)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Form 8-K filed on February 19, 2013.

(18)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2014 filed on May 2, 2014.

(19)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Form 8-K filed on January 20, 2015.

(20)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Form 8-K filed on March 26, 2015.

(21)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Form 8-K filed on December 6, 2016.

(22)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2016 filed February 23, 2017.

(23)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Form 8-K filed on May 24, 2017.

(24)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2017 filed on November 2, 2017.

(25)	Incorporated by reference to the similarly described exhibit included with PHH Corporation's Quarterly Report on Form 10-Q for the period ended June 30, 2017 filed on August 9, 2017.

(26)	Incorporated by reference to the similarly described exhibit to PHH Corporation's Annual Report on Form 10-K for the year ended December 31, 2017 filed on March 1, 2018.

(27)	Incorporated by reference to the similarly described exhibit included with the Registrant’s Form 8-K filed on February 12, 2018.

(28)	Incorporated by reference to the similarly described exhibit included with the Registrant’s Form 8-K filed on April 19, 2018.

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(29)	Incorporated by reference to the similarly described exhibit included with the Registrant’s Form 8-K filed on May 29, 2018.

(30)	Incorporated by reference to the similarly described exhibit to PHH Corporation’s Form 8-K filed on January 17, 2012.

(31)	Incorporated by reference to the similarly described exhibit to the Registrant’s Form 8-K filed on October 4, 2018.

(32)	Incorporated by reference to the similarly described exhibit to PHH Corporation’s Form 8-K filed on August 23, 2012.

(33)	Incorporated by reference to the similarly described exhibit to PHH Corporation’s Form 8-K filed on August 20, 2013.

(34)	Incorporated by reference to the similarly described exhibit to PHH Corporation’s Form 8-K filed on July 5, 2017.

(35)	Incorporated by reference to the similarly described exhibit included with the Registrant’s Quarterly Report on Form 10-Q for the period ended September 30, 2018 filed on November 6, 2018.

(36)	Incorporated by reference to the similarly described exhibit to PHH Corporation’s Form 8-K filed on December 28, 2016.

(37)	Incorporated by reference to the similarly described exhibit to PHH Corporation’s Form 8-K filed on June 19, 2017.

(38)	Incorporated by reference to the similarly described exhibit to PHH Corporation’s Form 8-K filed on May 25, 2016.

(39)	Incorporated by reference to the similarly described exhibit to PHH Corporation’s Annual Report on Form 10-K filed on February 27, 2015.

(40)	Incorporated by reference to the similarly described exhibit included with the Registrant’s Quarterly Report on Form 10-Q for the period ended March 31, 2016 filed on April 28, 2016.

(41)	Incorporated by reference from the similarly described exhibit included with the Registrant’s Form 8-K filed on January 27, 2020.

(42)	Incorporated by reference from the Description of Capital Stock included in the Registrant’s Registration Statement on Form S-3 filed on May 9, 2013

ITEM 16.	FORM 10-K SUMMARY

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•	In the consolidated statements of operations, we now separately present MSR valuation adjustments, net from Total expenses, renamed “Operating expenses”. The purpose of this reclassification is to separately present fair value changes from operating expenses and provide additional insights on the nature of our performance.

•

Within the Other income (expense), net on the consolidated statements of operations, we now present the expense related to the pledged MSR liability recorded at fair value separately from Interest expense. The purpose of this reclassification is to improve transparency between the interest expense associated with interest-bearing liabilities recorded on an accrual basis and expenses that are attributable to the pledged MSR liability recorded at fair value. The pledged MSR liability is the obligation to deliver NRZ all contractual cash flows associated with the underlying MSR that did not meet the requirements for sale accounting treatment. The Pledged MSR liability expense reflects net servicing fee remittance and fair value changes. In the Supplemental cash flow section of the consolidated statements of cash flows, as a result of this reclassification of Pledged MSR liability expense from interest expense, we have reclassified $171.7 million and $236.3 million of Pledged MSR liability expense out of Interest paid in 2018 and 2017, respectively.

•

Within the Total liabilities section of our consolidated balance sheet at December 31, 2018, we reclassified borrowings with an outstanding balance of $65.5 million from Other financing liabilities to Other secured borrowings. Effective with this reclassification, all amounts included in Other financing liabilities represent secured financing as a result of sale transactions that do not meet the requirements for sale accounting treatment.

