Item
1.01 Entry into a Material Definitive Agreement.
Overview
As
previously disclosed, during July 2017, certain subsidiaries of Ocwen Financial Corporation (collectively, Ocwen) entered into
agreements with certain subsidiaries of New Residential Investment Corp. (collectively, New Residential) to convert New Residential’s
existing rights to mortgage servicing rights (MSRs) to fully-owned MSRs. In effect, the new arrangements provided for the conversion
of the existing arrangements into a more traditional subservicing arrangement and involved upfront payments to Ocwen for MSRs
to be transferred to New Residential over time. Under the agreements entered into in July 2017, each time MSRs were transferred
to New Residential following receipt of the necessary third party consents, New Residential was to pay a lump sum to Ocwen. Conceptually,
these upfront payments represented a proxy for the net present value of the difference between higher future revenue that Ocwen
would have received for servicing the mortgage loans under Ocwen’s prior agreements with New Residential, and the lower
revenue for servicing the mortgage loans that Ocwen would receive under the new arrangements.
While
we continue the process of obtaining the third party consents necessary to transfer the MSRs to New Residential, Ocwen and New
Residential have entered into new agreements, which will accelerate the implementation of certain parts of our arrangement in
order to achieve the intent of the July agreements sooner. These new agreements are described in further detail below.
New
RMSR Agreement, Servicing Addendum and Amendment to Transfer Agreement
On
January 18, 2018, Ocwen entered into a new agreement regarding the rights to MSRs (the New RMSR Agreement) including a servicing
addendum thereto (the Servicing Addendum) and Amendment No. 1 to Transfer Agreement (collectively, the Agreements) with New Residential
that modify and supplement the arrangements among the parties set forth in (i) the Master Servicing Rights Purchase Agreement,
dated as of October 1, 2012 (as subsequently amended, the Original RMSR Agreement), and (ii) certain sale supplements to the Original
RMSR Agreement (as subsequently amended, the Original Sale Supplements and, together with the Original RMSR Agreement, the Original
Agreements), which Original Agreements were modified and supplemented by (x) the Master Agreement, dated as of July 23, 2017,
by and among Ocwen Loan Servicing, LLC, HLSS Holdings, LLC (Holdings), HLSS MSR – EBO Acquisition LLC (HLSS EBO) and New
Residential Mortgage LLC (as subsequently amended, the Master Agreement), (y) the Transfer Agreement, dated as of July 23, 2017,
by and between Ocwen Loan Servicing, LLC, New Residential Mortgage LLC, and for a limited purpose Ocwen Financial Corporation
and New Residential Investment Corp. (the Transfer Agreement), and (z) the Subservicing Agreement, dated as of July 23, 2017,
by and between New Residential Mortgage LLC and Ocwen Loan Servicing, LLC (the Subservicing Agreement and together with the Transfer
Agreement, the Master Agreement and the Original Agreements, the Existing Agreements).
Under
the Existing Agreements, Ocwen sold and transferred to New Residential certain “Rights to MSRs” and other assets related
to mortgage servicing rights for loans with an unpaid principal balance of approximately $86.8 billion as of the opening balances
on January 1, 2018 (the Subject MSRs).
Pursuant
to the New RMSR Agreement and related Servicing Addendum, Ocwen will continue to service the mortgage loans related to the Subject
MSRs until the necessary third party consents are obtained in order to transfer the Subject MSRs in accordance with the Transfer
Agreement, the New RMSR Agreement or the Servicing Addendum, as applicable.
The
New RMSR Agreement provides, among other things:
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the
Subject MSRs will remain in the parties’ ownership structure under the Existing Agreements while they continue to seek
third party consents to transfer Ocwen’s remaining rights to the Subject MSRs to New Residential or any permitted assignee
of New Residential;
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Ocwen
will continue to service the related mortgage loans pursuant to the terms of the Servicing Addendum until the transfer of
the Subject MSRs;
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Holdings
will make a lump-sum “Fee Restructuring Payment” of $279.6 million to Ocwen on the date of the New RMSR Agreement
with respect to such Subject MSRs, subject to certain adjustments within five business days;
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under
the arrangements contemplated by the New RMSR Agreement, Ocwen will receive substantially identical compensation for servicing
the related mortgage loans underlying the Subject MSRs that it would receive if the Subject MSRs had been transferred to New
Residential as named servicer and Ocwen subserviced such mortgage loans for New Residential as named servicer;
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in
the event that the required third party consents are not obtained with respect to any Subject MSRs by certain dates specified
in the New RMSR Agreement, in accordance with the process set forth in the New RMSR Agreement, the Rights to MSRs (as defined
in the Existing Agreements) related to such Subject MSRs could either: (i) remain subject to the New RMSR Agreement at the
option of Holdings, (ii) if Holdings does not opt for the New RMSR Agreement to remain in place with respect to certain Subject
MSRs, Ocwen may acquire such Subject MSRs at a price determined in accordance with the terms of the New RMSR Agreement, or
(iii) if Ocwen does not acquire such Subject MSRs, be sold to a third party in accordance with the terms of the New RMSR Agreement,
as determined pursuant to the terms of the New RMSR Agreement; and
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New
Residential agrees to waive any rights New Residential may have had under the Existing Agreements to replace Ocwen as named
servicer with respect to the Subject MSRs based on Ocwen’s residential servicer rating agency related downgrades.
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Pursuant
to the Servicing Addendum, Ocwen will service the mortgage loans related to the Subject MSRs. In consideration of servicing such
mortgage loans, Ocwen will receive a servicing fee based on the unpaid principal balance as of the first of each month as set
forth in the Servicing Addendum. The initial term of the Servicing Addendum is for the five years following July 23, 2017. At
any time during the initial term, Holdings may terminate the Servicing Addendum for convenience, subject to Ocwen’s right
to receive a termination fee calculated in accordance with the Servicing Addendum and specified notice. Following the initial
term, (i) Holdings may extend the term of the Servicing Addendum for additional three-month periods by delivering written notice
to Ocwen of its desire to extend such contract thirty days prior to the end of such three-month period and (ii) the Servicing
Addendum may be terminated by Ocwen on an annual basis. In addition, Holdings, HLSS EBO and Ocwen will have the right to terminate
the Servicing Addendum for cause if certain conditions specified in the Servicing Addendum occur. If the Servicing Addendum is
terminated or not renewed in accordance with these provisions, Holdings will have the right to direct the transfer of servicing
to a third party, subject to Ocwen’s option to purchase the Subject MSRs and related assets in certain cases. To the extent
that servicing of the loans cannot be transferred in accordance with these provisions, the Servicing Addendum will remain in place
with respect to the servicing of any remaining loans.
On
January 18, 2018, Ocwen and New Residential also entered into Amendment No. 1 to Transfer Agreement, pursuant to which the parties
agreed to certain amendments to the Transfer Agreement to conform the terms of the New RMSR Agreement.