Forward-Looking Statements
This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical fact included in this report, including, without limitation, statements regarding our financial position, business strategy and other plans and objectives for our future operations, are forward-looking statements.
These statements include declarations regarding our management’s beliefs and current expectations. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could”, “intend,” “consider,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict” or “continue” or the negative of such terms or other comparable terminology. Such statements are not guarantees of future performance and involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially from expected results. Important factors that could cause actual results to differ include, but are not limited to, the risks discussed in “Risk Factors” and the following:
Further information on the risks specific to our business is detailed within this report and our other reports and filings with the Securities and Exchange Commission (SEC) including our Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Forward-looking statements speak only as of the date they were made and should not be relied upon. Ocwen Financial Corporation undertakes no obligation to update or revise forward-looking statements.
For more information on the uncertainty of forward-looking statements, see “Risk Factors” in this Annual Report.
ITEM 1. BUSINESS
GENERAL
Ocwen Financial Corporation is a financial services holding company which, through its subsidiaries, is engaged in the servicing and origination of mortgage loans. When we use the terms “Ocwen,” “OCN,” “we,” “us” and “our,” we are referring to Ocwen Financial Corporation and its consolidated subsidiaries. Ocwen is headquartered in Atlanta, Georgia with additional offices in Florida, Texas, New Jersey, St., the United States Virgin Islands (USVI), Washington, DC, India and Uruguay. Ocwen Financial Corporation is a Florida corporation organized in February 1988. Ocwen and its predecessors have been servicing residential mortgage loans since 1988 and subprime mortgage loans since 1994. Ocwen Loan Servicing, LLC (OLS), an indirect wholly owned subsidiary of Ocwen, is licensed to service mortgage loans in all 50 states, the District of Columbia and two U.S. territories.
On August 10, 2009, Ocwen completed the distribution of its Ocwen Solutions (OS) line of business (the Separation) via the spin-off of a separate publicly traded company, Altisource Portfolio Solutions S.A. (Altisource). OS consisted primarily of Ocwen’s former unsecured collections business, residential fee-based loan processing businesses and technology platforms. Ocwen and Altisource continue to provide corporate services to each other under agreements entered into following the Separation. In addition, Altisource continues to provide certain technology products and other services to us that support our servicing business.
The Separation allowed Ocwen to focus on its core servicing business and related strategies for growth and to respond better to initiatives and market challenges. Additional discussion regarding our strategy for accessing new servicing business is provided in the Corporate Strategy and Outlook section below. Our residential servicing portfolio has grown from 351,595 loans with an aggregate unpaid principal balance (UPB) of $50 billion at December 31, 2009, to 1,219,956 residential loans with an aggregate UPB of $203.7 billion at December 31, 2012. This growth has largely been the result of three significant business acquisitions (described in greater detail in Note 2 to the Consolidated Financial Statements) which added approximately 800,000 loans and $138 billion of UPB to our servicing portfolio:
The purchase price of the Litton and the HomEq acquisitions were funded through a combination of cash on hand and the proceeds from borrowings under new and existing advance financing facilities and from Senior Secured Term Loan (SSTL) facilities. We funded the cash consideration paid to acquire Homeward primarily through a $100 million incremental term loan from Barclays Bank PLC pursuant to our existing SSTL facility, through a $75 million loan from Altisource pursuant to a new senior unsecured loan agreement, through net proceeds from the December 26, 2012 sale of the right to receive the servicing fees, excluding ancillary income, relating to certain mortgage servicing (Rights to MSRs) and related servicing advances to Home Loan Servicing Solutions, Ltd. and its wholly owned subsidiary, HLSS Holdings, LLC (collectively referred to as HLSS), and through cash generated from our operations. See the Corporate Strategy and Outlook section below for additional information regarding our HLSS strategy.
We accounted for these transactions using the acquisition method of accounting which requires, among other things, that the assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date.
In addition to the above business acquisitions, we have also been implementing our servicing growth initiatives through MSR asset acquisitions. During the past three years, we completed asset acquisitions of MSR portfolios totaling $41.7 billion in UPB, including approximately $34.8 billion during 2012. We used proceeds from borrowings under new and existing advance facilities and a new MSR facility as well as excess cash on hand to fund the MSR asset acquisitions. In the second quarter of 2012, we were able to increase our borrowings under existing advance facilities to help fund the MSR acquisitions because we had used the $354.4 million of net proceeds from a November 2011 public offering of 28,750,000 shares of common stock to temporarily reduce our borrowings under those facilities rather than invest the proceeds at short-term investment rates below our effective cost of borrowing.
Finally, as part of an initiative to consolidate the ownership and management of all of our global servicing assets and operations under a single entity and cost-effectively expand our U.S.-based servicing activities, Ocwen formed Ocwen Mortgage Servicing, Inc. (OMS) on February 27, 2012 under the laws of the USVI where OMS has its principal place of business. OMS is located in a federally recognized economic development zone where qualified entities are eligible for certain benefits. OMS was approved as a “Category IIA service business” and is, therefore, entitled to receive such benefits which have a favorable impact on our effective tax rate. On September 26, 2012, OMS submitted a regulatory filing in the USVI designating October 1, 2012 as the effective date for the commencement of benefits.