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Business Acquisitions | 9 Months Ended
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Sep. 30, 2014
Business Combinations [Abstract] |
Business Acquisitions | Note 3 – Business Acquisitions We account for business acquisitions 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. The initial allocation of the purchase price is considered preliminary and therefore subject to change until the end of the measurement period which can extend 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. Measurement period adjustments are applied retrospectively to the period of acquisition. The purchase price allocations provided below for our business acquisitions are based on the estimated fair value of the acquired receivables, loans, advances, MSRs and the assumed debt in a manner consistent with the methodology described in Note 4 – 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 unaudited pro forma consolidated results presented below for the ResCap Acquisition are not indicative of what Ocwen’s consolidated net earnings would have been had we completed the acquisition on the date indicated because of differences in servicing practices and cost structure between Ocwen and ResCap. In addition, the unaudited 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 the acquisition. The acquisition of Liberty was treated as stock purchases for U.S. tax purposes. The ResCap Acquisition was treated as an asset acquisition 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 table 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 Acquisition:
Purchase Price Allocation |  | February 15, 2013 |  | Adjustments |  | Final
MSRs (1) |  | $ | 393,891 |  |  | $ | 7,423 |  |  | $ | 401,314 |
Advances and match funded advances (1) |  | 1,622,348 |  |  | 164,061 |  |  | 1,786,409 |
Deferred tax assets |  | — |  |  | — |  |  | — |
Premises and equipment |  | 22,398 |  |  | (5,975 | ) |  | 16,423 |
Receivables and other assets |  | 2,989 |  |  | — |  |  | 2,989 |
Other liabilities: |  |  |  |  |  |  |  |  |
Liability for indemnification obligations |  | (49,500 | ) |  | — |  |  | (49,500 | )
Other |  | (24,840 | ) |  | (285 | ) |  | (25,125 | )
Total identifiable net assets |  | 1,967,286 |  |  | 165,224 |  |  | 2,132,510 |
Goodwill |  | 204,743 |  |  | 6,676 |  |  | 211,419 |
Total consideration |  | $ | 2,172,029 |  |  | $ | 171,900 |  |  | $ | 2,343,929 |
(1) | As of the acquisition date, the purchase of certain MSRs from ResCap was not complete pending the receipt of certain consents and court approvals. Subsequent to the acquisition, we obtained the required consents and approvals for a portion of these MSRs and paid an additional purchase price of $174.6 million to acquire the MSRs and related advances, including $54.2 million in 2014. The purchase price allocation has been revised to include the resulting adjustments to MSRs, advances and goodwill.
ResCap Acquisition We completed the ResCap Acquisition on February 15, 2013. We acquired MSRs related to conventional (i.e., conforming to the underwriting standards of Fannie Mae or Freddie Mac; collectively referred to as Agency loans), government insured (loans insured by FHA or VA) and non-Agency residential forward mortgage loans (commonly referred to as non-prime, subprime or private-label 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 were 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 purchased these MSRs and assumed the subservicing contracts from ResCap when such consents and approvals were obtained. We completed subsequent settlements and purchased additional MSRs, 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 subsequent 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. 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 for the three and nine months ended September 30, 2013 (from the acquisition date of February 15, 2013):
| Three Months |  | Nine Months
Revenues | $ | 212,164 |  |  | $ | 508,589 |
Net income | $ | 8,230 |  |  | $ | 81,362 |
Pro Forma Results of Operations The following table presents unaudited supplemental pro forma information for Ocwen for the nine months ended September 30, 2013 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.
Revenues | $ | 1,530,055 |
Net income | $ | 205,062 |
Other Acquisitions Correspondent One S.A. (Correspondent One) On March 31, 2013, we increased our ownership in Correspondent One, an entity formed with Altisource Portfolio Solutions, SA (Altisource) in March 2011, from 49% to 100%. Correspondent One facilitated the purchase of conventional and government insured residential mortgages from approved mortgage originators and resold the mortgages to secondary market investors. 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 $26.4 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 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. Liberty is engaged in the origination, purchase, sale and securitization of reverse mortgage loans, both retail and wholesale. We acquired Liberty’s reverse mortgage origination platform, including reverse mortgage loans with a UPB of $55.2 million. 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. The acquisition of Liberty did not have a material impact on our financial condition, results of operations or cash flows. Ocwen Structured Investments, LLC (OSI) On January 31, 2014, we increased our ownership in OSI from 26.00% to 87.35%. OSI invests primarily in residential MSRs and the related lower tranches and residuals of mortgage-backed securities. We acquired the additional interest in OSI for $11.0 million. We accounted for this transaction as an acquisition and recognized 100% of the assets acquired and liabilities assumed at their fair values as of the acquisition date. We recognized in equity a noncontrolling interest at its proportionate 12.65% share of the net assets acquired. The acquired net assets were $20.0 million and consisted primarily of MSRs ($9.0 million), mortgage-backed securities ($7.7 million) and cash ($3.2 million). The acquisition of OSI did not have a material impact on our financial condition, results of operations or cash flows. Facility Closure Costs We have incurred employee termination benefits, primarily consisting of severance and Worker Adjustment and Retraining Notification Act compensation, lease termination costs for the closure of leased facilities and other contract termination costs in connection with our business acquisitions. The following table provides a reconciliation of the beginning and ending liability balances for these termination costs for the nine months ended September 30, 2014:
| Employee termination benefits |  | Lease and other contract termination costs |  | Total
Liability balance as at December 31, 2013 | $ | 4,816 |  |  | $ | 7,432 |  |  | $ | 12,248 |
Additions charged to operations (1) | 14,748 |  |  | 2,813 |  |  | 17,561 |
Amortization of discount | — |  |  | 115 |  |  | 115 |
Payments | (17,215 | ) |  | (2,928 | ) |  | (20,143 | )
Liability balance as at September 30, 2014 (2) | $ | 2,349 |  |  | $ | 7,432 |  |  | $ | 9,781 |
(1) | Of the additions charged to operations during the period, $14.4 million was recognized in the Servicing segment, $(0.1) million was recognized in the Lending segment and the remaining $3.3 million was recognized in the Corporate Items and Other segment. Charges related to employee termination benefits, lease termination costs and other contract termination costs are reported in Compensation and benefits expense, Occupancy and equipment expense and Other operating expenses, respectively, in the unaudited Consolidated Statements of Operations. The liabilities are included in Other liabilities in the unaudited Consolidated Balance Sheet.
(2) | We expect the remaining liability for employee termination benefits at September 30, 2014 to be settled in late 2014 or early 2015.

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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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