# Onity Group Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Onity Group Inc.](/companies/onit.md) (CIK 873860)
- Form: 10-Q
- Filed: 2024-05-02
- Accepted by EDGAR: May 2, 2024, 20:52 ET
- Period: 2024-03-31
- Accession: 0001628280-24-020055
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/873860/000162828024020055/ocn-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/873860/000162828024020055/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2024-01-01 to 2024-03-31 | $239.1m | us-gaap:Revenues |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $67.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $1.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $30.1m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $3.74 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $3.91 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 8,046,188 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | −$297.1m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $100.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2024-03-31 | $185.1m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2024-03-31 | $13.09bn | us-gaap:Assets |
| Total liabilities | at 2024-03-31 | $12.66bn | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $432.1m | us-gaap:StockholdersEquityIncludingPortionAttributableToNoncontrollingInterest |

## Management's discussion and analysis

As filed, 141,274 characters.

### (Dollars in millions, except per share amounts and unless otherwise indicated)

### OVERVIEW

### General

We are a leading non-bank mortgage servicer and originator providing solutions through our primary brands, PHH Mortgage and Liberty Reverse Mortgage. PHH is one of the largest non-bank servicers in the country based on UPB, focused on delivering a variety of servicing and lending programs. PHH is one of the largest correspondent lenders in the U.S. based on origination UPB. Liberty is one of the nation’s largest reverse mortgage lenders and servicer based on origination and securitization UPB, dedicated to education and providing loans that help customers meet their personal and financial needs. We serviced or subserviced 1.4 million loans with a total UPB of $302.3 billion on behalf of more than 3,900 investors and 116 subservicing clients as of March 31, 2024. We service all mortgage loan classes, including conventional, government-insured, non-Agency, small-balance commercial and multi-family loans. Our Originations business is part of our balanced business model to generate gains on loan sales and profitable returns, and to support the replenishment and the growth of our servicing portfolio. Through our retail, correspondent and wholesale channels, we originate and purchase conventional and government-insured forward and reverse mortgage loans that we sell or securitize on a servicing retained basis. In addition, we grow our mortgage servicing volume through MSR flow purchase agreements, Agency Cash Window and co-issue programs, bulk MSR purchase transactions, and subservicing agreements.

The table below summarizes the volume of Originations by channel in the first quarter of 2024, compared with the volume of the preceding quarter and the corresponding quarter of the prior year. The volume of Originations is a key driver of the profitability of our Originations segment, together with margins, and a key driver of the replenishment and growth of our Servicing segment. In the first quarter of 2024, we added $23.2 billion of new volume, mainly $17.8 billion of new subservicing and $4.6 billion of non-bulk new servicing, as further detailed in the below table.

*$ In billions*

| Mortgage servicing originations | UPB Three Months Ended March 31, 2024 | December 31, 2023 | March 31, 2023 | $ Change Q1 2024 vs Q4 2023 | Q1 2024 vs Q1 2023 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Retail - Consumer Direct MSR (1) | $0.1 | $0.1 | $0.1 | $— | $0.1 |
| Correspondent MSR (1) | 2.7 | 2.8 | 2.4 | (0.1) | 0.2 |
| Flow and Agency Cash Window MSR purchases (2) | 1.6 | 2.5 | 1.8 | (0.9) | (0.2) |
| Reverse mortgage servicing (3) | 0.2 | 0.2 | 0.1 | — | — |
| Total servicing | 4.6 | 5.6 | 4.5 | (1.0) | 0.1 |
| Bulk purchases (2) | 0.8 | 0.1 | 0.2 | 0.7 | 0.5 |
| Total servicing additions | 5.4 | 5.7 | 4.7 | (0.3) | 0.7 |
| Interim forward subservicing | 1.7 | 1.9 | 1.2 | (0.3) | 0.5 |
| Other new forward subservicing | 16.1 | 1.8 | 11.5 | 14.2 | 4.6 |
| Reverse subservicing | — | 0.1 | 0.1 | (0.1) | — |
| Total Subservicing additions (4) | 17.8 | 3.9 | 12.8 | 13.9 | 5.0 |
| Total servicing and subservicing UPB additions | $23.2 | $9.5 | $17.5 | $13.6 | $5.7 |

(1) Represents the UPB of loans that have been originated or purchased (funded) during the respective periods and for which we recognize a new MSR on our consolidated balance sheets upon sale or securitization.

(2) Represents the UPB of loans for which the MSR is purchased.

(3) Represents the UPB of reverse mortgage loans that have been securitized on a servicing retained basis. The loans are recognized on our consolidated balance sheets under GAAP without any separate recognition of MSRs.

(4) Includes interim subservicing, including the volume of UPB associated with short-term interim subservicing for certain clients as a support to their originate-to-sell business.

The following table summarizes the average volume of our Servicing segment during the first quarter of 2024, compared with the preceding quarter and the corresponding quarter of the prior year. The average servicing volume is a key driver of the profitability of our Servicing segment. The relative weight of performing and delinquent loans or servicing and subservicing also drive the gross revenue and expenses, and their timing. Our average total servicing and subservicing UPB remained flat at $291 billion during the first quarter of 2024 as compared to prior quarter, and the composition of owned MSR and subservicing remained constant, as further detailed in the below table.

*$ In billions*

|  | Average UPB Three Months Ended March 31, 2024 | December 31, 2023 | March 31, 2023 | $ Change Q1 2024 vs Q4 2023 | Q1 2024 vs Q1 2023 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Owned MSR | $123.2 | $121.4 | $127.0 | $1.8 | $(3.7) |
| Rithm | 44.6 | 45.5 | 48.6 | (0.9) | (4.0) |
| MAV | 54.6 | 56.3 | 49.3 | (1.7) | 5.4 |
| Subservicing (including reverse subservicing) | 51.6 | 52.0 | 60.6 | (0.5) | (9.0) |
| Reverse mortgage loans (owned) | 8.1 | 7.9 | 7.6 | 0.2 | 0.5 |
| Other servicing (including whole loans) | 0.7 | 0.8 | 0.8 | (0.1) | — |
| Other MSR capital partners | 8.5 | 8.2 | 0.2 | 0.3 | 8.3 |
| Total servicing and subservicing UPB (average) | $291.4 | $292.2 | $294.1 | $(0.8) | $(2.7) |

As of March 31, 2024 and December 31, 2023, the total servicing and subservicing UPB amounted to $302.3 billion and $288.4 billion, respectively, a net increase of $13.9 billion or 5%.

The following table presents key market interest rates and respective changes in the periods presented. As further discussed, the 30-year fixed rate mortgage is a key driver of the Originations volumes, the 10-year Treasury rate is a key benchmark for MSR valuation and hedging activities, and the 1-month SOFR is a key benchmark for the profitability of our Servicing segment (including float earnings and asset-backed financing cost). The average 30-year fixed rate mortgage rate declined 56 basis points quarter over quarter. The 10-year Treasury rate increased by 32 basis points quarter-over-quarter. Average 1-month SOFR remained constant in the current quarter as compared to the fourth quarter of 2023.

| 30-year fixed rate mortgage (1) | Three Months Ended March 31, 2024 | December 31, 2023 | March 31, 2023 |
| --- | ---: | ---: | ---: |
| Average | 6.74% | 7.30% | 6.38% |
| End of period | 6.79% | 6.61% | 6.32% |
| 10-year Treasury rate (end of period) | 4.20% | 3.88% | 3.48% |
| 1-month Term SOFR (average) | 5.33% | 5.34% | 4.61% |

(1) Source: Freddie Mac PMMS - Primary Mortgage Market Survey

### Financial Highlights

#### Results of operations for the first quarter of 2024

- Net income of $30.1 million, or $3.91 per share basic and $3.74 per share diluted
- Servicing and subservicing fee revenue of $204.5 million
- Originations gain on sale of $9.1 million
- $28.3 million MSR valuation gain attributable to rate and assumption changes, net of hedging

#### Financial condition at the end of the first quarter of 2024

- Stockholders’ equity of $432.1 million, or $55.51 book value per common share
- MSR investment of $2.4 billion, up $102.4 million, and a $0.8 billion decrease in the average servicing and subservicing UPB as compared with the previous quarter
- Cash position of $185.1 million
- Total assets of $13.1 billion

### Business Initiatives

We established the following key operating objectives to return to sustainable profitability and create long-term value for shareholders. As our near-term priority remains to return to sustainable profitability, we continue to execute our strategy around these objectives:

- Leveraging the core strengths of our balanced and diversified business through a continued focus on servicing and maintaining agility to address market-cycle opportunities;
- Driving prudent growth adapted for the environment, including emphasis on subservicing to drive capital-light servicing portfolio UPB growth and expansion of higher margin originations products and clients to drive accretive MSR investments;
- Reducing cost structure across the organization to achieve industry cost leadership by maintaining continuous cost improvement discipline and optimizing technology, global operations, and scale;
- Delivering industry top-tier servicing operational performance and driving increased borrower and client satisfaction;
- Optimizing liquidity, diversifying capital sources, including our multi-investor partnership model to fund new MSR originations which enables capital-light servicing portfolio growth and interest rate risk mitigation, and allocating capital to deliver value for shareholders, including deleveraging through opportunistic repurchases of our senior secured notes.

Our growth strategy includes acquiring assets and/or operations of complementary businesses, by means of acquisition, merger or other transaction forms. Our strategy may also include pursuing large transactions, including bulk purchases or sales of MSRs. We have engaged in such transactions in the past, and we continue to explore opportunities that may be accretive to our business and stockholders’ value.

### Results of Operations and Financial Condition

The following discussion and analysis of our results of operations and financial condition should be read in conjunction with our unaudited consolidated financial statements and the related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements and notes thereto and management’s discussion and analysis of financial condition and results of operations appearing in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2023.

| Condensed Statements of Operations March 31, 2024 | Three Months Ended December 31, 2023 |  | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Revenue | $239.1 | $277.3 | (14)% | $261.8 | (9)% |
| MSR valuation adjustments, net | (11.6) | (98.0) | (88) | (69.0) | (83) |
| Operating expenses | 104.4 | 103.7 | 1 | 114.1 | (8) |
| Other income (expense), net | (91.3) | (121.2) | (25) | (117.0) | (22) |
| Income (loss) before income taxes | 31.8 | (45.6) | (170) | (38.3) | (183) |
| Income tax expense | 1.7 | 1.8 | (7) | 1.9 | (11) |
| **Net income (loss)** | $30.1 | $(47.4) | (163)% | $(40.2) | (175)% |
| **Segment income (loss) before income taxes** |  |  |  |  |  |
| Servicing | $54.2 | $(17.8) | (404)% | $(12.0) | (550)% |
| Originations | 1.1 | 0.2 | 507 | (2.7) | (139) |
| Corporate Items and Other | (23.4) | (28.0) | (16) | (23.6) | (1) |
|  | $31.8 | $(45.6) | (170)% | $(38.3) | (183)% |

Ocwen reported $30.1 million net income in the first quarter of 2024, an increase of $77.5 million as compared to the $47.4 million net loss in the fourth quarter of 2023, mostly driven by the following:

- A $38.2 million decrease in revenue, with a $41.2 million decrease in Servicing revenue partially offset by an increase in Originations revenue. The Servicing revenue decrease is primarily due to the effects of our derecognition of MSRs previously sold to Rithm for which the sale accounting criteria were met effective December 31, 2023. The decrease in servicing revenue was fully offset by a decrease in Pledged MSR liability expense resulting in no impact to Ocwen’s profitability - further discussed below.
- An $86.4 million lower loss on MSR valuation adjustments, net primarily due to favorable rate and assumption updates, net of hedging, mostly driven by an increase in market interest rates in the current quarter vs. a decline in the prior quarter (the 10-year Treasury rate increased by 32 basis points in the first quarter of 2024 and declined by 71 basis points in the fourth quarter of 2023).
- A $30.0 million decrease in Other expense, net, primarily due to a $31.6 million decrease in Pledged MSR liability expense largely attributed to the effects of our derecognition of MSRs previously sold to Rithm for which the sale accounting criteria were met effective December 31, 2023, as discussed above, and a $1.4 million gain on extinguishment of $47.4 million PMC Senior Secured Notes repurchased in the first quarter of 2024.

On December 31, 2023, we derecognized from our balance sheet $421.7 million non-Agency MSRs and Pledged MSR liability associated with Rithm servicing agreements with a UPB of $33.4 billion for which MSR sale accounting criteria was met. As PHH continues to subservice the portfolio, our statement of operations in 2024 reflects subservicing fee revenue as opposed to the gross presentation of servicing fee revenue and offsetting servicing fee remittances within Pledged MSR liability expense, a component of Other income (expense), net, prior to December 31, 2023. These required presentation changes do not affect the amount of net fee retained by Ocwen in connection with the Rithm servicing agreements. For comparison purposes, the statement of operations for the three months ended December 31, 2023 reflects $29.6 million servicing fee collected on behalf of and remitted to Rithm and reported both as Revenue (Servicing and subservicing fees) and as Other income (expense), net (Pledged MSR liability expense) associated with the MSR that achieved sale accounting treatment on December 31, 2023, with no impact on Net income (loss). Similarly, the servicing fee collected on behalf of and remitted to Rithm amounted to $32.6 million for the three months ended March 31, 2023.

### Total Revenue

The below table presents total revenue by segment:

| Revenue March 31, 2024 | Three Months Ended December 31, 2023 |  | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Servicing | $219.1 | $260.3 | (16)% | $247.0 | (11)% |
| Originations | 20.0 | 17.0 | 18 | 14.8 | 35 |
| Corporate | — | — | (100) | — | n/m |
| Total segment revenue | $239.1 | $277.3 | (14)% | $261.8 | (9)% |
| n/m: not meaningful |  |  |  |  |  |

Total segment revenue for the three months ended March 31, 2024 decreased $38.2 million, or 14% as compared to the three months ended December 31, 2023, mostly due to the accounting presentation change of Rithm servicing fees upon MSR derecognition discussed above:

- The $41.2 million decrease in Servicing revenue is mostly driven by a $35.1 million decrease in servicing and subservicing fees largely due to the effects of our derecognition of MSRs previously sold to Rithm for which the sale accounting criteria were met effective December 31, 2023 ($29.6 million fees collected and remitted to Rithm recognized in the three months ended December 31, 2023), and a seasonal reduction of float earnings. Gain on reverse loans held for investment and HMBS-related borrowings, net decreased $11.1 million attributed to higher market interest rates, partially offset by tighter yield spread. These declines were partially offset by $4.5 million additional gains on loans held for sale mostly driven by reverse mortgage loan buyouts.
- The $3.0 million increase in Originations revenue is mostly driven by higher margins across all of our channels. Our forward channels reported a $2.1 million increase in gains on sale mostly attributed to our Consumer Direct channel due to both an increase of volume and an increase of margin. The increase in margin is the result of our disciplined pricing management and execution. Our reverse channels reported a $1.2 million increase in gains driven by higher margins in all three channels, partially offset by lower origination volume in our correspondent and wholesale channels.

As compared to the three months ended March 31, 2023, total segment revenue for the three months ended March 31, 2024 was $22.7 million or 9% lower, due to a $28.0 million decline in Servicing revenue offset by a $5.2 million increase in Originations revenue.

- The decline in Servicing revenue is mostly due to a $27.6 million decrease in servicing and subservicing fees largely due to the effects of our derecognition of MSRs previously sold to Rithm for which the sale accounting criteria were met effective December 31, 2023, as discussed above ($32.6 million fees collected and remitted to Rithm recognized in the three months ended March 31, 2023), and a $5.5 million decline in Gain on reverse loans held for investment and HMBS-related borrowings, net due to a decline in unrealized fair value gains mostly attributable to an increase in market interest rates (vs. a decrease during the three months ended March 31, 2023) and a less significant yield spread tightening in the current period as compared to the corresponding quarter of the prior year. These declines were partially offset by a gain recognized in the first quarter of 2024 on reverse mortgage loan buyouts.
- The increase in Originations revenue is primarily driven by a $4.9 million increase in gain on sale of forward loans due to an increase in margin and volume for both our Correspondent and Consumer Direct channels.

### MSR Valuation Adjustments, Net

The table below presents the key components of MSR valuation adjustments, net which include MSRs, MSR pledged liabilities and ESS financing liabilities at fair value, together with MSR hedging derivatives:

| March 31, 2024 | Three Months Ended December 31, 2023 | March 31, 2023 |  |
| --- | ---: | ---: | ---: |
| Realization of expected cash flows (runoff) | $(39.9) | $(36.6) | $(35.7) |
| Fair value gains (losses) due to rate and assumption changes | 82.0 | (148.0) | (47.4) |
| MSR hedging derivative fair value gain (loss) | (53.7) | 86.6 | 14.1 |
| Sub-total fair value gains (losses) due to rates and assumptions, net of hedging (1) | 28.3 | (61.4) | (33.3) |
| **MSR valuation adjustments, net** | $(11.6) | $(98.0) | $(69.0) |

(1) Excludes fair value changes of reverse mortgage loans held-for-investment and HMBS related borrowing due to rates and assumptions that are part of the MSR hedging strategy. Refer to the MSR Hedging Strategy section of Item 3. Quantitative and Qualitative Disclosures about Market Risks for further detail.

