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NOTE 30 COMMITMENTS AND CONTINGENCIES
 12 Months Ended
Dec. 31, 2011
Commitments and Contingencies Disclosure [Text Block]

NOTE 30 COMMITMENTS AND CONTINGENCIES


Litigation


Since April 2004, we have been included as a defendant in litigation in federal court in Chicago which consolidated certain class actions and individual actions brought by borrowers in various federal and state courts challenging the defendants’ mortgage servicing practices, including charging improper or unnecessary fees, misapplying borrower payments and similar allegations (the MDL Proceeding). We believe the allegations in the MDL Proceeding are without merit and have defended against them vigorously. In the interests of obtaining finality and cost certainty with regard to this complex and protracted litigated matter, however, defendants, including Ocwen, entered into a definitive written agreement with plaintiffs’ counsel with respect to a class settlement. Ocwen’s portion of the proposed settlement payment is $5,163 plus certain other non-cash consideration and administrative costs. On July 1, 2011, the Court granted final approval to this class settlement. Defendants, including Ocwen, have paid their respective portions of the settlement into escrow and notice of the settlement has been provided to potential class members. On July 6, 2011, the Court entered final judgment and no appeals were filed. While there are some claims that are subject to opt-outs by individual plaintiffs, these are not viewed as material at this time.


In September 2006, the Bankruptcy Trustee in Chapter 7 proceedings involving American Business Financial Services, Inc. (ABFS) brought an action against multiple defendants, including Ocwen, in Bankruptcy Court. The action arises out of Debtor-in-Possession financing to ABFS by defendant Greenwich Capital Financial Products, Inc. and the subsequent purchases by Ocwen of MSRs and certain residual interests in mortgage-backed securities previously held by ABFS. The Trustee filed an amended complaint in March 2007 alleging various claims against Ocwen including turnover, fraudulent transfers, accounting, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, breach of contract, fraud, civil conspiracy and conversion. The Trustee seeks compensatory damages in excess of $100,000 and punitive damages jointly and severally against all defendants. In April 2008, Ocwen filed an answer denying all charges and a counterclaim for breach of contract, fraud, negligent misrepresentation and indemnification in connection with the MSR purchase transaction. Fact discovery is complete and both Ocwen and the Trustee have filed motions for partial summary judgment. We believe that the Trustee’s allegations against Ocwen are without merit and intend to continue to vigorously defend against this matter. We are unable to provide any estimate of possible loss or range of possible loss at this time.


We are subject to various other pending legal proceedings, including those subject to loss sharing provisions of the Litton Acquisition more fully described in Note 2. In our opinion, the resolution of those proceedings will not have a material effect on our financial condition, results of operations or cash flows.


  Tax Matters


On December 21, 2009, the India tax authorities issued a draft income tax assessment order (the First Order) with respect to assessment year 2006 – 2007. The proposed adjustment would impose upon OFSPL additional tax of INR 41,760 ($784) and interest of INR 18,297 ($344) for the Assessment Year 2006 – 2007, and penalties may be assessed. OCN and OFSPL intend to vigorously contest this Order and any imposition of tax and interest and do not believe they have violated any statutory provision or rule. OFSPL has filed an application with the Dispute Resolution Panel for the First Order. OFSPL received the final assessment order (the Second Order) on November 24, 2010, with a demand of INR 64,085 ($1,203), reflecting tax of INR 41,712 ($783) and interest of INR 22,373 ($420). In response, OFSPL petitioned for assistance to be provided by the Competent Authority under the Mutual Agreement Procedures of the U.S./India income tax treaty, furnished a Bank Guarantee for INR 76,754 ($1,441) related to transfer pricing matters and paid INR 7,647 ($144) towards non-transfer pricing issues. Furthermore, OFSPL has submitted an appeal of the Second Order to the Income Tax Appellate Tribunal.  


On January 4, 2011, OFSPL received a draft assessment order (the Third Order) with respect to assessment year 2007 – 2008. The proposed adjustment would impose upon OFSPL additional tax of INR 63,885 ($1,199) and interest of INR 28,748 ($540). OFSPL filed an application and received no relief from the Dispute Resolution Panel for the Third Order. OFSPL filed an appeal of the Third Order with the Income Tax Appellate Tribunal on December 20, 2011 and is in the process of filing a further appeal under the Mutual Agreement Procedures of the U.S./India income tax treaty. Due to the uncertainties inherent in the Appeals and Competent Authority processes, Ocwen and OFSPL cannot currently estimate any additional exposure beyond the amount currently detailed in the Orders. We also cannot predict when these tax matters will be resolved. Competent Authority assistance requests under the Mutual Agreement Procedures should preserve Ocwen’s right to offset any potential increase in India taxes against Ocwen’s U.S. taxes.


