SEC Company Response from ONITY GROUP INC. (ONIT) (CIK 0000873860) (ONIT) — Feb 13, 2015
ONITY GROUP INC. (ONIT) (CIK 0000873860)
Date: Feb. 13, 2015 · CIK: 0000873860 · Accession: 0001019056-15-000184
AI Filing Summary & Sentiment
Reasoning
File numbers found in text: 001-13219
Referenced dates: December 18, 2014, February 4, 2015
Letter
VIA EDGAR Division of Corporation Finance Securities and Exchange Commission Form 10-Q for Fiscal Quarter Ended September 30, 2014 Filed October 31, 2014 Response dated August 22, 2014 File No. 001-13219
Dear Mr. Rodriguez:
This letter is submitted as the response of Ocwen Financial Corporation (the “Company” or “Ocwen”) to the additional comments of the staff of the U.S. Securities and Exchange Commission contained in a letter from you dated February 4, 2015 (the “Comment Letter”), regarding the Company’s Amendment #1 to Form 10-K for the fiscal year ended December 31, 2013. Any capitalized terms not defined in this letter have the meanings given to them in the respective filing.
Set forth below are the Company’s responses to the comments raised in the Comment Letter. For your convenience, we have included each of your comments from the Comment Letter above the Company’s response.
Division of Corporation Finance CONFIDENTIAL TREATMENT REQUESTED BY
Securities and Exchange Commission OCWEN FINANCIAL CORPORATION
February 13, 2015
OCN CTR 001
Form 10-K/A for the Fiscal Year Ended December 31, 2013
Note 1A – Restatement and Revision of Previously Issued Consolidated Financial Statements, page F-17
1. We acknowledge your response to prior comment one in the letter dated December 18, 2014. The fair value of an asset or liability is the best available point estimate of fair value under ASC 820. Please tell us how you determined and concluded that your GAAP accounting policy for the mortgage servicing rights financing liability approximated its carrying value as long as the carrying value was within 5% of the fair value of the liability. Please also tell us the factors considered in subsequently concluding that the use of the 5% threshold to approximate the carrying value of your mortgage servicing right financing liability was an error that resulted in the restatements of the December 31, 2013 audited financial statements and March 31, 2014 interim financial statements.
Response
The Company utilizes third party valuation experts in connection with the level 3 valuation of its mortgage servicing rights (MSRs). The third party valuation experts provide a valuation range around a point estimate of fair value, typically expressed in basis points above and below the point estimate (or mid-point).
As noted in ASC 820-35-24A, when a valuation technique is used to estimate the fair value of an asset or liability the “objective of using a valuation technique is to estimate the price at which an orderly transaction to sell the asset or to transfer the liability would take place between market participants at the measurement date under current market conditions” (emphasis added). However, the Company previously employed an accounting convention whereby amortized carrying value was deemed to represent fair value to the extent it was within +/-5% of the third party valuation experts point estimate for the MSRs underlying the mortgage servicing rights financing liability. The Company believed this accounting convention was, and would continue to be, a reasonable estimate of fair value due to:
· the nature of the underlying MSRs, which were largely insensitive to changes in interest rates, one of the most significant inputs impacting the fair value of MSRs,
· the variability in valuation assumptions market participants could and do use in valuing MSR, and
· the +/-5% threshold was always within the range of values provided by our third party valuation experts.
Division of Corporation Finance CONFIDENTIAL TREATMENT REQUESTED BY
Securities and Exchange Commission OCWEN FINANCIAL CORPORATION
February 13, 2015
OCN CTR 001
In connection with the preparation of its June 30, 2014 interim financial statements, the Company re-examined its application of the +/-5% accounting convention. The Company concluded that the accounting convention that had previously been adopted was not appropriate under GAAP as the carrying amount of the financing liability was not being adjusted to the point estimate of the underlying MSRs because changes in fair value had been within the +/-5% threshold. The impact of the use of the prior accounting convention on all prior periods affected was then quantified and evaluated in accordance with Staff Accounting Bulletin Nos. 99 and 108, Materiality (SAB 99 and SAB 108) from a quantitative perspective using the roll-over method and iron curtain method and from a qualitative perspective. After undertaking this analysis, the Company concluded the impacts in certain prior periods were material and a restatement of our previously issued financial statements was necessary.