The $11.6 million loss on MSR valuation adjustments, net for the three months ended March 31, 2024 is comprised of $39.9 million runoff, $82.0 million fair value gain attributed to rate and assumption changes and $53.7 million loss on MSR hedging derivatives. MSR valuation adjustments, net increased by $86.4 million (lower loss) in the three months ended March 31, 2024 as compared to the three months ended December 31, 2023 largely driven by interest rates, as discussed below.

- MSRs are subject to runoff, a fair value decline due to the realization of expected cash flows and yield based on projected borrower behavior, including scheduled amortization of the loan UPB together with projected voluntary prepayments. As our owned MSR remained flat quarter over quarter, the unfavorable $3.3 million increase in runoff quarter-over-quarter is mostly due to lower average market rates in the first quarter 2024 as compared to the fourth quarter of 2023 resulting in shorter projected MSR life.
- The $82.0 million fair value gain due to rate and assumption changes is attributed to a rise of interest rates in the quarter and favorable assumption updates to reflect market participant perspectives on MSRs with actual trade pricing levels. The 10-year Treasury rate increased 32 basis points in the three months ended March 31, 2024. The change from a $148.0 million fair value loss in the three months ended December 31, 2023 to a gain in the three months ended March 31, 2024 is mostly driven by changes in market interest rates as the 10-year Treasury rate decreased 71 basis points in three months ended December 31, 2023.
- MSR hedging derivative fair value gains or losses are designed to partially offset the expected fair value losses or gains, respectively, of the net MSR, MSR pledged liabilities and ESS exposure, commensurate with our target hedge coverage ratio. The $53.7 million derivative loss recognized in the three months ended March 31, 2024 is primarily driven by rate increase with the 10-year Treasury rate increase of 32 basis points. The change from $86.6 million hedging gains in the three months ended December 31, 2023 is mainly due to respective changes in interest rates. Also refer to Item 3. Quantitative and Qualitative Disclosures about Market Risk for further detail on our hedging strategy and its effectiveness.

### Operating Expenses

The table below presents the key components of operating expenses:

| March 31, | Three Months Ended December 31, 2024 | 2023 | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Compensation and benefits | $53.6 | $57.8 | (7)% | $58.0 | (8)% |
| Servicing and origination | 15.0 | 8.5 | 77 | 15.7 | (4) |
| Technology and communications | 12.7 | 13.1 | (3) | 13.4 | (5) |
| Professional services | 12.0 | 12.4 | (3) | 13.3 | (9) |
| Occupancy, equipment and mailing | 7.7 | 7.6 | 1 | 8.8 | (12) |
| Other expenses | 3.4 | 4.3 | (20) | 4.9 | (33) |
| **Total operating expenses** | $104.4 | $103.7 | 1% | $114.1 | (8)% |
| Average headcount | 4,486 | 4,588 | (2)% | 4,796 | (6)% |

Compensation and benefits expense for the three months ended March 31, 2024 decreased $4.2 million, or 7% as compared to the three months ended December 31, 2023, mostly due to lower incentive compensation attributed to a decrease in the fair value of cash-settled share-based awards in the quarter following the decline of our common stock price, as compared to an increase in the prior quarter, and a decrease in equity classified share-based awards expense.

As compared to the three months ended March 31, 2023, Compensation and benefits expense for the three months ended March 31, 2024 decreased $4.4 million, or 8% largely due to a $2.9 million decrease in salaries and benefits and a $1.3 million decrease in severance expense. Our total average headcount declined 6%, mostly driven by a 15% reduction in our average U.S. based Servicing headcount, reflecting our ongoing goal to improve efficiencies and create an industry leading cost structure.

Servicing and origination expense for the three months ended March 31, 2024 increased $6.5 million as compared to the three months ended December 31, 2023, mostly due to favorable adjustments recognized in the three months ended December 31, 2023. The $4.6 million increase in Servicing expense is mostly driven by mortgage insurance premium refunds and favorable adjustments to captive reinsurance losses recognized during the three months ended December 31, 2023. The $1.9 million increase in Originations expense is largely driven by a provision release for representation and warranty indemnification recorded in the three months ended December 31, 2023 due to favorable resolution of demands.

As compared to the three months ended March 31, 2023, Servicing and origination expenses for the three months ended March 31, 2024 was mostly flat, with a lower provision for indemnification in Servicing in the three months ended March 31, 2024, largely offset by the effect of a release of provision for representation and warranty indemnification recorded in the first quarter of 2023 in Originations.

The other operating expenses in the table above (excluding Compensation and benefits and Servicing and originations expense) for the three months ended March 31, 2024 were mostly flat as compared to the three months ended December 31, 2023 and the three months ended March 31, 2023.

### Other Income (Expense)

| March 31, | Three Months Ended December 31, 2024 | 2023 | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net interest expense | $(49.9) | $(50.9) | (2)% | $(48.2) | 4% |
| Pledged MSR liability expense | (44.9) | (76.5) | (41) | (70.3) | (36) |
| Earnings of equity method investee | 2.7 | 1.4 | 95 | 0.3 | 978 |
| Gain on extinguishment of debt | 1.4 | 0.1 | n/m | — | n/m |
| Other, net | (0.6) | 4.7 | (112) | 1.2 | (158) |
| **Other income (expense), net** | $(91.3) | $(121.2) | (25)% | $(117.0) | (22)% |

Net interest expense for the three months ended March 31, 2024 remained mostly flat as compared to the three months ended December 31, 2023. As compared to the three months ended March 31, 2023, Net interest expense for the three months ended March 31, 2024 increased $1.7 million, mostly driven by the additional financing cost incurred in connection with our acquisition and private label securitization of reverse mortgage buyouts.

During the three months ended March 31, 2024, we repurchased a total of $47.4 million of the PMC Senior Secured Notes in the open market for a price of $45.5 million and recognized a $1.4 million gain on debt extinguishment, net of the respective write-off of unamortized discount and debt issuance costs.

Other, net for the three months ended March 31, 2024 decreased $5.2 million, as compared to the three months ended December 31, 2023, largely due to the recognition in the fourth quarter of 2023 of $5.7 million of compensation from a subservicer related to a negotiated subservicing termination on a company-owned MSR. The payment received offset an unfavorable impact to the fair value of the associated MSRs (reported as a loss in MSR valuation adjustments, net). As compared to the three months ended March 31, 2023, Other, net for the three months ended March 31, 2024 decreased $1.8 million driven by an increase in early payoff protection expense, among other factors.

Refer to Servicing segment for discussion of Pledged MSR liability expense (primarily impacted by the accounting presentation change of the derecognized Rithm MSR on December 31, 2023) and Earnings of equity method investee (primarily impacted by the fair value changes of MAV’s MSR portfolio).

### Income Tax Expense (Benefit)

|  | Three Months Ended March 31, 2024 | December 31, 2023 | % Change | Three Months Ended March 31, 2023 % Change |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| **Income tax expense (benefit)** | $1.7 | $1.8 | (7)% | $1.9 | (11)% |
| Income (loss) before income taxes | $31.8 | $(45.6) | (170) | $(38.3) | (183) |
| Effective tax rate | 5.2% | (3.9)% | (234)% | (5.0)% | (206)% |

Our effective tax rate for the periods is lower than the 21% federal statutory income tax rate primarily due to the full valuation allowance recorded on our net U.S. federal and state deferred tax assets.

We conduct periodic evaluations of positive and negative evidence to determine whether it is more likely than not that the deferred tax asset can be realized in future periods. In these evaluations, we give more significant weight to objective evidence, such as our actual financial condition and historical results of operations, as compared to subjective evidence, such as projections of future taxable income or losses. The U.S. jurisdiction is in a cumulative loss position for the three-year period ended March 31, 2024. We recognize that cumulative losses in recent years is an objective form of negative evidence in assessing the need for a valuation allowance and that such negative evidence is difficult to overcome. Other factors considered in these evaluations are estimates of future taxable income, future reversals of taxable temporary differences, taxable income in prior carryback years, and the impact of tax planning strategies that may be implemented, if warranted. We evaluated all positive and negative evidence and determined that a full valuation allowance at March 31, 2024 remains appropriate. The income tax expense (benefit) is primarily comprised of income taxes in foreign jurisdictions. Also refer to Note 20 - Income Taxes to the consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2023 for further details on deferred tax assets.

Income tax expense for three months ended March 31, 2024 decreased by $0.1 million and $0.2 million as compared to the three months ended December 31, 2023 and the three months ended March 31, 2023, respectively. Our income tax expense is primarily driven by the jurisdictional mix of our earnings. The increase in the effective tax rate is primarily due to the increase in pre-tax earnings.

Under our transfer pricing agreements, our operations in India and Philippines are compensated on a cost-plus basis for the services they provide, such that even when we have a consolidated pre-tax loss from operations these foreign operations have taxable income, which is subject to statutory tax rates in these jurisdictions that are higher than the U.S. statutory rate of 21%.

### Financial Condition

| Financial Condition Summary | March 31, 2024 | December 31, 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Cash and cash equivalents | $185.1 | $201.6 | $(16.5) | (8)% |
| Restricted cash | 66.1 | 53.5 | 12.6 | 24 |
| MSRs, at fair value | 2,374.7 | 2,272.2 | 102.4 | 5 |
| Advances, net | 602.7 | 678.8 | (76.1) | (11) |
| Loans held for sale | 1,028.9 | 677.3 | 351.6 | 52 |
| Loans held for investment, at fair value | 8,130.5 | 7,975.5 | 155.0 | 2 |
| Receivables, net | 152.1 | 154.8 | (2.7) | (2) |
| Investment in equity method investee | 37.6 | 37.8 | (0.2) | — |
| Premises and equipment, net | 11.8 | 13.1 | (1.3) | (10) |
| Other assets | 500.6 | 449.2 | 51.4 | 11 |
| Total assets | $13,090.1 | $12,513.7 | $576.4 | 5% |
| Total Assets by Segment |  |  |  |  |
| Servicing | $12,003.9 | $11,687.6 | $316.3 | 3% |
| Originations | 835.2 | 551.9 | 283.4 | 51 |
| Corporate Items and Other | 250.9 | 274.3 | (23.3) | (9) |
|  | $13,090.1 | $12,513.7 | $576.4 | 5% |
| HMBS-related borrowings, at fair value | $7,945.0 | $7,797.3 | $147.7 | 2% |
| Other financing liabilities, at fair value | 906.8 | 900.0 | 6.8 | 1 |
| Advance match funded liabilities | 440.2 | 499.7 | (59.5) | (12) |
| Mortgage loan financing facilities, net | 1,108.9 | 710.6 | 398.3 | 56 |
| MSR financing facilities, net | 964.1 | 916.2 | 47.9 | 5 |
| Senior notes, net | 552.0 | 595.8 | (43.8) | (7) |
| Other liabilities | 741.0 | 692.3 | 48.7 | 7 |
| Total liabilities | 12,658.0 | 12,111.9 | 546.1 | 5% |
| Total stockholders’ equity | 432.1 | 401.8 | 30.3 | 8 |
| Total liabilities and equity | $13,090.1 | $12,513.7 | $576.4 | 5% |
| Total Liabilities by Segment |  |  |  |  |
| Servicing | $11,607.1 | $11,276.5 | $330.6 | 3% |
| Originations | 788.3 | 517.5 | 270.9 | 52 |
| Corporate Items and Other | 262.6 | 318.0 | (55.4) | (17) |
|  | $12,658.0 | $12,111.9 | $546.1 | 5% |
| Book value per share | $55.51 | $52.29 | $3.23 | 6% |

Total assets increased $576.4 million, or 5%, between December 31, 2023 and March 31, 2024 due to a $351.6 million increase in our Loans held for sale portfolio as originations and purchases exceeded sales, including our acquisition of reverse mortgage buyouts, a $155.0 million fair value increase in reverse Loans held for investment mostly driven by capitalization of interest, a $102.4 million increase in our MSR portfolio due to fair value gains attributed to rates and assumptions, and a $51.4 million increase in Other assets mostly due to an increase in the contingent loan repurchase asset. These increases were offset in part by a $76.1 million decline in servicing advances that was mainly due to seasonal reduction of escrow balances.

Total liabilities increased by $546.1 million, or 5%, as compared to December 31, 2023, with similar effects as described above. Our borrowings under Mortgage loan financing facilities increased $398.3 million due to the higher loans held for sale balance at March 31, 2024, including the issuance of OLIT Notes in February in connection with the securitization of reverse mortgage loan buyouts. Our HMBS-related borrowings increased by $147.7 million mostly due to fair value changes attributable to interest, MSR financing facilities increased $47.9 million consistent with the increase in MSRs, and Other liabilities increased $48.7 million mostly due to an increase in the contingent loan repurchase liability. Partially offsetting these increases, Advance match funded liabilities decreased $59.5 million consistent with the decline in servicing advances discussed above and Senior notes, net decreased $43.8 million mostly due to our repurchases of PMC Senior Secured Notes during the quarter.

Total equity increased $30.3 million during the three months ended March 31, 2024 due to $30.1 million net income for the period.

### Key Trends

The following discussion provides information regarding certain key drivers of our financial performance and includes certain forward-looking statements that are based on the current beliefs and expectations of Ocwen’s management and are subject to significant risks and uncertainties. Refer to Forward-Looking Statements beginning on page 2 of this Form 10-Q and Part I, Item 1.A. of our Annual Report on Form 10-K for the year ended December 31, 2023, for discussion of certain of those risks and uncertainties and other factors that could cause Ocwen’s actual results to differ materially because of those risks and uncertainties. There is no assurance that actual results will be in line with the outlook information set forth below, and Ocwen does not undertake to update any forward-looking statements. Also refer to the Segment results of operations section for further detail, the description of our business environment, initiatives and risks.

*Servicing and subservicing fee revenue* - Our servicing fee revenue is a function of the volume being serviced - UPB for servicing fees and loan count for subservicing fees. We expect we will continue to grow our servicing and subservicing portfolio through our multi-channel Originations platform and through MSR capital partners, with an emphasis on subservicing.

*Gain on sale of loans held for sale* - Our gain on sale is driven by both volume and margin and is channel-sensitive. The updated industry forecasts suggest an increase in loan origination in 2024 as compared to historical low origination volumes in 2023. We anticipate growth in our Consumer Direct channel considering the updated industry forecast and our increased recapture capabilities. We expect to continue to prudently manage our Correspondent volume at margins that are accretive to the business. We expect continued competitive pressure on margins across all channels.

*Gain on reverse loans held for investment and HMBS-related borrowings, net* - The reverse mortgage origination gain is driven by the same factors as gain on sale of loans held for sale, with smaller volumes in the reverse mortgage market and generally larger margins. With our experience and brand in the marketplace, we expect to continue to maintain or prudently grow our portfolio albeit with some channel mix changes. We expect continued uncertain market interest rate and spread conditions. The fair value of the net reverse servicing asset is expected to continue to follow market conditions, with fair value gains or losses generally associated with declining or increasing interest rates and spread, respectively, and is part of our forward MSR hedging strategy.

*MSR valuation adjustments, net -* Our net MSR fair value changes include multiple components. First, amortization of our investment is a function of the UPB, capitalized value of the MSR relative to the UPB, and the level of scheduled payments and prepayments. We expect the MSR realization of expected cash flows to follow the growth or size of our MSR portfolio net of ESS financing liabilities and pledged MSR liabilities with our MSR capital partners. Second, MSR fair value changes are driven by changes in interest rates and assumptions, such as forecasted prepayments. Third, the MSR fair value changes are partially offset by derivative fair value changes that economically hedge the MSR portfolio. Refer to the sensitivity analysis in Item 3. Quantitative and Qualitative Disclosures About Market Risk for further detail.

*Operating expenses* - Compensation and benefits are a significant component of our cost-to-service and cost-to-originate and is directly correlated to headcount levels. Headcount in Servicing is primarily driven by the number of loans or UPB being serviced and subserviced, and by the relative mix of performing, delinquent and defaulted loans. As servicing volume is expected to modestly increase (see above), we expect a stable workforce with productivity gains. We expect to continue to prudently manage our Originations headcount and operating expenses to align with funded volume. Our operating expenses are expected to correlate with volumes, with some productivity and efficiencies expected through our technology and continuous improvement initiatives. Elevated inflation may result in higher operating expenses due to increases in salaries and benefits and rates charged by our vendors.

*Stockholders’ equity* - With the above considerations, we expect our businesses to generate net income and increase our equity in 2024, absent any significant adverse change in interest rates or other factors.

### SEGMENT RESULTS OF OPERATIONS

Our activities are organized into two reportable business segments that reflect our primary lines of business - Servicing and Originations - as well as a Corporate Items and Other segment.

### SERVICING

We earn contractual monthly servicing fees pursuant to servicing agreements pertaining to MSRs we own, which are typically payable as a percentage of UPB, as well as ancillary fees, including late fees, modification incentive fees, REO referral commissions, float earnings and convenience or other loan collection fees, where permitted. We also earn fees under subservicing arrangements with banks and other institutions, that are typically on a per-loan basis and vary based on loan delinquency status.

