Goodwill and Intangible Assets, Net

12 Months Ended

Dec. 31, 2014

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and intangible assets were recorded in connection with business combinations. Amortization expense associated with intangible assets was $18.9 million, $31.3 million and $24.8 million for the years ended December 31, 2014, 2013 and 2012, respectively.

Intangible assets consist of the following (in thousands):



	December 31, 2014							December 31, 2013
	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships	$	139,767	$	(58,910	)	$	80,857	$	139,767	$	(44,398	)	$	95,369
Institutional relationships	16,600		(6,618		)	9,982		34,800		(21,973		)	12,827
Other	15,000		(2,336		)	12,664		16,500		(2,290		)	14,210
Total intangible assets	$	171,367	$	(67,864	)	$	103,503	$	191,067	$	(68,661	)	$	122,406

Based on the balance of intangible assets, net, at December 31, 2014, the following is an estimate of amortization expense for each of the next five years and thereafter (in thousands):



	Amortization Expense
2015	$	14,938
2016	11,710
2017	10,469
2018	9,373
2019	8,395
Thereafter	48,618
Total	$	103,503

The table below sets forth the activity in goodwill by reportable segment (in thousands):



	Reportable Segment
	Servicing		Originations		Reverse Mortgage			Asset Receivables Management		Insurance		Total
Balance at January 1, 2013	$	431,455	$	—	$	110,008		$	34,518	$	4,397	$	580,378
Acquisition of ResCap net assets	—		47,648		—			—		—		47,648
Acquisition of Ally Bank net assets	—		99		—			—		—		99
Acquisition of MetLife Bank net assets	812		—		—			—		—		812
Adjustments ⁽¹⁾	—		—		28,800			—		—		28,800
Balance at December 31, 2013	432,267		47,747		138,808			34,518		4,397		657,737
Impairment	—		—		(82,269		)	—		—		(82,269		)
Balance at December 31, 2014	$	432,267	$	47,747	$	56,539		$	34,518	$	4,397	$	575,468

__________


(1)	During the year ended December 31, 2013, the Company recorded adjustments to the goodwill allocated to the Reverse Mortgage segment in connection with the acquisition of RMS. Refer to Note 3 for additional information on RMS.

The Company completed a qualitative assessment of goodwill impairment on its Reverse Mortgage and Insurance reporting units during the fourth quarter of 2014, and based on that assessment the Company believes it is more likely than not that the fair values of these reporting units exceed their carrying values. These conclusions were reached primarily due to the respective reporting unit's operating results, business plans, economic projections, anticipated cash flows and market data. Additionally, the Company considered the results of a recently completed quantitative assessment of goodwill impairment for the Reverse Mortgage reporting unit as a result of impairment testing performed in the second quarter of 2014, as discussed below. The Company performed a quantitative impairment test for the Servicing, Originations and ARM reporting units and concluded that the fair value of each reporting unit was greater than its respective carrying values. Thus, other than the goodwill impairment recorded for the Reverse Mortgage reporting unit in the second quarter of 2014, there were no other goodwill impairment charges recorded in the year ended December 31, 2014.

Reverse Mortgage

During August 2013, HUD announced certain changes to the HECM program that impacted the reverse mortgage products available to borrowers and reduced the available principal to be drawn initially by borrowers, deferring a significant amount of cash flow to future years. The regulatory changes forced industry participants to revise their overall business strategies. These changes created competitive pressures in the overall market place resulting in reduced and delayed cash flows which negatively impact discounted cash flows due to the time value of money.

As a result of the August 2013 changes, the Company's Reverse Mortgage reporting unit experienced operating challenges during 2014. During the second quarter of 2014, the Company developed a new strategy to increase the volume of new reverse loans sourced through the reporting unit’s retail origination channel which is anticipated to provide higher cash flows to the reporting unit. As part of this process, the Company revised its multi-year forecast for the reverse mortgage business. The change in assumptions used in the revised forecast and the fair value estimates utilized in the impairment testing of the reporting unit goodwill incorporated insights gained since acquiring the reverse mortgage business. Changes in the HECM program noted above resulted in lower projected revenue for the Company. The revised forecast also reflected changes related to current market trends, business mix, and cost structure, a likely reduction of certain fee revenue streams, and other expectations about the anticipated short-term operating results of the reverse mortgage business.