2. We acknowledge your response to prior comment two in the letter dated December 18, 2014. Please tell us how you determined the annual materiality threshold referred to in your response was appropriate to your fact pattern. Please provide us with your materiality analysis for each quarter in 2012 and the annual period ended December 31, 2012. Please explain the quantitative and qualitative factors considered in your determination that the uncorrected misstatements were immaterial each quarter and for the annual period ending December 31, 2012. Please refer to ASC 250-10-S99.
Response
As noted in the Company’s response to comment 1 above, the impact of the use of the prior accounting convention on prior periods was evaluated in accordance with Staff Accounting Bulletin Nos. 99 and 108, Materiality (SAB 99 and SAB 108) from a quantitative perspective using the rollover and iron curtain methods and from a qualitative perspective. After undertaking this analysis, the Company concluded the impacts were not material for each quarter and for the annual period ended December 31, 2012.
Quantitative Considerations
In reviewing the quantitative impact of the accounting convention, the Company applied the rollover and iron curtain methods for each quarter and for the annual period ended December 31, 2012. In applying these methods, the Company also established an annual 2012 materiality threshold by which to measure the impact.
Division of Corporation Finance CONFIDENTIAL TREATMENT REQUESTED BY
Securities and Exchange Commission OCWEN FINANCIAL CORPORATION
February 13, 2015
OCN CTR 001
Materiality threshold
The Company determined earnings to be the most significant factor to users of the financial statements. Earnings information for 2012 is presented below:
Ocwen Financial Corporation
Pre-Tax Income (Loss) $ 257,508,000
Net Income (Loss) $ 180,923,000
Earnings per Share (Basic) $ 1.35
Earnings per Share (Diluted) $ 1.31
Overall materiality is used to assess whether aggregated misstatements at the level of an individual significant account are material to the consolidated financial statements. In determining overall materiality in the income statement, the Company considered ***% as a reasonable threshold to apply to pre-tax income. When the Company applies this threshold to the full year 2012 results, the result was overall materiality of $*** million. The Company determined overall materiality on a pre-tax basis because most misstatements will first be evaluated on a pre-tax basis. The Company also reviewed overall materiality in relation to net income based upon full year 2012 results, which calculates to $*** million.
Roll-over and Iron Curtain Methods
The Company respectfully refers the Staff to Exhibit A of this letter which presents the disaggregated quantitative assessments under the iron curtain and rollover methods for each quarter and for the annual period ended December 31, 2012.
Under the rollover method, all periods were less than the Company’s 10% ‘rule of thumb’ materiality threshold, except with respect to the fourth quarter of 2012. Specifically in regards to the fourth quarter of 2012, the impact was only marginally higher than the 10% ‘rule of thumb’ threshold and below the Company’s annual 2012 materiality threshold of $*** million. Management concluded therefore that the uncorrected misstatements in the quarterly and annual periods ended December 31, 2012, were immaterial from a quantitative perspective under the rollover method.
Under the iron curtain method, the amounts were generally a low percentage of reported net income. None of the 2012 quarterly periods exceeded the 10% ‘rule of thumb’ or the Company’s materiality thresholds in the respective periods. Management therefore concluded the uncorrected misstatements in the quarterly and annual period ended December 31, 2012 were not material under the iron curtain method.
*** Indicates that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.
Division of Corporation Finance CONFIDENTIAL TREATMENT REQUESTED BY
Securities and Exchange Commission OCWEN FINANCIAL CORPORATION
February 13, 2015
OCN CTR 001
Qualitative Considerations
Qualitative considerations apply to evaluating materiality with respect to the financial statements and to additional factors that relate to the perceived needs of a reasonable user who will rely on the information. Qualitative factors would include items that may render material a quantitatively small misstatement of a financial statement item such as:
· Whether the misstatement arises from an item capable of precise measurement or whether it arises from an estimate and, if so, the degree of imprecision inherent in the estimate;
· Whether the misstatement masks a change in earnings or other trends;
· Whether the misstatement hides a failure to meet analysts’ consensus expectations for the enterprise;
· Whether the misstatement changes a loss into income or vice versa;
· Whether the misstatement concerns a segment or other portion of the registrant’s business that has been identified as playing a significant role in the registrant’s operations or profitability;
· Whether the misstatement affects the registrant’s compliance with regulatory requirements;
· Whether the misstatement affects the registrant’s compliance with loan covenants or other contractual requirements;
· Whether the misstatement has the effect of increasing management’s compensation – for example, by satisfying requirements for the award of bonuses or other incentive compensation; and
· Whether the misstatement involves concealment of an unlawful transaction.