•	Within the Cash flows from financing activities section of our consolidated statements of cash flows, we reclassified repayments of our SSTL from the Repayments of mortgage loan warehouse facilities and other secured borrowings line item to a new line item (Repayment of SSTL borrowings).

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

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

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

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•	Increase (decrease) in MSR valuation adjustments, net of $24.4 million and $(16.9) million in 2018 and 2017, respectively, to conform the accounting for MSRs to the valuation policies of Ocwen related to acquired MSRs;

•	Adjust interest expense for a total net impact of $30.6 million and $(73.8) million in 2018 and 2017, respectively. The pro forma adjustments primarily pertain to fair value adjustments of $31.4 million and $(79.3) million in 2018 and 2017, respectively, related to the assumed MSR secured liability using valuation assumptions consistent with Ocwen's methodology;

•	Report the bargain purchase gain of $63.7 million as if the acquisition had occurred in 2017 rather than 2018;

•	Report Ocwen and PHH acquisition-related charges of $18.5 million for professional services as if they had been incurred in 2017 rather than 2018;

•	Adjust depreciation expense to amortize internally developed software acquired from PHH on a straight-line basis based on a useful life of three years;

•	Adjust revenue for a total net increase of $120.6 million and $134.6 million in 2018 and 2017, respectively, which primarily include adjusting servicing and subservicing fees for $127.7 million and $97.0 million in 2018 and 2017,

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Income tax benefit of $0.3 million and $0.2 million in 2018 and 2017, respectively, to record lower 2018 current federal tax under the new base erosion and anti-abuse tax (BEAT) provision of the Tax Act assuming Ocwen and PHH would file a consolidated federal tax return beginning January 1, 2017 and the benefit of the additional acquisition-related charges as if they had been incurred in 2017, based on management’s estimate of the blended applicable statutory tax rates and observing the continued need for a valuation allowance.

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(1)	The primary component of Other liabilities is an exit cost liability which includes $14.9 million of facility exit costs related to vacating certain facilities.

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

(2)	The liability for re-engineering plan costs at December 31, 2019 is included in Other liabilities (Other accrued expenses).

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(1)	We receive servicing fees based upon the securitized loan balances and certain ancillary fees, all of which are reported in Servicing and subservicing fees in the consolidated statements of operations.

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Level 1:	Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date.

Level 2:	Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.

Level 3:	Unobservable inputs for the asset or liability.

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(a)	Measured at fair value on a recurring basis.

(b)	Measured at fair value on a non-recurring basis.

(c)	Disclosed, but not measured, at fair value.

(d)	The carrying values are net of unamortized debt issuance costs and discount. See Note 14 — Borrowings for additional information .

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(1)	The change in fair value adjustments on Loans held for investment for 2019 include $12.2 million in connection with the fair value election for future draw commitments on HECM reverse mortgage loans purchased or originated after December 31, 2018.

(2)	On January 18, 2018, Ocwen received a lump-sum payment of $279.6 million in accordance with terms of the agreements with NRZ. See Note 10 — Rights to MSRs .

(3)	On September 1, 2017, Ocwen transferred MSRs with UPB of $15.9 billion to NRZ and received a lump-sum payment of $54.6 million . See Note 10 — Rights to MSRs .

(4)	Total gains (losses) attributable to derivative financial instruments still held at December 31, 2019 and 2018 and 2017 were $(0.7) million, $(1.1) million and $0.1 million for 2019 , 2018 and 2017 , respectively. Total losses for 2019 , 2018 and 2017 attributable to MSRs still held at December 31, 2019 , 2018 and 2017 were $98.1 million , $153.5 million and $4.5 million , respectively.

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(1)	At December 31, 2019 , 2018 and 2017 , the balances include $(7.8) million , $(7.2) million and $5.0 million , respectively, of fair value adjustments.

(1)

At December 31, 2019 , 2018 and 2017 , the balances include $60.6 million , $51.8 million and $19.6 million , respectively, of loans that we repurchased from Ginnie Mae guaranteed securitizations pursuant to Ginnie Mae servicing guidelines. We may repurchase loans that have been modified, to facilitate loss reduction strategies, or as otherwise obligated as a Ginnie Mae servicer. Repurchased loans may be modified or otherwise remediated through loss mitigation activities, may be sold to a third party, or are reclassified to Receivables.

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(1)	Net change for the year ended December 31, 2019 includes $18.0 million allowance related to sold advances presented in Other liabilities (Liability for indemnification obligations).