As of March 31, 2024, we serviced 1.4 million mortgage loans with an aggregate UPB of $302.3 billion, an increase of 3% and 5%, respectively, from December 31, 2023. The average UPB during the first quarter of 2024 was mostly flat compared to the fourth quarter of 2023, and compared to the three months ended March 31, 2023.

Effective in the fourth quarter of 2023, the Servicing segment includes CR Limited (CRL), our wholly-owned captive reinsurance subsidiary previously included in the Corporate Items and Other segment. Segment results for the first quarter of 2023 have been recast to conform to the current segment presentation. CRL provides re-insurance related to coverage on foreclosed real estate properties owned or serviced by us. CRL assumes a 90% (60% through January 2024) quota share of REO insurance coverage written by a third-party insurer under a blanket policy issued to PHH. The underlying REO policy provides coverage for direct physical loss on commercial and residential properties, subject to certain limitations.

### Concentration

Rithm is one of our largest subservicing clients accounting for 15% and 25%, respectively, of UPB and loan count of our total servicing and subservicing portfolio as of March 31, 2024, and approximately 66% of all delinquent loans that Ocwen serviced. The servicing agreements automatically renew annually unless notice of termination is provided. Refer to Note 8 — Other Financing Liabilities, at Fair Value.

MAV represented 18% and 14%, respectively, of UPB and loan count of our total servicing and subservicing portfolio as of March 31, 2024. In May 2021, PHH entered into a subservicing agreement with MAV for exclusive rights to service the mortgage loans underlying MSRs owned by MAV. MAV provides us with a source of additional subservicing volume, either with the MSRs that MAV purchases outright from third parties or with the MSRs that MAV purchases from PHH. Although the servicing agreement is not cancellable without mutual agreement, MAV is permitted to sell its MSR portfolio, in whole or in part, without Ocwen’s consent after May 3, 2024. Refer to Note 11 - Investment in Equity Method Investee and Related Party Transactions.

### Loan Resolutions

We have a strong track record of success as a leader in the servicing industry in foreclosure prevention and loss mitigation that helps homeowners stay in their homes and improves financial outcomes for mortgage loan investors. Reducing delinquencies also enables us to recover advances and recognize additional ancillary income, such as late fees, which we do not recognize on delinquent loans until they are brought current. Loan resolution activities address the pipeline of delinquent loans and generally lead to (i) modification of the loan terms, (ii) repayment plan alternatives, (iii) a discounted payoff of the loan (e.g., a “short sale”), or (iv) foreclosure or deed-in-lieu-of-foreclosure and sale of the resulting REO. Loan modifications must be made in accordance with the applicable servicing agreement as such agreements may require approvals or impose restrictions upon, or even forbid, loan modifications. To select an appropriate loan modification option for a borrower, we perform a structured analysis, using a proprietary model, of all options using information provided by the borrower as well as external data, including recent broker price opinions to value the mortgaged property. Our proprietary model includes, among other things, an assessment of re-default risk.

### Advance Obligation

As a servicer, we are generally obligated to advance funds in the event borrowers are delinquent on their monthly mortgage related payments. We advance principal and interest (P&I Advances), taxes and insurance (T&I Advances) and legal fees, property valuation fees, property inspection fees, maintenance costs and preservation costs on properties that have been foreclosed (Corporate Advances). For certain loans in non-Agency securitization trusts, we have the ability to cease making P&I advances and immediately recover advances previously made from the general collections of the respective trust if we determine that our P&I advances cannot be recovered from the projected future cash flows. With T&I and Corporate advances, we continue to advance if net future cash flows exceed projected future advances without regard to advances already made.

Most of our advances have the highest reimbursement priority (i.e., they are “top of the waterfall”) so that we are entitled to repayment from respective loan or REO liquidation proceeds before any interest or principal is paid on the bonds that were issued by the trust. In the majority of cases, advances in excess of respective loan or REO liquidation proceeds may be recovered from pool-level proceeds. The costs incurred in meeting these obligations consist principally of the interest expense incurred in financing the servicing advances. Most subservicing agreements, including our agreements with Rithm and MAV, provide for prompt reimbursement of any advances from the owner of the servicing rights.

### MSR Valuation Adjustments

The financial performance of our Servicing segment is impacted by the changes in fair value of the MSR portfolio due to changes in market interest rates, among other factors. Our MSR portfolio is carried at fair value, with changes in fair value recorded in earnings, within MSR valuation adjustments, net. The fair value of our MSRs is typically correlated to changes in market interest rates; as interest rates decrease, the value of the MSR portfolio typically decreases as a result of higher anticipated prepayment speeds. Conversely, as interest rates increase, the value of the servicing portfolio typically increases as a result of lower anticipated prepayment speeds. Prepayments do not vary linearly with interest rates resulting in the convexity of the MSR, i.e., the interest rate sensitivity of the MSR changes when interest rates change. Specifically, as interest rates further increase, the lower the fair value of the MSR increases. The sensitivity of MSR fair value to interest rates is typically higher for higher credit quality loans, such as our Agency loans. Our Non-Agency portfolio is significantly seasoned, with an average loan age of approximately 18 years, exhibiting little response to movements in market interest rates.

Our MSR hedging policy is designed to reduce the expected volatility of the MSR portfolio fair value due to market interest rates commensurate with the target hedge coverage ratio determined by our Market Risk Committee. Refer to Item 3. Quantitative and Qualitative Disclosures about Market Risk for further detail on our hedging strategy.

MSR valuation adjustments, net includes the loss on the MSR portfolio associated with the realization of its expected cash flows, or runoff, due to the passage of time, and any fair value gains or losses due to inputs, market interest rates or assumptions, net of hedging gains and losses. Included in MSR valuation adjustments, net are fair value gains and losses of the MSR pledged liability associated with the MSR transfers that do not meet sale accounting and the ESS financing liabilities for which we elected the fair value option and that is collateralized by MSRs.

To determine fair value, we engage third-party valuation experts who generally utilize: (a) transactions involving instruments with similar collateral and risk profiles, adjusted as necessary based on specific characteristics of the asset or liability being valued; and/or (b) industry-standard modeling, such as a discounted cash flow model and prepayment model, in arriving at their estimate of fair value. The prices provided by the valuation experts reflect their observations and assumptions related to market activity, generally the bulk market, incorporating available industry survey results and client feedback, and including risk premiums and liquidity adjustments. While interest rates are a key value driver, MSR fair value may change for other market-driven factors, including but not limited to the supply and demand of the market or the required yield or perceived value by investors of such MSRs.

### Significant Variables

The following factors could significantly impact the results of our Servicing segment from period to period.

*Aggregate UPB and Loan Count*. Servicing fees are generally earned as a percentage of UPB and subservicing fees are earned on a per-loan basis or as a percentage of UPB. As a result, the change in aggregate UPB and loan count for which we have servicing rights or subservice will directly impact our revenue contributed by our Servicing segment. Aggregate UPB and loan count decline over time as a result of portfolio run-off or sales and increase to the extent we retain MSRs from new originations or engage in MSR acquisitions.

*Cost to Service and Operating Efficiency*. Our operating results for our Servicing segment are heavily dependent on our ability to scale our operations to cost-effectively and efficiently perform servicing activities in accordance with our servicing agreements.

*Delinquencies*. Delinquencies impact our financial results and operating cash flows for our Servicing segment. Non-performing loans are more expensive to service because the loss mitigation activities that we must undertake to keep borrowers in their homes or to foreclose, if necessary, are costlier than the activities required to service a performing loan. These loss mitigation activities include increased contact with the borrower for collection and the development of forbearance plans or loan modifications by highly skilled associates who command higher compensation as well as the higher compliance costs associated with these, and similar activities.

In addition, when borrowers are delinquent, the amount of funds that we are required to advance to the investors increases. We utilize servicing advance financing facilities, which are asset-backed (i.e., match funded liabilities) securitization facilities, to finance a portion of our advances. As a result, increased delinquencies result in increased interest expense.

*Prepayment Speed*. The rate at which portfolio UPB declines can have a significant impact on our Servicing segment. Items reducing UPB include scheduled and unscheduled principal payments (runoff), refinancing, loan modifications involving forgiveness of principal, voluntary property sales and involuntary property sales such as foreclosures. Prepayment speed impacts future servicing fees, runoff and valuation of MSRs, float earnings on float balances and interest expense on advances. Increases in anticipated lifetime prepayment speeds generally cause MSR valuation to decrease because MSRs are valued based on total expected servicing income over the life of a portfolio. The converse is true when expectations for prepayment speeds decrease. Prepayments do not vary linearly with interest rates resulting in the convexity of the MSR, i.e., the interest rate sensitivity of the MSR changes when interest rates change. Specifically, as interest rates further increase, the lower the fair value of the MSR increases.

*Interest rates*. In addition to the impact of interest rate changes on prepayment speeds, the fair value of the MSR and associated hedging activities, float earnings on float balances, and the funding cost of servicing advances and MSR financing facilities are directly impacted by interest rate changes.

### Reverse Mortgages

Our reverse business activities include both the subservicing of reverse mortgage loans on behalf of investors and the servicing of our owned portfolio.

The activities and financial performance related to our owned portfolio of reverse mortgage loans that are securitized and classified as held for investment, at fair value, together with the HMBS-related borrowings, at fair value are reflected in the Servicing segment. For reference, the activities and financial performance related to our owned portfolio of reverse mortgage loans prior to securitization are reflected in the Originations segment. Once a reverse mortgage loan is securitized, our activities are generally consistent with other loan servicing as described above, with the following variations.

Under the terms of ARM-based HECM loan agreements, the borrowers have additional borrowing capacity of $1.8 billion at March 31, 2024. These draws or tails are funded by the servicer and are subsequently securitized. We do not incur any substantive underwriting, marketing or compensation costs in connection with any future draws, although we must maintain sufficient capital resources and available borrowing capacity to ensure that we are able to fund these future draws prior to securitization with Ginnie Mae (generally less than 30 days).

As an HMBS issuer, we assume certain obligations related to each security issued. In addition to our obligation to fund tails, the most significant obligation is the requirement to purchase loans out of the Ginnie Mae securitization pools once they reach 98% of the maximum claim amount (MCA buyouts). Active buyouts are assigned to HUD and payment is received from HUD through a claims process, generally within 90 days. HUD reimburses us for the outstanding principal balance on the loan up to the maximum claim amount; we bear the risk of exposure if the outstanding balance on a loan exceeds the maximum claim amount. Inactive buyouts (loans that are in default for one of the following reasons - title conveyances or the borrower is deceased, no longer occupies the property or is delinquent on tax and insurance payments) are generally liquidated through foreclosure and subsequent sale of REO. State specific foreclosure and REO liquidation timelines have a significant impact on the timing and amount of our recovery. If we are unable to sell the property securing the inactive reverse loan for an acceptable price within the timeframe established by HUD (six months), we are required to make an appraisal-based claim to HUD. In such cases, HUD reimburses us for the loan balance, eligible expenses and interest, less the appraised value of the underlying property. Thereafter, all the risks and costs associated with maintaining and liquidating the property remains with us; we may incur additional losses on REO properties as they progress through the liquidation processes related to delayed timelines due to market conditions, sales commissions, property preservation costs or property tax and insurance advances. The significance of future losses associated with appraisal-based claims is dependent upon the volume of inactive loans, condition of foreclosed properties and the general real estate market.

The Gain on reverse loans held for investment and HMBS-related borrowings, net reported within the Servicing segment includes the net fair value changes of securitized reverse mortgage loans held for investment and HMBS-related borrowings, for which we elected the fair value accounting option. The net fair value changes of the reverse mortgage loans and related borrowings reported within the Servicing segment include the following:

- contractual interest income earned on securitized reverse mortgage loans, or HECM loans, net of interest expense on HMBS-related borrowings, that is, on a net basis, the servicing fee we are contractually entitled to and collect on a monthly basis under the Ginnie Mae MBS Guide regarding servicing HMBS; and
- other fair value changes of the net balance of securitized loans held for investment and HMBS-related borrowings, that effectively represents servicing and tails. Tails are participations in previously securitized HECMs and are created by additions to principal for borrower draws on lines-of-credit (scheduled and unscheduled), interest, servicing fees, and mortgage insurance premiums;

The fair value of our Ginnie Mae securitized HECM loan portfolio generally decreases as market interest rates rise and increases as market rates fall (see Item 3 - Quantitative and qualitative disclosures about market risk, Loans Held for Investment and HMBS-related Borrowings and the associated interest rate sensitivity disclosure).

Gain (loss) on reverse loans held for investment and HMBS-related borrowings, net strictly reflects the financial performance of owned loans/servicing and excludes any subservicing activity. The financial performance associated with the subservicing of reverse mortgage loans on behalf of investors is primarily reflected within Servicing and subservicing fees, net.

### Third-Party Servicer Ratings

Like other servicers, we are the subject of mortgage servicer ratings or rankings (collectively, ratings) issued and revised from time to time by rating agencies including Moody’s Investors Service, Inc. (Moody’s), S&P Global Ratings, Inc. (S&P) and Fitch Ratings, Inc.(Fitch). Favorable ratings from these agencies are important to the conduct of our loan servicing and lending businesses.

The following table summarizes our latest key servicer ratings:

| Forward Residential Prime Servicer Residential Subprime Servicer Residential Special Servicer Residential Second/Subordinate Lien Servicer | PHH Moody’s SQ3+ SQ3+ SQ3+ SQ3+ | S&P Above Average Above Average Above Average Above Average | Fitch RPS3+ RPS3+ RSS3 RPS3 |
| --- | ---: | --- | --- |
| Residential Home Equity Servicer | — | — | RPS3 |
| Residential Alt-A Servicer | — | — | RPS3 |
| Master Servicer | SQ3+ | Above Average | RMS3 |
| Ratings Outlook | N/A | Stable | Stable |
| Date of last action | August 10, 2023 | March 22, 2023 | February 15, 2024 |
| **Reverse** |  |  |  |
| Residential Reverse Servicer | — | Above Average | — |
| Ratings Outlook | — | Stable | — |
| Date of initial rating | — | May 27, 2022 | — |

In addition to servicer ratings, each of the agencies will from time to time assign an outlook (or a ratings watch such as Moody’s review status) to the rating status of a mortgage servicer. A negative outlook is generally used to indicate that a rating “may be lowered,” while a positive outlook is generally used to indicate a rating “may be raised”.

On February 13, 2024, Fitch affirmed PHH’s residential servicer ratings and revised its outlook from Positive to Stable for Prime and Subprime products. The rating outlook remains Stable for the other products. The rating actions reflect PHH’s comprehensive enterprise-wide internal control environment, extensive industry experience and highly-developed global loan servicing platform, competitive loan servicing performance metrics, and effective technology platform. The ratings also consider the financial condition of PHH’s parent, Ocwen Financial Corporation. The affirmed ratings and Stable outlook on PHH’s residential servicer ratings are reflective of the company’s continued business growth, diversified sourcing strategies and overall loan servicing performance.

On February 15, 2024, Fitch affirmed PHH's Master Servicer rating and Stable outlook, reflecting the company's effective enterprise-wide risk environment and compliance management framework, satisfactory loan servicing performance metrics and efficient servicing technology. The ratings also consider the financial condition of PHH's parent, Ocwen Financial Corporation.

### Operating Metrics

The following table provides selected operating statistics for our Servicing segment:

| Selected Operating Statistics Assets Serviced Unpaid principal balance (UPB) in billions: | March 31, 2024 | December 31, 2023 | % Change 2023 | March 31, | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Performing loans (1) | $290.8 | $276.5 | 5% | $285.3 | 2% |
| Non-performing loans | 11.0 | 11.4 | (4) | 12.7 | (13) |
| Non-performing real estate | 0.5 | 0.5 | (4) | 0.5 | (12) |
| Total | $302.3 | $288.4 | 5% | $298.5 | 1% |
| Non-performing to total % | 3.8% | 4.1% | (8)% | 4.4% | (14)% |
| Conventional loans (2) | $200.6 | $187.4 | 7% | $192.3 | 4% |
| Government-insured loans | 34.5 | 33.3 | 4 | 36.9 | (6) |
| Non-Agency loans | 67.1 | 67.6 | (1) | 69.3 | (3) |
| Total | $302.3 | $288.4 | 5% | $298.5 | 1% |
| Conventional loans to total % | 66.4% | 65.0% | 2% | 64.4% | 3% |
| Servicing portfolio (3) | $133.5 | $131.4 | 2% | $136.1 | (2)% |
| Subservicing portfolio |  |  |  |  |  |
| Subservicing - forward | 47.0 | 30.8 | 53% | 40.3 | 17% |
| Subservicing - reverse | 15.5 | 17.1 | (9) | 21.7 | (28) |
| Total subservicing | 62.5 | 47.9 | 30 | 62.0 | 1 |
| MAV (4) (5) | 53.4 | 55.9 | (4) | 51.8 | 3 |
| Rithm (5) (6) | 44.1 | 45.0 | (2) | 48.1 | (8) |
| Other MSR capital partners (5) | 8.8 | 8.2 | 7 | 0.5 | n/m |
| Total | $302.3 | $288.4 | 5% | $298.5 | 1% |

| Prepayment speed (CPR) (7): |  |  |  |  |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| % Voluntary CPR | 3.7% | 3.5% | 5% | 3.5% | 5% |
| % Involuntary CPR | 0.3 | 0.3 | 10 | 0.3 | 10 |
| % Total CPR | 7.3% | 7.0% | 3% | 7.2% | 1% |
| Number of completed modifications (in thousands) | 3.9 | 3.5 | 13% | 3.4 | 15% |

(1) Performing loans include those loans that are less than 90 days past due and those loans for which borrowers are making scheduled payments under loan modification, forbearance or bankruptcy plans. We consider all other loans to be non-performing.