The qualitative factors considered and the Company’s analysis of each qualitative factor is included as Exhibit B to this letter. The Company evaluated each of the qualitative factors as detailed in Exhibit B and similarly concluded the impact of the error in regards to each quarter and the annual period ended December 31, 2012, was immaterial.
Conclusion
Considering both the quantitative and qualitative factors discuss in this response, the Company concluded the uncorrected misstatements were not material to the consolidated financial statements for each of the quarters and the year ended December 31, 2012.
Division of Corporation Finance CONFIDENTIAL TREATMENT REQUESTED BY
Securities and Exchange Commission OCWEN FINANCIAL CORPORATION
February 13, 2015
OCN CTR 001
If you have any questions or comments, please call me at (340) 713-7760 at your earliest convenience.
Sincerely,
/s/ Michael R.
Bourque, Jr.
Show Raw Text
CORRESP
1
filename1.htm
OCWEN FINANCIAL
CORPORATION
1000 Abernathy
Road NE, Suite 210
Atlanta, GA
30328
February
13, 2015
VIA EDGAR
FOIA Confidential Treatment Request
Confidential Treatment Request Pursuant to
17 C.F.R. § 200.83 and the Freedom of
Information Act
Mr. Gus Rodriguez
Accounting Branch Chief
Division of Corporation Finance
Securities and Exchange Commission
100 F Street, N.E.
Washington, DC 20549
Re: Ocwen
Financial Corporation
Amendment #1 to Form 10-K for the Fiscal Year Ended December 31, 2013
Filed August 18, 2014
Form 10-Q for Fiscal Quarter Ended September 30, 2014
Filed October 31, 2014
Response dated August 22, 2014
File No. 001-13219
Dear Mr. Rodriguez:
This letter is
submitted as the response of Ocwen Financial Corporation (the “Company” or “Ocwen”) to the additional
comments of the staff of the U.S. Securities and Exchange Commission contained in a letter from you dated February 4, 2015 (the
“Comment Letter”), regarding the Company’s Amendment #1 to Form 10-K for the fiscal year ended December 31,
2013. Any capitalized terms not defined in this letter have the meanings given to them in the respective filing.
Set forth below are the Company’s
responses to the comments raised in the Comment Letter. For your convenience, we have included each of your comments from the
Comment Letter above the Company’s response.
1
Division of Corporation
Finance
CONFIDENTIAL
TREATMENT REQUESTED BY
Securities and Exchange Commission
OCWEN FINANCIAL
CORPORATION
February 13, 2015
OCN CTR 001
Form 10-K/A for the
Fiscal Year Ended December 31, 2013
Note 1A – Restatement
and Revision of Previously Issued Consolidated Financial Statements, page F-17
1. We
acknowledge your response to prior comment one in the letter dated December 18, 2014.
The fair value of an asset or liability is the best available point estimate of fair
value under ASC 820. Please tell us how you determined and concluded that your GAAP accounting
policy for the mortgage servicing rights financing liability approximated its carrying
value as long as the carrying value was within 5% of the fair value of the liability.
Please also tell us the factors considered in subsequently concluding that the use of
the 5% threshold to approximate the carrying value of your mortgage servicing right financing
liability was an error that resulted in the restatements of the December 31, 2013 audited
financial statements and March 31, 2014 interim financial statements.
Response
The
Company utilizes third party valuation experts in connection with the level 3 valuation of its mortgage servicing rights (MSRs).
The third party valuation experts provide a valuation range around a point estimate of fair value, typically expressed in basis
points above and below the point estimate (or mid-point).
As
noted in ASC 820-35-24A, when a valuation technique is used to estimate the fair value of an asset or liability the “objective
of using a valuation technique is to estimate the price at which an orderly transaction to sell the asset or to
transfer the liability would take place between market participants at the measurement date under current market conditions”
(emphasis added). However, the Company previously employed an accounting convention whereby amortized carrying value was deemed
to represent fair value to the extent it was within +/-5% of the third party valuation experts point estimate for the MSRs underlying
the mortgage servicing rights financing liability. The Company believed this accounting convention was, and would continue to
be, a reasonable estimate of fair value due to:
· the
nature of the underlying MSRs, which were largely insensitive to changes in interest
rates, one of the most significant inputs impacting the fair value of MSRs,
· the
variability in valuation assumptions market participants could and do use in valuing
MSR, and
· the
+/-5% threshold was always within the range of values provided by our third party valuation
experts.
