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COMMITMENTS, CONTINGENCIES AND REGULATORY MATTERS | 9 Months Ended
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Sep. 30, 2024
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, most of which seek monetary damages. Although the outcome of these proceedings cannot be predicted with certainty, we currently believe that their outcome, both individually and in the aggregate, will not 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 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. Onity Related Matters As discussed in Note 2, during the three and nine months ended September 30, 2024, Onity was our largest customer, accounting for 43% and 44% respectively, of our total revenue. Additionally, 6% of our revenue for the nine months ended September 30, 2024 (6% of our revenue for the third quarter of 2024) was earned on the loan portfolios serviced by Onity, when a party other than Onity or the MSRs owner selected Altisource as the service provider. Onity has disclosed that it is subject to a number of ongoing regulatory examinations, 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 Onity for substantial monetary damages. Previous regulatory actions against Onity have subjected Onity 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 Onity. In addition to the above, Onity may become subject to future adverse regulatory or other actions. Onity has disclosed that Rithm is one of its largest servicing clients. As of June 30, 2024, Onity reported that approximately 14% of loans serviced and subserviced by Onity (measured in UPB) and approximately 64% of all delinquent loans that Onity services were related to Rithm MSRs or rights to MSRs. The existence or outcome of Onity regulatory matters or the termination of Onity’s sub-servicing agreements with Rithm, or other significant Onity clients may have significant adverse effects on Onity’s business. For example, Onity 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 Onity’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 Onity as a customer or a reduction in the number and/or volume of services it purchases 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 Onity as a customer or there is a significant reduction in the volume of services it purchases from us •Onity 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 Onity and Rithm changes significantly, including Onity’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 •Onity loses state servicing licenses in states with a significant number of loans in Onity’s servicing portfolio •Onity is subject to stays, moratoriums, suspensions or other restrictions that limit or delay default-related actions on the loans it services •The contractual relationship between Onity and Altisource changes significantly or there are significant changes to our pricing to Onity for services from which we generate material revenue •Altisource otherwise fails to be retained as a service provider. The foregoing list is not intended to be exhaustive. Management cannot predict whether any of these events or other 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 $0.5 million and $0.1 million for the nine months ended September 30, 2024 and 2023, respectively ($0.2 million and less than $0.1 million for the third quarter of 2024 and 2023, 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:
|  | 2024 |  | 2023
Weighted average remaining lease term (in years) |  | 2.07 |  | 2.51
Weighted average discount rate |  | 7.77 | % |  | 5.93 | %
Our lease activity during the period was as follows:
|  | Three months ended September 30, |  | Nine months ended September 30,
(in thousands) |  | 2024 |  | 2023 |  | 2024 |  | 2023
Operating lease costs: |  |  |  |  |  |  |  |
Selling, general and administrative expense |  | $ | 407 |  |  | $ | 553 |  |  | $ | 1,350 |  |  | $ | 1,639 |
Cash used in operating activities for amounts included in the measurement of lease liabilities |  | $ | 430 |  |  | $ | 512 |  |  | $ | 1,396 |  |  | $ | 1,343 |
Short-term (twelve months or less) lease costs |  | 12 |  |  | 398 |  |  | 33 |  |  | 1,247 |
Maturities of our lease liabilities as of September 30, 2024 are as follows:
(in thousands) |  | Operating lease obligations
2024 |  | $ | 400 |
2025 |  | 1,527 |
2026 |  | 742 |
2027 |  | 104 |
2028 |  | 104 |
2029 |  | 52 |
Total lease payments |  | 2,929 |
Less: interest |  | (287) |
Present value of lease liabilities |  | $ | 2,642 |
Escrow and Other Balances We hold customers’ assets in escrow and other accounts at various financial institutions pending completion of certain real estate activities. These amounts are held in escrow and other accounts for limited periods of time and are not included in the accompanying condensed consolidated balance sheets. Amounts held in escrow and other accounts were $19.0 million and $21.6 million as of September 30, 2024 and December 31, 2023, respectively.

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