(2) Conventional loans include 38,343 and 37,893 prime loans with a UPB of $10.1 billion and $9.7 billion at March 31, 2024 and December 31, 2023, respectively, that we service or subservice. This compares to 66,919 prime loans with a UPB of $13.4 billion at March 31, 2023. Prime loans are generally good credit quality loans that meet GSE underwriting standards.

(3) Includes 35,805 reverse mortgage loans with a UPB of $8.2 billion that are recognized in our consolidated balance sheet at March 31, 2024.

(4) Includes $25.0 billion UPB subserviced and $28.4 billion UPB of MSRs sold to MAV that did not achieve sale accounting treatment at March 31, 2024.

(5) Loans serviced pursuant to our sale or transfer agreements with MAV, Rithm or others for which sale accounting is not achieved, and loans subserviced.

(6) Includes $34.4 billion UPB of subserviced loans on behalf of Rithm at March 31, 2024.

(7) Total 3-month % CPR includes voluntary and involuntary prepayments, as shown in the table, plus scheduled principal amortization.

The following table provides the rollforward of activity of our portfolio of mortgage loans serviced that includes MSRs, whole loans and subserviced loans, both forward and reverse:

|  | Amount of UPB ($ in billions) 2024 | 2023 | Count (000’s) 2024 | 2023 |
| --- | ---: | ---: | ---: | ---: |
| **Portfolio at January 1** | $288.4 | $289.7 | 1,344.5 | 1,378.9 |
| Additions (1) (2) | 23.1 | 17.5 | 74.0 | 59.5 |
| MSR sales | — | — | (0.1) | (0.1) |
| Servicing transfers (1) | (2.6) | (2.2) | (9.7) | (7.7) |
| Runoff | (6.6) | (6.5) | (25.8) | (26.9) |
| **Portfolio at March 31** | $302.3 | $298.5 | 1,382.9 | 1,403.7 |

(1) Includes the volume UPB associated with short-term interim subservicing for some clients as a support to their originate-to-sell business, where loans may be boarded and deboarded within the same quarter.

(2) Additions include purchased MSRs on portfolios consisting of 1,997 and 889 loans with a UPB of $638.0 million and $251.0 million that have not yet transferred to the PHH servicing system as of March 31, 2024 and March 31, 2023, respectively, but for which we have legal title. The seller continues to subservice the loans on an interim basis until servicing transfer.

The following table provides a breakdown of our servicer advances, net of allowance for losses:

| Advances by investor type | March 31, 2024 Principal and Interest | Taxes and Insurance | Foreclosures, Bankruptcy, REO and Other | Total | December 31, 2023 Principal and Interest | Taxes and Insurance | Foreclosures, Bankruptcy, REO and Other | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Conventional | $1.9 | $69.8 | $6.1 | $77.7 | $3.5 | $91.2 | $6.2 | $100.8 |
| Government-insured | 2.3 | 34.3 | 20.4 | 57.1 | 3.3 | 37.7 | 19.3 | 60.2 |
| Non-Agency | 185.7 | 191.1 | 91.2 | 467.9 | 205.5 | 214.3 | 97.9 | 517.7 |
| Total, net | $189.9 | $295.2 | $117.7 | $602.7 | $212.2 | $343.2 | $123.3 | $678.8 |

The following table provides selected operating statistics related to our reverse mortgage loans reported within our Servicing segment:

| Reverse Mortgage Loans Unpaid principal balance (UPB) in millions: | March 31, 2024 | December 31, 2023 | % Change 2023 | March 31, | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Loans held for investment (1) | $7,700.9 | $7,605.5 | 1% | $7,290.7 | 6% |
| Active Buyouts (2) | 98.7 | 68.4 | 44 | 83.7 | 18 |
| Inactive Buyouts (2) | 288.2 | 198.1 | 45 | 136.7 | 111 |
| Total | $8,087.8 | $7,872.1 | 3% | $7,511.2 | 8% |
| Inactive buyouts % to total | 3.6% | 2.5% | 1.0% | 1.8% | 1.7% |
| Future draw commitments (UPB) in millions: | 1,793.4 | 1,782.0 | 1% | 1,769.6 | 1% |
| Fair value in millions: |  |  |  |  |  |
| Loans held for investment (1) | $8,018.2 | $7,868.5 | 2% | $7,545.2 | 6% |
| HMBS related borrowings | 7,945.0 | 7,797.3 | 2 | 7,470.6 | 6 |
| Net asset value (HECM or reverse MSR) | $73.2 | $71.2 | 3% | $74.6 | (2)% |
| Net asset value to UPB | 0.95% | 0.94% |  | 1.02% |  |

(1) Securitized loans only; excludes unsecuritized loans reported within the Originations segment.

(2) Buyouts are reported as Loans held for sale, Accounts Receivable or REO depending on the loan and foreclosure status.

### Financial Performance

The following table presents selected results of operations of our Servicing segment. The amounts presented are before the elimination of balances and transactions with our other segments:

| Revenue | Three Months Ended March 31, 2024 | December 31, 2023 | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Servicing and subservicing fees | $204.2 | $239.3 | (15)% | $231.8 | (12)% |
| Gain (loss) on loans held for sale, net | 1.8 | (2.7) | (169) | (1.3) | (241) |
| Gain (loss) on reverse loans held for investment and HMBS-related borrowings, net | 8.6 | 19.6 | (56) | 14.0 | (39) |
| Other revenue, net | 4.5 | 4.1 | 10 | 2.5 | 78 |
| Total revenue | 219.1 | 260.3 | (16)% | 247.0 | (11)% |
| **MSR valuation adjustments, net** | (12.5) | (101.5) | (88)% | (70.9) | (82)% |
| **Operating expenses** |  |  |  |  |  |
| Compensation and benefits | 25.3 | 25.9 | (3)% | 29.4 | (14)% |
| Servicing expense | 13.3 | 8.7 | 53 | 15.2 | (13) |
| Professional services | 7.1 | 7.6 | (7) | 7.9 | (11) |
| Occupancy, equipment and mailing | 6.8 | 6.4 | 7 | 7.7 | (11) |
| Technology and communications | 6.1 | 6.0 | 2 | 6.3 | (3) |
| Corporate overhead allocations | 10.9 | 11.5 | (5) | 11.5 | (4) |
| Other expenses | 1.1 | 1.4 | (15) | 2.3 | (54) |
| Total operating expenses | 70.6 | 67.4 | 5% | 80.3 | (12)% |
| **Other income (expense)** |  |  |  |  |  |
| Interest income | 6.7 | 5.7 | 18% | 4.1 | 61% |
| Interest expense | (45.8) | (45.2) | 1 | (41.6) | 10 |
| Pledged MSR liability expense | (44.9) | (76.5) | (41) | (70.3) | (36) |
| Earnings of equity method investee | 2.7 | 1.4 | 95 | 0.3 | 978 |
| Other, net | (0.5) | 5.5 | (110) | (0.4) | 23 |
| Other income (expense), net | (81.8) | (109.1) | (25)% | (107.9) | (24)% |
| **Income (loss) before income taxes** | $54.2 | $(17.8) | (405)% | $(12.0) | (550)% |

64

### Servicing and Subservicing Fees

| Loan servicing and subservicing fees: | Three Months Ended March 31, 2024 | December 31, 2023 | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Servicing and subservicing fees | 156.6 | 183.5 | (15)% | 187.5 | (16)% |
| Ancillary income | 47.6 | 55.8 | (15) | 44.3 | 7 |
| Total | $204.2 | $239.3 | (15)% | $231.8 | (12)% |

The following tables and discussion present the respective drivers of servicing and subservicing fees and ancillary income.

| Servicing Fees | Three Months Ended March 31, 2024 | December 31, 2023 | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Average servicing UPB (1) (6) | $170.9 | $204.9 | (17)% | $202.5 | (16)% |
| Average servicing fee (2) | 0.30 | 0.32 | (8) | 0.33 | (9) |
| Servicing fees (3) | 127.1 | $165.3 | (23) | 166.0 | (23) |
| **Subservicing Fees** |  |  |  |  |  |
| Average number of subserviced loans (4) (7) | 547.0 | 282.0 | 94 | 306.0 | 79 |
| Average monthly fee per loan (5) | 18 | 22 | (17) | 23 | (23) |
| Subservicing fees (3) | 29.5 | 18.2 | 62 | 21.5 | 37 |
| **Servicing and Subservicing Fees (excluding Ancillary income)** | $156.6 | $183.5 | (15)% | $187.5 | (16)% |

(1) In $ billions, (2) In % of UPB, annualized, (3) In $ millions, (4) In thousands, (5) In dollars.

(6) Includes $33.7 billion and $36.1 billion average UPB of MSRs in the three months ended December 31, 2023 and March 31, 2023, respectively, previously sold to Rithm for which the sale accounting criteria were met effective December 31, 2023.

(7) Includes an average 264 thousand loans subserviced under Rithm agreements in the three months ended March 31, 2024 of MSRs previously sold to Rithm for which the sale accounting criteria were met effective December 31, 2023.

Servicing and subservicing fees (excluding ancillary income) for the three months ended March 31, 2024 decreased $26.9 million, or 15% as compared to the three months ended December 31, 2023, with a $38.2 million decrease in servicing fees partially offset by an $11.3 million increase in subservicing fees. These variances are largely due to the effects of our derecognition of MSRs previously sold to Rithm for which the sale accounting criteria were met effective December 31, 2023 ($29.6 million servicing fees remitted to Rithm recognized in the three months ended December 31, 2023). Effective January 1, 2024, as PHH continues to subservice the portfolio, the statement of operations reflects subservicing fee revenue as opposed to the previous gross presentation of servicing fee revenue (collections) and separate offsetting presentation of servicing fee remittances within Pledged MSR liability expense (see further discussion below). These required presentation changes do not affect the amount of net fee retained by Ocwen in connection with the Rithm servicing agreements (Loan servicing and subservicing fees less Pledged MSR liability expense).

The $38.2 million decrease in servicing fees as compared to the three months ended December 31, 2023 is driven by the effects of our derecognition of MSRs previously sold to Rithm, as discussed above with $41.9 million servicing fee collected on behalf of Rithm recognized in the fourth quarter of 2023, partially offset by $2.1 million increased collection of previously deferred non-Agency servicing fee and $2.0 million higher servicing fee on higher relative average balance of Ginnie Mae servicing UPB (yielding a higher servicing fee percentage). The increase in subservicing fees is primarily driven by the effects of our derecognition of MSRs previously sold to Rithm, as discussed above.

As compared to the three months ended March 31, 2023, our servicing and subservicing fees (excluding ancillary income) for the three months ended March 31, 2024 decreased $30.9 million, or 16% with a $38.9 million decrease in servicing fees partially offset by an $8.0 million increase in subservicing fees. These variances are largely due to the same factors discussed above, notably the effects of our derecognition of MSRs previously sold to Rithm for which the sale accounting criteria were met effective December 31, 2023 ($32.6 million servicing fees remitted to Rithm recognized in the three months ended March 31, 2023).

The $38.9 million decrease in servicing fees as compared to the three months ended March 31, 2023 is primarily attributed to $45.7 million servicing fees collected on behalf of Rithm recorded in the first quarter of 2023 related to the previously sold MSRs derecognized on December 31, 2023, offset in part by higher fees in the first quarter of 2024 attributed to other MSR capital partners. The $8.0 million increase in subservicing fees is mostly due to the effects of our derecognition of MSRs previously sold to Rithm as discussed above, with $12.1 million higher forward subservicing fees, partially offset by a $4.1 million reduction in reverse mortgage subservicing fees due to portfolio runoff.

The following table presents the detail of our ancillary income:

| Ancillary Income | Three Months Ended March 31, 2024 | December 31, 2023 | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Custodial accounts (float earnings) | $27.2 | $32.8 | (17)% | $20.2 | 35% |
| Late charges | 8.0 | 9.4 | (15) | 9.6 | (16) |
| Reverse subservicing ancillary fees | 6.7 | 7.4 | (9) | 8.1 | (17) |
| Loan collection fees | 1.8 | 2.2 | (20) | 2.6 | (30) |
| Recording fees | 1.1 | 1.1 | 6 | 1.2 | (4) |
| Boarding and deboarding fees | 0.4 | 0.6 | (41) | 0.6 | (35) |
| GSE forbearance fees | 0.1 | 0.1 | (18) | 0.2 | (67) |
| Other | 2.2 | 2.1 | 6 | 1.9 | 19 |
| Ancillary income | $47.6 | $55.8 | (15)% | $44.3 | 7% |

Ancillary income for the three months ended March 31, 2024 declined by $8.2 million, or 15% as compared to the three months ended December 31, 2023 primarily because of a $5.6 million decline in float earnings due to seasonally lower average float balances, a $1.4 million decrease in late charges and a $0.6 million decline in reverse subservicing ancillary fees due to a lower volume of claims filed on behalf of clients consistent with a decrease in the portfolio.

As compared to the three months ended March 31, 2023, ancillary income for the three months ended March 31, 2024 increased by $3.3 million, or 7% largely driven by a $7.0 million increase in float earnings due to higher short-term market interest rates partially offset by a $1.5 million reduction in late charges and a $1.4 million decline in reverse subservicing ancillary fees related to lower claim volume.

### Gain (Loss) on Loans Held for Sale, Net

We recognized a $1.8 million gain on loans held for sale, net for the three months ended March 31, 2024, as compared to a $2.7 million loss for the three months ended December 31, 2023. The gain reported in the three months ended March 31, 2024 is mostly attributable to gains on reverse mortgage buyouts. The losses reported in the three months ended December 31, 2023 and the three months ended March 31, 2023 are mostly driven by losses on repurchased loans in connection with Ginnie Mae loan modifications and EBO activities, including HECM loans, due to the unfavorable impact of higher market interest rates on redelivery gains and loan fair value.

### Gain (Loss) on Reverse Loans Held for Investment and HMBS-Related Borrowings, Net

Gain (loss) on reverse loans held for investment and HMBS-related borrowings, net reported in the Servicing segment is the net change in fair value of securitized loans held for investment and HMBS-related borrowings. It excludes reverse subservicing that is reflected in Servicing and subservicing fees.

The following table presents the components of the net fair value change and is comprised of net interest income and other fair value gains or losses.

- Net interest income is primarily driven by the volume of securitized UPB as it is the interest income earned on the securitized loans offset against interest expense incurred on the HMBS-related borrowings, and represents a key component of our compensation for servicing the portfolio, which is generally a percentage of the outstanding UPB.
- Other fair value changes are primarily driven by changes in market-based inputs or assumptions. Market interest rates and yield spreads directly impact projected asset life and the tail value of the HECM reverse mortgage loans. As our HECM loan portfolio is predominantly comprised of ARMs, higher interest rates cause the loan balance to accrue and reach the 98% maximum claim amount liquidation event more quickly, shortening the life of the servicing net asset and resulting in a lower fair value. Conversely, lower interest rates generally result in favorable net fair value impacts on our HECM reverse mortgage loans and the related HMBS financing liability. Fair value changes are also impacted by market conditions including spreads.
- Note that the fair value changes of the net asset value between securitized HECM loans and HMBS (referred to as our reverse MSR) attributable to interest rate changes are effectively used as a hedge of our forward MSR portfolio. See further description of our hedging strategy and its effectiveness in Item 3. Quantitative and Qualitative Disclosures about Market Risk.

|  | Three Months Ended March 31, 2024 | December 31, 2023 | % Change | Three Months Ended March 31, 2023 % Change |  |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net interest income (servicing fee) | $6.0 | $5.9 | 1% | $5.9 | 2% |
| Other fair value gains (losses) | 2.6 | 13.7 | (81) | 8.2 | (68) |
| Gain (loss) on reverse loans held for investment and HMBS-related borrowings, net (Servicing) | $8.6 | $19.6 | (56)% | $14.0 | (39)% |

Gain on reverse loans held for investment and HMBS-related borrowings, net decreased $11.1 million for the three months ended March 31, 2024 as compared to the three months ended December 31, 2023 due to higher market interest rates, partially offset by tighter yield spread. While not the only benchmark for the reverse mortgage exposure, the 10-year Treasury rate increased 32 basis points during the three months ended March 31, 2024 and decreased 71 basis points during the three months ended December 31, 2023. Net interest income remained flat, consistent with the portfolio growth.