Other Information


In July 2010, OLS received two subpoenas from the Federal Housing Finance Agency (FHFA) as conservator for Freddie Mac and Fannie Mae in connection with ten private label mortgage securitization transactions where Freddie Mac and Fannie Mae have invested. The transactions include mortgage loans serviced but not originated by OLS or its affiliates. There is no allegation of wrongdoing in the subpoenas against OLS, and we are cooperating with the FHFA’s requests.


On November 24, 2010, OLS received a Civil Investigative Demand (CID) from the Federal Trade Commission (FTC) requesting documents and information regarding various servicing activities. There is no allegation of wrongdoing against OLS in the FTC CID, and we are cooperating with the FTC’s request.


On November 7, 2011, OLS received a CID from the Attorney General’s Office of the Commonwealth of Massachusetts requesting documents and information regarding certain foreclosures executed in Massachusetts. There is no allegation of wrongdoing against OLS in the Massachusetts Attorney General CID, and we are cooperating with the Massachusetts Attorney General’s request.


On January 18, 2012, OLS received a subpoena from the New York Department of Financial Services requesting documents regarding OLS’ policies, procedures and practices regarding lender placed or “force placed” insurance which is required to be provided for borrowers who allow their hazard insurance policies to lapse. There is no allegation of wrongdoing against OLS in the subpoena, and we are cooperating with the New York Department of Financial Service’s request.


Recent inquiries into servicer foreclosure processes could result in actions by state or federal governmental bodies, regulators or the courts that could result in temporary moratoria on mortgage foreclosures or an extension of foreclosure timelines, which may be applicable generally to the servicing industry or to us in particular.  In addition, a number of our match funded advance facilities contain provisions that limit the eligibility of advances to be financed based on the length of time that advances are outstanding, and three of our match funded advance facilities have provisions that limit new borrowings if average foreclosure timelines extend beyond a certain time period, either of which, if such provisions applied, could adversely affect liquidity by reducing our average effective advance rate.  In addition, governmental bodies may impose regulatory fines or penalties as a result of our foreclosure processes or impose additional requirements or restrictions on such activities which could increase our operating expenses.  Increases in the amount of advances and the length of time to recover advances, fines or increases in operating expenses, and decreases in the advance rate and availability of financing for advances would lead to increased borrowings, reduced cash and higher interest expense which  could negatively impact our liquidity and profitability. With respect to the Servicing segment, Ocwen is not the title owner of record for any foreclosed real estate, and neither Ocwen nor any of its subsidiaries make any type of direct title warranty to a subsequent purchaser of foreclosed real estate.


Ocwen has been a party to loan sales and securitizations dating back to the 1990s.  The majority of securities issued in these transactions has been retired and are not subject to putback risk. There is one remaining securitization with an original UPB of approximately $200,000 where Ocwen provided representations and warranties and the loans were originated in the last decade.  Ocwen performed due diligence on each of the loans included in this securitization. The outstanding UPB of this securitization was $47,670 at December 31, 2011, and the outstanding balance of the notes was $48,462. Ocwen is not aware of any inquiries or claims regarding loan putbacks for any transaction where we made representations and warranties. We do not expect loan putbacks to result in any material change to our financial position, operating results or liquidity.


Commitments


We lease certain of our premises and equipment under non-cancelable operating leases with terms expiring through 2018 exclusive of renewal option periods. Our annual aggregate minimum rental commitments under these leases are summarized as follows:


2012   $ 6,237  
2013     7,457  
2014     3,700  
2015     3,485  
2016     2,924  
Thereafter     2,265  
Total minimum lease payments   $ 26,068  

In connection with the HomEq Acquisition we assumed the obligation for the lease agreements associated with the former HomEq facilities located in Raleigh, North Carolina and Sacramento, California. Although these agreements expire in 2017 and 2018, respectively, we have exercised our option to terminate the leases effective in 2013. The rental commitments in the table above for operating leases include the remaining monthly payments and the early termination penalties due through the early termination dates in 2013 for these leases. These amounts total $2,668 and $3,579 for 2012 and 2013, respectively. As part of the Litton Acquisition, we assumed the leases associated with the former Litton facilities located in Houston, Texas and McDonough, Georgia. These agreements expire in 2012 and 2017, respectively. The lease associated with the Houston, Texas facility will likely not be renewed upon expiration. The table above includes total rental commitments of $7,294 related to these leases.


In December 2010, we entered into an agreement with Altisource to sublease of 2,094 square feet of space as our principal executive office in Atlanta, Georgia. Under the terms of the agreement, Ocwen is responsible for monthly base rent of $3 plus a proportionate amount of maintenance costs and other shared services. The sublease is in effect through October 2014.