2
Division of Corporation
Finance
CONFIDENTIAL
TREATMENT REQUESTED BY
Securities and Exchange Commission
OCWEN FINANCIAL
CORPORATION
February 13, 2015
OCN CTR 001
In
connection with the preparation of its June 30, 2014 interim financial statements, the Company re-examined its application of
the +/-5% accounting convention. The Company concluded that the accounting convention that had previously been adopted was not
appropriate under GAAP as the carrying amount of the financing liability was not being adjusted to the point estimate of the underlying
MSRs because changes in fair value had been within the +/-5% threshold. The impact of the use of the prior accounting convention
on all prior periods affected was then quantified and evaluated in accordance with Staff Accounting Bulletin Nos. 99 and 108,
Materiality (SAB 99 and SAB 108) from a quantitative perspective using the roll-over method and iron curtain method and
from a qualitative perspective. After undertaking this analysis, the Company concluded the impacts in certain prior periods were
material and a restatement of our previously issued financial statements was necessary.
2. We
acknowledge your response to prior comment two in the letter dated December 18, 2014.
Please tell us how you determined the annual materiality threshold referred to in your
response was appropriate to your fact pattern. Please provide us with your materiality
analysis for each quarter in 2012 and the annual period ended December 31, 2012. Please
explain the quantitative and qualitative factors considered in your determination that
the uncorrected misstatements were immaterial each quarter and for the annual period
ending December 31, 2012. Please refer to ASC 250-10-S99.
Response
As
noted in the Company’s response to comment 1 above, the impact of the use of the prior accounting convention on prior periods
was evaluated in accordance with Staff Accounting Bulletin Nos. 99 and 108, Materiality (SAB 99 and SAB 108) from a quantitative
perspective using the rollover and iron curtain methods and from a qualitative perspective. After undertaking this analysis, the
Company concluded the impacts were not material for each quarter and for the annual period ended December 31, 2012.
Quantitative
Considerations
In
reviewing the quantitative impact of the accounting convention, the Company applied the rollover and iron curtain methods for
each quarter and for the annual period ended December 31, 2012. In applying these methods, the Company also established an annual
2012 materiality threshold by which to measure the impact.
3
Division of Corporation
Finance
CONFIDENTIAL
TREATMENT REQUESTED BY
Securities and Exchange Commission
OCWEN FINANCIAL
CORPORATION
February 13, 2015
OCN CTR 001
Materiality
threshold
The Company determined
earnings to be the most significant factor to users of the financial statements. Earnings information for 2012 is presented below:
Ocwen Financial Corporation
2012
Pre-Tax Income (Loss)
$ 257,508,000
Net Income (Loss)
$ 180,923,000
Earnings per Share (Basic)
$ 1.35
Earnings per Share (Diluted)
$ 1.31
Overall materiality
is used to assess whether aggregated misstatements at the level of an individual significant account are material to the consolidated
financial statements. In determining overall materiality in the income statement, the Company considered ***% as a reasonable
threshold to apply to pre-tax income. When the Company applies this threshold to the full year 2012 results, the result was overall
materiality of $*** million. The Company determined overall materiality on a pre-tax basis because most misstatements will first
be evaluated on a pre-tax basis. The Company also reviewed overall materiality in relation to net income based upon full year
2012 results, which calculates to $*** million.
Roll-over and
Iron Curtain Methods
The Company respectfully
refers the Staff to Exhibit A of this letter which presents the disaggregated quantitative assessments under the iron curtain
and rollover methods for each quarter and for the annual period ended December 31, 2012.
Under the rollover
method, all periods were less than the Company’s 10% ‘rule of thumb’ materiality threshold, except with respect
to the fourth quarter of 2012. Specifically in regards to the fourth quarter of 2012, the impact was only marginally higher than
the 10% ‘rule of thumb’ threshold and below the Company’s annual 2012 materiality threshold of $*** million.
Management concluded therefore that the uncorrected misstatements in the quarterly and annual periods ended December 31, 2012,
were immaterial from a quantitative perspective under the rollover method.