As compared to the three months ended March 31, 2023, Gain on reverse loans held for investment and HMBS-related borrowings, net for the three months ended March 31, 2024 declined $5.5 million. The $5.6 million decline in unrealized fair value gains is mostly attributable to an increase in market interest rates during the three months ended March 31, 2024 as compared to a decrease during the three months ended March 31, 2023 and a less significant yield spread tightening in the current period as compared to the same period of the prior year. The 10-year Treasury rate increased 32 basis points during the three months ended March 31, 2024 as compared to a decrease of 40 basis points during the three months ended March 31, 2023 (from December 31, 2022 to March 31, 2023).

### MSR Valuation Adjustments, Net

Refer to the discussion above within Overview-Results of Operations and Financial Condition-MSR Valuation Adjustments, Net.

### Compensation and Benefits

|  | Three Months Ended March 31, 2024 | December 31, 2023 | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Compensation and benefits | $25.3 | $25.9 | (3)% | $29.4 | (14)% |
| Average Employment - Servicing | 3,276 | 3,335 | (2)% | 3,520 | (7)% |

Compensation and benefits expense for the three months ended March 31, 2024 decreased $0.7 million or 3% as compared to the three months ended December 31, 2023 primarily as a result of lower headcount and a decrease in incentive compensation. The fair value of cash-settled share-based awards decreased in the quarter following the decline of our common stock price, as compared to an increase in the prior quarter.

As compared to the three months ended March 31, 2023, Compensation and benefits expense for the three months ended March 31, 2024 decreased $4.1 million or 14%, driven by a $2.4 million decrease in salary and benefits expense and a $1.7 million decrease in severance expense. Average Servicing headcount decreased 7% overall, with a 15% reduction in the U.S., reflecting our ongoing goal to improve efficiencies and create an industry leading cost structure, also driven by the further integration of reverse servicing.

### Servicing Expense

Servicing expense primarily includes claim losses and interest curtailments on government-insured loans, provision expense for advances and servicing representation and warranties, and certain loan-volume related expenses.

Servicing expense increased $4.6 million in the three months ended March 31, 2024 as compared to the three months ended December 31, 2023, primarily as a result of $2.9 million mortgage insurance recovery and a favorable $1.3 million captive reinsurance loss adjustment recognized in the three months ended December 31, 2023.

As compared to the three months ended March 31, 2023, Servicing expense for the three months ended March 31, 2024 declined $1.9 million or 13%, primarily due to higher servicing-related indemnification provision expense recognized in the three months ended March 31, 2023, largely driven by the PLS subservicing portfolio.

### Other Operating Expenses

Other operating expenses (total operating expenses less Compensation and benefits and Servicing expense) for the three months ended March 31, 2024 were mostly flat as compared to the three months ended December 31, 2023. A $0.5 million decline in Professional services, primarily legal expenses, and a $0.6 million decline in Corporate Overhead allocations due to lower total corporate overhead expenses, were offset in part by $0.5 million increase in Occupancy, equipment and mailing primarily as a result of costs related to annual customer tax statements and other notices in the first quarter.

As compared to the three months ended March 31, 2023, other operating expenses for the three months ended March 31, 2024 decreased by $3.7 million primarily driven by lower headcount and cost saving initiatives, with a $0.9 million decline in Professional services, a $0.9 million reduction in Occupancy, equipment and mailing expense, and a $1.2 million reduction in other expenses. The reduction in other expenses is mostly driven by lower amortization expense related to intangible assets and discount on servicing advances.

### Other Income (Expense)

Other income (expense) primarily includes net interest expense and pledged MSR liability expense.

| Interest Expense | Three Months Ended March 31, 2024 | December 31, 2023 | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Advance match funded liabilities | $10.4 | $10.4 | 1% | $10.7 | (2)% |
| Mortgage loan financing facilities | 8.4 | 6.1 | 38 | 3.8 | 120 |
| MSR financing facilities | 17.9 | 18.7 | (4) | 17.5 | 2 |
| Corporate debt interest expense allocation | 7.3 | 7.4 | (1) | 7.7 | (5) |
| Escrow | 1.8 | 2.6 | (32) | 1.9 | (5) |
| **Total interest expense** | $45.8 | $45.2 | 1% | $41.6 | 10% |
| **Average balances** |  |  |  |  |  |
| Advance match funded liabilities | 442.2 | 425.6 | 4% | 460.6 | (4)% |
| Mortgage loan financing facilities | 282.2 | 239.4 | 18 | 221.3 | 28 |
| MSR financing facilities | 861.4 | 901.3 | (4) | 932.2 | (8) |
| Total asset-backed financing | 1,585.9 | 1,566.2 | 1% | 1,614.1 | (2)% |
| **Effective average interest rate** |  |  |  |  |  |
| Advance match funded liabilities | 9.45% | 9.77% | (3)% | 9.30% | 2% |
| Mortgage loan financing facilities | 11.92 | 10.17 | 17 | 6.90 | 73 |
| MSR financing facilities | 8.29 | 8.29 | — | 7.52 | 10 |
| Average 1-month Term SOFR | 5.33% | 5.34% | —% | 4.61% | 16% |

Interest expense for the three months ended March 31, 2024 was mostly flat (increased 1%) as compared to the three months ended December 31, 2023 with some offsetting factors. The $2.3 million increase in interest expense on mortgage loan financing facilities was mostly driven by our reverse buyout acquisition in the first quarter of 2024. Interest expense decreased due to seasonally lower escrow balances and lower MSR financing average balances associated with higher liquidity in the quarter (resulting in lower drawdowns on MSR facilities with a flat owned MSR balance).

As compared to the three months ended March 31, 2023, interest expense for the three months ended March 31, 2024 increased $4.2 million, or 10%, mostly driven by a $4.6 million increase in interest expense on mortgage loan financing facilities. The increase in mortgage loan financing facilities relates to our OLIT securitization of reverse buyout acquisitions in the first quarter of 2024 and second quarter of 2023. The increase in short-term market interest rates by 72 basis points in the first quarter of 2024 as compared to the first quarter of 2023 was mostly offset by the decline in our average debt balances for servicing advances and MSRs.

Interest income for the three months ended March 31, 2024 increased $1.0 million and $2.5 million as compared to the three months ended December 31, 2023 and three months ended March 31, 2023, respectively, primarily due to the reverse mortgage buyouts acquired in the first quarter of 2024 and second quarter of 2023.

Pledged MSR liability expense includes the servicing fee remittance related to the MSR sales or transfers that do not meet sale accounting criteria and are presented on a gross basis in our consolidated financial statements, together with the servicing spread remittance associated with our ESS financing liability at fair value. See Note 8 — Other Financing Liabilities, at Fair Value to the Unaudited Consolidated Financial Statements.

The following table provides the components of Pledged MSR liability expense:

|  | Three Months Ended March 31, 2024 | December 31, 2023 | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Servicing fees collected on behalf of third parties | $36.6 | $78.9 | (54)% | $76.0 | (52)% |
| Less: Subservicing fee retained | (7.1) | (19.5) | (64) | (19.5) | (64) |
| Ancillary fee/income and other settlement (including expense reimbursement) | 2.3 | 3.7 | (36) | 3.3 | (28) |
| Net servicing fee remittance (1) | 31.8 | 63.1 | (50) | 59.8 | (47) |
| ESS servicing spread remittance | 13.1 | 13.4 | (2) | 10.5 | 24 |
| Pledged MSR liability expense | $44.9 | $76.5 | (41)% | $70.3 | (36)% |

(1) For MSR transfers that do not meet sale accounting criteria. See Note 8 — Other Financing Liabilities, at Fair Value.

Pledged MSR liability expense for the three months ended March 31, 2024 decreased $31.6 million, as compared to the three months ended December 31, 2023, and $25.3 million as compared to the three months ended March 31, 2023, largely due to the derecognition of MSRs previously sold to Rithm for which sale accounting criteria were met effective December 31, 2023 ($33.4 billion UPB), partially offset by the increase in the portfolio of MSRs sold to MSR capital partners. Effective January 1, 2024, as PHH continues to subservice the portfolio, the statement of operations reflects subservicing fee revenue as opposed to the previous gross presentation of servicing fee revenue (collections) and separate offsetting presentation of servicing fee remittances within Pledged MSR liability expense.

Servicing fee and Pledged MSR liability expense continues to be presented on a gross basis after January 1, 2024 for the MSRs sold to Rithm but for which title has not transferred, also referred to as Right to MSR ($9.7 billion UPB at March 31, 2024). The following table presents a subset of the above table related to Rithm, specifically the subservicing fees retained by Ocwen together with the associated serviced UPB on behalf of Rithm:

| Rithm Servicing and Subservicing Fees | Three Months Ended March 31, 2024 | December 31, 2023 | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Servicing fees collected on behalf of Rithm | $13.0 | $55.1 | (76)% | $59.6 | (78)% |
| Less: Subservicing fee retained | (3.9) | (16.3) | (76) | (17.3) | (78) |
| Pledged MSR liability expense (Net servicing fees remitted to Rithm) (1) (2) | 9.1 | 38.8 | (77)% | 42.3 | (79)% |
| Average Rithm UPB ($ in billions) | $9.8 | $45.5 | (78)% | $48.6 | (80)% |
| Average annualized retained subservicing fees as a % of Rithm UPB | 0.16% | 0.14% | 10% | 0.14% | 11% |

(1) Reported within Pledged MSR liability expense. The Rithm servicing fee includes the total servicing fees collected on behalf of Rithm relating to the MSR sold but not derecognized from our balance sheet. Under GAAP, we separately present servicing fees collected and remitted on a gross basis, with the servicing fees remitted to Rithm reported as Pledged MSR liability expense.

(2) Excludes ancillary income.

Earnings of equity method investee represents our 15% share of MAV Canopy. Earnings for the three months ended March 31, 2024 increased $1.3 million and $2.5 million as compared to the three months ended December 31, 2023 and three months ended March 31, 2023, respectively. The changes are largely attributed to the impact of changes in market interest rates on the underlying MSR portfolio held by MAV.

Other, net for the three months ended March 31, 2024 decreased $6.0 million, as compared to the three months ended December 31, 2023, mostly due to the recognition of $5.7 million compensation from a subservicer relating to a negotiated subservicing termination on a company-owned MSR in the three months ended December 31, 2023. The payment received offsets an unfavorable impact to the fair value of the associated MSRs (reported as a loss in MSR valuation adjustments, net). As compared to the three months ended March 31, 2023, Other, net for the three months ended March 31, 2024 was mostly flat.

### ORIGINATIONS

We originate and purchase loans and MSRs through multiple channels, including retail, wholesale, correspondent, flow MSR purchase agreements, the Agency Cash Window and Co-issue programs and bulk MSR purchases.

We originate and purchase conventional loans (conforming to the underwriting standards of Fannie Mae or Freddie Mac; collectively referred to as Agency loans) and government-insured (FHA, VA or USDA) forward mortgage loans. The GSEs and Ginnie Mae guarantee these mortgage securitizations. We originate HECM loans, or reverse mortgages, which are mostly insured by the FHA and we are an approved issuer of HMBS that are guaranteed by Ginnie Mae. We originate non-Agency loans to applicable investor guidelines that we sell on a whole loan basis to investors.

Within retail, our Consumer Direct channel for forward mortgage loans focuses on targeting existing servicing customers by offering them competitive mortgage refinance opportunities, where permitted by the governing servicing and pooling agreement. In doing so, we generate revenues for our forward lending business and protect the servicing portfolio by retaining these customers. A portion of our servicing portfolio is susceptible to refinance activity during periods of declining interest rates. Origination recapture volume and related gains are a natural economic hedge, to a certain degree, to the impact of declining MSR values as interest rates decline. In addition to rate and term refinance activities, our Consumer Direct channel targets purchase mortgage loans, cash-out, debt consolidation, mortgage insurance premium reduction, and new customer acquisition.

Our forward lending correspondent channel drives higher servicing portfolio replenishment. We purchase closed loans that have been underwritten to investor guidelines from our network of correspondent sellers and sell and securitize them, on a servicing retained basis. We offer correspondent sellers the choice to take out mandatory or best efforts contracts, under which the seller's obligation to deliver the mortgage loan becomes mandatory only when and if the mortgage is closed and funded. Additionally, we offer correspondent sellers the opportunity to leverage a non-delegated underwriting option for best-efforts deliveries. As of March 31, 2024, we have relationships with 715 approved correspondent sellers.

We originate and purchase reverse mortgage loans through our retail, wholesale and correspondent lending channels, under the guidelines of the HECM reverse mortgage insurance program of the FHA. Loans originated under this program are generally insured by the FHA, which provides protection against risk of borrower default.

After origination, we generally sell the loans in the secondary mortgage market, through GSE and Ginnie Mae securitizations on a servicing retained basis, or to investors on a whole loan basis, i.e., servicing released. Origination revenue mostly includes gain on sale, which represents the difference between the origination or purchase value and the sale value of the loan including its MSR value, and fee income earned at origination. As the securitizations of reverse mortgage loans do not achieve sale accounting treatment and the loans are classified as Loans held for investment, at fair value, originations revenue mostly include the fair value changes of the loan from lock date to securitization date that are reported in Gain on reverse loans held for investment and HMBS-related borrowings, net and fee income that is reported in Other revenue, net.

We provide customary origination representations and warranties to investors in connection with our loan sales and securitization activities. We receive customary origination representations and warranties from our network of approved correspondent lenders. We recognize the fair value of the liability for our representations and warranties at the time of sale. In the event we cannot remedy a breach of a representation or warranty, we may be required to repurchase the loan or provide an indemnification payment to the mortgage loan investor. To the extent that we have recourse against a third-party originator, we may recover part or all of any loss we incur. We actively monitor our counterparty risk associated with our network of correspondent sellers.

We purchase MSRs through flow purchase agreements, the Agency Cash Window co-issue programs and bulk MSR purchases. The Agency Cash Window programs we participate in, and purchase MSR from, allow mortgage companies and financial institutions to sell whole loans servicing released to the respective agency and sell the MSR to the winning bidder. In addition, we partner with other originators to replenish our MSRs through flow purchase agreements. We do not provide or assume any origination representations and warranties in connection with our MSR purchases. As of March 31, 2024, we have relationships with 453 approved sellers through the Agency Cash Window co-issue programs.

We initially recognize our MSR originations and purchases with the associated economics in our Originations segment, and transfer the MSR to our Servicing segment once the MSR is initially recognized on our balance sheet with all subsequent performance associated with the MSR, including funding cost, run-off and other fair value changes reflected in our Servicing segment.

We source additional servicing volume through our subservicing and interim servicing agreements, with our existing relationships and our enterprise sales initiatives. We do not report any revenue or gain associated with subservicing within the Originations segment as the impact is captured in the Servicing segment. However, sales efforts and certain costs - marginal compensation and benefits - are managed and reported within the Originations segment.

### Significant Variables

The following factors could significantly impact the results of our Originations segment from period to period.

*Mortgage Rates.* Changes in mortgage rates, primarily the 30-year fixed rate mortgage, directly impact the demand for both purchase and refinance forward mortgages and therefore impact the production volumes and financial results of our Originations segment. Small changes in mortgage rates directly impact housing affordability for both first-time and move-up home buyers and affect their ability to purchase a home. For refinance loans, current market mortgage rates must be considered relative to the rates on the current mortgage debt outstanding.

*Market Size and Composition.* The volume of new or refinanced loans is impacted by changes to existing, or development of new, GSE or other government sponsored programs. Changes in GSE or HUD guidelines and costs and the availability of alternative financing sources, such as non-Agency proprietary loans and traditional home equity loans, impact borrower demand for forward and reverse mortgages and therefore can impact the volume of mortgage originations.

*Margins.* Changes in pricing margin for mortgages are closely correlated with changes in market size for mortgage loans. As loan demand and market capacity move out of alignment, pricing adjusts. In a growing market, margins expand and in a contracting market, margins tighten as lenders seek to keep their production at or close to full capacity. Managing capacity and cost is critical as volumes change. Among our channels, our margins per loan are highest in the retail channel and lowest in the correspondent channel. We work directly with the borrower to process, underwrite and close loans in our retail and reverse wholesale channels. In our retail channel, we also identify the customer and take loan applications. As a result, our retail channel is the most people- and cost-intensive and experiences the greatest volume volatility.

*Investor Demand.* The liquidity of the secondary market for mortgage loans impacts the size of the mortgage loan market by defining loan attributes and credit guidelines for loans that investors are willing to buy and at what price. In recent years, the GSEs have been the dominant providers of secondary market liquidity for forward mortgages, keeping the product and credit spectrum relatively homogeneous and risk averse (higher credit standards).