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Note 9 — Mortgage Servicing

(1)

Effective January 1, 2018, we elected fair value accounting for our MSRs previously accounted for using the amortization method, which included Agency MSRs and government-insured MSRs. This irrevocable election applies to all subsequently acquired or originated servicing assets and liabilities that have characteristics consistent with each of these classes. We recorded a cumulative-effect adjustment of $82.0 million to retained earnings as of January 1, 2018 to reflect the excess of the fair value of the Agency MSRs over their carrying amount. We also recognized the tax effect of this adjustment through an increase in retained earnings of $6.8 million and a deferred tax asset for the same amount. However, we established a full valuation allowance on the resulting deferred tax asset through a reduction in retained earnings. The government-insured MSRs were impaired by $24.8 million at December 31, 2017; therefore, these MSRs were already effectively carried at fair value.

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(2)	Impairment of MSRs is recognized in MSR valuation adjustments, net in the consolidated statements of operations for 2017. Impairment valuation allowance balance of $24.8 million was reclassified to reduce the carrying value of the related MSRs on January 1, 2018 in connection with our fair value election.

(1)	Changes in fair value are recognized in MSR valuation adjustments, net in the consolidated statements of operations.

(1)	UPB at December 31, 2018 includes $6.3 billion , $51.3 billion and $42.3 billion UPB of loans serviced, subserviced or subserviced on behalf of NRZ, respectively, added to the portfolio in connection with the PHH acquisition.

(2)	UPB of loans for which the Rights to MSRs have been sold to NRZ, including $57.7 billion for which third-party consents have been received and the MSRs have been transferred to NRZ (the MSRs remain on balance sheet as the transactions do not achieve sale

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(1)	The HAMP expired on December 31, 2016. Borrowers who had requested assistance or to whom an offer of assistance had been extended as of that date had until September 30, 2017 to finalize their modification. We continue to earn HAMP success fees for HAMP modifications that remain less than 90 days delinquent at the first-, second- and third-year anniversary of the start of the trial modification.

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(1)	Balance represents the holdback of proceeds from PMC MSR sales and transfers to address indemnification claims and mortgage loan document deficiencies. These sales were executed by PMC prior to the acquisition date.

(2)	$35.4 million income is expected to be recognized for the year ended December 31, 2020 as a reduction in the pledged MSR liability.

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(1)	Represents the carrying value of MSRs in connection with call rights exercised by NRZ, for MSRs transferred to NRZ under the 2017 Agreements and New RMSR Agreements, or by Ocwen at NRZ’s direction, for MSRs underlying the Original Rights to MSRs Agreements. Ocwen derecognizes the MSRs and the related financing liability upon collapse of the securitization.

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(1)	We amortize these costs to the earlier of the scheduled amortization date, contractual maturity date or prepayment date of the debt.

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(1)

The amortization date of our facilities is the date on which the revolving period ends under each advance facility note and repayment of the outstanding balance must begin if the note is not renewed or extended. The maturity date is the date on which all outstanding balances must be repaid. In all of our advance facilities, there are multiple notes outstanding. For each note, after the amortization date, all collections that represent the repayment of advances pledged to the facility must be applied ratably to each outstanding amortizing note to reduce the balance and as such the collection of advances allocated to the amortizing note may not be used to fund new advances.

(2)	Borrowing capacity under the OMART and OFAF facilities is available to us provided that we have sufficient eligible collateral to pledge. At December 31, 2019 , none of the available borrowing capacity of our advance financing notes could be used based on the amount of eligible collateral.

(3)	1ML was 1.76% and 2.50% at December 31, 2019 and 2018 , respectively.

(4)	On December 12, 2019, we renewed this facility through December 11, 2020 and borrowing capacity was reduced from $225.0 million to $200.0 million , with interest computed based on the lender’s cost of funds plus a margin. At December 31, 2019 , the weighted average interest margin was 136 bps.

(5)

On August 14, 2019, we issued two fixed-rate term notes of $185.0 million (Series 2019 T-1) and $285.0 million (Series 2019-T2) with amortization dates of August 17, 2020 and August 16, 2021, respectively, for a total combined borrowing capacity of $470.0 million . The weighted average rate of the notes at December 31, 2019 is 2.57% with rates on the individual classes of notes ranging from 2.42% to 4.44% . The Series 2016-T2, 2018-T1 and 2018-T2 fixed-rate term notes were all redeemed on August 15, 2019.