We converted rental commitments for our facilities outside the United States of America to U.S. dollars using exchange rates in effect at December 31, 2011. Rent expense for 2011, 2010 and 2009 was $5,578, $12,315 and $6,156, respectively.


On October 19, 2011, Ocwen entered into a purchase agreement with SCI Services, Inc. (SCI), Saxon Capital Holdings, LLC (Saxon Capital) and Morgan Stanley Capital Holdings, LLC (Morgan Stanley) to acquire (i) all of the issued and outstanding stock of SCI and (ii) certain MSRs owned by Morgan Stanley and its affiliates (the Saxon Acquisition). SCI is a subsidiary of Saxon Capital and the parent company of Saxon Mortgage Services, Inc., a provider of servicing and subservicing of primarily non-prime residential mortgage loans. Morgan Stanley is the parent company of Saxon Capital Holdings, LLC. The Saxon Acquisition will result in the acquisition of a servicing portfolio of approximately $26,800,000 in UPB as of June 30, 2011, of which Ocwen subserviced approximately $10,800,000 as of June 30, 2011. The Saxon Acquisition also includes approximately $12,900,000 of loans that SCI subservices for Morgan Stanley and others. This subservicing may be transferred to Ocwen, pending approval by the owners of the servicing, or will be subserviced by Ocwen under short-term agreements. The base purchase price for the Saxon Transaction is $59,300. In addition, Ocwen will pay approximately $292,200 for the portion of the approximately $1,392,000 of Saxon servicing advance receivables that were not financed by third parties. We expect to complete the Saxon Acquisition in March 2012.


Ocwen is funding the amounts for the Saxon Acquisition through a combination of cash on-hand, cash generated through operations, available credit, an additional $200,000 borrowing under our senior secured term loan facility and additional borrowing under existing servicing advance facilities. The additional $200,000 borrowing under the senior secured term loan will increase mandatory principal repayments by $5,263 per quarter. The new borrowings bear interest at the same rate(s) as the initial term loan and have the same maturity date. See Note 15 for additional information regarding the terms of the senior secured term loan.


As a part of the Saxon Acquisition, the sellers and Ocwen have agreed to indemnification provisions for the benefit of the other party. While the sellers have agreed to retain certain contingent liabilities for losses, fines and penalties that could result from claims by government authorities and certain third parties relating to SCI’s pre-closing foreclosure, servicing and loan origination practices, the sellers and Ocwen have agreed to share certain losses arising out of potential third-party claims in connection with SCI’s pre-closing performance under its servicing agreements. The sellers have agreed to be liable for (i) 75% of any such losses until the amount paid by the sellers is equal to 60% of the Saxon Shared Loss Cap of $83,000 and (ii) thereafter, 25% of any such losses until the amount paid by the sellers is equal to the Saxon Shared Loss Cap. Ocwen has agreed to be liable for (i) first, 25% of any such losses until the amount paid by the sellers is equal to 60% of the Saxon Shared Loss Cap, (ii) second, 75% of any such losses until the amount paid by the sellers is equal to the Saxon Shared Loss Cap and (iii) thereafter, 100% of any such losses in excess of the Saxon Shared Loss Cap.


On November 4, 2011, Ocwen entered into a servicing rights purchase agreement with JPMorgan Chase, N.A. (JPMCB) to acquire less than 2% of JPMCB’s mortgage servicing portfolio which includes servicing rights for certain third party private securitizations in which neither JPMCB nor any of its affiliated entities were issuers or loan sellers. The transaction relates to MSRs for approximately 82,000 non-prime loans with a UPB of approximately $15,000,000 as of September 30, 2011 (the JPMCB MSR Transaction). The purchase price, subject to adjustment at closing and inclusive of servicing advance receivables, is approximately $950,000, which will be payable in cash by Ocwen.  Ocwen expects to finance $625,000 of the purchase price through an existing servicing advance facility.  We do not expect any adjustment to the purchase price to be material.


As part of the JPMCB MSR Transaction, JPMCB and Ocwen have agreed to indemnification provisions for the benefit of the other party.  There is no assurance that JPMCB will fulfill its indemnification obligations.


The JPMCB MSR Transaction is expected to close in early April 2012; however the JPMCB MSR Transaction may close in phases on more than one date.  Closing of the JPMCB MSR Transaction is subject to closing conditions, including but not limited to obtaining applicable third party authorizations and amendments.  There can be no assurance that the JPMCB MSR Transaction will be consummated as proposed or at all.


Ocwen is funding the amounts for the JPMCB MSR Transaction through a combination of cash on-hand, cash generated through operations, available credit, additional borrowing under our September 1, 2011 senior secured term loan facility and servicing advance facilities.