*Economic Conditions.* General economic conditions can impact the growth and revenue of our Originations segment by impacting the capacity for consumer credit and the supply of capital. More specifically, employment levels and home prices are variables that can each have a material impact on mortgage volume. Employment levels, the level of wages and the stability of employment are underlying factors that impact credit qualification. The effect of home prices on lending volumes is significant and complex. As home prices go up, home equity increases and this improves the position of existing homeowners either to refinance or to sell their home, which often leads to a new home purchase and a new forward mortgage loan, or in the case of a reverse mortgage, increase the size of the mortgage loan available and the number of potential borrowers. However, if home prices increase rapidly, the effect on affordability for first-time and move-up buyers can dampen the demand for mortgage loans. The more restrictive standards for loan to value (LTV) ratios, debt to income (DTI) ratios and employment that characterize the current market amplify the significance and sensitivity of the housing market and related mortgage lending volumes to employment levels and home prices. If home prices decline due to increased mortgage interest rates or for other reasons, home sales may decline and it may be more difficult for homeowners to refinance existing mortgages, thereby negatively impacting mortgage volume.

### Operating Metrics

The following table provides selected operating statistics for our Originations segment:

| March 31, 2024 Loan Production by Channel (in billions) Forward loans | Three Months Ended December 31, 2023 |  | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Correspondent | $2.69 | $2.81 | (4)% | $2.44 | 10% |
| Consumer Direct | 0.11 | 0.09 | 20 | 0.06 | 83 |
|  | $2.80 | $2.90 | (4)% | $2.50 | 12% |
| % Purchase production | 81% | 84% | (3) | 85% | (5) |
| % Refinance production | 19 | 16 | 14 | 15 | 29 |
| Reverse loans (1) |  |  |  |  |  |
| Correspondent | $0.12 | $0.13 | (4)% | $0.08 | 51% |
| Wholesale | 0.02 | 0.03 | (14) | 0.04 | (41) |
| Retail | 0.02 | 0.02 | (2) | 0.02 | (2) |
|  | $0.17 | $0.18 | (5)% | $0.14 | 17% |
| MSR Purchases by Channel (in billions) |  |  |  |  |  |
| Agency Cash Window / Flow MSR | $1.63 | $2.50 | (35)% | $1.81 | (10)% |
| Bulk purchases | 0.62 | 0.08 | 655 | 0.24 | 160 |
| Bulk reverse purchases | 0.14 | — | n/m | — | n/m |
|  | $2.39 | $2.58 | (7) | $2.05 | 17 |
| Total | $5.36 | $5.66 | (5)% | $4.69 | 14% |
| Short-term loan commitment (at period end; in millions) |  |  |  |  |  |
| Forward loans | $1,176.6 | $592.5 | 99% | $612.1 | 92% |
| Reverse loans | 25.5 | 22.1 | 15% | 21.9 | 16% |
| **Average Headcount - Originations** | 462 | 497 | (7)% | 511 | (10)% |

(1) Loan production excludes reverse mortgage loan draws by borrowers disbursed subsequent to origination that are reported within the Servicing segment.

### Financial Performance

The following table presents the results of operations of our Originations segment. The amounts presented are before the elimination of balances and transactions with our other segments:

| March 31, 2024 Revenue | Three Months Ended December 31, 2023 |  | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Gain on loans held for sale, net | $9.1 | $7.0 | 30% | $4.1 | 119% |
| Gain on reverse loans held for investment and HMBS-related borrowings, net | 6.8 | 5.6 | 21 | 7.2 | (6) |
| Other revenue, net (1) | 4.1 | 4.4 | (7) | 3.5 | 17 |
| Total revenue | 20.0 | 17.0 | 18% | 14.8 | 35% |
| **MSR valuation adjustments, net** | 0.9 | 3.5 | (74) | 1.9 | (53) |
| **Operating expenses** |  |  |  |  |  |
| Compensation and benefits | 10.2 | 10.9 | (6)% | 9.6 | 6% |
| Technology and communications | 1.7 | 1.6 | 4 | 1.7 | (1) |
| Origination expense | 1.4 | (0.4) | (434) | 0.2 | 640 |
| Occupancy, equipment and mailing | 0.5 | 0.6 | (8) | 0.5 | 4 |
| Professional services | 0.3 | 0.5 | (28) | 0.4 | (13) |
| Corporate overhead allocations | 3.9 | 4.3 | (10) | 4.8 | (19) |
| Other expenses | 1.0 | 1.3 | (21) | 1.5 | (32) |
| Total operating expenses | 19.0 | 18.7 | 2% | 18.7 | 2% |
| **Other income (expense)** |  |  |  |  |  |
| Interest income | 9.7 | 11.0 | (12)% | 9.0 | 8% |
| Interest expense | (10.4) | (12.5) | (17) | (9.9) | 5 |
| Other, net | (0.1) | (0.1) | 64 | 0.2 | (142) |
| Other income (expense), net | (0.8) | (1.6) | (50)% | (0.7) | 15% |
| **Income (loss) before income taxes** | $1.1 | $0.2 | 512% | $(2.7) | (142)% |

(1) Includes ancillary fee income related to MSR acquisitions reported as Servicing and subservicing fees at the consolidated level of $0.4 million for the three months ended March 31, 2024, $0.5 million for the three months ended December 31, 2023 and $0.4 million for the three months ended March 31, 2023.

### Gain on Loans Held for Sale, Net

The following table provides information regarding Gain on loans held for sale by channel and the related forward loan origination volumes and margins (excluding fees that are presented in Other revenue, net):

| March 31, 2024 Origination UPB (1) (in billions) | Three Months Ended December 31, 2023 |  | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Correspondent | $2.69 | $2.81 | (4)% | $2.44 | 10% |
| Consumer Direct | 0.11 | 0.09 | 20 | 0.06 | 83 |
|  | $2.80 | $2.90 | (4)% | $2.50 | 12% |
| **% Gain on Sale Margin (2)** |  |  |  |  |  |
| Correspondent | 0.18% | 0.15% | 18% | 0.09% | 102% |
| Consumer Direct | 3.75 | 2.85 | 31 | 3.18 | 18 |
|  | 0.32% | 0.24% | 34% | 0.17% | 96% |
| **Gain on Loans Held for Sale** |  |  |  |  |  |
| Correspondent | $4.9 | $4.3 | 12% | $2.2 | 122% |
| Consumer Direct | 4.2 | 2.7 | 58 | 1.9 | 116 |
|  | $9.1 | $7.0 | 30% | $4.1 | 119% |

(1) Defined as the UPB of loans funded in the period.

(2) Ratio of gain on Loans held for sale to funded UPB. Note that the ratio differs from the day-one gain on sale margin upon lock.

Gain on loans held for sale, net for the three months ended March 31, 2024 increased by $2.1 million as compared to the three months ended December 31, 2023, with a $1.5 million increase in our Consumer Direct channel and a $0.5 million increase in our Correspondent channel. The increase of Consumer Direct gain is due to both an increase of volume and an increase of margin. The increase in margin is the result of our disciplined pricing management and execution. The margin increase in Correspondent is also due to the significant increase in commitments outstanding but not yet funded at March 31, 2024 (see Operating metrics above).

As compared to the three months ended March 31, 2023, Gain on loans held for sale, net for the three months ended March 31, 2024 increased $4.9 million, with a $2.7 million increase in our Correspondent channel and a $2.3 million increase in our Consumer Direct channel. The gain increase is due to an increase in margin and volume for both channels. The increase in Consumer Direct gain is driven by an 83% increase in loan production volume, and to a lesser extent higher margin. 2023 was the historically lowest production year for refinance over the past twenty years. In our Correspondent channel, the increase gain is mostly due to the increased margin as well as a 10% increase in loan production volume. While impacted by market conditions, we determine our target volume in the Correspondent channel based on our investment objectives. We have expanded higher margin products such as Ginnie Mae loans and best efforts deliveries.

### Gain on Reverse Loans Held for Investment and HMBS-Related Borrowings, Net

The following table provides information regarding Gain on reverse loans held for investment and HMBS-related borrowings, net, of the Originations segment that comprises fair value changes of the pipeline and unsecuritized reverse mortgage loans held for investment, at fair value, together with volume and margin (including loan fees):

|  | Three Months Ended March 31, 2024 | December 31, 2023 | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Origination UPB (1) (in billions) | $0.17 | $0.18 | (5)% | $0.14 | 17% |
| Origination margin (2) | 4.06% | 3.17% | 28 | 5.02% | (19) |
| Gain on reverse loans held for investment and HMBS-related borrowings, net (Originations) | $6.8 | $5.6 | 21% | $7.2 | (6)% |

(1) Defined as the UPB of loans funded in the period.

(2) Ratio of origination gain to funded UPB. Note that the ratio includes loan fees.

Gain on reverse loans held for investment and HMBS-related borrowings, net for the three months ended March 31, 2024 increased $1.2 million as compared to the three months ended December 31, 2023, driven by higher margins in all three channels, partially offset by lower origination volume in our correspondent and wholesale channels. The higher margins were driven by HECM spreads tightening in the first quarter of 2024 mostly due to economic conditions and investors’ interest for reverse mortgage products.

As compared to the three months ended March 31, 2023, Gain on reverse loans held for investment and HMBS-related borrowings, net for the three months ended March 31, 2024 were mostly flat (decreased $0.4 million), with the offsetting impact of lower margins and higher volume. Industry-wide HECM securitization volume saw a 15% decrease in volumes when comparing these two periods, and industry-wide HECM endorsements were similarly down 28%.

### Other Revenue, net

Other revenue, net consists primarily of correspondent and broker fees, and also includes setup fees earned for loans boarded on our servicing platform. Quarter over quarter changes in Other revenue, net are primarily attributed to production volume changes.

### MSR Valuation Adjustments, Net

MSR valuation adjustments, net includes revaluation gains on certain MSRs opportunistically purchased through the Agency Cash Window programs, and flow purchases. As an aggregator of MSRs, we may purchase MSRs from smaller originators with a purchase price at a discount to fair value and we recognize valuation adjustments for differences in exit markets in accordance with the accounting fair value guidance. We record such valuation adjustments as MSR valuation adjustments, net within the Originations segment since the segment’s business objective is the sourcing of new MSRs at targeted returns. Quarter over quarter changes in MSR valuation adjustments, net are mostly due to volume changes.

### Operating Expenses

Operating expenses for the three months ended March 31, 2024 were flat as compared to the three months ended December 31, 2023, with some offsets. Originations expense increased $1.9 million mostly driven by a provision release for representation and warranty indemnification recorded in the fourth quarter of 2023 due to favorable resolution of demands. Most other operating expenses decreased as a result of lower volume and our continued cost saving initiatives, driven by Compensation and benefits with a 7% decrease in average headcount quarter-over-quarter.

As compared to the three months ended March 31, 2023, Operating expenses for the three months ended March 31, 2024 were flat, with some offsets. Originations expense increased $1.2 million driven by a provision release for representation and warranty indemnification recorded in the first quarter of 2023 due to favorable resolution of demands. Compensation and benefits increased driven by commissions with higher production volume, partially offset by a 10% decrease in average headcount. Overhead allocations declined due to lower total corporate overhead expenses and a lower allocation percentage to Originations as a result of lower average headcount.

### Other Income (Expense)

Interest income consists primarily of interest earned on newly-originated and purchased loans during the pipeline period prior to securitization or sale to investors. Interest expense is incurred to finance the mortgage loans during the same pipeline period, which is generally less than 30 days. We finance mortgage loans with repurchase and participation agreements, commonly referred to as warehouse lines. Our net interest margin is driven by the difference between the average mortgage note rate and the average warehouse line cost of funds, and by the average number of days loans remain in the pipeline.

Interest income for the three months ended March 31, 2024 decreased $1.4 million as compared to the three months ended December 31, 2023 primarily due to lower average loans held for sale balances. Similarly, interest expense decreased $2.2 million primarily due to the decrease in average mortgage loan financing debt balances.

### CORPORATE ITEMS AND OTHER

Corporate Items and Other includes revenues and expenses of corporate support services, inactive entities, and our other business activities that are currently individually insignificant, revenues and expenses that are not directly related to other reportable segments, interest income on short-term investments of cash, gain or loss on repurchases of debt, interest expense on unallocated corporate debt and foreign currency exchange gains or losses. Interest expense on corporate debt is allocated to the Servicing segment and the Originations segment based on relative financing requirements, with the exception of the OFC Senior Secured Notes. Accordingly, the financing cost of the Servicing and Originations segments reflects and is consistent with the financing structure of the licensed entity PHH that carries out these businesses and does not depend on the financing structure strategy of its parent, as a holding company.

Corporate support services include finance, facilities, human resources, internal audit, legal, risk and compliance, capital markets, corporate development and technology functions. Certain expenses incurred by corporate support services are allocated to the Servicing and Originations segments using various methodologies intended to approximate the utilization of such services. Various measurements of utilization of corporate support services are maintained, primarily time studies, personnel volumes and service consumption levels. Support service costs not allocated to the Servicing and Originations segments are retained in the Corporate Items and Other segment along with certain other costs including certain litigation and settlement related expenses or recoveries, and other costs related to operating as a public company.

Effective in the fourth quarter of 2023, CRL, our wholly-owned captive reinsurance subsidiary, is reported in the Servicing segment. Segment results for the first quarter of 2023 have been recast to conform to the current segment presentation.

The following table presents selected results of operations of Corporate Items and Other. The amounts presented are before the elimination of balances and transactions with our other segments:

| March 31, 2024 | Three Months Ended December 31, 2023 |  | % Change | Three Months Ended March 31, 2023 | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| **Revenue** | $— | $— | — | $— | — |
| **Operating expenses** |  |  |  |  |  |
| Compensation and benefits | 18.1 | 21.0 | (13)% | 19.0 | (5)% |
| Technology and communications | 4.9 | 5.5 | (10) | 5.4 | (8) |
| Professional services | 4.6 | 4.3 | 6 | 4.9 | (7) |
| Occupancy, equipment and mailing | 0.4 | 0.7 | (44) | 0.6 | (35) |
| Servicing and origination | 0.3 | 0.2 | 21 | 0.3 | 11 |
| Other expenses | 1.3 | 1.7 | (24) | 1.2 | 5 |
| Total operating expenses before corporate overhead allocations | 29.6 | 33.4 | (11)% | 31.4 | (6)% |
| Corporate overhead allocations |  |  |  |  |  |
| Servicing segment | (10.9) | (11.5) | (5)% | (11.5) | (4)% |
| Originations segment | (3.9) | (4.3) | (10) | (4.8) | (19) |
| Total operating expenses | 14.8 | 17.5 | (16)% | 15.1 | (2)% |
| **Other income (expense), net** |  |  |  |  |  |
| Interest income | 1.1 | 1.1 | 1% | 1.0 | 18% |
| Interest expense | (11.2) | (11.0) | 2 | (10.8) | 4 |
| Gain on extinguishment of debt | 1.4 | 0.1 | n/m | — | n/m |
| Other, net | — | (0.7) | (98) | 1.4 | (101) |
| Other income (expense), net | (8.6) | (10.5) | (18)% | (8.4) | 2% |
| **Income (loss) before income taxes** | $(23.4) | $(28.0) | (16)% | $(23.5) | —% |

### Operating Expenses

Operating expenses are primarily driven by Compensation and benefits which declined $2.8 million, or 13%, for the three months ended March 31, 2024 as compared to the three months ended December 31, 2023. The decrease in Compensation and benefits is mostly due to lower incentive compensation as the fair value of cash-settled share-based awards decreased in the quarter following the decline of our common stock price, as compared to an increase in the prior quarter, and a decrease in equity classified share-based awards.

As compared to the three months ended March 31, 2023, Compensation and benefits expense for the three months ended March 31, 2024 remained mostly flat (decreased 5%).

### LIQUIDITY AND CAPITAL RESOURCES

### Overview

In the normal course of business, we are actively engaged with existing and potential lenders and as a result add, terminate, replace or extend our debt agreements to the extent necessary to finance our operations and optimize our financing costs.

In addition, we completed the following transactions during the three months ended March 31, 2024:

- Repurchased $47.4 million of our PMC Senior Secured Notes in the open market for a price of $45.5 million, and recognized a $1.4 million net gain on debt extinguishment;
- Completed a private placement securitization of HECM loans that are insured by the FHA, and related receivables and REO properties, also referred to as reverse mortgage buyouts. Different classes of asset-backed notes with an initial principal amount of $268.6 million were issued at a discount, with a stated interest rate of 3.0% and a mandatory call date of February 2027;
- Entered into a $34.0 million second-lien repurchase financing arrangement for the membership interest in our PLS MSR, pursuant to which PHH sold the membership interest certificate representing 100% of the limited liability company interests in PMC PLS ESR Issuer LLC (PLS Issuer) and agreed to repurchase such membership interest certificate at a specified future date at the price set forth in the repurchase agreement. The termination date of the facility is February 25, 2025.

A summary of borrowing capacity under our advance facilities, mortgage warehouse facilities and MSR financing facilities is as follows (see Note 13 – Borrowings to the Unaudited Consolidated Financial Statements for additional information):

|  | March 31, 2024 Total Borrowing Capacity (1) | Available Borrowing Capacity - Committed (1) | Available Borrowing Capacity - Uncommitted (1) | December 31, 2023 Total Borrowing Capacity (1) | Available Borrowing Capacity - Committed (1) | Available Borrowing Capacity - Uncommitted (1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Advance facilities | $714 | $211 | $64 | $714 | $151 | $64 |
| Mortgage loan financing facilities | 2,530 | 296 | 1,441 | 2,696 | 373 | 1,592 |
| MSR financing facilities | 1,099 | 116 | 81 | 1,082 | 128 | 38 |
| Total | $4,344 | $622 | $1,585 | $4,493 | $652 | $1,693 |

(1) Total Borrowing Capacity represents the maximum amount which can be borrowed, subject to eligible collateral. Available Borrowing Capacity represents Total Borrowing Capacity less outstanding borrowings.