(6)	On June 6, 2019, we renewed this facility through June 5, 2020 and borrowing capacity was reduced from $65.0 million to $60.0 million with interest computed based on the lender’s cost of funds plus a margin. At December 31, 2019 , the weighted average interest margin was 157 bps.

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(1)

Represents amounts due to the holders of beneficial interests in Ginnie Mae guaranteed HMBS which did not qualify for sale accounting treatment of HECM loans. Under this accounting treatment, the HECM loans securitized with Ginnie Mae remain on our consolidated balance sheet and the proceeds from the sale are recognized as a secured liability. The beneficial interests have no maturity dates, and the borrowings mature as the related loans are repaid. We elected to record the HMBS-related borrowings at fair value consistent with the related HECM loans. Changes in fair value are reported within Reverse mortgage revenue, net.

(2)

This pledged MSR liability is recognized due to the accounting treatment of MSR sale transactions with NRZ which did not qualify as sales for accounting purposes. Under this accounting treatment, the MSRs transferred to NRZ remain on the consolidated balance sheet and the proceeds from the sale are recognized as a secured liability. This financing liability has no contractual maturity or repayment schedule. We elected to record the liability at fair value consistent with the related MSRs. The balance of the liability is adjusted each reporting period to its fair value based on the present value of the estimated future cash flows underlying the related MSRs. Changes in fair value are reported within Pledged MSR liability expense, and are offset by corresponding changes in fair value of the MSR pledged to NRZ within MSR valuation adjustments, net.

(3)

This financing liability arose in connection with lump sum payments of $54.6 million received upon transfer of legal title of the MSRs related to the Rights to MSRs transactions to NRZ in September 2017. In connection with the execution of the New RMSR Agreements in January 2018, we received a lump sum payment of $279.6 million as compensation for foregoing certain payments under the Original Rights to MSRs Agreements. The balance of the liability is adjusted each reporting period to its fair value based on the present value of the estimated future cash flows. The expected maturity of the liability is April 30, 2020, the date through which we were scheduled to be the servicer on loans underlying the Rights to MSRs per the Original Rights to MSRs Agreements.

(4)

Represents a liability for sales of MSRs to NRZ which did not qualify for sale accounting treatment and are accounted for as a secured borrowing which we assumed in connection with the acquisition of PHH. Under this accounting treatment, the MSRs transferred to NRZ remain on the consolidated balance sheet and the proceeds from the sale are recognized as a secured liability. We elected to record the liability at fair value consistent with the related MSRs.

(5)

Consists of securitization debt certificates due to third parties that represent beneficial interests in trusts that we include in our consolidated financial statements, as more fully described in Note 4 — Securitizations and Variable Interest Entities . The holders of these certificates have no recourse against the assets of Ocwen. The certificates in the INDX 2004-AR11 Trust pay interest based on variable rates which are generally based on weighted average net mortgage rates and which range between 3.39% and 3.85% at

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(6)	Certain sales of advances did not qualify for sales accounting treatment and were accounted for as a financing. This financing liability has no contractual maturity. The effective interest rate is based on 1ML plus a margin of 450 bps.

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(1)	Available borrowing capacity for our mortgage loan warehouse facilities does not consider the amount of the facility that the lender has extended on an uncommitted basis. Of the borrowing capacity extended on a committed basis, none of the available borrowing capacity could be used at December 31, 2019 based on the amount of eligible collateral that could be pledged.

(2)

On March 18, 2019, we entered into a Joinder and Amendment Agreement which amends the existing Amended and Restated SSTL Facility Agreement dated December 5, 2016 to provide an additional term loan of $120.0 million subject to the same maturity, interest rate and other material terms of existing borrowings under the SSTL. Effective with this amendment, the quarterly principal payment increased from $4.2 million to $6.4 million beginning March 31, 2019. See information regarding collateral in the table below.

(3)	The maximum borrowing under this agreement is $175.0 million , of which $100.0 million is available on a committed basis and the remainder is available at the discretion of the lender. On September 27, 2019, we renewed this facility through September 25, 2020.

(4)	Effective with the mergers of Homeward Residential, Inc. (Homeward) into PMC in February 2019 and Ocwen Loan Servicing, LLC (OLS) into PMC in June 2019, the participation agreements with total uncommitted borrowing capacity of $250.0 million were terminated.

