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Business Acquisitions | 9 Months Ended
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Sep. 30, 2019
Business Combinations [Abstract] |
Business Acquisition |
Note 2 - Business Acquisition
On October 4, 2018, we completed our acquisition of PHH, a non-bank servicer with established servicing and origination recapture capabilities. As a result of the acquisition, PHH became a wholly owned subsidiary of Ocwen. The acquisition has been accounted for under the acquisition method of accounting pursuant to ASC 805, Business Combinations. Assets acquired and liabilities assumed are recorded at their fair value as of the date of acquisition based on management’s estimates using currently available information. The results of PHH operations are included in Ocwen’s consolidated statements of operations from the date of acquisition. For U.S. income tax purposes, the acquisition of PHH is treated as a stock purchase. Purchase Price Allocation The purchase price allocation provided in the table below reflects the final determination of the fair value of assets acquired and liabilities assumed in the acquisition of PHH, with the excess of total identifiable net assets over total consideration paid recorded as a bargain purchase gain. Independent valuation specialists conducted analyses to assist management in determining the fair value of certain acquired assets and assumed liabilities. Management is responsible for these third-party valuations and appraisals. The methodologies that we use and key assumptions that we made to estimate the fair value of the acquired assets and assumed debt are described in Note 5 – Fair Value.
Purchase Price Allocation | October 4, 2018 |  | Adjustments |  | Revised
Cash | $ | 423,088 |  |  | $ | — |  |  | $ | 423,088 |
Restricted cash | 38,813 |  |  | — |  |  | 38,813 |
MSRs | 518,127 |  |  | — |  |  | 518,127 |
Advances, net | 96,163 |  |  | — |  |  | 96,163 |
Loans held for sale | 42,324 |  |  | 358 |  |  | 42,682 |
Receivables, net | 46,838 |  |  | (96 | ) |  | 46,742 |
Premises and equipment, net | 15,203 |  |  | — |  |  | 15,203 |
REO | 3,289 |  |  | — |  |  | 3,289 |
Other assets | 6,293 |  |  | — |  |  | 6,293 |
Assets related to discontinued operations | 2,017 |  |  | — |  |  | 2,017 |
Financing liabilities (MSRs pledged, at fair value) | (481,020 | ) |  | — |  |  | (481,020 | )
Other secured borrowings, net | (27,594 | ) |  | — |  |  | (27,594 | )
Senior notes, net (Senior unsecured notes) | (120,624 | ) |  | — |  |  | (120,624 | )
Accrued legal fees and settlements | (9,960 | ) |  | — |  |  | (9,960 | )
Other accrued expenses | (36,889 | ) |  | — |  |  | (36,889 | )
Loan repurchase and indemnification liability | (27,736 | ) |  | — |  |  | (27,736 | )
Unfunded pension liability | (9,815 | ) |  | — |  |  | (9,815 | )
Other liabilities | (34,131 | ) |  | (643 | ) |  | (34,774 | )
Liabilities related to discontinued operations | (21,954 | ) |  | — |  |  | (21,954 | )
Total identifiable net assets | 422,432 |  |  | (381 | ) |  | 422,051 |
Total consideration paid to seller | (358,396 | ) |  | — |  |  | (358,396 | )
Bargain purchase gain | $ | 64,036 |  |  | $ | (381 | ) |  | $ | 63,655 |
We acquired tax attributes, including the estimated future tax benefit of U.S. federal net operating losses (NOLs) valued at $30.2 million, state NOLs valued at $50.3 million and state tax credits of $9.2 million on the acquisition date. All of the acquired tax attributes were fully offset by a valuation allowance. All of these attributes are subject to annual limitations with regard to future utilization under Sections 382 and 383 of the Internal Revenue Code or the comparable provisions of state law. Accordingly, as of December 31, 2018, Ocwen combined had U.S. federal NOLs valued at $58.2 million, USVI NOLs valued at $3.1 million, state NOLs valued at $50.3 million and state tax credits of $9.2 million, all of which were fully offset by a valuation allowance. All of these attributes are subject to the provisions of Sections 382 and 383 of the Internal Revenue Code or the comparable provisions of foreign and state law. All of the attributes are subject to further potential annual limitations in the event of additional ownership changes in the future. Pro Forma Results of Operations The pro forma consolidated results presented below are not indicative of what Ocwen’s consolidated results would have been had we completed the acquisition on the date indicated due to a number of factors, including but not limited to expected reductions in servicing, origination and overhead costs through the realization of targeted cost synergies and improved economies of scale, the impact of incremental costs to integrate the two companies and differences in servicing practices and cost structures between Ocwen and PHH. In addition, the pro forma consolidated results do not purport to project combined future operating results of Ocwen and PHH nor do they reflect the expected realization of any cost savings associated with the acquisition of PHH. The table below presents supplemental pro forma information for Ocwen for the three and nine months ended September 30, 2018 as if the PHH acquisition occurred on January 1, 2017. Pro forma adjustments include the following:
Description | Three Months Ended September 30, 2018 |  | Nine Months Ended September 30, 2018
Increase in MSR valuation adjustments, net for acquired MSRs to conform the accounting for MSRs to the valuation policies of Ocwen | $ | 23,360 |  |  | $ | 24,442 |
Adjust interest expense for a total net decline (1) | (18,382 | ) |  | (30,598 | )
Report Ocwen and PHH acquisition-related charges for professional services as if they had been incurred in 2017 rather than 2018 | (9,384 | ) |  | (18,548 | )
Total net increase in revenue (2) | 39,156 |  |  | 120,616 |
Adjust depreciation expense to amortize internally developed software acquired from PHH on a straight-line basis based on a useful life of three years | 245 |  |  | 735 |
Income tax expense (benefit) based on management’s estimate of the blended applicable statutory tax rates and observing the continued need for a valuation allowance (3) | 1,158 |  |  | (300 | )
(1) | Primarily pertains to fair value adjustments of $18.6 million and $31.4 million for the three and nine months ended September 30, 2018, respectively, related to the assumed MSR secured liability using valuation assumptions consistent with Ocwen’s methodology, excluding the gross-up of PHH MSRs sold and accounted for as a secured borrowing.
(2) | Primarily pertains to an increase to revenue of $40.3 million and $127.7 million for the three and nine months ended September 30, 2018, respectively, for the gross-up of PHH MSRs sold and accounted for as a secured borrowing. The offset of the remaining adjustments are expenses, interest income and interest expense, with no net effect on earnings.
(3) | The net income tax benefit recorded as a result of pro forma adjustments represents lower current federal tax under the new base erosion and anti-abuse tax (BEAT) provision of the 2017 Tax Cuts and Jobs Act (Tax Act) assuming Ocwen and PHH would file a consol idated federal tax return beginning January 1, 2017. The pro forma tax adjustments contemplate the effects of the Tax Act.
| Three Months Ended September 30, 2018 |  | Nine Months Ended September 30, 2018
Revenues | $ | 314,675 |  |  | $ | 995,043 |
Net loss from continuing operations | (65,168 | ) |  | (133,594 | )
For purposes of determining pro forma results of operations for the three and nine months ended September 30, 2018, the bargain purchase gain is assumed to have been recorded in 2017 rather than 2018.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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