At March 31, 2024, none of the available borrowing capacity under our advance financing facilities could be funded based on the amount of eligible collateral that had been pledged to such facilities. Also, none of our uncommitted borrowing capacity was available to fund advances at March 31, 2024 under our Ginnie Mae MSR financing facility based on the amount of eligible collateral. We may utilize committed borrowing capacity under our mortgage loan financing facilities and MSR financing facilities to the extent we have sufficient eligible collateral to borrow against and otherwise satisfy the applicable conditions to funding. At March 31, 2024, we had $33.9 million committed borrowing capacity under our mortgage loan financing facilities and no committed borrowing capacity under our MSR financing facilities, based on the amount of eligible collateral. Uncommitted amounts can be advanced at the discretion of the lender, and there can be no assurance that any uncommitted amounts will be available to us at any particular time.

At March 31, 2024, our $219.0 million total liquidity included $185.1 million unrestricted cash position and total $33.9 million available borrowing capacity discussed above. With total liquidity of $241.6 million at December 31, 2023, the decrease is driven by our $47.4 million corporate debt repurchases (PMC Senior Secured Notes) in the quarter, partially offset by our second lien PLS financing and OLIT securitization.

Effective September 30, 2023, we implemented the revised minimum tangible net worth and liquidity requirements for GSE and Ginnie Mae seller/servicers. We believe that we are in compliance with these requirements as of March 31, 2024.

Ginnie Mae announced a new risk-based capital ratio effective on December 31, 2024 for Ginnie Mae issuers. PHH would not be in compliance with the upcoming risk-based capital requirements if they were in effect as of March 31, 2024. We are currently implementing certain actions intended to achieve compliance with the requirements. We intend to operate our Ginnie Mae issuer activities through a dedicated, wholly owned subsidiary subject to the risk-based capital rules. We are in the process of applying for regulatory approvals necessary to operate. If we are unable to execute this solution in a manner satisfactory to Ginnie Mae and other regulators, we may be required to sell all Ginnie Mae related forward mortgage assets under uncertain conditions before December 31, 2024 and incur transition costs; as a result, our financial results, liquidity, financing activities and reputation could be negatively impacted. In addition, we continuously evaluate our capital allocation based on investment returns and market conditions among other factors; we may determine that the sale of the Ginnie Mae related mortgage portfolio provides the best outcome for our shareholders and we may re-evaluate our participation in the Ginnie Mae lending programs overall. Also refer to Note 19 – Regulatory Requirements.

We optimize our daily cash position to reduce financing costs while closely monitoring our liquidity needs and ongoing funding requirements. We regularly monitor and project cash flows over various time horizons to anticipate and mitigate liquidity risk. We maintain liquidity buffers to be responsive to the level of risks, including stressed market interest rate conditions and operational risk.

### Use of Funds

Our primary near-term uses of funds in the normal course include:

- Payment of operating costs and corporate expenses;
- Payments for servicing advances in excess of collections;
- Investment in MSRs (purchased and originated), other asset acquisitions and MAV Canopy equity contributions;
- Originated, purchased and repurchased loans, including reverse mortgage buyouts;
- Payment of margin calls under our MSR financing facilities and derivative instruments;
- Debt service and repayments of borrowings, including under our MSR financing, advance financing and warehouse facilities, and payment of interest expense; and
- Net negative working capital and other general corporate cash outflows.

We have short-term commitments to lend $1.2 billion in connection with our forward and reverse mortgage loan IRLCs outstanding at March 31, 2024. In addition, we have originated floating-rate reverse mortgage loans under which the borrowers have additional borrowing capacity of $1.8 billion at March 31, 2024. During the three months ended March 31, 2024, we funded $59.5 million out of the $1.8 billion borrowing capacity available as of December 31, 2023. As an HMBS issuer, we are required to repurchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the loan is equal to or greater than 98% of the maximum claim amount (MCA repurchases). We carry these repurchases until reimbursement by HUD and/or property liquidation if inactive. Our reverse subservicing clients bear the financial obligation and risks associated with purchasing loans out of securitization pools within the portfolio we subservice.

Regarding the current maturities of our borrowings, as of March 31, 2024, we have approximately $1.3 billion of debt outstanding that would either come due, begin amortizing or require partial repayment in the next 12 months. This amount is comprised of $793.2 million of borrowings under forward and reverse mortgage loan warehouse facilities, $477.4 million outstanding under GSE and Ginnie Mae MSR financing facilities maturing in the next 12 months, $35.6 million of scheduled principal amortization on the PLS Notes secured by PLS MSRs and $34.0 million outstanding under a PHH repurchase agreement.

With respect to liquidity management, we consider our servicing advance requirements during each investor remittance period and the uncertainties of daily margin calls on our collateralized debt facilities and derivative instruments due to interest rate fluctuations.

As servicer, we are required to advance to investors the loan P&I installments not collected from borrowers for those delinquent loans, including those on forbearance plans. Loan payoffs and prepayments are a source of additional liquidity and are dependent on the interest rate environment. We also advance T&I and Corporate advances primarily on properties that are in default or have been foreclosed. Our obligations to make these advances are governed by servicing agreements or guides, depending on investors or guarantor. As subservicer, we are also required to make P&I, T&I and Corporate advances on behalf of servicers following the servicing agreements or guides. However, servicers are generally required to reimburse us within 30 days of our advancing under the terms of the subservicing agreements, and we are generally reimbursed by Rithm the same day we fund P&I advances, or within no more than three days for certain servicing advances.

We are generally subject to daily margining requirements under the terms of our MSR financing facilities and daily cash calls for our TBAs, interest rate swap futures or other derivatives. Declines in fair value of our MSRs due to declines in market interest rates, assumption updates or other factors require that we provide additional collateral to our lenders under MSR financing facilities. Similarly, declines in fair value of our derivative instruments require that we provide additional collateral to the clearing counterparties. While the objective of our hedging strategy is to reduce volatility due to interest rates, it is also designed to address cash and liquidity considerations. Refer to the sensitivity analysis in Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our medium- and long-term requirements for cash include:

- Payment of interest and principal repayment of our PLS Notes that mature in 2025, our PMC Senior Secured Notes that mature in 2026 and our OFC Senior Secured notes owed to Oaktree that mature in 2027;
- Any payments associated with the confirmation of loss contingencies; and
- Any other payments required under contractual obligations discussed above that extend beyond one year.

We are focused on ensuring that we have sufficient liquidity sources to continue to operate and support our business initiatives. We continuously evaluate alternative financings to diversify our sources of funds, optimize maturities and reduce our funding cost.

In addition, we evaluate investment and capital allocation opportunities for any excess liquidity, including opportunistic debt repurchases to continue to de-risk and deleverage our balance sheet. We also intend to extend debt maturities and are evaluating various refinancing alternatives, which include debt, junior securities or other structures, in anticipation of the maturity of PMC and OFC senior secured notes. We may pursue any such transactions considering market conditions and other factors. Our capital structure and leverage ratios may be summarized as follows:

| Capital Structure Summary | March 31, 2024 | December 31, 2023 | $ Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| MSR financing facilities | $964 | $916 | $48 | 5% |
| ESS financing liability, at fair value | 253 | 249 | 4 | 2 |
| $313 million PMC Senior Secured Notes due 2026 | 310 | 356 | (46) | (13) |
| $285 million OFC Senior Secured Notes due 2027 | 242 | 240 | 2 | 1 |
| Total corporate debt and MSR related debt (1) | $1,769 | $1,761 | $8 | —% |
| Stockholders’ common equity | $432 | $402 | $30 | 8% |
| Corporate debt to stockholders’ common equity | 1.3x | 1.5x |  |  |
| Corporate and MSR debt to stockholders’ common equity | 4.1x | 4.4x |  |  |

(1) Corporate debt includes PMC and OFC senior secured notes. MSR related debt includes MSR financing facilities and ESS financing liability, and excludes MSR pledged liabilities - See Note 8 — Other Financing Liabilities, at Fair Value. All amounts presented above are net of discount and debt issuance costs.

### Sources of Funds

Our primary sources of funds for near-term liquidity in normal course include:

- Collections of servicing and subservicing fees and ancillary revenues;
- Collections of advances in excess of new advances;
- Proceeds from match funded advance financing facilities;
- Proceeds from other borrowings, including warehouse facilities, MSR financing facilities, MSR transfers and ESS financing;
- Proceeds from sales and securitizations of originated loans and purchased loans; and
- Net positive working capital from changes in other assets and liabilities.

Servicing advances are an important component of our business and represent amounts that we, as servicer, are required to advance to, or on behalf of, our servicing clients if we do not receive such amounts from borrowers. Our use of advance financing facilities is integral to our cash and liquidity management strategy. Additionally, certain of our financing and subservicing agreements permit us to retain advance collections for a period ranging from one to two business days before remittance, thus providing a source of short-term liquidity.

We use mortgage loan repurchase and participation facilities (commonly called warehouse lines) to fund newly-originated or purchased loans on a short-term basis until they are sold or securitized to secondary market investors, including GSEs or other third-party investors, and to fund repurchases of certain Ginnie Mae forward loans, HECM loans, second-lien loans and other types of loans. These facilities contain eligibility criteria that include aging and concentration limits by loan type among other provisions. Currently, our financing agreements generally have maximum terms of 364 days. The funds are typically repaid using the proceeds from the sale of the loans to the secondary market investors, usually within 30 days.

We also rely on the secondary mortgage market as a source of consistent liquidity to support our lending operations. Substantially all of the mortgage loans that we originate or purchase are sold or securitized in the secondary mortgage market in the form of residential mortgage backed securities guaranteed by Fannie Mae or Freddie Mac and, in the case of mortgage backed securities guaranteed by Ginnie Mae, are mortgage loans insured or guaranteed by the FHA, VA or USDA. In June 2023, we issued a private placement securitization of reverse mortgage buyouts with an initial principal amount of $264.9 million and a three-year mandatory call date, expanding our access to capital markets and reducing our reliance on warehouse financing facilities. As disclosed above, in February 2024, we successfully issued a second private placement securitization of reverse mortgage buyouts with an initial principal amount of $268.6 million and a three-year mandatory call date.

We regularly evaluate financing structure options that we believe will most effectively provide the necessary capacity to support our investment plans, address upcoming debt maturities and accommodate our business needs. We strive to diversify our sources of funds and reduce our reliance on existing asset-backed financing facilities. We continuously evaluate the allocation of our capital to MSR and other investments, the related returns, funding and liquidity requirements. The relationships with MAV and other MSR capital partners may continue to provide PHH with additional means to grow servicing volume and finance MSRs while maintaining capital and liquidity.

### Covenants

Our debt agreements contain various qualitative and quantitative covenants including financial covenants, covenants to operate in material compliance with applicable laws and regulations, monitoring and reporting obligations and restrictions on our ability to engage in various activities, including but not limited to incurring or guarantying additional debt, paying dividends or making distributions on or purchasing equity interests of Ocwen and its subsidiaries, repurchasing or redeeming capital stock or junior capital, repurchasing or redeeming subordinated debt prior to maturity, issuing preferred stock, selling or transferring assets or making loans or investments or other restricted payments, entering into mergers or consolidations or sales of all or substantially all of the assets of Ocwen and its subsidiaries, creating liens on assets to secure debt, and entering into transactions with affiliates. These covenants may limit the manner in which we conduct our business and may limit our ability to engage in favorable business activities or raise additional capital to finance future operations or satisfy future liquidity needs. In addition, breaches or events that may result in a default under our debt agreements include, among other things, nonpayment of principal or interest, noncompliance with our covenants, breach of representations, the occurrence of a material adverse change, insolvency, bankruptcy, certain material judgments and litigation and changes of control. See Note 13 – Borrowings to the Unaudited Consolidated Financial Statements for additional information regarding our covenants. The most restrictive liquidity requirement under our debt agreements, excluding additional Agency minimum liquidity requirements, is for a minimum of $75.0 million in consolidated liquidity, as defined, under certain of our mortgage loan financing and MSR financing facilities agreements. At March 31, 2024, we held unrestricted cash in excess of this minimum amount. The minimum liquidity requirements for PHH contained in some debt agreements are also subject to the minimum requirement set forth by the Agencies. Refer to Note 19 – Regulatory Requirements.

In addition, our debt agreements generally include cross default provisions such that a default under one agreement could trigger defaults under other agreements. If we fail to comply with our debt agreements and are unable to avoid, remedy or secure a waiver of any resulting default, we may be subject to adverse action by our lenders, including termination of further funding, acceleration of outstanding obligations, enforcement of liens against the assets securing or otherwise supporting our obligations, and other legal remedies, any of which could have a material adverse effect on our business, financial condition, liquidity and results of operations. We believe that we are in compliance with the covenants in our debt agreements as of March 31, 2024.

### Credit Ratings

Credit ratings are intended to be an indicator of the creditworthiness of a company’s debt obligations. Lower ratings generally result in higher borrowing costs and reduced access to capital markets. The following table summarizes our current ratings and outlook by the respective nationally recognized rating agencies. A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time.

| Rating Agency | Rated Entity | Long-term Corporate Rating | Review Status / Outlook | Date of last action |
| --- | --- | --- | --- | --- |
| Moody’s | PHH | B3 | Stable | April 12, 2024 |
| S&P | Ocwen | B- | Stable | January 25, 2024 |

On January 25, 2024, S&P affirmed the long-term corporate rating of Ocwen at “B-” and affirmed the “B” rating of the PMC Senior Secured Notes. In affirming the ratings, S&P noted Ocwen's leverage has improved due to improving operating margins and continued subservicing growth. However, S&P also noted a reliance on warehouse facilities that continues to weigh on the rating.

On April 12, 2024 Moody’s upgraded PHH’s long-term corporate family ratings from “Caa1” to “B3" and revised their outlook to Stable from Positive. Moody’s also affirmed its “B2” rating of the PMC Senior Secured Notes. In its ratings rationale, Moody’s noted the upgrade of the corporate family rating reflects PHH's progress towards achieving sustainable profitability. Moody’s further noted the upgrade also reflects the company's sound liquidity and funding profile. PHH's Stable outlook reflects Moody's expectation that Ocwen will report improved earnings and capitalization over the next 12-18 months. Moody’s noted the affirmation of the “B2” Senior Secured Notes rating reflects the volume and priority of the PHH notes within Ocwen's debt capital structure.

### Cash Flows

Our operating cash flow is primarily impacted by operating results, changes in our servicing advance balances, the level of mortgage loan production, the timing of sales and securitizations of mortgage loans, and the margin calls required under our MSR financing facilities or derivative instruments. As one of the main differences between proceeds from sale and origination or purchase of loans held for sale, newly originated MSRs are effectively classified as operating cash flows. Purchases of MSRs through flow purchase agreements, Agency Cash Window and bulk acquisitions are classified as investing activity. MSR investments, whether originated or purchased, represent a key indicator of our ability to generate future income in our Servicing business.

We classify changes in HECM loans held for investment as investing activity and changes in the related HMBS borrowings as financing activity. Our MSR transfer agreements with MAV, Rithm and others have a significant impact on our consolidated statements of cash flows. Because the payments we received in connection with the HECM loan securitizations and MSR transfer agreements are recorded as secured financings, additions to, and reductions in, the balance of those secured financings are presented as financing activity in our consolidated statements of cash flows, excluding the changes in fair value attributable to inputs and assumptions.

Our cash flows are summarized as follows:

*$ in millions*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash used in operating activities | $(297) | $(207) |
| Net cash used in investing activities | (4) | (20) |
| Net cash provided by financing activities | 297 | 209 |
| Net decrease in cash, cash equivalents and restricted cash | $(4) | $(18) |
| Cash, cash equivalents and restricted cash at end of period | $251 | $256 |

### Cash flows for the three months ended March 31, 2024

Our operating activities used $297.1 million of cash primarily due to net cash paid on loans held for sale of $384.8 million as loan production volume exceeded sales, including $95.0 million for the purchase of reverse mortgage buyouts (government-insured loans and claim receivables), and $34.7 million originated MSRs. Offsetting operating cash inflows include net collections of servicing advances of $73.5 million driven by seasonal activity and our increased collection efforts on legacy advances.

Our investing activities used $3.6 million of cash. The primary use of cash in our investing activities was $26.4 million to purchase MSRs and $11.9 million to purchase real estate in connection with our reverse mortgage buyout transaction. Offsetting cash inflows include $26.6 million net cash inflows in connection with our HECM reverse mortgages and $7.0 million proceeds from sales of real estate as part of our asset recovery strategy.

