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Business Acquisitions | 12 Months Ended
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Dec. 31, 2013
Business Combinations [Abstract] |
Business Acquisitions | Note 3 — Business Acquisitions We completed the Liberty, Correspondent One, ResCap, Homeward and Litton acquisitions as part of our ongoing strategy to expand our residential origination and servicing businesses. We accounted for these transactions using the acquisition method which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date. In a business combination, the initial allocation of the purchase price is considered preliminary and therefore subject to change until the end of the measurement period (up to one year from the acquisition date). Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the expected revenue and cost synergies of the combined business. The purchase price allocations provided below for each business acquisition are based on an estimate of the fair value of the acquired loans, advances, MSRs and the assumed debt in a manner consistent with the methodology described in Note 5 — Fair Value. Premises and equipment were initially valued based on the “in-use” valuation premise, where the fair value of an asset is based on the highest and best use of the asset that would provide maximum value to market participants principally through its use with other assets as a group. Other assets and liabilities expected to have a short life were valued at the face value of the specific assets and liabilities purchased, including receivables, prepaid expenses, accounts payable and accrued expenses. The pro forma consolidated results presented below for each business acquisition are not indicative of what Ocwen’s consolidated net earnings would have been had we completed the acquisition on the dates indicated because of differences in servicing practices and cost structure between Ocwen and each acquiree. In addition, the pro forma consolidated results do not purport to project our combined future results nor do they reflect the expected realization of any cost savings associated with each acquisition. The acquisitions of Liberty and Homeward were treated as stock purchases for U.S. tax purposes. The ResCap and Litton acquisitions were treated as asset acquisitions for U.S. tax purposes. We expect the opening tax basis for the acquired assets and liabilities to be the fair values as shown in the purchase price allocation tables below. We expect MSRs and goodwill to be treated as intangible assets acquired in connection with the purchase of a trade or business and, as such, amortized over 15 years for tax purposes. Purchase Price Allocation The following table summarizes the fair values of assets acquired and liabilities assumed as part of the ResCap, Homeward and Litton acquisitions:
| ResCap |  | Homeward |  | Litton
Purchase Price Allocation | February 15, 2013 |  | Adjust- ments |  | Revised |  | December 27, 2012 |  | Adjust- ments |  | Final |  | Final
Cash | $ | — |  |  | $ | — |  |  | $ | — |  |  | $ | 79,511 |  |  | $ | — |  |  | $ | 79,511 |  |  | $ | 23,791 |
Loans held for sale | — |  |  | — |  |  | — |  |  | 558,721 |  |  | — |  |  | 558,721 |  |  | — |
MSRs(2) | 393,891 |  |  | (3,947 | ) |  | 389,944 |  | (1) | 358,119 |  |  | 2,225 |  |  | 360,344 |  |  | 144,314 |
Advances and match funded advances (2) | 1,622,348 |  |  | 124,853 |  |  | 1,747,201 |  | (1) | 2,266,882 |  |  | — |  |  | 2,266,882 |  |  | 2,468,137 |
Deferred tax assets | — |  |  | — |  |  | — |  |  | 47,346 |  |  | 4,757 |  |  | 52,103 |  |  | — |
Premises and equipment | 22,398 |  |  | (5,975 | ) |  | 16,423 |  |  | 16,803 |  |  | (4,288 | ) |  | 12,515 |  |  | 3,386 |
Debt service accounts | — |  |  | — |  |  | — |  |  | 69,287 |  |  | — |  |  | 69,287 |  |  | — |
Investment in unconsolidated entities | — |  |  | — |  |  | — |  |  | 5,485 |  |  | — |  |  | 5,485 |  |  | — |
Receivables and other assets (3) | 2,989 |  |  | — |  |  | 2,989 |  |  | 56,886 |  |  | (34,606 | ) |  | 22,280 |  |  | 4,888 |
Match funded liabilities | — |  |  | — |  |  | — |  |  | (1,997,459 | ) |  | — |  |  | (1,997,459 | ) |  | — |
Other borrowings | — |  |  | — |  |  | — |  |  | (864,969 | ) |  | — |  |  | (864,969 | ) |  | — |
Other liabilities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | — |
Liability for indemnification obligations | (49,500 | ) |  | — |  |  | (49,500 | ) |  | (32,498 | ) |  | — |  |  | (32,498 | ) |  | — |
Liability for certain foreclosure matters (4) | — |  |  | — |  |  | — |  |  | — |  |  | (13,430 | ) |  | (13,430 | ) |  | — |
Accrued bonuses | — |  |  | — |  |  | — |  |  | (35,201 | ) |  | — |  |  | (35,201 | ) |  | — |
Checks held for escheat | — |  |  | — |  |  | — |  |  | (16,418 | ) |  | (35 | ) |  | (16,453 | ) |  | (3,939 | )
Other | (24,840 | ) |  | (284 | ) |  | (25,124 | ) |  | (47,614 | ) |  | (616 | ) |  | (48,230 | ) |  | (27,516 | )
Total identifiable net assets | 1,967,286 |  |  | 114,647 |  |  | 2,081,933 |  |  | 464,881 |  |  | (45,993 | ) |  | 418,888 |  |  | 2,613,061 |
Goodwill | 204,743 |  |  | 3,033 |  |  | 207,776 |  | (1) | 300,843 |  |  | 45,093 |  |  | 345,936 |  |  | 57,430 |
Total consideration | 2,172,029 |  |  | 117,680 |  |  | 2,289,709 |  |  | 765,724 |  |  | (900 | ) |  | 764,824 |  |  | 2,670,491 |