The Company determined that there were interim impairment indicators that led to the need for a quantitative impairment analysis for goodwill purposes during the second quarter of 2014. These indicators included lower operating results over a sustained period of time due to increased costs to service; adverse market conditions and regulatory trends within the reverse loan industry which drives lower volume; and reduced cash flows on the origination of reverse loans through the reporting unit's correspondent channel, as well as changes in the Company's reverse mortgage strategy and the revised financial forecast.

The fair value of the Reverse Mortgage reporting unit was based on the income approach. The decline in the fair value of the Reverse Mortgage reporting unit resulted from lower projected revenue growth rates and profitability levels in the short term, as well as an increase in the risk factor that is included in the discount rate used to calculate the discounted cash flows.

Based on the Company's analyses, the fair value of the reporting unit was below its carrying value. As a result, the Company recorded an $82.3 million goodwill impairment charge in the second quarter of 2014 which is included in the goodwill impairment line item on the consolidated statement of comprehensive loss for the year ended December 31, 2014. Subsequent to the second quarter testing, financial results have been consistent with the revised financial forecast. In addition, no events occurred between the interim and annual impairment tests that would cause the Company to believe that it is not more likely than not the fair value of the reporting unit was less than the carrying value.

Step 1 Testing

A summary of Step 1 testing performed by the Company as of October 1, 2014, is provided below by reporting unit (dollars in thousands):



	Goodwill		% Excess Fair Value Over Carrying Value
Servicing	$	432,267	18	%
Originations	47,747		8	%
ARM	34,518		23	%

During 2014, the Company has experienced a significant decline in market capitalization relative to prior periods, as have other market participants in the specialty servicing sector. As part of the Company's consideration surrounding the potential for goodwill impairment, it assessed its market capitalization based on the average market price relative to the aggregate fair value of its reporting units and determined that any excess fair value in our reporting units at that time could be attributable to both specialty servicing sector and Company specific factors and is considered to be temporary in nature. The Company has and will continue to regularly monitor, among other thing, its market capitalization, overall economic and sector conditions and other events or circumstances that may result in an impairment of goodwill in the future.

- Definition

The entire disclosure for the aggregate amount of goodwill and a description of intangible assets, which may include (a) for amortizable intangible assets (also referred to as finite-lived intangible assets), the carrying amount, the amount of any significant residual value, and the weighted-average amortization period, (b) for intangible assets not subject to amortization (also referred to as indefinite-lived intangible assets), the carrying amount, and (c) the amount of research and development assets acquired and written off in the period, including the line item in the income statement in which the amounts written off are aggregated, if not readily apparent from the income statement. Also discloses (a) for amortizable intangibles assets in total and by major class, the gross carrying amount and accumulated amortization, the total amortization expense for the period, and the estimated aggregate amortization expense for each of the five succeeding fiscal years, (b) for intangible assets not subject to amortization the carrying amount in total and by major class, and (c) for goodwill, in total and for each reportable segment, the changes in the carrying amount of goodwill during the period (including the aggregate amount of goodwill acquired, the aggregate amount of impairment losses recognized, and the amount of goodwill included in the gain (loss) on disposal of a reporting unit). If any part of goodwill has not been allocated to a reportable segment, discloses the unallocated amount and the reasons for not allocating. For each impairment loss recognized related to an intangible asset (excluding goodwill), discloses: (a) a description of the impaired intangible asset and the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method for determining fair value, (c) the caption in the income statement or the statement of activities in which the impairment loss is aggregated, and (d) the segment in which the impaired intangible asset is reported. For each goodwill impairment loss recognized, discloses: (a) a description of the facts and circumstances leading to the impairment, (b) the amount of the impairment loss and the method of determining the fair value of the associated reporting unit, and (c) if a recognized impairment loss is an estimate not finalized and the reasons why the estimate is not final. May also disclose the nature and amount of any significant adjustments made to a previous estimate of an impairment loss.

+ References+ Details