Our financing activities provided $296.8 million of cash. Financing cash inflows are primarily comprised of $396.8 million net from borrowings under our mortgage loan financing facilities due to the increase in loans held for sale, including $247.8 million with the issuance of the OLIT securitization of reverse mortgage buyouts, and $48.7 million of net proceeds from MSR financing facilities. Offsetting cash outflows include $59.5 million of net repayments on advance match funded liabilities due to the decline in servicing advances, and $19.9 million of net payments on the financing liabilities related to MSRs transferred and ESS financings due to runoff. We also paid $45.5 million to repurchase $47.4 million of our 7.875% PMC Senior Secured Notes.

### Cash flows for the three months ended March 31, 2023

Our operating activities used $207.4 million of cash primarily due to net cash paid on loans held for sale of $240.1 million as loan production volume exceeded sales. Offsetting operating cash inflows include net collections of servicing advances of $62.8 million.

Our investing activities used $19.9 million of cash. The primary use of cash in our investing activities was $30.4 million to purchase MSRs, Offsetting cash inflows include $5.5 million of capital contributions, net of distributions, from our equity method investee MAV Canopy and $4.6 million proceeds from the sale of advances.

Our financing activities provided $209.0 million of cash. Financing cash inflows are primarily comprised of $206.7 million net from borrowings under our mortgage loan financing facilities and MSR financing facilities due to the increase in loans held for sale, and $68.7 million of proceeds from the ESS financing. Offsetting cash outflows include $43.8 million of net repayments on advance match funded liabilities due to the decline in servicing advances, and $21.2 million of net payments on the financing liabilities related to MSRs transferred and ESS financings due to runoff. Cash inflows include $231.2 million received in connection with our reverse mortgage securitizations, which are accounted for as secured financings, were more than offset by repayments on the related financing liability of $235.3 million.

### CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our ability to measure and report our financial position and operating results is influenced by the need to estimate the impact or outcome of future events based on information available at the date of the financial statements. An accounting estimate is considered critical if it requires that management make assumptions about matters that were highly uncertain at the time the accounting estimate was made. If actual results differ from our judgments and assumptions, then it may have an adverse impact on the results of operations and cash flows. We have processes in place to monitor these judgments and assumptions, and management is required to review critical accounting policies and estimates with the Audit Committee of the Board of Directors.

Our accounting policies and estimates involving significant judgments primarily relate to fair value measurements, income taxes, allowance for losses, and loss contingencies, including indemnification obligations and litigation proceedings. We use fair value measurements to record fair value adjustments to certain instruments in our statement of operations and to determine fair value disclosures, including but not limited to MSRs, Pledged MSR liabilities, Loans held for sale, Loans held for investment-Reverse mortgages, and HMBS-related borrowings. As of March 31, 2024, 88% of our assets and 70% of our liabilities were reported at fair value, with fair value changes reported in our statement of operations. Substantially all our assets and liabilities at fair value were classified as Level 3 instruments due to unobservable inputs.

Our significant accounting policies and critical accounting estimates are disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 in Note 1 to the Consolidated Financial Statements and in Management’s Discussion and Analysis of Financial Condition and Results of Operations under “Critical Accounting Policies and Estimates.”

### RECENT ACCOUNTING DEVELOPMENTS

See Note 1 - Organization and Basis of Presentation to the Unaudited Consolidated Financial Statements for information related to recent accounting standards updates.

## Market risk

As filed, 15,363 characters.

### Interest Rates

Our principal market risk exposure is the impact of interest rate changes on our mortgage-related assets and commitments, including MSRs, loans held for sale, loans held for investment, IRLCs and other derivative instruments. In addition, changes in interest rates could materially and adversely affect the amount of escrow and float income, the volume of mortgage loan originations or result in MSR fair value changes. We also have exposure to the effects of changes in interest rates on our floating-rate borrowings, including MSR and advance financing facilities.

Our management-level Market Risk Committee establishes and maintains policies that govern our risk appetite and associated hedging programs, including such factors as duration and interest rate sensitivity measures, limits, targeted hedge coverage ratios, the hedge instruments that we are permitted to use in our hedging activities, and the counterparties with whom we are permitted to enter into hedging transactions and our liquidity risk profile. See Note 15 – Derivative Financial Instruments and Hedging Activities to the Unaudited Consolidated Financial Statements for additional information regarding our use of derivatives.

### MSR Hedging Strategy

MSRs are carried at fair value with changes in fair value being recorded in earnings in the period in which the changes occur. The fair value of MSRs is subject to changes in market interest rates, among other inputs and assumptions.

The objective of our MSR interest rate risk management and hedging policy is to protect shareholders’ equity and earnings against the fair value volatility of interest-rate sensitive MSR portfolio exposure, considering market, liquidity, cost and other conditions. The interest-rate sensitive MSR portfolio exposure is defined as follows:

- Agency MSR portfolio,
- expected Agency MSR bulk transactions subject to letters of intent (LOI),
- less the Agency MSRs subject to our sale agreements with MAV, Rithm and others, also referred to as Pledged MSR liabilities (See Note 8 — Other Financing Liabilities, at Fair Value),
- less the asset value for securitized HECM loans, net of the corresponding HMBS-related borrowings,
- other interest-rate sensitive exposures, including our ESS financing liabilities, as deemed appropriate by the Market Risk Committee.

The hedge coverage ratio, defined as the ratio of hedge and asset rate sensitivity (referred to as DV01) is subject to lower and upper target thresholds under our policy. We regularly evaluate the hedge coverage ratio at the intended shock interval to determine if it is relevant or warrants adjustment based on market conditions, symmetry of interest rate risk exposure, liquidity impacts under shock scenarios, and other factors. As the market dictates, management may choose to maintain the hedge coverage ratio at different thresholds, with approval of the Market Risk Committee, in order to preserve liquidity and/or optimize asset returns.

Effective September 2022, a minimum 25% and 30% hedge coverage ratios were required for interest rate declines less than, and more than 50 basis points, respectively. During the second quarter of 2023, management raised its minimum hedge coverage ratio to 60%. Effective December 2023, we established a targeted hedge coverage ratio range between 95% and 105%. In April 2024, we changed the measure to a dollar DV01 that resulted in an equivalent range of approximately 90% to 110% .

With a partial hedge coverage ratio, the changes in fair value of our hedging instruments may not fully offset the changes in fair value of our net MSR portfolio exposure attributable to interest rate changes. In addition, while DV01 measures may remain within the range of our hedging strategy’s objective, actual changes in fair value of the derivatives and MSR portfolio may not offset to the same extent, due to non-parallel changes in the interest rate curve, the convexity of the MSR, the basis risk inherent in the MSR profile and hedging instruments, and hedge costs among other factors. We continuously evaluate the use of hedging instruments with the objective of enhancing the effectiveness of our interest rate hedging strategy.

The following table illustrates the interest rate sensitivity of our MSR portfolio exposure and associated hedges at March 31, 2024. Hypothetical change in values of the MSR and hedges are presented under a set instantaneous +/- 25 basis point parallel move in rates. Refer to the description below under Sensitivity Analysis for more details. Changes in fair value cannot be extrapolated because the relationship to the change in fair value may not be linear and other factors may apply, such as change in yield, spreads or other assumptions. The amounts based on market risk sensitive measures are hypothetical and presented for illustrative purposes only.

|  | Fair value at March 31, 2024 | Hypothetical change in fair value due to 25 bps rate decrease (1) | Hypothetical change in fair value due to 25 bps rate increase (1) |
| --- | ---: | ---: | ---: |
| Agency MSRs - interest rate sensitive (excluding MAV, Rithm and others) | $1,601 | $(36) | $30 |
| Asset value of securitized HECM loans, net of HMBS-related borrowing (Reverse MSR) | 73 | 4 | (4) |
| MSR hedging derivative instruments | $4 | 33 | (35) |
| Total hedge position |  | $37 | $(39) |
| Hypothetical hedge coverage ratio (2) |  | 103% | 129% |
| Hypothetical residual exposure to changes in interest rates |  | $1 | $(9) |

(1) The baseline for the hypothetical change in fair value is based on a 10-year swap rate of 4.11% at March 31, 2024.

(2) The hypothetical hedge coverage ratio above is calculated as the change in fair value of the total hedge position divided by the change in value of the Agency MSR position.

Our derivative instruments include forward trades of MBS or Agency TBAs with different banking counterparties, exchange-traded interest rate swap futures and interest rate options. These derivative instruments are not designated as accounting hedges. TBAs, or To-Be-Announced securities are actively traded, forward contracts to purchase or sell Agency MBS on a specific future date. From time to time, we enter into exchange-traded options contracts with purchased put options financed by written call options. We report changes in fair value of these derivative instruments in MSR valuation adjustments, net in our consolidated statements of operations, within the Servicing segment.

The derivative instruments are subject to margin requirements, posted as either initial or variation margin. Ocwen may be required to post or may be entitled to receive cash collateral with its counterparties through margin calls, based on daily value changes of the instruments. Changes in market factors, including interest rates, and our credit rating may require us to post additional cash collateral and could have a material adverse impact on our financial condition and liquidity.

### Loans Held for Investment and HMBS-related Borrowings

The fair value of our securitized HECM loan portfolio generally decreases as market interest rates rise and increases as market rates fall. As our HECM loan portfolio is predominantly comprised of ARMs, higher interest rates cause the loan balance to accrue and reach a 98% maximum claim amount liquidation event more quickly, while lower interest rates extend the timeline to reach maximum claim amount liquidation. Additionally, portfolio value is heavily influenced by market spreads for fixed and discount margin for ARMs.

The fair value of our securitized HECM loan portfolio net of the fair value of the HMBS-related borrowings represent a reverse mortgage economic MSR (HMSR) for risk management purposes. The fair value of our HMSR generally decreases as market interest rates rise and increases as market rates fall. As our HECM loan portfolio is predominantly comprised of ARMs, higher interest rates cause the loan balance to accrue and reach a 98% maximum claim amount liquidation event more quickly, with lower interest rates extending the timeline to liquidation. HECM loans have a longer duration than HMBS-related borrowings as a result of the future draw commitments, and our obligations as issuer of HMBS to purchase loans out of the Ginnie Mae securitization pools once the outstanding principal balance of the related HECM loan is equal to 98% of the maximum claim amount. This HMSR exposure is used as a partial offset to our forward MSR exposure and managed as part of our MSR hedging strategy described above.

### Pipeline Hedging Strategy - Loans Held for Sale and IRLCs

In our Originations business, we are exposed to interest rate risk and related price risk during the period from the date of the interest rate lock commitment through (i) the lock commitment cancellation or expiration date or (ii) through the date of sale or securitization of the resulting loan into the secondary mortgage market. Loan commitments for forward loans generally range from 5 to 75 days, with the majority of our commitments to borrowers for 40 to 60 days and our commitments to correspondent sellers for 5 to 30 days. Loans held for sale are generally funded and sold within 5 to 30 days. This interest rate exposure of loans and IRLCs is economically hedged with derivative instruments, including forward sales of Agency TBAs. The objective of our pipeline hedging strategy is to reduce the volatility of the fair value of IRLCs and loans due to market interest rates, thus preserving the initial gain on sale margin at lock date. The net daily market risk position of net pull-though adjusted locks and loans held for sale, less the offsetting hedges of the forward and reverse pipelines, is monitored daily and its daily limit is +/- 5%. We report changes in fair value of these derivative instruments as gain or loss on economic hedge instruments within either Gain on loans held for sale, net or Gain on reverse loans held for investment and HMBS-related borrowings, net in our consolidated statements of operations.

### EBO and Loan Modification Hedging – Loans Held for Sale, at fair value

In our Servicing business, effective February 2022, management started hedging certain Ginnie Mae EBO loans repurchased out of securitization pools for modification and reperformance with TBAs to manage the interest rate risk while these loans await redelivery.

### Advance Match Funded Liabilities

We monitor the effect of increases in interest rates on the interest paid on our variable-rate advance financing debt. Earnings on cash and float balances are a partial offset to our exposure to changes in interest expense.

### Sensitivity Analysis

#### Fair Value MSRs, Loans Held for Sale, Loans Held for Investment and Related Derivatives

We assess and manage our interest rate risk on a daily basis primarily using sensitivity analyses. We develop sensitivity analyses to determine the impact on our earnings and financial condition across various interest rate scenarios that could be expected over different time horizons. Our interest rate exposure spans from overnight rates to 30-year rates, with increased sensitivity related to the 5-, 10-, and 30-year rates. Sensitivity analyses are based on hypothetical change in values of different interest-rate sensitive assets and liabilities together with our hedges and are presented under a set instantaneous +/- 25 basis point parallel move in rates. Changes in fair value cannot be extrapolated because the relationship to the change in fair value may not be linear and other factors may apply, such as change in yield, spreads or other assumptions.

The following table summarizes the estimated change in the fair value of our MSRs, HECM loans held for investment and loans held for sale that we have elected to carry at fair value as well as any related derivatives at March 31, 2024, given hypothetical instantaneous parallel shifts in the yield curve. These sensitivities are hypothetical and presented for illustrative purposes only. Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship to the change in fair value may not be linear, among other factors.

|  | Change in Fair Value Down 25 bps | Up 25 bps |
| --- | ---: | ---: |
| Asset value of securitized HECM loans, net of HMBS-related borrowing | $4 | $(4) |
| Loans held for investment - Unsecuritized HECM loans and tails | — | — |
| Loans held for sale | 13 | (15) |
| Derivative instruments | 21 | (21) |
| Total MSRs - Agency and non-Agency (1) | (36) | 30 |
| IRLCs | (1) | 1 |
| Total, net | $— | $(9) |

(1) Primarily reflects the impact of market interest rate changes on projected prepayments on the Agency MSR portfolio, Rithm and MAV pledged MSR financing liabilities and ESS financing liabilities.

The increase in our upward net sensitivity from less than $(1) at December 31, 2023 to $(9) at March 31, 2024 for a 25 basis point parallel upward shift in the yield curve is primarily driven by the increased convexity profile of the portfolio at March 31, 2024 in a higher interest rate environment and associated hedging strategy.

#### Borrowings

The majority of the collateralized debt used to finance our operations is based on variable rates, but remains exposed to interest rate fluctuations between repricing dates. Our corporate debt is based on fixed interest rates. As servicer, we are also exposed to the impact of interest rate fluctuations on the float income we earn on balances held in trust from the date a loan payment is received from borrowers to the date funds are forwarded to investors.

Based on March 31, 2024 balances, if interest rates were to increase by 100 bps on our variable-rate debt and cash and float balances, we estimate a net negative impact of approximately $0.5 million resulting from an increase of $20.7 million in annual interest income and other credits on deposits, and an increase of $21.2 million in annual interest expense.

### Foreign Currency Exchange Rate Risk

Our operations in India and the Philippines expose us to foreign currency exchange rate risk to the extent that our foreign exchange positions remain unhedged. Depending on the magnitude and risk of our positions we may enter into forward exchange contracts to hedge against the effect of changes in the value of the India Rupee or Philippine Peso. We did not enter into any foreign currency hedging derivative instruments during the three months ended March 31, 2024.

### Home Prices

Inactive reverse mortgage loans for which the maximum claim amount has not been met are generally foreclosed upon on behalf of Ginnie Mae with the REO remaining in the related HMBS until liquidation. Inactive MCA repurchased loans are generally foreclosed upon and liquidated by the HMBS issuer. Although active and inactive reverse mortgage loans are insured by FHA, we may incur expenses and losses in the process of repurchasing and liquidating these loans that are not reimbursable by FHA in accordance with program guidelines. In addition, in certain circumstances, we may be subject to real estate price risk to the extent we are unable to liquidate REO within the FHA program guidelines. As our reverse mortgage portfolio seasons, and the volume of MCA repurchases increases, our exposure to this risk will increase.

## Controls and procedures

As filed, 1,569 characters.

Our management, under the supervision of and with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (Exchange Act), as of March 31, 2024.

Based on such evaluation, management concluded that our disclosure controls and procedures as of March 31, 2024 were (1) designed and functioning effectively to ensure that material information relating to Ocwen, including its consolidated subsidiaries, is made known to our principal executive officer and principal financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) operating effectively in that they provided reasonable assurance that information required to be disclosed by Ocwen in the reports that it files or submits under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to management, including our principal executive officer or principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There have not been any changes in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,242 characters.

An investment in our common stock involves significant risk. We describe the most significant risks that management believes affect or could affect us under Part I, Item 1.A. of our Annual Report on Form 10-K for the year ended December 31, 2023. There have been no material changes to our risk factors since our Annual Report on Form 10-K for the year ended December 31, 2023. Understanding these risks is important to understanding any statement in such reports and in our subsequent SEC filings (including this Form 10-Q) and to evaluating an investment in our common stock. You should carefully read and consider the risks and uncertainties described therein together with all the other information included or incorporated by reference in such Annual Report and in our subsequent SEC filings before you make any decision regarding an investment in our common stock. You should also consider the information set forth under “Forward-Looking Statements.” If any of the risks actually occur, our business, financial condition, liquidity and results of operations could be materially and adversely affected. If this were to happen, the value of our common stock could significantly decline, and you could lose some or all of your investment.

Filed May 2, 2024.
Source: SEC EDGAR, the filing index for accession 0001628280-24-020055. Last ingested by Listed: Oct 24, 2026, 14:58 ET. No prices; not investment advice.