Goodwill and Intangible Assets, Net

Goodwill and intangible assets were recorded in connection with various business combinations.

Goodwill

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



	Reportable Segment
	Servicing ⁽¹⁾			Originations		Reverse Mortgage			Total
Balance at January 1, 2015 ⁽²⁾	$	471,182		$	47,747	$	56,539		$	575,468
Impairment	(151,018		)	—		(56,539		)	(207,557		)
Balance at December 31, 2015 ⁽²⁾	320,164			47,747		—			367,911
Acquisition of RCS net assets	3,784			—		—			3,784
Impairment ⁽³⁾	(319,551		)	—		—			(319,551		)
Reclassification to assets held for sale ⁽⁴⁾	(4,397		)	—		—			(4,397		)
Balance at December 31, 2016 ⁽²⁾	$	—		$	47,747	$	—		$	47,747

__________


(1)	The Servicing, Insurance and ARM reporting units are components of the Servicing segment.


(2)	There were accumulated impairment losses relating to the Reverse Mortgage segment of $82.3 million at January 1, 2015 and $138.8 million at December 31, 2016 and 2015, respectively. In addition, there were accumulated impairment losses relating to the Servicing segment of $470.6 million and $151.0 million at December 31, 2016 and 2015, respectively.


(3)	As discussed in further detail below, the Company recorded goodwill impairment charges in its Servicing segment of $215.4 million, $91.0 million and $13.2 million during the second, third and fourth quarters of 2016, respectively.


(4)	Represents the goodwill balance associated with the Insurance business. Refer to Note 16 for additional information on assets held for sale at December 31, 2016.

Servicing 2015

The Company's share price experienced volatility during 2015. As a result, the Company reassessed its market capitalization and the implications that the decline in market capitalization had on the carrying value of its goodwill. Management concluded that there were circumstances evident that indicated the fair value of the Company's reporting units could be below their carrying amounts. As a result of the Step 1 testing, the Originations and ARM reporting units had fair values that exceeded their carrying values of 52% and 5%, respectively. However, the Servicing reporting unit had a carrying value that exceeded its fair value and therefore, the Company was required to perform the Step 2 testing for this reporting unit. Based on the Step 2 testing, the carrying amount of the Servicing reporting unit’s goodwill exceeded its implied fair value and as a result, the Company recorded a $151.0 million goodwill impairment charge in the fourth quarter of 2015, which is included in goodwill impairment on the consolidated statements of comprehensive loss. This impairment was primarily the result of higher discount rates applied to forecasted cash flows driven by the decline in the Company's stock price, which had been impacted by continued challenges in the Company's industry, market developments, as well as the impact these factors have had on certain Company specific matters.

Reverse Mortgage 2015

During the second quarter of 2015, the Reverse Mortgage reporting unit experienced operational challenges in its retail origination channel and experienced a reduction in opportunities for additional subservicing business. Additionally, more experience existed with respect to previously introduced product changes that deferred a significant amount of cash flow to future years. The initial impact of this deferral of cash flows to future years was greater than originally anticipated by the Company. Also during the second quarter of 2015, new financial assessment requirements for the HECM program went into effect and new mortgagee letters were issued that could impact the likelihood of curtailment events in future periods. At such time, the impact of those changes remained uncertain. At the same time, the Reverse Mortgage reporting unit continued to experience increasing liquidity requirements for the repurchase of certain HECMs and real estate owned from Ginnie Mae securitization pools, and based on recent developments, an increase in obligations surrounding curtailment-related items existing at the time of the RMS acquisition. Collectively, the impact of the greater than anticipated principal deferral, the operational challenges and the liquidity requirements resulted in reduced and delayed cash flows in the reverse mortgage business.

In addition, during the second quarter of 2015, 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 Reverse Mortgage reporting unit goodwill incorporated lower projected revenue as a result of the factors noted above. The revised forecast also reflected changes related to current market trends and other expectations about the anticipated operating results of the reverse mortgage business. Based on these factors, 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.

The Company performed the Step 1 testing and concluded that the fair value of the Reverse Mortgage reporting unit (determined based on the income approach) was below its carrying value and was therefore required to perform the Step 2 testing to determine the implied fair value of goodwill. The Company concluded, based on the Step 2 testing, that the carrying amount of the reporting unit's goodwill exceeded its implied fair value and as a result, recorded a $56.5 million goodwill impairment charge in the second quarter of 2015, which is included in goodwill impairment on the consolidated statements of comprehensive loss.