Debt repaid to seller at closing | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (2,423,123 | )
Base purchase price, as adjusted | $ | 2,172,029 |  |  | $ | 117,680 |  |  | $ | 2,289,709 |  |  | $ | 765,724 |  |  | $ | (900 | ) |  | $ | 764,824 |  |  | $ | 247,368 |
(1) | Initial fair value estimate.
(2) | As of the acquisition date, the purchase of certain MSRs from ResCap was not complete pending the receipt of certain consents and court approvals. During the third and fourth quarters of 2013, we obtained the required consents and approvals for a portion of these MSRs and paid an additional purchase price of $120.4 million to acquire the MSRs and related advances. The purchase price allocation has been revised to include the resulting adjustments to MSRs, advances and goodwill. We completed additional settlements in January and February 2014.
(3) | The Homeward purchase price allocation has been revised to include a $34.6 million income tax liability, with an offsetting increase to goodwill.
(4) | See Note 16 — Other Liabilities for additional information.
Because the measurement period is still open for the ResCap Acquisition, we expect that certain fair value estimates will change once we receive all information necessary to make a final fair value assessment. As disclosed above, we completed additional settlements in January and February 2014 requiring revisions to the purchase price allocation to include the resulting adjustments to MSRs, advances and goodwill. Any measurement period adjustments that we identify and determine to be material will be applied retrospectively to the period of acquisition, and depending on the nature of the adjustments, other periods subsequent to the period of acquisition could also be affected. As of December 31, 2013, we have adjusted the initial purchase price and purchase price allocations related to the Homeward and ResCap Acquisitions as indicated in the table above. These measurement period adjustments were applied retrospectively to the period of acquisition. None of the adjustments had a material impact on earnings. ResCap Acquisition We completed the ResCap Acquisition on February 15, 2013. We acquired MSRs related to conventional, government insured and non-Agency residential forward mortgage loans with a UPB of $111.2 billion and master servicing agreements with a UPB of $44.9 billion. The ResCap Acquisition included advances and elements of the servicing platform related to the acquired MSRs, as well as certain diversified fee-based business operations that included recovery, title and closing services. We also assumed subservicing contracts with a UPB of $27.0 billion. Under the terms of the ResCap Acquisition, we are obligated to acquire certain servicing rights and subservicing agreements that were not settled as part of the initial closing on February 15, 2013 as a result of objections raised in connection with the sale. We purchase these MSRs and assume the subservicing contracts from ResCap when such consents and approvals are obtained. We completed subsequent settlements and purchased additional MSRs during the third and fourth quarters of 2013 as objections were resolved. To finance the ResCap Acquisition, we deployed $840.0 million from the proceeds of a new $1.3 billion senior secured term loan (SSTL) facility and borrowed an additional $1.2 billion pursuant to two new servicing advance facilities and one existing facility. We settled the third and fourth quarter closings with cash. Ocwen assumed certain limited liabilities as part of the transaction, including certain employee liabilities and certain business payables outstanding at the closing date. Under the agreement with ResCap, Ocwen generally did not assume any contingent obligations, including pending or threatened litigation, financial obligations in connection with any settlements, orders or similar agreements entered into by ResCap or obligations in connection with any representations or warranties associated with loans previously sold by ResCap except for litigation that may arise in the ordinary course of servicing mortgage loans relating to servicing agreements assumed by Ocwen. Ocwen assumed all liabilities related to servicing loans that are guaranteed by Ginnie Mae, whether arising prior to or after the closing date. On April 12, 2013, in connection with the sale to Altisource Portfolio Solutions, S.A. (Altisource) of the diversified fee-based business acquired in connection with the ResCap Acquisition, we received cash consideration from Altisource of $128.8 million. At the time of the closing, we derecognized goodwill of $128.8 million associated with the diversified fee-based business sold to Altisource. There were no other significant assets or liabilities associated with this business. See Note 26 — Related Party Transactions for a discussion of additional terms that were established related to the existing services agreements. Post-Acquisition Results of Operations The following table presents the revenue and earnings of the ResCap operations that are included in our unaudited Consolidated Statements of Operations from the acquisition date of February 15, 2013 through December 31, 2013:
Revenues |  | $ | 684,935 |
Net income |  | $ | 16,424 |