Under the iron
curtain method, the amounts were generally a low percentage of reported net income. None of the 2012 quarterly periods exceeded
the 10% ‘rule of thumb’ or the Company’s materiality thresholds in the respective periods. Management therefore
concluded the uncorrected misstatements in the quarterly and annual period ended December 31, 2012 were not material under the
iron curtain method.
*** Indicates
that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
4
Division of Corporation
Finance
CONFIDENTIAL
TREATMENT REQUESTED BY
Securities and Exchange Commission
OCWEN FINANCIAL
CORPORATION
February 13, 2015
OCN CTR 001
Qualitative
Considerations
Qualitative considerations
apply to evaluating materiality with respect to the financial statements and to additional factors that relate to the perceived
needs of a reasonable user who will rely on the information. Qualitative factors would include items that may render material
a quantitatively small misstatement of a financial statement item such as:
· Whether
the misstatement arises from an item capable of precise measurement or whether it arises
from an estimate and, if so, the degree of imprecision inherent in the estimate;
· Whether
the misstatement masks a change in earnings or other trends;
· Whether
the misstatement hides a failure to meet analysts’ consensus expectations for the
enterprise;
· Whether
the misstatement changes a loss into income or vice versa;
· Whether
the misstatement concerns a segment or other portion of the registrant’s business
that has been identified as playing a significant role in the registrant’s operations
or profitability;
· Whether
the misstatement affects the registrant’s compliance with regulatory requirements;
· Whether
the misstatement affects the registrant’s compliance with loan covenants or other
contractual requirements;
· Whether
the misstatement has the effect of increasing management’s compensation –
for example, by satisfying requirements for the award of bonuses or other incentive compensation;
and
· Whether
the misstatement involves concealment of an unlawful transaction.
The qualitative
factors considered and the Company’s analysis of each qualitative factor is included as Exhibit B to this letter. The Company
evaluated each of the qualitative factors as detailed in Exhibit B and similarly concluded the impact of the error in regards
to each quarter and the annual period ended December 31, 2012, was immaterial.
Conclusion
Considering
both the quantitative and qualitative factors discuss in this response, the Company concluded the uncorrected misstatements were
not material to the consolidated financial statements for each of the quarters and the year ended December 31, 2012.
5
Division of Corporation
Finance
CONFIDENTIAL
TREATMENT REQUESTED BY
Securities and Exchange Commission
OCWEN FINANCIAL
CORPORATION
February 13, 2015
OCN CTR 001
If you have any questions
or comments, please call me at (340) 713-7760 at your earliest convenience.
Sincerely,
/s/ Michael R.
Bourque, Jr.
Michael R. Bourque,
Jr.
Chief Financial
Officer
cc:
Marc Thomas, Staff Accountant,
Securities and Exchange Commission
Ronald M. Faris, President and Chief Executive
Officer
Timothy M. Hayes, Executive Vice President,
General Counsel and Secretary
6
Division of Corporation
Finance
CONFIDENTIAL
TREATMENT REQUESTED BY
Securities and Exchange Commission
OCWEN FINANCIAL
CORPORATION
February 13, 2015
OCN CTR 001
EXHIBIT
A
***
*** Indicates
that certain information contained herein has been omitted and filed separately with the Securities and Exchange Commission. Confidential
treatment has been requested with respect to the omitted portions.
7
Division of Corporation
Finance
CONFIDENTIAL
TREATMENT REQUESTED BY
Securities and Exchange Commission
OCWEN FINANCIAL
CORPORATION
February 13, 2015
OCN CTR 001
EXHIBIT B
Qualitative Assessment
1. Whether the
misstatement arises from an item capable of precise measurement or it arises from an estimate and the degree of imprecision inherent
in the estimate.
***
2. Whether the
misstatement masks a change in earnings or other trends.
***
3. Whether the
misstatement hides a failure to meet analysts’ consensus expectations for the enterprise.
***
4. Whether the
misstatement changes a loss into income or vice versa.
***
5. Whether the
misstatement concerns a segment or other portion of the registrant’s business that has been identified as playing a significant
role in the registrant’s operations or profitability.
***
6. Whether the
misstatement affects our compliance with regulatory requirements.
***
7. Whether the
misstatement affects our compliance with loan covenants or other contractual requirements.
***
8. Whether the
misstatement has the effect of increasing mana