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COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS | 9 Months Ended
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Sep. 30, 2023
Commitments and Contingencies Disclosure [Abstract] |
COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS | COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS We record a liability for contingencies if an unfavorable outcome is probable and the amount of loss can be reasonably estimated, including expected insurance coverage. For proceedings where the reasonable estimate of loss is a range, we record a best estimate of loss within the range. Litigation We are currently involved in legal actions in the course of our business, some of which seek monetary damages. We do not believe that the outcome of these proceedings, both individually and in the aggregate, will have a material impact on our financial condition, results of operations or cash flows. Regulatory Matters Periodically, we are subject to audits, examinations and investigations by federal, state and local governmental authorities and receive subpoenas, civil investigative demands or other requests for information from such governmental authorities in connection with their regulatory or investigative authority. We are currently responding to such inquiries from governmental authorities relating to certain aspects of our business. We believe it is premature to predict the potential outcome or to estimate any potential financial impact in connection with these inquiries. Ocwen Related Matters As discussed in Note 2, during the three and nine months ended September 30, 2023, Ocwen was our largest customer, accounting for 43% of our total revenue. Additionally, 7% of our revenue for the nine months ended September 30, 2023 (6% of our revenue for the third quarter of 2023) was earned on the loan portfolios serviced by Ocwen, when a party other than Ocwen or the MSRs owner selected Altisource as the service provider. Ocwen has disclosed that it is subject to a number of ongoing regulatory examinations, consent orders, inquiries, subpoenas, civil investigative demands, requests for information and other actions and is subject to pending and threatened legal proceedings, some of which include claims against Ocwen for substantial monetary damages. Previous regulatory actions against Ocwen have subjected Ocwen to independent oversight of its operations and placed certain restrictions on its ability to acquire servicing rights or proceed with default-related actions on the loans it services. Existing or future similar matters could result in adverse regulatory or other actions against Ocwen. In addition to the above, Ocwen may become subject to future adverse regulatory or other actions. Ocwen has disclosed that Rithm is a significant client of Ocwen’s. As of June 30, 2023, approximately 16% of loans serviced and subserviced by Ocwen (measured in UPB) and approximately 68% of all delinquent loans that Ocwen services were related to Rithm MSRs or rights to MSRs. The existence or outcome of Ocwen regulatory matters or the termination of Ocwen’s sub-servicing agreements with Rithm or other significant Ocwen clients may have significant adverse effects on Ocwen’s business. For example, Ocwen may be required to alter the way it conducts business, including the parties it contracts with for services, it may be required to seek changes to its existing pricing structure with us, it may lose its non-government-sponsored enterprise (“GSE”) servicing rights or subservicing arrangements or may lose one or more of its state servicing or origination licenses. Additional regulatory actions or adverse financial developments may impose additional restrictions on or require changes in Ocwen’s business that could require it to sell assets or change its business operations. Any or all of these effects and others could result in our eventual loss of Ocwen as a customer or a reduction in the number and/or volume of services they purchase from us or the loss of other customers. If any of the following events occurred, Altisource’s revenue could be significantly reduced and our results of operations could be materially adversely affected, including from the possible impairment or write-off of goodwill, intangible assets, property and equipment, other assets and accounts receivable: •Altisource loses Ocwen as a customer or there is a significant reduction in the volume of services they purchase from us •Ocwen loses, sells or transfers a significant portion of its GSE or Federal Housing Administration servicing rights or subservicing arrangements or remaining other servicing rights or subservicing arrangements and Altisource fails to be retained as a service provider •The contractual relationship between Ocwen and Rithm changes significantly, including Ocwen’s sub-servicing arrangement with Rithm expiring without renewal, and this change results in a change in our status as a provider of services related to the Subject MSRs •Ocwen loses state servicing licenses in states with a significant number of loans in Ocwen’s servicing portfolio •The contractual relationship between Ocwen and Altisource changes significantly or there are significant changes to our pricing to Ocwen for services from which we generate material revenue •Altisource otherwise fails to be retained as a service provider Management cannot predict whether any of these events will occur or the amount of any impact they may have on Altisource. Leases We lease certain premises and equipment, primarily consisting of office space and information technology equipment. Certain of our leases include options to renew at our discretion or terminate leases early, and these options are considered in our determination of the expected lease term. Certain of our lease agreements include rental payments adjusted periodically for inflation. Our lease agreements generally do not contain any material residual value guarantees or material restrictive covenants. We sublease certain office space to third parties. Sublease income was $0.1 million and $0.4 million for the nine months ended September 30, 2023 and 2022, respectively (less than $0.1 million and less than $0.1 million for the third quarter of 2023 and 2022, respectively). The amortization periods of right-of-use assets are generally limited by the expected lease term. Our leases generally have expected lease terms at adoption of one to six years. Information about our lease terms and our discount rate assumption were as follows for the nine months ended September 30:
|  | 2023 |  | 2022
Weighted average remaining lease term (in years) |  | 2.51 |  | 3.15
Weighted average discount rate |  | 5.93 | % |  | 5.66 | %
Our lease activity during the period was as follows:
|  | Three months ended September 30, |  | Nine months ended September 30,
(in thousands) |  | 2023 |  | 2022 |  | 2023 |  | 2022
Operating lease costs: |  |  |  |  |  |  |  |
Selling, general and administrative expense |  | $ | 553 |  |  | $ | 586 |  |  | $ | 1,638 |  |  | $ | 2,217 |
Cost of revenue |  | — |  |  | — |  |  | — |  |  | 265 |
Cash used in operating activities for amounts included in the measurement of lease liabilities |  | $ | 507 |  |  | $ | 515 |  |  | $ | 1,638 |  |  | $ | 2,022 |
Short-term (twelve months or less) lease costs |  | 789 |  |  | 402 |  |  | 1,638 |  |  | 827 |
Maturities of our lease liabilities as of September 30, 2023 are as follows:
(in thousands) |  | Operating lease obligations
2023 |  | $ | 559 |
2024 |  | 1,796 |
2025 |  | 1,322 |
2026 |  | 638 |
2027 |  | — |
Total lease payments |  | 4,315 |
Less: interest |  | (540) |
Present value of lease liabilities |  | $ | 3,775 |
Escrow Balances We hold customers’ assets in escrow accounts at various financial institutions pending completion of certain real estate activities. These amounts are held in escrow accounts for limited periods of time and are not included in the accompanying condensed consolidated balance sheets. Amounts held in escrow accounts were $39.0 million and $13.2 million as of September 30, 2023 and December 31, 2022, respectively.

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