(5)

Under this participation agreement, the lender provides financing for $100.0 million on an uncommitted basis. The participation agreement allows the lender to acquire a 100% beneficial interest in the underlying mortgage loans. The transaction does not qualify for sale accounting treatment and is accounted for as a secured borrowing. On August 13, 2019, we renewed this facility through August 14, 2020.

(6)

On December 6, 2019, we renewed this facility through December 5, 2020. The maximum borrowing under this agreement is $250.0 million , of which $200.0 million is available on a committed basis and the remainder is available on an uncommitted basis. The agreement allows the lender to acquire a 100% beneficial interest in the underlying mortgage loans. The transaction does not qualify for sale accounting treatment and is accounted for as a secured borrowing.

(7)	Under this agreement, t he lender provides financing for up to $50.0 million on an uncommitted basis. This facility expired on January 22, 2020 and was not renewed.

(8)	This agreement was originally entered into by PHH and subsequently assumed by Ocwen in connection with its acquisition of PHH. T he lender provides financing for up to $200.0 million at the discretion of the lender. The agreement has no stated maturity date.

(9)

We entered into a master participation agreement on February 4, 2019 under which the lender will provide $300.0 million of borrowing capacity to PMC on an uncommitted basis. The participation agreement allows the lender to acquire a 100% beneficial interest in the underlying mortgage loans. The transaction does not qualify for sale accounting treatment and is accounted for as a secured borrowing. The lender earns the stated interest rate of the underlying mortgage loans less 25 bps while the loans are financed under the participation agreement. On January 27, 2020, we renewed this facility through April 3, 2020.

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(10)	On December 26, 2019, PMC entered into a warehouse facility. Under this agreement, t he lender provides financing for up to $50.0 million on a committed basis. The lender earns the stated interest rate of 1ML plus a margin of 350 bps .

(11)

On July 1, 2019, PMC entered into a financing facility that is secured by certain Fannie Mae and Freddie Mac MSRs. In connection with this facility, PMC entered into repurchase agreements pursuant to which PMC sold trust certificates representing certain indirect economic interests in the MSRs and agreed to repurchase such trust certificates at a future date at the repurchase price set forth in the repurchase agreements. PMC’s obligations under this facility are secured by a lien on the related MSRs. Ocwen guarantees the obligations of PMC under this facility. The maximum amount which we may borrow pursuant to the repurchase agreements is $300.0 million on a committed basis. The lender earns the stated interest rate of 1ML plus a margin of 300 bps . See Note 4 — Securitizations and Variable Interest Entities for additional information.

(12)

On November 26, 2019, PMC entered into a financing facility that is secured by certain Ginnie Mae MSRs. In connection with the facility, PMC entered into a repurchase agreement pursuant to which PMC has sold a participation certificate representing certain economic interests in the Ginnie Mae MSRs and has agreed to repurchase such participation certificate at a future date at the repurchase price set forth in the repurchase agreement. PMC’s obligations under the facility are secured by a lien on the related Ginnie Mae MSRs. Ocwen guarantees the obligations of PMC under the facility. The maximum amount available to be borrowed pursuant to the facility is $27.7 million on a committed basis. The lender earns the stated interest rate of 1ML plus a margin of 395 bps .

(13)

On November 26, 2019, PMC issued the PLS Notes secured by certain of PMC’s MSRs (PLS MSRs) pursuant to a credit agreement. PLS Issuer’s obligations under the facility are secured by a lien on the related PLS MSRs. Ocwen guarantees the obligations of PLS Issuer under the facility. The Class A PLS Notes issued pursuant to the credit agreement have an initial principal amount of $100.0 million and amortize in accordance with a pre-determined schedule subject to modification under certain events. The notes have a stated coupon rate of 5.07% . See Note 4 — Securitizations and Variable Interest Entities for additional information.

(14)

OASIS noteholders are entitled to receive a monthly payment equal to the sum of: (a) 21 basis points of the UPB of the reference pool of Freddie Mac mortgages; (b) any termination payment amounts; (c) any excess refinance amounts; and (d) the note redemption amounts, each as defined in the indenture supplement for the notes. Monthly amortization of the liability is estimated using the proportion of monthly projected service fees on the underlying MSRs as a percentage of lifetime projected fees, adjusted for the term of the notes.

(1)	On September 2, 2019, we redeemed all of the Senior unsecured notes due in September 2019, at a redemption price of 100.0% of the outstanding principal balance plus accrued and unpaid interest.

