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Item
4.02
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Non-Reliance
on Previously Issued Financial Statements or a Related Audit Report or Completed Interim
Review
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On May 15, 2017, Ocwen Financial
Corporation (the “Company”) concluded that the financial statements contained in the Company’s Annual Report
on Form 10-K for the fiscal year ended on December 31, 2016,
as previously filed with the Securities and Exchange Commission (“SEC”), should no longer be relied upon.
On May 15, 2017, the Company
filed Amendment No. 1 (the “Amendment”) to its Annual Report on Form 10-K for the year ended December 31, 2016 (the
“Original Form 10-K”) to restate its previously issued consolidated financial statements for the year ended December
31, 2016. The Company restated its consolidated financial statements for the year ended December 31, 2016 to amend Note 26 —
Contingencies to its consolidated financial statements for the year ended December 31, 2016 to add the following:
In December 2016,
we entered into a confidential memorandum of understanding (MOU) with the Multistate Mortgage Committee (MMC), a multistate coalition
of various mortgage banking regulators, and six states relating to a servicing examination by the MMC covering the period January
1, 2013 through February 28, 2015. The MOU contained various provisions relating to servicing practices and safety and soundness
aspects of the regulatory review, as well as a requirement for us to develop a plan for submission to the MMC to address concerns
from the review by the MMC, as a step toward closing the 2013 - 2015 examination. There were no monetary or other penalties under
the MOU. Ocwen responded to the MOU items.
On April 20,
2017 and subsequently, thirty state mortgage and banking regulatory agencies issued orders against OLS and certain other Ocwen
companies. In general, the orders are styled as “cease and desist orders,” and we use that term to refer to all of
the orders for ease of reference; we also include the District of Columbia regulator as a state regulator for ease of reference.
All of the cease and desist orders apply to OLS, but additional Ocwen entities are named in some state orders, including Ocwen
Financial Corporation, OMS, Homeward and Liberty. While each state’s cease and desist order is different, the orders generally
prohibit a range of actions, including (1) acquiring new MSRs (17 states), (2) originating or acquiring new mortgage loans, where
we would be the servicer (13 states), (3) originating or acquiring new mortgage loans (4 states) and (4) conducting foreclosure
activities (2 states), among others. We intend to vigorously defend ourselves against unfounded claims while continuing to work
with these regulatory agencies to resolve their concerns. We are currently working toward an agreement of an escrow account review
plan to be conducted by an independent firm engaged by Ocwen. The independent firm would develop a statistically-based sample
population, consistent with MMC guidelines (which would be substantially less than the entire loan population), as well as a possible
targeted review of escrow accounts linked to certain loan categories. We have agreed with certain regulatory agencies, where necessary,
to obtain delays or exceptions to the orders. Additionally, we have revised our operations, where necessary, so as to comply with
the orders in the interim period while we attempt to negotiate resolutions. For example, in certain states, we are arranging to
release servicing on new originations and we have paused our origination activities in two states. If we are unable to obtain
timely resolutions in certain states, more serious consequences could result. For example, we could be required to transfer all
of our mortgage servicing in Massachusetts and we could be required to cease mortgage servicing in Rhode Island. It is possible
that the outcome of these state regulatory actions, whether through negotiated settlements or other resolutions, could be materially
adverse to our business, reputation, financial condition, liquidity and results of operations. We cannot currently estimate the
amount, if any, of reasonably possible loss related to these matters.
The MOU was confidential under
various state laws until made public by certain state regulators on April 20, 2017. The restatement of the Company’s consolidated
financial statements for the year ended December 31, 2016 did not result in any changes to the Company’s consolidated financial
statements and related footnote disclosure, other than the changes to the disclosure in Note 26 — Contingencies.
In connection with
the restatement, management re-evaluated the effectiveness of the Company’s disclosure controls and procedures and internal
control over financial reporting as of December 31, 2016 based on the framework in “Internal Control-Integrated Framework
(2013 framework)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management has concluded that the Company's disclosure controls and procedures and internal controls over financial reporting were not effective as of December 31, 2016 solely due to a material weakness in internal control over financial reporting that resulted in the failure to provide disclosure of the MOU.
Except as described
above, the Amendment did not amend, update or change any other items or disclosures in the Original Form 10-K.
The Company has discussed
the matters disclosed in this Form 8-K pursuant to this Item 4.02(a) with the Company’s independent registered public accounting
firm, Deloitte & Touche LLP.