Pro Forma Results of Operations The following table presents supplemental pro forma information for Ocwen as if the ResCap Acquisition occurred on January 1, 2012. Pro forma adjustments include:
• | conforming servicing revenues to the revenue recognition policies followed by Ocwen;
• | conforming the accounting for MSRs to the valuation and amortization policies of Ocwen;
• | adjusting interest expense to eliminate the pre-acquisition interest expense of ResCap and to recognize interest expense as if the acquisition-related debt of Ocwen had been outstanding at January 1, 2012; and
• | reporting acquisition-related charges for professional services as if they had been incurred in 2012 rather than 2013.
| 2013 |  | 2012
| (Unaudited) |  | (Unaudited)
Revenues | $ | 2,086,010 |  |  | $ | 1,263,692 |
Net income | $ | 285,302 |  |  | $ | 87,262 |
Through December 31, 2013, we incurred approximately $3.2 million of fees for professional services related to the ResCap Acquisition that are included in Operating expenses. Homeward Acquisition We completed the Homeward Acquisition on December 27, 2012. We acquired the MSRs and subservicing for approximately 421,000 residential mortgage loans with a UPB of $77.0 billion. We also acquired Homeward’s loan origination platform and its diversified fee-based businesses, including property valuation, REO management, title, closing and advisory services. On March 29, 2013, Ocwen sold the Homeward diversified fee-based businesses to Altisource Solutions S.à r.l. and Altisource Portfolio Solutions, Inc., wholly-owned subsidiaries of Altisource, for an aggregate purchase price of $87.0 million in cash ($82.0 million, net of cash transferred and other adjustments). As part of this transaction, Ocwen sold its investment in two subsidiaries of Homeward, Beltline Road Insurance Agency, Inc. and Power Default Services, Inc. Ocwen also agreed to sell to Altisource certain designated assets used or usable in the business conducted by another Homeward subsidiary, Power Valuation Services, Inc., as well as certain designated intellectual property and information technology assets that are used or usable in the business conducted by the acquired subsidiaries or by Powerline Valuation Services, Inc. Altisource also assumed certain liabilities of the diversified fee-based business. The carrying value of the net assets sold, including allocated goodwill, approximated the sales price. The assets sold consisted of receivables and other assets of $9.4 million. The liabilities assumed by Altisource of $4.0 million consisted principally of deferred revenue. At the time of the sale, we derecognized goodwill of $81.6 million associated with the sold businesses. In connection with this transaction, Ocwen entered into amendments to certain of its services and intellectual property agreements with Altisource. See Note 26 — Related Party Transactions for a discussion of these amendments. As consideration for the Homeward Acquisition, Ocwen paid an initial aggregate purchase price of $765.7 million. Of this amount, $603.7 million was paid in cash and $162.0 million was paid in Preferred Shares. $75.0 million of the consideration has been placed into escrow for a period of 21 months following the closing date to fund any loss sharing payments and certain other indemnification payments that may become owed to Ocwen as well as to fund certain expenses. See Note 17 — Mezzanine Equity for information related to the preferred stock. Payment of the cash consideration was financed, in part, by a $100.0 million incremental term loan from Barclays Bank PLC pursuant to the existing SSTL facility that we entered into on September 1, 2011 and $75.0 million from Altisource, pursuant to a senior unsecured loan agreement. See Note 15 — Borrowings for additional information regarding the terms of these agreements. Following the acquisition, we terminated the senior credit facility and revolving line of credit that we assumed from Homeward and repaid the outstanding balances which totaled $350.0 million. Post-Acquisition Results of Operations The following table presents the revenue and earnings of the Homeward that is included in our Consolidated Statements of Operations from the acquisition date of December 27, 2012 through December 31, 2012:
Revenues | $ | 5,881 |
Net income | $ | 44 |
Pro Forma Results of Operations The following table presents supplemental pro forma information as if the acquisition of Homeward occurred on January 1, 2011. Pro forma adjustments include:
• | conforming servicing revenues to the revenue recognition policy followed by Ocwen;
• | conforming the accounting for MSRs to the valuation and amortization policies of Ocwen;
• | reversing depreciation recognized by Homeward and reporting depreciation based on the estimated fair values and remaining lives of the acquired premises and equipment at the date of acquisition;
• | adjusting interest expense to eliminate the pre-acquisition interest expense of Homeward and to recognize interest expense as if the acquisition-related debt of Ocwen had been outstanding at January 1, 2011; and
• | reporting acquisition-related charges for professional services related to the acquisition as if they had been incurred in 2011 rather than 2012.