(2)

These notes were originally issued by PHH and subsequently assumed by Ocwen in connection with its acquisition of PHH. We recorded the notes at their respective fair values on the date of acquisition, and we are amortizing the resulting fair value purchase accounting adjustments over the remaining term of the notes. We have the option to redeem the notes due in August 2021, in whole or in part, on or after January 1, 2019 at a redemption price equal to 100.0% of the principal amount plus any accrued and unpaid interest.

(3)	During July and August 2019, we repurchased a total of $39.4 million of our 8.375% Senior secured notes in the open market for a price of $34.3 million . We recognized a gain of $5.1 million on these repurchases which is reported in Gain on repurchases of senior secured notes in the consolidated statement of operations.

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•	Financial covenants;

•	Covenants to operate in material compliance with applicable laws;

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Restrictions on our ability to engage in various activities, including but not limited to incurring additional forms of debt, paying dividends or making distributions on or purchasing equity interests of Ocwen, repurchasing or redeeming capital stock or junior capital, repurchasing or redeeming subordinated debt prior to maturity, issuing preferred stock, selling or transferring assets or making loans or investments or acquisitions or other restricted payments, entering into mergers or consolidations or sales of all or substantially all of the assets of Ocwen and its subsidiaries, creating liens on assets to secure debt of any guarantor, entering into transactions with affiliates;

•	Monitoring and reporting of various specified transactions or events, including specific reporting on defined events affecting collateral underlying certain debt agreements; and

•	Requirements to provide audited financial statements within specified timeframes, including requirements that Ocwen’s financial statements and the related audit report be unqualified as to going concern.

•	a 40% loan to collateral value ratio (i.e., the ratio of total outstanding loans under the SSTL to certain collateral and other assets as defined under the SSTL) as of the last date of any fiscal quarter; and

•	specified levels of tangible net worth and liquidity at the consolidated Ocwen level.

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(1)	Sales and Other Commitments include MSRs and related advances committed under sale agreements, Restricted cash and deposits held as collateral to support certain contractual obligations, and Contingent loan repurchase assets related to the Ginnie Mae EBO program for which a corresponding liability is recognized in Other liabilities.

(2)

The borrowings under the SSTL are secured by a first priority security interest in substantially all of the assets of Ocwen, PHH, PMC and the other guarantors thereunder, excluding among other things, 35% of the voting capital stock of foreign subsidiaries, securitization assets and equity interests of securitization entities, assets securing permitted funding indebtedness and non-recourse indebtedness, REO assets, as well as other customary carve-outs (collectively, the Collateral). The Collateral is subject to certain permitted liens set forth under the SSTL and related security agreement. The Senior Secured Notes are guaranteed by Ocwen and the other guarantors that guarantee the SSTL, and the borrowings under the Senior Secured Notes are secured by a second priority security interest in the Collateral. Assets securing borrowings under the SSTL and Senior Secured Notes may include amounts presented in Other as well as certain assets presented in Collateral for Secured Borrowings and Sales and Other Commitments, subject to permitted liens as defined in

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(3)

MSRs pledged as collateral for secured borrowings includes MSRs pledged to NRZ in connection with the Rights to MSRs transactions which are accounted for as secured financings and MSRs securing the financing facilities. Certain MSR cohorts with a negative fair value of $4.7 million that would be presented as Other are excluded from the eligible collateral of the facilities and are comprised of $27.9 million of negative fair value related to RMBS and $23.2 million of positive fair value related to private EBO and PLS MSRs.

(1)	Amounts are exclusive of any related discount, unamortized debt issuance costs or fair value adjustment.

(2)	For match funded liabilities, the Expected Maturity Date is the date on which the revolving period ends for each advance financing facility note and repayment of the outstanding balance must begin if the note is not renewed or extended.

(3)	Excludes financing liabilities recognized in connection with asset sales transactions accounted for as financings, including $1.0 billion recorded in connection with sales of Rights to MSRs and MSRs and $6.1 billion recorded in connection with the securitizations of HMBS. These financing liabilities have no contractual maturity and are amortized over the life of the underlying assets.

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(1)	Consists of amounts accrued for probable losses in connection with legal and regulatory settlements and judgments. Such amounts are reported in Professional services expense in the consolidated statements of operations.

(2)	Includes cash payments made in connection with resolved legal and regulatory matters.

(3)	See Note 16 — Equity for additional information.