Servicing 2016

During the second quarter of 2016, the Company recorded goodwill impairment of $215.4 million, comprised of $194.1 million relating to the Servicing reporting unit and $21.3 million relating to the ARM reporting unit. The Servicing reporting unit impairment was driven by a decline in cash flows from lower than expected operating results due to continued challenges associated with certain company-specific matters, primarily due to delays in transitioning the Servicing business model to a more fee-for-service and capital-light business model, as well as external pressures that the sector continues to experience, including regulatory scrutiny and market volatility due to the declining interest rate environment. The ARM reporting unit impairment was primarily driven by lower cash flows due to the unsuccessful development of new business opportunities in this reporting unit. Additionally, as a result of the downward pressures on the Company's share price during the first half of 2016, the Company's market capitalization was reassessed, including the potential impact that the decline in market capitalization could have on the carrying value of goodwill. Management concluded that the aforementioned circumstances indicated that it was more likely than not that the fair value of the Servicing and ARM reporting units were below their respective carrying amounts, and accordingly, performed the Step 1 and Step 2 testing for these reporting units. The Step 1 testing indicated that both the Servicing and ARM reporting units had carrying values that exceeded the respective estimated fair values, and the Step 2 testing resulted in the conclusion that the carrying amount of the Servicing and ARM reporting units' goodwill exceeded the implied fair value. This impairment was primarily the result of an increased company-specific risk premium added to the discount rate that was applied to lower re-forecasted cash flows driven by the aforementioned circumstances.

During the third quarter of 2016, the Company recorded a goodwill impairment charge of $91.0 million relating to the Servicing reporting unit. The impairment indicator was continued elevated levels of expenses during the third quarter. The Company performed a Step 1 testing using a discounted cash flows model, which resulted in the carrying value exceeding the implied fair value, driven by a continuation of higher expense levels in the near term due to anticipated infrastructure investments and lower cash flows. Accordingly, the Step 2 testing was performed, which determined that the remaining Servicing reporting unit goodwill was impaired as of September 30, 2016.

During the fourth quarter of 2016, the Company recorded a goodwill impairment charge of $13.2 million relating to the ARM reporting unit. The impairment indicators included continued lack of new business. The Company performed the Step 1 testing using a discounted cash flows model, which resulted in the carrying value exceeding the implied fair value, driven by challenges in obtaining new business resulting in lower projected revenue in future periods and declining margins due to runoff of the purchased loan portfolio. Accordingly, the Step 2 testing was performed, which determined that the entire ARM reporting unit goodwill was impaired as of December 31, 2016.

Intangible Assets, Net

Amortization expense associated with intangible assets was $12.0 million, $19.5 million and $18.9 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Intangible assets, net consist of the following (in thousands):



	December 31, 2016										December 31, 2015
	Gross Carrying Amount		Accumulated Amortization			Impairment			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Customer relationships ⁽¹⁾	$	29,141	$	(23,769	)	$	—		$	5,372	$	133,067	$	(64,238	)	$	68,829
Institutional relationships	11,900		(5,222		)	(6,340		)	338		16,600		(8,468		)	8,132
Other	10,000		(3,968		)	(395		)	5,637		10,000		(2,923		)	7,077
Total intangible assets	$	51,041	$	(32,959	)	$	(6,735	)	$	11,347	$	159,667	$	(75,629	)	$	84,038

__________


(1)	The balance as of December 31, 2016 excludes customer relationships related to the Insurance business with a net carrying amount of $54.0 million that were reclassified to assets held for sale. Refer to Note 16 for additional information on assets held for sale at December 31, 2016.

During the third quarter of 2016, the Company recorded impairment charges of $6.7 million related to intangible assets in the Reverse Mortgage reporting unit. The Company tested these intangible assets for recoverability due to changes in facts and circumstances associated with the shift in strategic direction and reduced profitability expectations for this business. Based on the testing results, it was determined that the carrying value of the intangible assets was not recoverable, and an impairment charge was recorded to the extent that carrying value exceeded estimated fair value. The Company primarily used the income approach to determine the fair value of the intangible assets and calculate the amount of impairment.

Based on the balance of intangible assets, net at December 31, 2016, the following is an estimate of amortization expense for each of the next five years and thereafter (in thousands):



	Amortization Expense
2017	$	2,444
2018	1,714
2019	1,370
2020	1,109
2021	904
Thereafter	3,806
Total	$	11,347