| 2012 |  | 2011
| (Unaudited) |  | (Unaudited)
Revenues | $ | 1,362,927 |  |  | $ | 1,085,914 |
Net income | $ | 254,051 |  |  | $ | 163,647 |
Through December 31, 2012, we incurred approximately $1.0 million of fees for professional services related to the Homeward Acquisition that are included in Operating expenses. Litton Acquisition Ocwen completed the Litton Acquisition on September 1, 2011. The Litton Acquisition included a servicing portfolio of approximately 245,000 primarily non-Agency residential mortgage loans with approximately $38.6 billion in UPB and the servicing platform based in Houston, Texas and McDonough, Georgia. The base purchase price for the Litton Acquisition was $247.4 million, which was paid in cash by Ocwen. In addition and as part of the closing, Ocwen repaid Litton’s $2.4 billion outstanding debt on an existing servicing advance financing facility and entered into a new advance financing facility under which it borrowed $2.1 billion. On September 1, 2011, Ocwen and certain of its subsidiaries also entered into a $575.0 million SSTL facility agreement to fund the base purchase price and the difference between the proceeds from the new advance financing facility and the amount repaid on Litton’s existing facility. The purchase agreement provided that the severance plans of Litton and Goldman Sachs remained in effect for 1 year. We recognized severance expense of $10.1 million during 2011 as steps taken to reorganize and streamline the operations of Litton obligated Ocwen to pay severance under those plans. Severance expense is included in Compensation and benefits in our Consolidated Statements of Operations. In connection with the establishment of the match funded advance facility, Ocwen funded a reserve in the initial amount of $42.5 million which was held by the facility indenture trustee for the benefit of the note holders. Ocwen also paid an $11.5 million arrangement fee in connection with the SSTL agreement. This fee along with the discount and certain other professional fees incurred in connection with the establishment of the facility were to be amortized over the 5-year life of the loan. In connection with the Litton Acquisition, Ocwen, Goldman Sachs, Litton and the New York Department of Financial Services (NY DFS) entered into an agreement on servicing practices (Agreement on Servicing Practices) that sets forth certain loan servicing practices and operational requirements. No fines, penalties or other payments were assessed against Ocwen or Litton under the terms of the Agreement on Servicing Practices. For additional detail on the Agreement on Servicing Practices, see Note 28 - Commitments and Contingencies below. Post-Acquisition Results of Operations The following table presents the revenue and earnings of the Litton operations that are included in our Consolidated Statements of Operations from the acquisition date of September 1, 2011 through December 31, 2011:
Revenues | $ | 62,750 |
Net loss (1) | $ | (20,910 | )
(1) | Net loss includes non-recurring transaction related expenses of $49.6 million, including (i) $33.1 million of severance and other compensation related to Litton employees, (ii) $6.8 million of amortization of the acquired MSRs, (iii) $2.0 million of depreciation resulting from the write-down of certain of the acquired furniture and fixtures that are no longer in use and (iv) $0.4 million of fees for professional services related to the acquisition. Net loss does not include an allocation of costs related to the servicing of the Litton loans on Ocwen’s platform.