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•	our more interest rate-sensitive Agency MSR portfolio,

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

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

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

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(1)	The U.S. Federal corporate income tax rate is 21% beginning January 1, 2018 and was 35% until December 31, 2017.

(2)	ASC 740-10-50 and SEC Regulation S-X, Rule 4-08(h) require the disclosure of significant reconciling items in the effective tax rate reconciliation schedule. We have prepared the 2019 effective tax rate reconciliation consistent with prior years, taking into account the materiality of reconciling items, comparability with prior years and the usefulness of the information.

(3)

The foreign tax differential includes expense recognized in 2019 and a benefit recognized in 2018 and 2017 for taxable income or losses earned by Ocwen Mortgage Servicing, Inc. (OMS) prior to the merger of OMS into OVIS in 2019 as disclosed below, which are taxable in the U.S. as effectively connected income (ECI). The impact of ECI to income tax expense (benefit) for 2019 , 2018 and 2017 was $2.6 million , $(3.3) million and $(28.5) million , respectively.

(4)	The benefit recorded for the provision for valuation allowance in 2017 relates primarily to the reduction in the valuation allowance necessary as a result of revaluing our deferred tax assets due to U.S. tax reform and the reduction in the corporate tax rate. This benefit is partially offset by an increase in valuation allowance necessary for current year losses.

(5)

ASU 2016-16 requires an entity to recognize the income tax consequences of intra-entity transfers of assets other than inventory when the transfer occurs. Previously, recognition of current and deferred income taxes for an intra-entity transfer was prohibited until the asset had been sold to an outside party. We adopted this standard on a modified retrospective basis on January 1, 2018 by recording a cumulative-effect reduction of $5.6 million to retained earnings.

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

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

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(1)

Stock options granted in 2019 include 33,180 options awarded to Ocwen’s Chief Financial Officer at a strike price of $2.17 equal to the closing price of our common stock on the effective date of her employment. Stock options granted in 2018 include 266,990 options awarded to Ocwen’s current Chief Executive Officer (CEO) at an exercise price of $4.12 equal to the closing price of our common stock on the effective date of his employment, which was the closing date of the PHH acquisition.

(2)	The weighted average grant date fair value of stock options granted in 2019 was $1.49 .

(3)	Includes 73,696 and 4,719,750 options which expired unexercised in 2019 and 2018, because their exercise price was greater than the market price of Ocwen’s stock.

(4)	At December 31, 2019 , 115,000 options with a market condition for vesting based on an average common stock trading price of $38.41 , had not met their performance criteria. Outstanding and exercisable stock options at December 31, 2019 have a net aggregate intrinsic value of $0 . A total of 810,939 market-based options were outstanding at December 31, 2019 , of which 695,939 were exercisable.

(5)	At December 31, 2019 , the weighted average remaining contractual term of options outstanding and options exercisable was 4.13 years and 3.28 years , respectively.

(6)	The total fair value of stock options that vested and became exercisable during 2019 , 2018 and 2017 , based on grant-date fair value, was $0.6 million , $0.6 million and $0.7 million , respectively.

(1)	Upon the resignation of Ocwen’s former CEO on June 30, 2018, 377,525 unvested stock units which would have been forfeited immediately were modified to allow continued vesting in accordance with the original terms. This had the equivalent effect of canceling the original award and granting a new award.

(2)	Stock units granted in 2019 include 1,130,653 units granted to Ocwen’s CEO under the new long-term incentive (LTI) program described below. Stock units granted in 2018 include 983,010 units granted to Ocwen’s current CEO on the effective date of his employment, which was the closing date of the PHH acquisition.

(3)	The total intrinsic value of stock units vested, which is defined as the market value of the stock on the date of vesting, was $2.1 million , $3.3 million and $4.6 million for 2019 , 2018 and 2017 , respectively.

(4)	The total fair value of the stock units that vested during 2019 , 2018 and 2017 , based on grant-date fair value, was $3.5 million , $2.2 million and $2.9 million , respectively.

(5)

Excluding the 787,204 market-based stock awards that have not met their performance criteria, the net aggregate intrinsic value of stock awards outstanding at December 31, 2019 was $2.6 million . At December 31, 2019 , 40,000 , 93,023 , 57,604 , and 31,250 stock units with a market condition for vesting based on an average common stock trading price of $11.72 , $5.80 , $4.34 , and $3.84 respectively, as well as 565,327 stock units requiring an average common stock trading price of $2.56 to vest a minimum of 50% of units, had not yet met the market condition (and time-vesting requirements, where applicable).