Pro Forma Results of Operations The following table presents supplemental pro forma information as if the acquisition of Litton occurred on January 1, 2010. Pro forma adjustments include:
• | conforming revenues to the revenue recognition policy followed by Ocwen;
• | conforming the accounting for MSRs to the valuation and amortization policy of Ocwen;
• | reversing depreciation recognized by Litton and reporting depreciation based on the estimated fair values and remaining lives of the acquired premises and equipment at the date of acquisition;
• | adjusting interest expense to eliminate the pre-acquisition interest expense of Litton and to recognize interest expense as if the acquisition-related debt of Ocwen had been outstanding at January 1, 2010; and
• | reporting acquisition-related charges, including severance paid to Litton employees and fees for professional services related to the acquisition as if they had been incurred in 2010 rather than 2011.
| 2011
| (Unaudited)
Revenues | $ | 642,033 |
Net income (loss) | $ | 52,407 |
Through December 31, 2011, we incurred approximately $1.2 million of fees for professional services related to the Litton Acquisition that are included in Operating expenses. Other Acquisitions Correspondent One On March 31, 2013, we increased our ownership in Correspondent One, an entity formed with Altisource in March 2011, from 49% to 100%. We acquired the shares of Correspondent One held by Altisource (49% interest) for $12.6 million and acquired the remaining shares held by an unrelated entity for $0.9 million. We accounted for this transaction as an acquisition and recognized the assets acquired and liabilities assumed at their fair values as of the acquisition date. The acquired net assets were $26.3 million and consisted primarily of cash ($23.0 million) and residential mortgage loans ($1.1 million). We remeasured our previously held investment, which we accounted for using the equity method, at fair value and recognized a loss of $0.4 million. We did not recognize goodwill in connection with this acquisition. Correspondent One facilitates the purchase of conventional and government insured residential mortgages from approved mortgage originators and resells the mortgages to secondary market investors. Correspondent One is not material to our financial condition, results of operations or cash flows. Liberty On April 1, 2013, we completed the Liberty Acquisition for $22.0 million in cash. In addition, and as part of the closing, Ocwen repaid Liberty’s $9.1 million existing outstanding debt to the sellers. We acquired approximately 420 reverse mortgage loans with a UPB of $55.2 million. We also acquired Liberty’s reverse mortgage origination platform. The acquired net assets were $31.1 million and consisted primarily of residential reverse mortgage loans ($60.0 million), receivables ($11.2 million), loans held for investment ($10.3 million) and cash ($4.6 million) less amounts due under warehouse facilities ($46.3 million) and HMBS-related borrowings ($10.2 million). We recognized $3.0 million of goodwill in connection with this acquisition. Liberty is engaged in the origination, purchase, sale and securitization of reverse mortgage loans, both retail and wholesale. The acquisition of Liberty did not have a material impact on our financial condition, results of operations or cash flows. Facility Closure Costs In connection with the business acquisitions completed in recent years, we incurred employee termination benefits primarily consisting of severance, Worker Adjustment and Retraining Notification Act compensation and lease termination costs for the closure of leased facilities. The following table provides a reconciliation of the beginning and ending liability balances for these termination costs:
| Employee termination benefits |  | Lease termination costs |  | Total
Liability balance as at December 31, 2010 | $ | 1,332 |  |  | $ | 7,794 |  |  | $ | 9,126 |
Additions charged to operations (1) | 33,127 |  |  | — |  |  | 33,127 |
Amortization of discount | — |  |  | 99 |  |  | 99 |
Payments | (29,296 | ) |  | (2,606 | ) |  | (31,902 | )
Liability balance as at December 31, 2011 | 5,163 |  |  | 5,287 |  |  | 10,450 |
Additions charged to operations (1) | 2,869 |  |  | 5,030 |  |  | 7,899 |
Amortization of discount | — |  |  | 176 |  |  | 176 |
Payments | (8,032 | ) |  | (5,602 | ) |  | (13,634 | )
Liability balance as at December 31, 2012 | — |  |  | 4,891 |  |  | 4,891 |
Additions charged to operations (1) | 20,683 |  |  | — |  |  | 20,683 |
Amortization of discount | — |  |  | 347 |  |  | 347 |
Payments | (15,867 | ) |  | (2,784 | ) |  | (18,651 | )
Liability balance as at December 31, 2013 (2) | $ | 4,816 |  |  | $ | 2,454 |  |  | $ | 7,270 |
(1) | Additions charged to operations during 2011 and 2012 were recorded in the Servicing segment. In 2013, $15.9 million of the charges were recorded in the Servicing segment, $0.7 million was recorded in the Lending segment and the remaining $4.1 million was recorded in Corporate Items and Other. Charges related to employee termination benefits and lease termination costs are reported in Compensation and benefits expense and Occupancy and equipment expense, respectively, in the Consolidated Statements of Operations. The liabilities are included in Other liabilities in the Consolidated Balance Sheets.
(2) | We expect the remaining liability for employee termination benefits at December 31, 2013 to be settled in 2014.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References No definition available. + Details
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