(6)	At December 31, 2019 , the weighted average remaining contractual term of share units outstanding was 1.88 years .

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(1)	We generally estimate volatility based on the historical volatility of Ocwen’s common stock over the most recent period that corresponds with the estimated expected life of the option. For awards valued using a Monte Carlo simulation, volatility is computed as a blend of historical volatility and implied volatility based on traded options on Ocwen’s common stock.

(2)

For the options valued using the Black-Scholes model we determined the expected life based on historical experience with similar awards, giving consideration to the contractual term, exercise patterns and post vesting forfeitures. The expected term of the options valued using the lattice (binomial) model is derived from the output of the model. The lattice (binomial) model incorporates exercise assumptions based on analysis of historical data. For all options, the expected life represents the period of time that options granted were expected to be outstanding at the date of the award.

(3)

The stock units that contain both a service condition and a market-based condition are valued using the Monte Carlo simulation. The expected term is derived from the output of the simulation and represents the expected time to meet the market-based vesting condition. For equity awards with both service and market conditions, the requisite service period is the longer of the derived or explicit service period. In this case, the explicit service condition (vesting period) is the requisite service period, and the graded vesting method is used for expense recognition.

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(1)

Compensation and benefits expense in the Corporate Items and Other segment for 2019 and 2018 includes $20.3 million and $11.9 million , respectively, of severance expense attributable to PHH integration-related headcount reductions of primarily U.S.-based employees in 2019 and severance expense attributable to headcount reductions in connection with our strategic decisions to exit the automotive capital services business and the forward lending correspondent and wholesale channels in late 2017 and early 2018, as well as our overall efforts to reduce costs.

(2)	Included in the Corporate Items and Other segment for 2019, we recorded in Professional services expense a recovery from a service provider of $30.7 million during the first quarter of amounts previously recognized as expense.

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(1)	Total repurchases during the year ended December 31, 2019 , includes 189 loans totaling $38.4 million related to MCA repurchases.

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

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(1)	At December 31, 2019, the weighted average of the discount rate used to estimate the present value was 7.5% based on our incremental borrowing rate.

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•	Ocwen would not acquire any new residential MSRs until April 30, 2018.

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

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

•	Ocwen would engage a third-party auditor to perform an analysis with respect to our compliance with certain federal and state laws relating to escrow by testing approximately 9,000 loan files relating to residential real property in various states, and Ocwen would develop corrective action plans for any errors identified by the third-party auditor.

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

•	Ocwen would provide financial condition reporting on a confidential basis as part of each state’s supervisory framework through September 2020.

•	Ocwen agreed with the Connecticut Department of Banking to pay certain amounts only in the event we fail to comply with certain requirements under our agreement with Connecticut.

•	In its agreement with the Maryland Office of the Commissioner of Financial Regulation, Ocwen agreed to complete an independent management assessment and enterprise risk assessment and to a prohibition, with certain de minimis exceptions, on repurchases of our stock until December 7, 2018. Ocwen also agreed to make certain payments to

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Ocwen agreed with the Massachusetts Division of Banks to pay $1.0 million to the Commonwealth of Massachusetts Mortgage Education Trust. Ocwen and the Massachusetts regulatory agency also agreed on a schedule pursuant to which we would regain eligibility to acquire residential MSRs on Massachusetts loans (including loans originated by Ocwen) as we met certain thresholds in our transition to a new servicing system. Pursuant to this agreement, all restrictions on Massachusetts MSR acquisitions would be lifted when Ocwen completed the second phase of a three-phase data integrity audit. Having now completed both the first and second phases of this audit, Ocwen is no longer bound by any restriction on the volume of MSR acquisitions in Massachusetts.

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

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•	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.

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

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

(3)	Includes $18.0 million liability for representation and warranty obligations related to sold advances previously presented as allowance for losses. See Note 7 — Advances .

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(1)	Positive valuation adjustments indicated in the above table represent fair value gains and negative valuation adjustments represent fair value losses.

(1)	The quarter ended December 31, 2018 includes the results of operations of PHH from the acquisition date of October 4, 2018 through December 31, 2018. See Note 2 — Business Acquisition for additional information.

(2)	Includes a bargain purchase gain, net of tax, of $64.0 million recognized during the quarter ended December 31, 2018 in connection with the acquisition of PHH.

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